-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Mc7WjwDVb8+ZMJR7KXCY/D3r3T+dVneEC4iKwLEfxkCkpkvVt1ULMEUAUCY4WXcx NaeRQ3wSiqkFPqeVyQIx+w== 0000950134-03-016381.txt : 20031209 0000950134-03-016381.hdr.sgml : 20031209 20031209060825 ACCESSION NUMBER: 0000950134-03-016381 CONFORMED SUBMISSION TYPE: SC TO-T/A PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 20031209 GROUP MEMBERS: AIMCO-GP INC GROUP MEMBERS: APARTMENT INVESTMENT AND MANAGEMENT CO GROUP MEMBERS: FOX CAPITAL MANAGEMENT CORP SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: CENTURY PROPERTIES FUND XVII CENTRAL INDEX KEY: 0000356472 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 942782037 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC TO-T/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-46638 FILM NUMBER: 031043534 BUSINESS ADDRESS: STREET 1: 55 BEATTIE PLACE STREET 2: PO BOX 1089 C/O INSIGNIA FINANCIAL GROUP CITY: GREENVILLE STATE: SC ZIP: 29602 BUSINESS PHONE: 8642391000 MAIL ADDRESS: STREET 1: 55 BEATTIE PLACE STREET 2: P O BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: CENTURY PROPERTIES FUND XVII CENTRAL INDEX KEY: 0000356472 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 942782037 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13E3/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-46638 FILM NUMBER: 031043535 BUSINESS ADDRESS: STREET 1: 55 BEATTIE PLACE STREET 2: PO BOX 1089 C/O INSIGNIA FINANCIAL GROUP CITY: GREENVILLE STATE: SC ZIP: 29602 BUSINESS PHONE: 8642391000 MAIL ADDRESS: STREET 1: 55 BEATTIE PLACE STREET 2: P O BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: AIMCO PROPERTIES LP CENTRAL INDEX KEY: 0000926660 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF APARTMENT BUILDINGS [6513] IRS NUMBER: 841275621 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC TO-T/A BUSINESS ADDRESS: STREET 1: 4582 S ULSTER ST PARKWAY STREET 2: SUITE 1100 CITY: DENVER STATE: CO ZIP: 80237 BUSINESS PHONE: 3037578101 MAIL ADDRESS: STREET 1: 4582 S ULSTER ST PARKWAY STREET 2: SUITE 1100 CITY: DENVER STATE: CO ZIP: 80237 SC TO-T/A 1 d07246a2sctovtza.txt AMENDMENT NO. 2 TO SC TO SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 SCHEDULE TO/A (AMENDMENT NO. 2) TENDER OFFER STATEMENT UNDER SECTION 14(D)(1) OR 13(E)(1) OF THE SECURITIES EXCHANGE ACT OF 1934 Century Properties Fund XVII - -------------------------------------------------------------------------------- (Name of Subject Company (Issuer)) Apartment Investment and Management Company AIMCO-GP, Inc. Fox Capital Management Corporation AIMCO Properties, L.P. - -------------------------------------------------------------------------------- (Names of Filing Persons - Offerors) Limited Partnership Units - -------------------------------------------------------------------------------- (Title of Class Securities) None - -------------------------------------------------------------------------------- (CUSIP Number of Class Securities) Patrick J. Foye Apartment Investment and Management Company Colorado Center, Tower Two 2000 South Colorado Boulevard, Suite 2-1000 Denver, Colorado 80222 (303) 757-8101 - -------------------------------------------------------------------------------- (Name, address, and telephone numbers of person authorized to receive notices and communications on behalf of filing persons) Copy to: Joseph A. Coco Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 (212) 735-3000 and Jonathan L. Friedman Skadden, Arps, Slate, Meagher & Flom LLP 300 South Grand Avenue Los Angeles, California 90071 (213) 687-5000 1 Calculation of Filing Fee
Transaction valuation* Amount of filing fee - ---------------------- -------------------- $6,190,051.14 $ 500.78
* For purposes of calculating the fee only. This amount assumes the purchase of 29,757 units of limited partnership interest of the subject partnership for $208.02 per unit. The amount of the filing fee, calculated in accordance with Section 14(g)(1)(B)(3) and Rule 0-11(d) under the Securities Exchange Act of 1934, as amended, equals $80.90 per million of the aggregate amount of cash offered by the bidder. [X] Check the box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount Previously Paid: $500.78 Filing Party: AIMCO Properties, L.P. Form or Registration No.: Schedule TO Date Filed: November 12, 2003 [ ] Check the box if the filing relates solely to preliminary communications made before the commencement of a tender offer. Check the appropriate boxes below to designate any transactions to which the statement relates: [X] third-party tender offer subject to Rule 14d-1 [ ] issuer tender offer subject to Rule 13e-4 [X] going-private transaction subject to Rule 13e-3 [ ] amendment to Schedule 13D under Rule 13d-2 Check the following box if the filing is a final amendment reporting the results of the tender offer: [ ] 2 AMENDMENT NO. 2 TO SCHEDULE TO This Amendment No. 2 amends and supplements the Tender Offer Statement and Rule 13e-3 Transaction Statement on Schedule TO, as amended by Amendment No. 1 thereto (the "Schedule TO"), relating to the offer by AIMCO Properties, L.P., a Delaware limited partnership, to purchase units of limited partnership interest ("Units") of Century Properties Fund XVII, a California limited partnership (the "Partnership"), at a price of $208.02 per unit in cash, subject to the conditions set forth in the Offer to Purchase dated November 12, 2003, and in the related Letter of Transmittal (which, together with any supplements or amendments, collectively constitute the "Offer"). Copies of the Offer to Purchase and the Letter of Transmittal are filed as Exhibits (a)(1) and (a)(2), respectively, to the Schedule TO. The item numbers and responses thereto below are in accordance with the requirements of Schedule TO. Unless defined herein, capitalized terms used and not otherwise defined herein have the respective meanings ascribed to such terms in the Offer to Purchase. ITEM 1. SUMMARY TERM SHEET. Item 1 is amended and supplemented as follows: (1) The following paragraph under "THE SUMMARY TERM SHEET" is amended and restated as follows: "Covenant Not to Sue. If you requested exclusion from the settlement but tender your units in this offer, by signing the letter of transmittal, you agree not to bring any action, claim, suit or proceeding against us and those affiliates who were defendants in the class and derivative litigation concerning any of the matters that are the subject of the Stipulation of Settlement approved by the Court in connection with the settlement of such class and derivative litigation, including this Litigation Settlement Offer, other than for violations of federal or state securities laws. If you do not request exclusion from the settlement class, you will already have agreed not to bring any such action, you will already have agreed not to bring any such action, claim, suit or proceeding once the settlement." (2) The following paragraph under "THE SUMMARY TERM SHEET" is amended and restated as follows: "Conflicts of Interest. NHP Management Company (which is our affiliate) receives fees for managing your partnership's property and the general partner of your partnership (which is our affiliate) is entitled to receive asset management fees and reimbursement of certain expenses involving your partnership and its property. As a result, a conflict of interest exists between continuing the partnership and receiving these fees, and the liquidation of the partnership and the termination of these fees. See "The Litigation Settlement Offer -- Section 13. Conflicts of Interest and Transactions with Affiliates" and "-- Section 15. Certain Information Concerning Your Partnership." (3) The following paragraph is added as the eighteenth paragraph under "THE SUMMARY TERM SHEET": "Fairness of the Offer. Although we, Apartment Investment and Management Company ("AIMCO") and AIMCO-GP, Inc. (collectively, the "AIMCO Entities") and your general partner have interests that may conflict with those the partnership's unaffiliated limited partners, each of the AIMCO Entities believes that the offer price and the offer are fair to the unaffiliated limited partners of your partnership. This determination is based on the information and the factors set 3 forth under "The Litigation Settlement Offer -- Section 12. Position of Your General Partner of Your Partnership With Respect to the Offer." ITEM 2. SUBJECT COMPANY INFORMATION. Item 2(a) of the Schedule TO is amended and supplemented as follows: (1) The following paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 15. Certain Information Concerning Your Partnership" is amended and restated as follows: "Ownership and Voting. We, together with IPLP Acquisition, L.L.C. and AIMCO IPLP, L.P. (which are our affiliates), own 45,243 units, or 60.32%, of the outstanding units of your partnership. Because we and our affiliates own a majority of the outstanding units, we have the ability to control most votes of the limited partners. See "The Litigation Settlement Offer -- Section 7. Effects of the Offer" and "-- Section 16. Voting Power."" (2) The chart under "THE LITIGATION SETTLEMENT OFFER - Section 15. Certain Information Concerning Your Partnership - Financial Data" is amended by adding the following line items:
FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, ---------------------------- -------------------------------------- 2003 2002 2002 2001 2000 ------------- ------------- ------------- ------------- --------- (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Income (loss) per unit from continuing operations $ (9.28) $ 14.85 $ 17.80 $ 26.79 $ 29.00 Ratio of earnings to fixed charges (deficit)....... 70.8% 145.6% 141.1% 160.5% 164.3% Book value per limited partnership unit............ (93.28) (80.53) (82.45) (72.01) (52.64)
ITEM 3. IDENTITY AND BACKGROUND OF FILING PERSON. Item 3(a) - (c) of the Schedule TO is amended and supplemented as follows: (1) The Rule 13e-3 Transaction Statement on Schedule TO is being filed by Apartment Investment and Management Company, a Maryland corporation ("AIMCO"), AIMCO Properties, L.P., a Delaware limited partnership ("AIMCO OP"), AIMCO-GP, Inc. a Delaware corporation ("AIMCO-GP"), and Fox Capital Management Corporation, a Delaware corporation ("Fox Capital"). AIMCO-GP is the general partner of AIMCO OP and a wholly owned subsidiary of AIMCO. Fox Capital is the managing general partner of the Partnership and a wholly owned subsidiary of AIMCO. The principal business of AIMCO, AIMCO-GP, and AIMCO OP is the ownership, acquisition, development, expansion and management of multi-family apartment properties. The business address of AIMCO, AIMCO-GP and AIMCO OP is 4582 Ulster Street Parkway, Suite 1100, Denver, Colorado 80237, and their telephone number is (303) 757-8101. The principal address of Fox Capital is 55 Beattie Place, P.O. Box 1089, Greenville, South Carolina 29602, and its phone number is (864) 239-1000. During the last five years, none of AIMCO, AIMCO-GP, AIMCO OP or Fox Capital nor, to the best of their knowledge, any of the persons listed in Annex I to the Offer to Purchase (i) has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) was a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining further violations of or 4 prohibiting activities subject to federal or state securities laws or finding any violation with respect to such laws. (2) The fourth paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 10. Information Concerning Us and Certain of Our Affiliates" is amended and restated as follows: "We and AIMCO are both subject to the information and reporting requirements of the Exchange Act and, in accordance therewith, file reports and other information with the Securities and Exchange Commission relating to our business, financial condition and other matters, including the complete financial statements summarized below. Such reports and other information may be inspected at the public reference facilities maintained by the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such material can also be obtained from the Public Reference Room of the SEC in Washington, D.C. at prescribed rates. The SEC also maintains a site on the World Wide Web at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. In addition, information filed by AIMCO with the New York Stock Exchange may be inspected at the offices of the New York Stock Exchange at 20 Broad Street, New York, New York 10005." (3) The following chart under Annex I is amended and restated as follows:
NAME POSITION -------------------------- ------------------------------------- Terry Considine............ Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez......... Vice Chairman, President and Director Harry G. Alcock............ Executive Vice President and Chief Investment Officer Miles Cortez............... Executive Vice President, General Counsel and Secretary Joseph DeTuno.............. Executive Vice President -- Redevelopment Patti K. Fielding.......... Executive Vice President -- Securities and Debt Patrick J. Foye............ Executive Vice President Lance J. Graber............ Executive Vice President -- AIMCO Capital Paul J. McAuliffe.......... Executive Vice President and Chief Financial Officer Ronald D. Monson........... Executive Vice President and Head of Property Operations David Robertson............ Executive Vice President -- President and Chief Executive Officer of AIMCO Capital Jim Purvis................. Executive Vice President -- Human Resources Randall J. Fein............ Executive Vice President -- Student Housing James N. Bailey............ Director Richard S. Ellwood......... Director J. Landis Martin........... Director Thomas L. Rhodes........... Director
ITEM 4. TERMS OF THE TRANSACTION. Item 4(a) of the Schedule TO is amended and supplemented as follows: (1) The following paragraph under "RISK FACTORS" is amended and restated as follows: "THERE MAY BE A POSSIBLE REDUCTION OF AVAILABLE INFORMATION ABOUT YOUR PARTNERSHIP AS A RESULT OF THIS OFFER. 5 If there are less than 300 unitholders in your partnership upon consummation of the offer, your partnership would no longer be required to file periodic reports with the SEC, such as annual reports on Form 10-KSB containing annual audited financial statements, and quarterly reports on Form 10-QSB containing unaudited quarterly financial statements. Such reports are publicly available and can be obtained on the SEC's web site. The lack of such filings could adversely affect the already limited secondary market which currently exists for units in your partnership and may discourage offers to purchase your units. In such a case, you would regularly have access only to the information your partnership's agreement of limited partnership requires your general partner (which is our affiliate) to provide each year, which consists primarily of tax information. See "The Litigation Settlement Offer - Section 7. Effects of the Offer - Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act." (2) Section 1 under "THE LITIGATION SETTLEMENT OFFER" is amended and restated as follows: "1. TERMS OF THE OFFER; EXPIRATION DATE Upon the terms and subject to the conditions of the offer, we will accept (and thereby purchase) any and all units that are validly tendered on or prior to the expiration date and not withdrawn in accordance with the procedures set forth in "The Litigation Settlement Offer -- Section 4. Withdrawal Rights." For purposes of the offer, the term "expiration date" shall mean midnight, New York City time, on December 19, 2003, unless we in our sole discretion shall have extended the period of time for which the offer is open (which may not exceed 90 business days from the date of commencement, as provided in the settlement). See "The Litigation Settlement Offer -- Section 5. Extension of Tender Period; Termination; Amendment; No Subsequent Offering Period," for a description of our right to extend the period of time during which the offer is open and to amend or terminate the offer. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made or declared by your partnership on or after the commencement of our offer and prior to the date on which we acquire your units pursuant to our offer. If the offer price is reduced in this manner, we will notify you and, if necessary, we will extend the offer period so that you will have at least ten business days from the date of our notice to withdraw your units. If, prior to the expiration date, we increase the consideration offered pursuant to the offer, the increased consideration will be paid for all units accepted for payment pursuant to the offer, whether or not the units were tendered prior to the increase in consideration. The offer is conditioned on satisfaction of certain conditions. The offer is not conditioned upon any minimum number of units being tendered. See "The Litigation Settlement Offer -- Section 19. Conditions to the Offer," which sets forth in full the conditions of the offer. We reserve the right (but in no event shall we be obligated), in our reasonable discretion, to waive any or all of those conditions. If, on or prior to the expiration date, any or all of the conditions have not been satisfied or waived, we reserve the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units to tendering limited partners, (ii) waive all the unsatisfied conditions and purchase, subject to the terms of the offer, any and all units validly tendered, (iii) extend the offer and, subject to your withdrawal rights, retain the units that have been tendered during the period or periods for which the offer is extended, or (iv) amend the offer. If we are unable to accept the units tendered in this Litigation Settlement Offer due to a failure of any or all of the conditions of our offer to be satisfied, we will conduct another offer in 6 accordance with the terms of the settlement (which will occur no later than six months after the date of the commencement of this offer). We will continue this process until we have accepted for payment all units properly tendered in an offer conducted in accordance with the terms of the settlement. By executing the letter of transmittal, you will agree that the transfer of units will be deemed to take effect as of the first day of the calendar quarter in which the offer expires. Upon expiration of the offer, the books and records of the partnership will reflect the change in ownership as having occurred as of this date. For tax, accounting and financial reporting purposes, the transfer of tendered units will be deemed to take effect on the first day of the calendar quarter. Accordingly, all profits and losses relating to any tendered units will be allocated to us from and after this date. If we waive any material conditions to our offer (other than those relating to necessary governmental approvals), we will notify you and, if necessary, we will extend the offer period so that you will have at least five business days from the date of our notice to withdraw your units. This offer is being mailed on or about November 12, 2003 to the persons shown by your partnership's records to be limited partners or, in the case of units owned of record by Individual Retirement Accounts and qualified plans, beneficial owners of units." Section 2 under "THE LITIGATION SETTLEMENT OFFER" is amended and restated as follows: "2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, we will purchase, by accepting for payment, and will pay for, any and all units validly tendered promptly following the expiration date. A tendering beneficial owner of units whose units are owned of record by an Individual Retirement Account or other qualified plan will not receive direct payment of the offer price; rather, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed letter of transmittal and other documents required by the letter of transmittal. See "The Litigation Settlement Offer -- Section 3. Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, we will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units, if, as and when we give verbal or written notice to the Information Agent of our acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering limited partners for the purpose of receiving cash payments from us and transmitting cash payments to tendering limited partners. If any tendered units are not accepted for payment by us for any reason, the letter of transmittal with respect to such units not purchased may be destroyed by the Information Agent or us or returned to you. You may withdraw tendered units until the expiration date (including any extensions). In addition, if we have not accepted units for payment by January 11, 2004 you may then withdraw any tendered units. After the expiration date, the Information Agent may, on our behalf, retain tendered units, and those units may not be otherwise withdrawn, if, for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or we are unable to accept for payment, purchase or pay for units tendered pursuant to the offer. Any such action is subject, however, to our obligation under Rule 14e-1(c) under the Exchange Act, to pay you the offer price in respect of units tendered or return those units promptly after termination or withdrawal of the offer. 7 We reserve the right to transfer or assign, in whole or in part, to one or more of our affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve us of our obligations under the offer or prejudice your rights to receive payment for units validly tendered and accepted for payment pursuant to the offer." (3) The first paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 3. Procedure for Tendering Units - Release of Claims" is amended and restated as follows: "Release of Claims. By executing the letter of transmittal, effective upon acceptance for payment of the units tendered by you, you will, on behalf of yourself, your heirs, estate, executor, administrator, successors and assigns, and your partnership, fully, finally and forever release, relinquish and discharge us and our predecessors, successors and assigns and our present and former parents, subsidiaries, affiliates, investors, insurers, reinsurers, officers, directors, employees, agents, administrators, auditors, attorneys, accountants, information and solicitation agents, investment bankers, and other representatives, including but not limited to AIMCO Properties, L.P. (collectively, the "Releasees"), from any and all claims and causes of action, whether brought individually, on behalf of a class, or derivatively, demands, rights, or liabilities, including, but not limited to, claims for negligence, gross negligence, professional negligence, breach of duty of care or loyalty, or breach of duty of candor, fraud, breach of fiduciary duty, mismanagement, corporate waste, malpractice, misrepresentation, whether intentional or negligent, misstatements and omissions to disclose, breach of contract, violations of any state or federal statutes, rules or regulations, whether known claims or unknown claims that have been asserted or that could have been asserted against the Releasees, that arise out of or relate to (a) those matters and claims set forth in the class and derivative litigation described in this Litigation Settlement Offer, (b) the ownership of one or more units in your partnership, including but not limited to, any and all claims related to the management of your partnership or the properties owned by your partnership (whether currently or previously), the payment of management fees or other monies to the general partner of your partnership and its affiliates, prior acquisitions or tender offers and the prior settlement, (c) the purchase, acquisition, holding, sale, tender or voting of one or more units in your partnership, or (d) any of the facts, circumstances, allegations, claims, causes of action, representations, statements, reports, disclosures, transactions, events, occurrences, acts, omissions or failures to act, of whatever kind or character whatsoever, irrespective of the state of mind of the actor performing or omitting to perform the same, that have been or could have been alleged in any pleadings, amended pleading, argument, complaint, amended complaint, brief, motion, report or filing in the class and derivative litigation described in this Litigation Settlement Offer (collectively, the "Released Claims"); provided, however, that the Released Claims are not intended to include (i) any unrelated claims that are unique to a limited partner or settlement class member (e.g., a settlement class member slips and falls on property owned by one of the defendants in the class and derivative litigation, loses or did not receive a distribution check distributed to other limited partners in such partnership, or is an employee of one of the defendants and has an employee related claim) or (ii) any claim based upon violations of federal or state securities laws in connection with this offer." (4) The paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 3. Procedure for Tendering Units - Covenant Not to Sue" is amended and restated as follows: "Covenant Not to Sue. By executing the letter of transmittal, you agree not to bring any action, claim, suit or proceeding against us and those affiliates who were defendants in the class and derivative litigation concerning any of the matters that are the subject of the Stipulation of Settlement approved by the Court in connection with the settlement of such class and derivative litigation, including this Litigation Settlement Offer, other than for violations of federal or state securities laws." 8 (5) The paragraph under "THE LITIGATION SETTLEMENT OFFER -- Procedure for Tendering Units - Section 3. Procedure for Tendering Units -- Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects" is amended and restated as follows: "Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects. All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to our offer will be determined by us, in our reasonable discretion, which determination shall be final and binding on all parties. We reserve the absolute right to reject any or all tenders of any particular unit determined by us not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of our counsel, be unlawful. We also reserve the absolute right to waive or amend any of the conditions of the offer that we are legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit of any particular limited partner. If we waive any of the conditions to the offer with respect to the tender of a particular unit, we will waive such condition with respect to all other tenders of units in this offer as well. Our interpretation of the terms and conditions of the offer (including the letter of transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither we, the Information Agent, nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any unit or will incur any liability for failure to give any such notification." (6) The first paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 5. Extension of Tender Period; Termination; Amendment; No Subsequent Offering Period" is amended and restated as follows: "We expressly reserve the right, in our reasonable discretion, at any time and from time to time, (i) to extend the period of time during which our offer is open (but not beyond 90 business days from the date of commencement of the offer) and thereby delay acceptance for payment of, and the payment for, any unit, (ii) to terminate the offer and not accept any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "The Litigation Settlement Offer -- Section 19. Conditions of the Offer" relating to necessary governmental approvals, to delay the acceptance for payment of, or payment for, any units not already accepted for payment or paid for, and (iv) to amend our offer in any respect (including, without limitation, by increasing or decreasing the consideration offered, increasing or decreasing the units being sought, or both). We will not assert any of the conditions to the offer (other than those relating to necessary governmental approvals) subsequent to the expiration of the offer. Notice of any such extension, termination or amendment will promptly be disseminated to you in a manner reasonably designed to inform you of such change. In the case of an extension of the offer, the extension may be followed by a press release or public announcement which will be issued no later than 9:00 a.m., New York City time, on the next business day after the scheduled expiration date of our offer, in accordance with Rule 14e-1(d) under the Exchange Act." (7) The third paragraph under "THE LITIGATION SETTLEMENT OFFER--Section 8. Valuation of Units -- Determination of Offer Price" is amended and restated as follows: "We relied on the direct capitalization method because we believe this is the valuation methodology most often used by the real estate industry to value income producing property. The 9 court appointed independent appraiser also utilized the direct capitalization method as one its valuation methodologies. However, in comparison to our methodology, the independent appraiser relied on pro forma net operating income as opposed to the current property income of your partnership." (8) The first paragraph and the first bullet point under "THE LITIGATION SETTLEMENT OFFER - Section 19. Conditions to the Offer" are amended and restated as follows: "Notwithstanding any other provisions of our offer, we will not be required to accept for payment and pay for any units tendered pursuant to our offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend our offer if at any time on or after the date of this Litigation Settlement Offer and at or before the expiration of our offer (including any extension thereof), any of the following shall occur: o any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that is or could reasonably be expected to be materially adverse to your partnership or the value of your units to us, which change would, individually or in the aggregate, result in, or reasonably be expected to result in, an adverse effect on net operating income of your partnership of more than $10,000 per year, or a decrease in value of an asset of your partnership, or the incurrence of a liability with respect to your partnership, in an amount in excess of $100,000 (a "Material Adverse Effect"), or we shall have become aware of any facts relating to your partnership, its indebtedness or its operations which has had or could reasonably be expected to have a Material Adverse Effect; or" (9) The third bullet point under "THE LITIGATION SETTLEMENT OFFER - Section 19. Conditions to the Offer" is amended and restated as follows: "o there shall have been threatened in writing, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by us of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by us (or any of our affiliates) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in our ability to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by us or any of our affiliates of the entity serving as your general partner (which is our affiliate) or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on our ability or any of our affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on our ability or any of our affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by us on all matters properly presented to unitholders or (v) could reasonably be expected to result in a Material Adverse Effect; or 10 (10) The fifth bullet point under "THE LITIGATION SETTLEMENT OFFER - Section 19. Conditions to the Offer" is amended and restated as follows: "o your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, has or could reasonably be expected to have a Material Adverse Effect, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or" (11) The seventh bullet point of "THE LITIGATION SETTLEMENT OFFER - Section 19. Conditions to the Offer" is amended and restated as follows: "o there shall have occurred any event, circumstance, change, effect or development that, individually or in the aggregate with any other events, circumstances, changes, effects or developments, has had or would reasonably be expected to have an adverse effect on our financial condition in an amount in excess of $10,000,000; or" (12) The following bullet point under "THE LITIGATION SETTLEMENT OFFER - - Section 19. Conditions to the Offer" is deleted in its entirety: "o we shall not have adequate cash or financing commitments available to pay for the units validly tendered, which is the result of events or circumstances beyond our reasonable control." (13) The second paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 19. Conditions to the Offer" is amended and restated as follows: "The foregoing conditions are for our sole benefit and may be asserted by us regardless of the circumstances giving rise to such conditions or may be waived by us at any time in our reasonable discretion prior to the expiration of this offer. The failure by us at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances. All conditions to our offer will be satisfied or waived on or before the expiration of our offer." 11 (14) The first paragraph of the Letter of Transmittal is amended and restated as follows: "The undersigned hereto hereby acknowledges that he or she has received (i) the Purchaser's Litigation Settlement Offer, dated the date set forth above (the "Offer Date"), relating to the offer by AIMCO Properties, L.P. (the "Purchaser") to purchase Limited Partnership Interests (the "Units") in the Partnership and (ii) this Letter of Transmittal and the Instructions hereto, as each may be supplemented or amended from time to time (collectively, the "Offer")." (15) The fourth paragraph of the Letter of Transmittal is amended and restated as follows: "By executing this Letter of Transmittal, the undersigned hereby acknowledges that neither the court nor counsel for the parties in the class and derivative litigation make any recommendation regarding whether the undersigned should accept the Offer, and the undersigned hereto represents and warrants to the Purchaser that the undersigned (i) has received the Offer, including the executive summary of the independent appraiser's report attached to the Litigation Settlement Offer, and (ii) has had an opportunity to seek the advice of such undersigned's attorney, tax advisor and/or financial advisor before deciding whether or not to accept the Offer." (16) The sixth paragraph of the Letter of Transmittal is amended and restated as follows: "The undersigned hereto, on behalf of himself or herself, his or her heirs, estate, executor, administrator, successors and assigns, and the Partnership, fully, finally and forever releases, relinquishes and discharges the Purchaser and its predecessors, successors and assigns and its present and former parents, subsidiaries, affiliates, investors, insurers, reinsurers, officers, directors, employees, agents, administrators, auditors, attorneys, accountants, information and solicitation agents, investment bankers, and other representatives, including but not limited to Apartment Investment and Management Company and the general partner of the Partnership (collectively, the "Releasees"), from any and all claims and causes of action, whether brought individually, on behalf of a class, or derivatively, demands, rights, or liabilities, including, but not limited to, claims for negligence, gross negligence, professional negligence, breach of duty of care or loyalty, or breach of duty of candor, fraud, breach of fiduciary duty, mismanagement, corporate waste, malpractice, misrepresentation, whether intentional or negligent, misstatements and omissions to disclose, breach of contract, violations of any state or federal statutes, rules or regulations, whether known claims or unknown claims that have been asserted or that could have been asserted against the Releasees, that arise out of or relate to (a) those matters and claims set forth in the class and derivative litigation described in the Litigation Settlement Offer, (b) the ownership of one or more Units in the Partnership, including but not limited to, any and all claims related to the management of the Partnership or the properties owned by the Partnership (whether currently or previously), the payment of management fees or other monies to the general partner of the Partnership and its affiliates, prior acquisitions or tender offers and the prior settlement, (c) the purchase, acquisition, holding, sale, tender or voting of one or more Units in the Partnership, or (d) any of the facts, circumstances, allegations, claims, causes of action, representations, statements, reports, disclosures, transactions, events, occurrences, acts, omissions or failures to act, of whatever kind or character whatsoever, irrespective of the state of mind of the actor performing or omitting to perform the same, that have been or could have been alleged in any pleadings, amended pleading, argument, complaint, amended complaint, brief, motion, report or filing in the class and derivative litigation described in the Litigation Settlement Offer (collectively, the "Released Claims"); provided, however, that the Released Claims are not intended to include (i) any unrelated claims that are unique to a unitholder or settlement class member (e.g., a settlement class member slips and falls on property owned by one of the defendants in the class and derivative litigation, loses or did not receive a distribution check 12 distributed to other limited partners in such partnership, or is an employee of one of the defendants and has an employee related claim), or (ii) any claim based on violations of federal or state securities laws in connection with the Offer." (17) The tenth paragraph of the Letter of Transmittal is amended and restated as follows: "Subject to and effective upon acceptance for payment of any Unit tendered hereby in accordance with the terms of the Offer, the signatory agrees not to bring any action, claim, suit or proceeding against the Purchaser and its affiliates who were defendants in the class and derivative litigation described in the Litigation Settlement Offer concerning any of the matters that are the subject of the Stipulation of Settlement approved by the Court in connection with the settlement of such class and derivative litigation, including the Offer, other than for violations of federal or state securities laws." (18) The eleventh paragraph of the Letter of Transmittal is amended and restated as follows: "The undersigned hereto irrevocably appoints the Purchaser and its designees as his or her proxy, each with full power of substitution, to the fullest extent of the undersigned's rights with respect to the Units tendered by him or her and accepted for payment by the Purchaser. Such proxy shall be considered coupled with an interest in the tendered Units. Such appointment will be effective upon receipt of this Letter of Transmittal. Upon receipt of this Letter of Transmittal, all prior proxies and consents given by undersigned hereto with respect to the Units will, without further action, be revoked, and no subsequent proxies or consents may be given (and if given will not be effective). The Purchaser and its designees are, as to those Units, empowered to exercise all voting as a limited partner as the Purchaser, in its discretion, may deem proper at any meeting of limited partners, by written consent or otherwise. The Purchaser reserves the right to require that, in order for Units to be deemed validly tendered, immediately upon our acceptance for payment of the Units, the Purchaser must be able to exercise full voting rights with respect to the Units, including voting at any meeting of limited partners then scheduled or acting by written consent without a meeting. By executing this Letter of Transmittal, the undersigned agrees to execute all such documents and take such other actions as shall be reasonably required to enable the Units tendered to be voted in accordance with the Purchaser's directions. The proxy granted by the undersigned hereto to the Purchaser will remain effective and be irrevocable for a period of ten years following the Expiration Date of the Offer." (19) The following paragraph in the Letter of Transmittal is deleted in its entirety: "The undersigned hereto irrevocably constitutes and appoints the Purchaser and any designees of the Purchaser as the true and lawful agent and attorney-in-fact of the undersigned with respect to such Units, with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to withdraw any or all of such Units that have been previously tendered in response to any tender or exchange offer provided that the price per unit being offered by the Purchaser is equal to or higher than the price per unit being offered in the other tender or exchange offer. This appointment is effective upon execution and receipt of this Letter of Transmittal and shall continue to be effective unless and until such Units are withdrawn from the Offer by the undersigned prior to the Expiration Date." ITEM 5. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS. Item 5(a) and (b) of the Schedule TO is amended and supplemented as follows: 13 (1) The first, second and third paragraphs of "THE LITIGATION SETTLEMENT OFFER - Section 9. The Lawsuit and the Settlement - The Settlement of the Nuanes and Heller Complaints" is amended and restated as follows: "On December 20, 2002, the parties to the above-entitled litigation executed a Stipulation of Settlement of the two actions. That settlement was the result of over one year of negotiations and the involvement of two separate settlement judges. Class counsel and defendants' counsel first met with the Honorable William J. Cahill, Retired California Superior Court Judge, on two separate occasions. Counsel also met on four separate occasions with the Honorable Margaret J. Kemp, California Superior Court Judge, before reaching a settlement in principle. The parties initially met with Judge Cahill on two occasions in the fall of 2000, but were ultimately unsuccessful in reaching a definitive settlement agreement. At the Court's direction, they renewed formal settlement discussions before Judge Kemp. The parties first attended a settlement conference before Judge Kemp in September or October 2002 and then subsequently met with her on October 28, 2002, November 26, 2002 and December 2, 2002. The parties reached final agreement on the material terms of the settlement at the last settlement conference with Judge Kemp on December 2, 2002 and put the terms of that agreement on the record in open court. In each of the conferences described above, counsel from Lieff Cabraser Heimann & Bernstein LLP, Farella Braun & Martel LLP & Berman Devalerio Pease & Tobacco attended on behalf of the named plaintiffs and the putative settlement class; counsel from Skadden, Arps, Slate, Meagher & Flom LLP attended on behalf of AIMCO and its affiliated entities, including your general partner, and Orrick Herrington & Sutcliffe attended on behalf of the remaining defendants. AIMCO Executive Vice President Patrick Foye also attended each of these meetings. Mr. Vincent Gresham of the Law Offices of Vincent Gresham also participated on behalf of plaintiffs and the putative settlement class in those settlement discussions before the Hon. Cahill, Retired. At these meetings, discussions included possible transactions that could provide liquidity to investors and form the basis of a settlement, the use of a settlement fund and the amount of such fund, the timing and distribution of any settlement fund, selection and use of an appraiser and disclosures that would accompany any contemplated transaction(s). The participants considered but ultimately rejected a merger or roll-up of the various partnerships as possible alternatives to cash tender offers. The parties ultimately concluded, however, that a merger or roll-up could be potentially complicated and time consuming and that a cash tender offer would be a less coercive form of providing liquidity to those investors who desired it. The Settlement Agreement requires each tender offer to attach executive summaries of partnership property appraisals commissioned specifically for the settlement tender offers and to provide an explanation of how the appraised values of the properties compare to the per Unit price(s) being offered. It also requires the payment of an allocable portion of the settlement fund for each unit tendered pursuant to the settlement fund, details the scope of the release and covenants not to sue which will bind class members, requires that tender offers be made no more than one year after final approval of the settlement and imposes certain restrictions on the length of time in which the tender offers can remain open, as well as with regard to other disclosures made therein. On April 4, 2003, the Court preliminarily approved the settlement and, on June 13, 2003, entered an order finally approving the settlement and dismissing both the Heller and Nuanes litigation with prejudice. On August 12, 2003, an objector filed an appeal of the court's order approving the settlement and is seeking to reverse or vacate the Court's order and the judgment entered thereto. Although we reserve our right to terminate or amend our offer if final court approval of the settlement is reversed or vacated, we have nevertheless elected to proceed with this offer under the terms of the settlement. On November 24, 2003, the objector appealing the settlement and judgment entered thereto filed an application requesting the Court order AIMCO to withdraw the settlement tender offers, refrain from making further offers pending the appeal and auction any units tendered to third parties. The objector contends that this offer does not conform with the terms of the Settlement. Alternatively, counsel for the objector has requested the Court on behalf of a settlement class member order AIMCO to pay all non-tendering settlement class members their pro rata share of the Settlement Fund whether or not the settlement and judgment entered thereto is vacated on appeal and to notify settlement class members that the releases and covenant not to sue are not binding unless the settlement and judgment entered thereto is affirmed on appeal. AIMCO asserts that such applications are without merit and is opposing such applications." 14 (2) The second paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 11. Background and Reasons for the Offer - Alternatives Considered by Your General Partner -- Liquidation" is amended and restated as follows: "If your partnership was liquidated, and the properties sold at prices equal to the values recently determined by the independent appraiser (see Annex II), we estimate that your net liquidation proceeds would be $283.83 per unit. See "The Litigation Settlement Offer -- Section 8. Valuation of Units." However, in the opinion of your general partner, which is our affiliate, the present time may not be the most desirable time to sell the real estate assets of your partnership in a private transaction, and the proceeds realized from any such sale would be uncertain. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Although future operating results and sales prices are uncertain, your general partner believes that the operating performance of your partnership's property may improve in the future. This improvement, should it occur, may result in higher property values. Such values, however, are also a function of capitalization rates in the market and the interest rate environment at the time. However, because your general partner and property manager (which are our affiliates) receive fees for managing your partnership and its property, a conflict of interest exists between continuing the partnership and receiving such fees, on the one hand, and the liquidation of the partnership and the termination of such fees, on the other. See "The Litigation Settlement Offer -- Section 15. Certain Information Concerning Your Partnership -- Investment Objectives and Policies; Sale or Financing of Investments" and "--Section 13. Conflicts of Interest and Transactions with Affiliates." The term of the partnership will continue until December 31, 2006, unless the partnership is terminated sooner under the provisions of the partnership agreement." (3) The paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 11. Background and Reasons for the Offer - Alternative Transactions Considered by Us" is amended and restated as follows: "Alternative Transactions Considered by Us. At the present time, we have decided to proceed with this offer pursuant to the court approved settlement. From time to time in the past, we have considered proposing a number of alternative transactions, including the purchase of your partnership's property or a merger of your partnership in which you would receive cash in exchange for your units. We decided not to pursue these alternative transactions because, in each case, we determined that a tender offer would be a less expensive means of acquiring additional interests in your partnership, and would not require the consent or approval of any limited partners (other than those who elect to tender their units). In the future, however, we may consider purchasing your partnership's property or effecting such a merger. See "The Litigation Settlement Offer -- Section 14. Future Plans of the Purchaser." We also considered an offer to exchange units in your partnership for limited partnership interests in AIMCO Properties, L.P. However, because of the expense and delay associated with making such an exchange offer, we decided to make an offer for cash only. In addition, our historical experience has been that when we have offered limited partners an opportunity to receive cash or limited partnership interests in AIMCO Properties, L.P., the limited partners who tender usually prefer the cash option." (4) The first paragraph of "THE LITIGATION SETTLEMENT OFFER - Section 13. Conflicts of Interest and Transactions with Affiliates -- Transactions with Affiliates" is amended and restated as follows: "NHP Management Company (which is our affiliate) received fees of approximately $44,000 and $43,000 for the years ended December 31, 2002 and 2001, respectively, for 15 construction management services. The construction management service fees are calculated based on a percentage of current additions to investment properties." (5) The third paragraph of "THE LITIGATION SETTLEMENT OFFER - Section 13. Conflicts of Interest and Transactions with Affiliates -- Transactions with Affiliates" is amended and restated as follows: "We have made available to the partnership a credit line of up to $150,000 per property owned by the partnership. The partnership has no outstanding amounts due under this line of credit. Based on present plans, the general partner does not anticipate the need to borrow in the near future. Other than cash and cash equivalents, the line of credit is the partnership's only unused source of liquidity. ITEM 6. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS. Item 6(a), (c)(1) - (7) of the Schedule TO is amended and supplemented as follows: (1) The first two paragraphs under "THE LITIGATION SETTLEMENT OFFER -- Section 7. Effects of the Offer" are amended and restated as follows: "Because the general partner of your partnership is our affiliate, we have control over the management of your partnership. In addition, we, together with IPLP Acquisition, L.L.C. and AIMCO IPLP, L.P. (which are our affiliates), own 45,243, or 60.32%, of the outstanding units of your partnership. Because we and our affiliates own a majority of the outstanding units and control your partnership's general partner, we control the outcome of most voting decisions with respect to your partnership. In general, we will vote the units owned by us in whatever manner we deem to be in our best interests, which may not be in the interest of other limited partners. This could (1) prevent non-tendering limited partners from taking action that they desire but that we oppose and (2) enable us to take action desired by us but opposed by non-tendering limited partners. We are also affiliated with the company that currently manages, and has managed for some time, the property owned by your partnership. In the event that we acquire a substantial number of units pursuant to this offer, removal of the property manager may become more difficult or impossible. If we acquire all of the units that we are seeking in the offer, our interest in your partnership's net earnings ($(696,000) for the nine months ended September 30, 2003) and net book value ($(6,996,000) as of September 30, 2003) will increase to 100%. AIMCO-GP owns a 1% interest in AIMCO Properties, L.P. and AIMCO, through its subsidiaries, owns an 89% in AIMCO Properties." (2) The second paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 7. Effects of the Offer - Effect on the Trading Market; Registration Under Section 12(g) of the Exchange Act" is amended and restated as follows: "The units are registered under Section 12(g) of the Exchange Act, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. We do not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Exchange Act. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Exchange Act. Your partnership currently has 3,431 unitholders. The lack of filing periodic 16 reports could affect the already limited secondary market which currently exists for units in your partnership and may result in others not tendering for such units. In such a case, you would regularly have access only to the limited information your partnership's agreement of limited partnership requires your general partner (which is our affiliate) to provide each year, which information consists primarily of tax information. In particular, you will continue to receive a Schedule K-1 each year as well as audited financial statements with respect to your partnership. See "The Litigation Settlement Offer -- Section 1. Terms of the Offer; Expiration Date."" (3) The first, second and third paragraphs of "THE LITIGATION SETTLEMENT OFFER - Section 9. The Lawsuit and the Settlement - The Settlement of the Nuanes and Heller Complaints" is amended and restated as follows: "On December 20, 2002, the parties to the above-entitled litigation executed a Stipulation of Settlement of the two actions. That settlement was the result of over one year of negotiations and the involvement of two separate settlement judges. Class counsel and defendants' counsel first met with the Honorable William J. Cahill, Retired California Superior Court Judge, on two separate occasions. Counsel also met on four separate occasions with the Honorable Margaret J. Kemp, California Superior Court Judge, before reaching a settlement in principle. The parties initially met with Judge Cahill on two occasions in the fall of 2000, but were ultimately unsuccessful in reaching a definitive settlement agreement. At the Court's direction, they renewed formal settlement discussions before Judge Kemp. The parties first attended a settlement conference before Judge Kemp in September or October 2002 and then subsequently met with her on October 28, 2002, November 26, 2002 and December 2, 2002. The parties reached final agreement on the material terms of the settlement at the last settlement conference with Judge Kemp on December 2, 2002 and put the terms of that agreement on the record in open court. In each of the conferences described above, counsel from Lieff Cabraser Heimann & Bernstein LLP, Farella Braun & Martel LLP & Berman Devalerio Pease & Tobacco attended on behalf of the named plaintiffs and the putative settlement class; counsel from Skadden, Arps, Slate, Meagher & Flom LLP attended on behalf of AIMCO and its affiliated entities, including your general partner, and Orrick Herrington & Sutcliffe attended on behalf of the remaining defendants. AIMCO Executive Vice President Patrick Foye also attended each of these meetings. Mr. Vincent Gresham of the Law Offices of Vincent Gresham also participated on behalf of plaintiffs and the putative settlement class in those settlement discussions before the Hon. Cahill, Retired. At these meetings, discussions included possible transactions that could provide liquidity to investors and form the basis of a settlement, the use of a settlement fund and the amount of such fund, the timing and distribution of any settlement fund, selection and use of an appraiser and disclosures that would accompany any contemplated transaction(s). The participants considered but ultimately rejected a merger or roll-up of the various partnerships as possible alternatives to cash tender offers. The parties ultimately concluded, however, that a merger or roll-up could be potentially complicated and time consuming and that a cash tender offer would be a less coercive form of providing liquidity to those investors who desired it. The Settlement Agreement requires each tender offer to attach executive summaries of partnership property appraisals commissioned specifically for the settlement tender offers and to provide an explanation of how the appraised values of the properties compare to the per Unit price(s) being offered. It also requires the payment of an allocable portion of the settlement fund for each unit tendered pursuant to the settlement fund, details the scope of the release and covenants not to sue which will bind class members, requires that tender offers be made no more than one year after final approval of the settlement and imposes certain restrictions on the length of time in which the tender offers can remain open, as well as with regard to other disclosures 17 made therein. On April 4, 2003, the Court preliminarily approved the settlement and, on June 13, 2003, entered an order finally approving the settlement and dismissing both the Heller and Nuanes litigation with prejudice. On August 12, 2003, an objector filed an appeal of the court's order approving the settlement and is seeking to reverse or vacate the Court's order and the judgment entered thereto. Although we reserve our right to terminate or amend our offer if final court approval of the settlement is reversed or vacated, we have nevertheless elected to proceed with this offer under the terms of the settlement. On November 24, 2003, the objector appealing the settlement and judgment entered thereto filed an application requesting the Court order AIMCO to withdraw the settlement tender offers, refrain from making further offers pending the appeal and auction any units tendered to third parties. The objector contends that this offer does not conform with the terms of the Settlement. Alternatively, counsel for the objector has requested the Court on behalf of a settlement class member order AIMCO to pay all non-tendering settlement class members their pro rata share of the Settlement Fund whether or not the settlement and judgment entered thereto is vacated on appeal and to notify settlement class members that the releases and covenant not to sue are not binding unless the settlement and judgment entered thereto is affirmed on appeal. AIMCO asserts that such applications are without merit and is opposing such applications." (4) The second paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 11. Background and Reasons for the Offer - Alternatives Considered by Your General Partner -- Liquidation" is amended and restated as follows: "If your partnership was liquidated, and the properties sold at prices equal to the values recently determined by the independent appraiser (see Annex II), we estimate that your net liquidation proceeds would be $283.83 per unit. See "The Litigation Settlement Offer -- Section 8. Valuation of Units." However, in the opinion of your general partner, which is our affiliate, the present time may not be the most desirable time to sell the real estate assets of your partnership in a private transaction, and the proceeds realized from any such sale would be uncertain. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Although future operating results and sales prices are uncertain, your general partner believes that the operating performance of your partnership's property may improve in the future. This improvement, should it occur, may result in higher property values. Such values, however, are also a function of capitalization rates in the market and the interest rate environment at the time. However, because your general partner and property manager (which are our affiliates) receive fees for managing your partnership and its property, a conflict of interest exists between continuing the partnership and receiving such fees, on the one hand, and the liquidation of the partnership and the termination of such fees, on the other. See "The Litigation Settlement Offer -- Section 15. Certain Information Concerning Your Partnership -- Investment Objectives and Policies; Sale or Financing of Investments" and "--Section 13. Conflicts of Interest and Transactions with Affiliates." The term of the partnership will continue until December 31, 2006, unless the partnership is terminated sooner under the provisions of the partnership agreement." (5) The paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 11. Background and Reasons for the Offer - Alternative Transactions Considered by Us" is amended and restated as follows: "Alternative Transactions Considered by Us. At the present time, we have decided to proceed with this offer pursuant to the court approved settlement. From time to time in the past, we have considered proposing a number of alternative transactions, including the purchase of your partnership's property or a merger of your partnership in which you would receive cash in exchange for your units. We decided not to pursue these alternative transactions because, in each case, we determined that a tender offer would be a less expensive means of acquiring additional interests in your partnership, and would not require the consent or approval of any limited partners (other than those who elect to tender their units). In the future, however, we may consider purchasing your partnership's property or effecting such a merger. See "The Litigation Settlement Offer -- Section 14. Future Plans of the Purchaser." We also considered an offer to exchange units in your partnership for limited partnership interests in AIMCO Properties, L.P. However, because of the expense and delay associated with making such an exchange offer, we decided to make an offer for cash only. In addition, our historical experience has been that when we have offered limited partners an opportunity to receive cash or limited partnership interests in AIMCO Properties, L.P., the limited partners who tender usually prefer the cash option." 18 (6) The fourth and fifth paragraphs under "THE LITIGATION SETTLEMENT OFFER - Section 14. Future Plans of the Purchaser" are amended and restated as follows: "We have been advised that the general partner does not currently expect to consider, on behalf of your partnership any of the following transactions: (i) payment of extraordinary distributions; (ii) refinancing, reducing or increasing existing indebtedness of the partnership; (iii) sales of assets, individually or as part of a complete liquidation; and (iv) mergers or other consolidation transactions involving the partnership. Any such merger or consolidation transaction could involve other limited partnerships in which your general partner or its affiliates serve as general partners, or a combination of the partnership with one or more existing, publicly traded entities (including, possibly, affiliates of AIMCO), in any of which limited partners might receive cash, common stock or other securities or consideration. As discussed under "The Litigation Settlement Offer - Section 15. Certain Information Concerning Your Partnership - Investment Objectives and Policies; Sale or Financing of Investments," the general partner regularly evaluates the real estate and capital markets. The general partner may consider refinancing the partnership's existing indebtedness to the extent that the general partner is able to obtain a lower interest rate or if such indebtedness is approaching maturity. Furthermore, in the event that the general partner receives an attractive offer for any of your partnership's properties, the general partner would give due consideration to such an offer. If any of the transactions referred to above occur, and financial benefits accrue to the limited partners, we will participate in those benefits to the extent of our ownership of units. The agreement of limited partnership prohibits limited partners from voting on actions taken by the partnership, unless otherwise specifically permitted therein. Limited partners may vote on a liquidation, and we will be able to significantly influence or control the outcome of any such vote. Our primary objective in seeking to acquire the units pursuant to the offer is not, however, to influence the vote on any particular transaction, but rather to generate a profit on the investment represented by those units." ITEM 7. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. Item 7(a), (b) and (d) of the Schedule TO is amended and supplemented as follows: (1) The following sentence is added to the end of the first paragraph under "THE LITIGATION SETTLEMENT OFFER -Section 21. Fees and Expenses": "The partnership will not be responsible for paying any of the fees or expenses incurred by us in connection with this offer." (2) The second paragraph under "THE LITIGATION SETTLEMENT OFFER -- Section 21. Fees and Expenses" is amended and restated as follows: "The following is an itemized statement of the aggregate estimated expenses incurred and to be incurred in this offer by us: Information Agent Fees............... $ 7,500 Legal Fees........................... 11,000 Printing Fees........................ 9,825 Tax and Accounting Fees.............. 1,500 Postage.............................. 500 Appraiser............................ 6,675 Depositary........................... 500 ------------ Total.............................. $ 37,500" =============
19 ITEM 8. INTEREST IN SECURITIES OF THE SUBJECT COMPANY. Item 8 of the Schedule TO is amended and supplemented as follows: The following paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 15. Certain Information Concerning Your Partnership" is amended and restated as follows: "Ownership and Voting. We, together with IPLP Acquisition, L.L.C. and AIMCO IPLP, L.P. (which are our affiliates), own 45,243 units, or 60.32%, of the outstanding units of your partnership. Because we and our affiliates own a majority of the outstanding units, we have the ability to control most votes of the limited partners. See "The Litigation Settlement Offer -- Section 7. Effects of the Offer" and "-- Section 16. Voting Power."" ITEM 11. ADDITIONAL INFORMATION. Item 11(b) of the Schedule TO is amended and supplemented as follows: Section 16 under "THE LITIGATION SETTLEMENT OFFER" is amended and restated as follows: "16. VOTING POWER Decisions with respect to the day-to-day management of your partnership are the responsibility of the general partner. Because the general partner of your partnership is our affiliate, we control the management of your partnership. Under your partnership's agreement of limited partnership, limited partners holding a majority of the outstanding units must approve certain extraordinary transactions, including the removal of the general partner, most amendments to the partnership agreement and the sale of all or substantially all of your partnership's assets. We, together with IPLP Acquisition, L.L.C. and AIMCO IPLP, L.P. (which are our affiliates) own 45,243 units, or 60.32%, of the outstanding units of your partnership. Because we and our affiliates own a majority of the outstanding units, we control most voting decisions made by limited partners. See "The Litigation Settlement Offer -- Section 7. Effects of the Offer."" ITEM 12. EXHIBITS. Item 12 of the Schedule TO is amended and supplemented as follows: (c)(1) Appraisal of Cherry Creek Garden (c)(2) Appraisal of Cooper's Pond (c)(3) Appraisal of Creekside (c)(4) Appraisal of The Lodge (c)(5) Appraisal of Village in the Woods 20 ITEM 13. INFORMATION REQUIRED BY SCHEDULE 13E-3. Item 13 of the Schedule TO is amended and supplemented as follows: (1) The thirteenth paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 6. Certain Federal Income Tax Matters" is amended and restated as follows: "Tax Consequences to Your Partnership of Our Offer. Section 708 of the Code provides that if there is a sale or exchange of 50% or more of the total interest in capital and profits of a partnership within any 12-month period, such partnership terminates for United States federal income tax purposes. It is possible that our acquisition of units pursuant to the offer alone or in combination with other transfers of interests in your partnership could result in such a termination of your partnership. If your partnership is not deemed to terminate for tax purposes, there will be no tax effect to your partnership. If your partnership is deemed to terminate for tax purposes, however, the following federal income tax events will be deemed to occur: the terminated partnership will be deemed to have contributed all of its assets (subject to its liabilities) to a new partnership in exchange for an interest in the new partnership and, immediately thereafter, the old partnership will be deemed to have distributed interests in the new partnership to the remaining limited partners in proportion to their respective interests in the old partnership in liquidation of the old partnership. A termination of your partnership for federal income tax purposes may also subject the assets of your partnership to longer depreciable lives than those currently applicable to the assets of your partnership. This would generally decrease the annual average depreciation deductions following our offer, but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Additionally, upon a termination of your partnership, the taxable year of your partnership will close for federal income tax purposes. Elections as to tax matters previously made by the old partnership will not be applicable to the new partnership unless the new partnership chooses to make the same elections. Tax Consequences to Non-Tending and Partially-Tendering Limited Partners. As described above, if 50% or more of such interests are sold or exchanged within a 12 month period, including as a result of our acquisition of units, a deemed tax termination of your partnership will occur for tax purposes. If less than 50% of the total interest in capital and profits of your partnership are sold or exchanged within any 12 month period, there will be no tax effect to you from the offer. You will not recognize any gain or loss upon a deemed tax termination of your partnership, and your capital account in your partnership will carry over to the new partnership. A termination of your partnership for federal income tax purposes may change (and possibly shorten) your holding period with respect to interests in your partnership that you choose to retain. Gain recognized by you on the disposition of retained units with a holding period of 12 months or less may be classified as short-term capital gain and subject to taxation at ordinary income tax rates. A deemed tax termination will also decrease the annual depreciation deductions (as a result of the longer partnership depreciation lives described above) allocable to you (thereby possibly increasing the taxable income allocable to your interests in the partnership each year)." 21 (2) The first two paragraphs under "THE LITIGATION SETTLEMENT OFFER -- Section 7. Effects of the Offer" are amended and restated as follows: "Because the general partner of your partnership is our affiliate, we have control over the management of your partnership. In addition, we, together with IPLP Acquisition, L.L.C. and AIMCO IPLP, L.P. (which are our affiliates), own 45,243, or 60.32%, of the outstanding units of your partnership. Because we and our affiliates own a majority of the outstanding units and control your partnership's general partner, we control the outcome of most voting decisions with respect to your partnership. In general, we will vote the units owned by us in whatever manner we deem to be in our best interests, which may not be in the interest of other limited partners. This could (1) prevent non-tendering limited partners from taking action that they desire but that we oppose and (2) enable us to take action desired by us but opposed by non-tendering limited partners. We are also affiliated with the company that currently manages, and has managed for some time, the property owned by your partnership. In the event that we acquire a substantial number of units pursuant to this offer, removal of the property manager may become more difficult or impossible. If we acquire all of the units that we are seeking in the offer, our interest in your partnership's net earnings ($(696,000) for the nine months ended September 30, 2003) and net book value ($(6,996,000) as of September 30, 2003) will increase to 100%. AIMCO-GP owns a 1% interest in AIMCO Properties, L.P. and AIMCO, through its subsidiaries, owns an 89% in AIMCO Properties." (3) The second paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 7. Effects of the Offer - Effect on the Trading Market; Registration Under Section 12(g) of the Exchange Act" is amended and restated as follows: "The units are registered under Section 12(g) of the Exchange Act, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. We do not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Exchange Act. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Exchange Act. Your partnership currently has 3,431 unitholders. The lack of filing periodic reports could affect the already limited secondary market which currently exists for units in your partnership and may result in others not tendering for such units. In such a case, you would regularly have access only to the limited information your partnership's agreement of limited partnership requires your general partner (which is our affiliate) to provide each year, which information consists primarily of tax information. In particular, you will continue to receive a Schedule K-1 each year as well as audited financial statements with respect to your partnership. See "The Litigation Settlement Offer -- Section 1. Terms of the Offer; Expiration Date."" (4) The following subsection under "THE LITIGATION SETTLEMENT OFFER - Section 8. Valuation of Units" is amended and restated as follows: 22 ESTIMATED LIQUIDATION PROCEEDS BASED ON INDEPENDENT APPRAISAL SELECTION AND QUALIFICATIONS OF INDEPENDENT APPRAISER. Under the terms of the settlement, your partnership's property was appraised by American Appraisal Associates, Inc. ("AAA"), an independent appraiser appointed by the court. The information set forth below was provided to us by AAA with respect to its appraisals. AAA is an experienced independent valuation consulting firm with more than 50 offices on four continents. AAA provides valuation and consulting services for the real estate industry through its specialized industry focus and operates through a team of professionals with different economical, financial, statistical, legal, architectural, urban and engineering knowledge and expertise. FACTORS CONSIDERED. AAA performed complete appraisals of all of your partnership's properties. AAA has represented that its report was prepared in conformity with the Uniform Standards of Professional Appraisal Practice and the Code of Professional Ethics and Standards of Professional Practice of the Appraisal Institute. We furnished the appraiser with all of the necessary information requested by AAA in connection with the appraisal. The information furnished to the appraiser was true, correct and complete in all material respects. No limitations were imposed on AAA by us or any of our affiliates. In preparing its valuation of your partnership property, AAA: o inspected and analyzed the exterior of all buildings and site improvements and a representative sample of units; o conducted neighborhood and area research, including major employers, demographics (population trends, number of households, and income trends), housing trends, surrounding uses, and general economic outlook of the area; o conducted market research of rental inventory, historical vacancy rates, historical average rental rates, occupancy trends, concessions, and marketing strategies in the submarket, and occupancy rates at competing properties; o reviewed leasing policy, concessions and history of recent occupancy; o reviewed the historical operating statements for your partnership's property and an operating budget forecast for 2003; o prepared an estimate of stabilized income and expense (for capitalization purposes); o conducted market inquiries into recent sales of similar properties to ascertain sales price per unit, effective gross income multipliers and capitalization rates; and o prepared sales comparison and income capitalization approaches to value. AAA was provided by us with the following management budgets for your partnership's property:
CHERRY CREEK GARDEN COOPER'S POND CREEKSIDE FISCAL YEAR 2003 FISCAL YEAR 2003 FISCAL YEAR 2003 MANAGEMENT BUDGET MANAGEMENT BUDGET MANAGEMENT BUDGET DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT ----------- ----------- ----------- ----------- ----------- ----------- Revenues Rental Income $ 2,810,316 $ 9,526 $ 3,042,000 $ 6,570 $ 2,564,959 $ 7,820 Vacancy 501,000 1,698 136,440 295 166,694 508 Credit Loss/Concessions 0 0 186,600 403 11,000 34 Subtotal $ 501,000 $ 1,698 $ 323,040 $ 698 $ 177,694 $ 542 Laundry Income $ 43,104 $ 146 $ 57,600 $ 124 $ 56,179 $ 171 Garage Revenue 0 0 0 0 0 0 Other Misc. Revenue 79,350 269 315,600 682 192,569 587 Subtotal Other Income $ 122,454 $ 415 $ 373,200 $ 806 $ 248,748 $ 758 Effective Gross Income $ 2,431,770 $ 8,243 $ 3,092,160 $ 6,679 $ 2,636,013 $ 8,037 Operating Expenses Taxes $ 170,759 $ 579 $ 290,912 $ 628 $ 91,375 $ 279 Insurance 52,396 178 112,695 243 45,972 140 Utilities 156,328 530 188,400 407 181,082 552 Repair & Maintenance 159,763 542 36,000 78 76,512 233 Cleaning 0 0 114,000 246 0 0 Landscaping 39,460 134 174,000 376 0 0 Security 0 0 0 0 0 0 Marketing & Leasing 59,500 202 45,000 97 59,000 180 General Administrative 252,932 857 333,900 721 226,059 689 Management 125,029 424 155,688 336 136,375 416 Miscellaneous 0 0 0 0 42,572 130 Total Operating Expenses $ 1,016,167 $ 3,445 $ 1,450,595 $ 3,133 $ 858,947 $ 2,619 Reserves 0 0 0 0 0 0 Net Income $ 1,415,603 $ 4,799 $ 1,641,565 $ 3,545 $ 1,777,066 $ 5,418
23
THE LODGE VILLAGE IN THE WOODS FISCAL YEAR 2003 FISCAL YEAR 2003 MANAGEMENT BUDGET MANAGEMENT BUDGET DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT ----------- ----------- ----------- ----------- Revenues Rental Income $ 2,785,311 $ 7,408 $ 3,947,016 $ 7,447 Vacancy 361,004 960 315,761 596 Credit Loss/Concessions 20,300 54 114,000 215 Subtotal $ 381,304 $ 1,014 $ 429,761 $ 811 Laundry Income $ 75,400 $ 201 $ 19,800 $ 37 Garage Revenue 0 0 0 0 Other Misc. Revenue 259,808 691 273,660 516 Subtotal Other Income $ 335,208 $ 892 $ 293,460 $ 554 Effective Gross Income $ 2,739,215 $ 7,285 $ 3,810,715 $ 7,190 Operating Expenses Taxes $ 95,765 $ 255 $ 432,970 $ 817 Insurance 52,446 139 155,988 294 Utilities 203,412 541 252,000 475 Repair & Maintenance 114,361 304 176,400 333 Cleaning 0 0 0 0 Landscaping 0 0 85,200 161 Security 0 0 0 0 Marketing & Leasing 47,278 126 73,200 138 General Administrative 235,630 627 376,840 711 Management 146,811 390 188,136 355 Miscellaneous 0 0 0 0 Total Operating Expenses $ 895,703 $ 2,382 $ 1,740,734 $ 3,284 Reserves 0 0 0 0 Net Income $ 1,843,512 $ 4,903 $ 2,069,981 $ 3,906
THE ABOVE MANAGEMENT BUDGETS ARE INTERNALLY PREPARED OPERATING PROJECTIONS FOR THE PARTNERSHIP'S PROPERTIES. A MANAGEMENT BUDGET DOES NOT REFLECT A PROPERTY'S ACTUAL PERFORMANCE, OR CHANGES IN THE CONDITION OF A PROPERTY, IN THE LOCAL AREA SURROUNDING A PROPERTY OR IN THE ECONOMY IN GENERAL. SUMMARY OF APPROACHES AND METHODOLOGIES EMPLOYED. The following summary describes the material approaches and analyses employed by AAA in preparing the appraisals. The partnership imposed no conditions or limitations on the scope of AAA's investigation or the methods and procedures to be followed in preparing the appraisal. AAA principally relied on two approaches to valuation: (1) the sales comparison approach and (2) the income capitalization approach. 24 The sales comparison approach uses analysis techniques and sales of comparable improved properties in surrounding or competing areas to derive units of comparison that are then used to indicate a value for the subject property. Under this approach, the primary methods of analysis used by the appraiser were: (1) sales price per unit analysis; (2) net operating income analysis; and (3) effective gross income analysis. The purpose of the income capitalization approach is to value an income-producing property by analyzing likely future income and expenses of the property over a reasonable holding period. Under the income capitalization approach, AAA performed: (1) a direct capitalization analysis and (2) a discounted cash flow analysis to derive property value. The direct capitalization analysis determines the value of a property by applying a capitalization rate that takes into account all of the factors influencing the value of such property to the net operating income of such property for a single year. The direct capitalization method is normally more appropriate for properties with relatively stable operating histories and expectations. The discounted cash flow analysis determines the value of a property by discounting to present value the estimated operating cash flow of such property and the estimated proceeds of a hypothetical sale of such property at the end of an assumed holding period. The discounted cash flow method is 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. AAA relied principally on the income capitalization approach to valuation and secondarily on the sales comparison approach. Although the sales comparison approach is considered a reliable method for valuing property, the income capitalization approach is the primary approach used for valuing income producing property, such as your partnership's property. Summary of independent appraisals of your partnership's property. AAA performed complete appraisals of all of your partnership's properties. The summary set forth below describes the material conclusions reached by AAA based on the values determined under the valuation approaches and subject to the assumptions and limitations described below. The estimated total "as is" market value of the fee simple estate of your partnership's property is $81,200,000, which was determined by adding the estimated values determined by AAA for each of your partnership's properties and which is higher than our estimated total gross valuation of $61,051,032. CHERRY CREEK GARDEN Valuation Under Sales Comparison Approach. AAA compared five apartment complexes with Cherry Creek Garden that were sold between April 2002 and September 2002 and located in the property's real estate market area. Based on its qualitative analysis, AAA rated the locations of two comparable properties as superior and three comparable properties as comparable to the location of Cherry Creek Garden. AAA rated the quality/appeal of four comparable properties as superior and one comparable property as comparable to the quality/appeal of Cherry Creek Garden. AAA rated the amenities of all five comparable properties as comparable to the amenities of Cherry Creek Garden. AAA made adjustments to the sales price per unit of each comparable property to reflect differences from Cherry Creek Garden in location, number of units, quality/appeal, age/condition, occupancy at sale, amenities and average unit size. Based on the available data, AAA concluded a value range of $45,652 to $52,188 per unit with a mean or average adjusted price of $48,503 per unit and a median adjusted price of $49,083 per unit. Thus, the estimated value based on a $50,000 sales price per unit for the 295 units was approximately $14,200,000 after adjustment for lease-up costs and present value of concessions. As part of the sales comparison approach, AAA also conducted a net operating income ("NOI") analysis. NOI effectively takes into account the various physical, location and operating aspects of the sale. AAA compared Cherry Creek Garden 's NOI to the NOI of the five comparable properties and arrived at a percentage adjustment. After applying the percentage adjustment to the sales price per unit of each comparable property, the range of value was between $55,393 and $63,475 per unit, with an average of $60,771 per unit. The appraiser concluded a value of $53,000 per unit for the 295 units of the property, resulting in an estimated "as is" market value of $15,100,000 using the NOI analysis after adjustment for lease-up costs and present value of concessions. AAA also performed an effective gross income multiplier ("EGIM") analysis. The EGIM measures the relationship between the sales price of a property and its effective gross income, which is the total annual income 25 that a property would produce after an allowance for vacancy and credit loss. AAA estimated the operating expense ratio ("OER") of Cherry Creek Garden to be 42.12% before reserves, with the expense ratios of the five comparable properties ranging from 30.00% to 40.73%, resulting in EGIMs ranging from 7.14 to 9.55. Thus, AAA concluded an EGIM of 6.00 for Cherry Creek Garden, and applied the EGIM to the stabilized effective gross income for the property (see Income Approach section below), resulting in a value conclusion of approximately $14,300,000 after adjustment for lease-up costs and present value of concessions. AAA estimated the value using the price per unit analysis at $14,200,000, the value using the NOI analysis at $15,100,000 and the value using the EGIM analysis at $14,300,000. Based on these three valuation methods, AAA concluded that the reconciled value for Cherry Creek Garden under the sales comparison approach was $14,300,000. AAA assumed a marketing and exposure period of 6 to 12 months. Valuation Under Income Capitalization Approach. Under the income capitalization approach, AAA performed: (1) a direct capitalization analysis and (2) a discounted cash flow analysis to derive a value for Cherry Creek Garden. AAA first utilized a discounted cash flow method to analyze the value of the property. Under this method, anticipated future cash flow and a reversionary value are discounted at an appropriate rate of return to arrive at an estimate of present value. AAA also employed a direct capitalization analysis on the property by dividing a forecast of net operating income ("NOI") by an appropriate capitalization rate. AAA performed a market rent analysis for the property to derive a projected rental income. The analysis included both a review of the subject's current asking and actual rent rates as well as a comparison with comparable apartment properties. AAA calculated Cherry Creek Garden 's effective gross income ("EGI") by adding apartment rental collections to other income and then making an adjustment for vacancy and collection loss. Under this analysis, AAA arrived at an EGI of $2,473,980. Once the EGI was established, operating expenses were deducted from the EGI in order to arrive at an NOI for Cherry Creek Garden of approximately $1,372,946. AAA performed a pro forma analysis of revenue and expenses for the property to derive the subject's stabilized NOI. AAA relied on the subject's historical and budgeted income and expenses for this estimate. AAA derived appropriate investment criteria, including an overall capitalization rate, terminal capitalization rate and a discount rate based upon analysis of comparable sales and a survey of real estate investors. The assumptions employed by AAA to determine the value of Cherry Creek Garden under the income approach included: (1) stabilized vacancy and collection loss rate of 14%; (2) replacement reserve of $200 per unit; (3) overall capitalization rate of 9.00%; (4) terminal capitalization rate of 10.00%; (5) discount rate of 11.00%; (6) 2.00% cost of sale at reversion; and (7) holding period of 10 years. An adjustment was made for lease-up costs because Cherry Creek Garden 's occupancy level was below a stabilized occupancy projection Thus, AAA assumed a 16-month lease up period. An adjustment was made for concessions due to soft market conditions, and AAA estimated the present value of concessions to be $265,000. Based on these assumptions, AAA's estimate of cash flows for a 10-year period resulted in an indicated value of $14,300,000 through the discounted cash flow method. The reversion value contributed approximately 41% of the value. Under the direct capitalization method, utilizing a capitalization rate of 9.00%, the projected NOI resulted in a value (after rounding) of $14,700,00 after adjustments for lease-up costs and present value of concessions. 26 Using the income capitalization approach, AAA determined on an as-is basis that the direct capitalization method and the discounted cash flow method indicated the value for Cherry Creek Garden was $14,500,000. Reconciliation of Values and Conclusions of Appraisal. The final step in the appraisal process was to reconcile the sales comparison approach and the income capitalization approach values to arrive at a final value conclusion. The reconciliation of the two approaches involved weighing the valuation techniques in relation to their substantiation by market and other sources of data, the relativity and applicability of the approaches to the property type, and the purpose of the valuation. AAA concluded that the estimated market value under the sales comparison approach was $14,300,000 and the estimated market value under the income capitalization approach was $14,500,000. After reconciling the various factors, AAA determined a final "as is" market value for Cherry Creek Garden of $14,500,000 as of May 17, 2003. COOPER'S POND Valuation Under Sales Comparison Approach. AAA compared five apartment complexes with Cooper's Pond that were sold between June 2000 and July 2002 and located in the property's real estate market area. Based on its qualitative analysis, AAA rated the locations of all five comparable properties as comparable to the location of Cooper's Pond. AAA rated the quality/appeal all five comparable properties as comparable to the quality/appeal of Cooper's Pond. AAA rated the amenities of all five comparable properties as comparable to the amenities of Cooper's Pond. AAA made adjustments to the sales price per unit of each comparable property to reflect differences from Cooper's Pond in location, number of units, quality/appeal, age/condition, occupancy at sale, amenities and average unit size. Based on the available data, AAA concluded a value range of $27,239 to $32,840 per unit with a mean or average adjusted price of $29,717 per unit and a median adjusted price of $30,433 per unit. Thus, the estimated value based on a $30,000 sales price per unit for the 463 units was approximately $13,900,000. As part of the sales comparison approach, AAA also conducted a net operating income ("NOI") analysis. NOI effectively takes into account the various physical, location and operating aspects of the sale. AAA compared Cooper's Pond 's NOI to the NOI of the five comparable properties and arrived at a percentage adjustment. After applying the percentage adjustment to the sales price per unit of each comparable property, the range of value was between $30,657 and $33,399 per unit, with an average of $32,436 per unit. The appraiser concluded a value of $30,000 per unit for the 463 units of the property, resulting in an estimated "as is" market value of $13,900,000 using the NOI analysis. AAA also performed an effective gross income multiplier ("EGIM") analysis. The EGIM measures the relationship between the sales price of a property and its effective gross income, which is the total annual income that a property would produce after an allowance for vacancy and credit loss. AAA estimated the operating expense ratio ("OER") of Cooper's Pond to be 48.89% before reserves, with the expense ratios of the five comparable properties ranging from 44.90% to 61.84%, resulting in EGIMs ranging from 4.02 to 5.69. Thus, AAA concluded an EGIM of 4.70 for Cooper's Pond, and applied the EGIM to the stabilized effective gross income for the property (see Income Approach section below), resulting in a value conclusion of approximately $14,500,000. AAA estimated the value using the price per unit analysis at $13,900,000, the value using the NOI analysis at $13,900,000 and the value using the EGIM analysis at $14,500,000. Based on these three valuation methods, AAA concluded that the reconciled value for Cooper's Pond under the sales comparison approach was $13,900,000. AAA assumed a marketing and exposure period of 6 to 12 months. Valuation Under Income Capitalization Approach. Under the income capitalization approach, AAA performed: (1) a direct capitalization analysis and (2) a discounted cash flow analysis to derive a value for Cooper's Pond. AAA first utilized a discounted cash flow method to analyze the value of the property. Under this method, anticipated future cash flow and a reversionary value are discounted at an appropriate rate of return to arrive at an 27 estimate of present value. AAA also employed a direct capitalization analysis on the property by dividing a forecast of net operating income ("NOI") by an appropriate capitalization rate. AAA performed a market rent analysis for the property to derive a projected rental income. The analysis included both a review of the subject's current asking and actual rent rates as well as a comparison with comparable apartment properties. AAA calculated Cooper's Pond 's effective gross income ("EGI") by adding apartment rental collections to other income and then making an adjustment for vacancy and collection loss. Under this analysis, AAA arrived at an EGI of $3,080,071. Once the EGI was established, operating expenses were deducted from the EGI in order to arrive at an NOI for Cooper's Pond of approximately $1,458,357. AAA performed a pro forma analysis of revenue and expenses for the property to derive the subject's stabilized NOI. AAA relied on the subject's historical and budgeted income and expenses for this estimate. AAA derived appropriate investment criteria, including an overall capitalization rate, terminal capitalization rate and a discount rate based upon analysis of comparable sales and a survey of real estate investors. The assumptions employed by AAA to determine the value of Cooper's Pond under the income approach included: (1) stabilized vacancy and collection loss rate of 15%; (2) replacement reserve of $250 per unit; (3) overall capitalization rate of 10.00%; (4) terminal capitalization rate of 11.00%; (5) discount rate of 13.00%; (6) 2.00% cost of sale at reversion; and (7) holding period of 10 years. No adjustment was made for lease-up costs because the property was near or at a stabilized condition. No adjustment was made for concessions. Based on these assumptions, AAA's estimate of cash flows for a 10-year period resulted in an indicated value of $13,600,000 through the discounted cash flow method. The reversion value contributed approximately 34% of the value. Under the direct capitalization method, utilizing a capitalization rate of 10.00%, the projected NOI resulted in a value (after rounding) of $14,600,000. Using the income capitalization approach, AAA determined on an as-is basis that the direct capitalization method and the discounted cash flow method indicated the value for Cooper's Pond was $14,500,000. Reconciliation of Values and Conclusions of Appraisal. The final step in the appraisal process was to reconcile the sales comparison approach and the income capitalization approach values to arrive at a final value conclusion. The reconciliation of the two approaches involved weighing the valuation techniques in relation to their substantiation by market and other sources of data, the relativity and applicability of the approaches to the property type, and the purpose of the valuation. AAA concluded that the estimated market value under the sales comparison approach was $13,900,000 and the estimated market value under the income capitalization approach was $14,500,000. After reconciling the various factors, AAA determined a final "as is" market value for Cooper's Pond of $14,500,000 as of May 13, 2003. CREEKSIDE Valuation Under Sales Comparison Approach. AAA compared five apartment complexes with Creekside that were sold between May 2002 and March 2003 and located in the property's real estate market area. Based on its qualitative analysis, AAA rated the locations of one comparable property as superior, two comparable properties as comparable and two comparable properties as inferior to the location of Creekside. AAA rated the quality/appeal of 28 one comparable property as superior, three comparable properties as comparable and one comparable property as inferior to the quality/appeal of Creekside. AAA rated the amenities of all five comparable properties as comparable to the amenities of Creekside. AAA made adjustments to the sales price per unit of each comparable property to reflect differences from Creekside in location, number of units, quality/appeal, age/condition, occupancy at sale, amenities and average unit size. Based on the available data, AAA concluded a value range of $47,692 to $56,655 per unit with a mean or average adjusted price of $52,564 per unit and a median adjusted price of $53,971 per unit. Thus, the estimated value based on a $50,000 sales price per unit for the 328 units was approximately $16,200,000 after adjustment for lease-up costs and present value of concessions. As part of the sales comparison approach, AAA also conducted a net operating income ("NOI") analysis. NOI effectively takes into account the various physical, location and operating aspects of the sale. AAA compared Creekside 's NOI to the NOI of the five comparable properties and arrived at a percentage adjustment. After applying the percentage adjustment to the sales price per unit of each comparable property, the range of value was between $47,855 and $61,490 per unit, with an average of $54,478 per unit. The appraiser concluded a value of $51,000 per unit for the 328 units of the property, resulting in an estimated "as is" market value of $16,500,000 using the NOI analysis after adjustment for lease-up costs and present value of concessions. AAA also performed an effective gross income multiplier ("EGIM") analysis. The EGIM measures the relationship between the sales price of a property and its effective gross income, which is the total annual income that a property would produce after an allowance for vacancy and credit loss. AAA estimated the operating expense ratio ("OER") of Creekside to be 34.41% before reserves, with the expense ratios of the five comparable properties ranging from 27.19% to 45.87%, resulting in EGIMs ranging from 5.41 to 8.78. Thus, AAA concluded an EGIM of 6.75 for Creekside, and applied the EGIM to the stabilized effective gross income for the property (see Income Approach section below), resulting in a value conclusion of approximately $16,600,000 after adjustment for lease-up costs and present value of concessions. AAA estimated the value using the price per unit analysis at $16,200,000, the value using the NOI analysis at $16,500,000 and the value using the EGIM analysis at $16,600,000. Based on these three valuation methods, AAA concluded that the reconciled value for Creekside under the sales comparison approach was $16,500,000. AAA assumed a marketing and exposure period of 6 to 12 months. Valuation Under Income Capitalization Approach. Under the income capitalization approach, AAA performed: (1) a direct capitalization analysis and (2) a discounted cash flow analysis to derive a value for Creekside. AAA first utilized a discounted cash flow method to analyze the value of the property. Under this method, anticipated future cash flow and a reversionary value are discounted at an appropriate rate of return to arrive at an estimate of present value. AAA also employed a direct capitalization analysis on the property by dividing a forecast of net operating income ("NOI") by an appropriate capitalization rate. AAA performed a market rent analysis for the property to derive a projected rental income. The analysis included both a review of the subject's current asking and actual rent rates as well as a comparison with comparable apartment properties. AAA calculated Creekside 's effective gross income ("EGI") by adding apartment rental collections to other income and then making an adjustment for vacancy and collection loss. Under this analysis, AAA arrived at an EGI of $2,493,720. Once the EGI was established, operating expenses were deducted from the EGI in order to arrive at an NOI for Creekside of approximately $1,570,026. AAA performed a pro forma analysis of revenue and expenses for the property to derive the subject's stabilized NOI. AAA relied on the subject's historical and budgeted income and expenses for this estimate. AAA derived appropriate investment criteria, including an overall capitalization rate, terminal capitalization rate and a discount rate based upon analysis of comparable sales and a survey of real estate investors. 29 The assumptions employed by AAA to determine the value of Creekside under the income approach included: (1) stabilized vacancy and collection loss rate of 12.5%; (2) replacement reserve of $200 per unit; (3) overall capitalization rate of 9.50%; (4) terminal capitalization rate of 10.00%; (5) discount rate of 12.00%; (6) 2.00% cost of sale at reversion; and (7) holding period of 10 years. An adjustment was made for lease-up costs because Creekside 's occupancy level was below a stabilized occupancy projection Thus, AAA assumed a 8-month lease up period. An adjustment was made for concessions due to soft market conditions, and AAA estimated the present value of concessions to be $127,000. Based on these assumptions, AAA's estimate of cash flows for a 10-year period resulted in an indicated value of $15,900,000 through the discounted cash flow method. The reversion value contributed approximately 39% of the value. Under the direct capitalization method, utilizing a capitalization rate of 9.50%, the projected NOI resulted in a value (after rounding) of $16,300,000 after adjustments for lease-up costs present value of concessions. Using the income capitalization approach, AAA determined on an as-is basis that the direct capitalization method and the discounted cash flow method indicated the value for Creekside was $16,200,000. Reconciliation of Values and Conclusions of Appraisal. The final step in the appraisal process was to reconcile the sales comparison approach and the income capitalization approach values to arrive at a final value conclusion. The reconciliation of the two approaches involved weighing the valuation techniques in relation to their substantiation by market and other sources of data, the relativity and applicability of the approaches to the property type, and the purpose of the valuation. AAA concluded that the estimated market value under the sales comparison approach was $16,500,000 and the estimated market value under the income capitalization approach was $16,200,000. After reconciling the various factors, AAA determined a final "as is" market value for Creekside of $16,200,000 as of May 13, 2003. THE LODGE Valuation Under Sales Comparison Approach. AAA compared five apartment complexes with The Lodge that were sold between May 2002 and March 2003 and located in the property's real estate market area. Based on its qualitative analysis, AAA rated the locations of one comparable property as superior, three comparable properties as comparable and one comparable property as inferior to the location of The Lodge. AAA rated the quality/appeal of two comparable properties as superior, one comparable property as comparable and two comparable properties as inferior to the quality/appeal of The Lodge. AAA rated the amenities of four comparable properties as comparable and one comparable property as inferior to the amenities of The Lodge. AAA made adjustments to the sales price per unit of each comparable property to reflect differences from The Lodge in location, number of units, quality/appeal, age/condition, occupancy at sale, amenities and average unit size. Based on the available data, AAA concluded a value range of $46,182 to $48,913 per unit with a mean or average adjusted price of $47,590 per unit and a median adjusted price of $47,692 per unit. Thus, the estimated value based on a $47,000 sales price per unit for the 376 units was approximately $17,100,000 after adjustment for lease-up costs and present value of concessions. As part of the sales comparison approach, AAA also conducted a net operating income ("NOI") analysis. NOI effectively takes into account the various physical, location and operating aspects of the sale. AAA compared The Lodge 's NOI to the NOI of the five comparable properties and arrived at a percentage adjustment. After applying the percentage adjustment to the sales price per unit of each comparable property, the range of value was between $45,107 and $57,959 per unit, with an average of $51,349 per unit. The appraiser concluded a value of $48,000 per unit for the 376 units of the property, resulting in an estimated "as is" market value of $17,500,000 using the NOI analysis after adjustment for lease-up costs and present value of concessions. 30 AAA also performed an effective gross income multiplier ("EGIM") analysis. The EGIM measures the relationship between the sales price of a property and its effective gross income, which is the total annual income that a property would produce after an allowance for vacancy and credit loss. AAA estimated the operating expense ratio ("OER") of The Lodge to be 33.65% before reserves, with the expense ratios of the five comparable properties ranging from 27.19% to 45.87%, resulting in EGIMs ranging from 5.41 to 8.78. Thus, AAA concluded an EGIM of 6.75 for The Lodge, and applied the EGIM to the stabilized effective gross income for the property (see Income Approach section below), resulting in a value conclusion of approximately $17,500,000 after adjustment for lease-up costs and present value of concessions. AAA estimated the value using the price per unit analysis at $17,100,000, the value using the NOI analysis at $17,500,000 and the value using the EGIM analysis at $17,500,000. Based on these three valuation methods, AAA concluded that the reconciled value for The Lodge under the sales comparison approach was $17,300,000. AAA assumed a marketing and exposure period of 6 to 12 months. Valuation Under Income Capitalization Approach. Under the income capitalization approach, AAA performed: (1) a direct capitalization analysis and (2) a discounted cash flow analysis to derive a value for The Lodge. AAA first utilized a discounted cash flow method to analyze the value of the property. Under this method, anticipated future cash flow and a reversionary value are discounted at an appropriate rate of return to arrive at an estimate of present value. AAA also employed a direct capitalization analysis on the property by dividing a forecast of net operating income ("NOI") by an appropriate capitalization rate. AAA performed a market rent analysis for the property to derive a projected rental income. The analysis included both a review of the subject's current asking and actual rent rates as well as a comparison with comparable apartment properties. AAA calculated The Lodge 's effective gross income ("EGI") by adding apartment rental collections to other income and then making an adjustment for vacancy and collection loss. Under this analysis, AAA arrived at an EGI of $2,670,315. Once the EGI was established, operating expenses were deducted from the EGI in order to arrive at an NOI for The Lodge of approximately $1,696,439. AAA performed a pro forma analysis of revenue and expenses for the property to derive the subject's stabilized NOI. AAA relied on the subject's historical and budgeted income and expenses for this estimate. AAA derived appropriate investment criteria, including an overall capitalization rate, terminal capitalization rate and a discount rate based upon analysis of comparable sales and a survey of real estate investors. The assumptions employed by AAA to determine the value of The Lodge under the income approach included: (1) stabilized vacancy and collection loss rate of 12%; (2) replacement reserve of $200 per unit; (3) overall capitalization rate of 9.50%; (4) terminal capitalization rate of 10.00%; (5) discount rate of 12.00%; (6) 2.00% cost of sale at reversion; and (7) holding period of 10 years. An adjustment was made for lease-up costs because The Lodge 's occupancy level was below a stabilized occupancy projection. Thus, AAA assumed a 15-month lease up period. An adjustment was made for concessions due to soft market conditions, and AAA estimated the present value of concessions to be $246,000. Based on these assumptions, AAA's estimate of cash flows for a 10-year period resulted in an indicated value of $16,800,000 through the discounted cash flow method. The reversion value contributed approximately 40% of the value. 31 Under the direct capitalization method, utilizing a capitalization rate of 9.50%, the projected NOI resulted in a value (after rounding) of $17,300,000 after adjustments for lease-up costs and present value of concessions. Using the income capitalization approach, AAA determined on an as-is basis that the direct capitalization method and the discounted cash flow method indicated the value for The Lodge was $17,200,000. Reconciliation of Values and Conclusions of Appraisal. The final step in the appraisal process was to reconcile the sales comparison approach and the income capitalization approach values to arrive at a final value conclusion. The reconciliation of the two approaches involved weighing the valuation techniques in relation to their substantiation by market and other sources of data, the relativity and applicability of the approaches to the property type, and the purpose of the valuation. AAA concluded that the estimated market value under the sales comparison approach was $17,300,000 and the estimated market value under the income capitalization approach was $17,200,000. After reconciling the various factors, AAA determined a final "as is" market value for The Lodge of $17,200,000 as of May 12, 2003 VILLAGE IN THE WOODS Valuation Under Sales Comparison Approach. AAA compared five apartment complexes with Village in the Woods that were sold between May 2000 and June 2002 and located in the property's real estate market area. Based on its qualitative analysis, AAA rated the locations of four comparable properties as comparable and one comparable property as inferior to the location of Village in the Woods. AAA rated the quality/appeal of four comparable properties as comparable and one comparable property as inferior to the quality/appeal of Village in the Woods. AAA rated the amenities of all five comparable properties as comparable to the amenities of Village in the Woods. AAA made adjustments to the sales price per unit of each comparable property to reflect differences from Village in the Woods in location, number of units, quality/appeal, age/condition, occupancy at sale, amenities and average unit size. Based on the available data, AAA concluded a value range of $32,917 to $39,100 per unit with a mean or average adjusted price of $36,559 per unit and a median adjusted price of $37,320 per unit. Thus, the estimated value based on a $36,500 sales price per unit for the 530 units was approximately $18,900,000 after adjustment for deferred maintenance and present value of concessions. As part of the sales comparison approach, AAA also conducted a net operating income ("NOI") analysis. NOI effectively takes into account the various physical, location and operating aspects of the sale. AAA compared Village in the Woods 's NOI to the NOI of the five comparable properties and arrived at a percentage adjustment. After applying the percentage adjustment to the sales price per unit of each comparable property, the range of value was between $33,395 and $40,816 per unit, with an average of $38,465 per unit. The appraiser concluded a value of $37,000 per unit for the 530 units of the property, resulting in an estimated "as is" market value of $19,100,000 using the NOI analysis after adjustment for deferred maintenance and present value of concessions. Because of a lack of data, AAA did not use the effective gross income multiplier ("EGIM") analysis. AAA estimated the value using the price per unit analysis at $18,900,000 and the value using the NOI analysis at $19,100,000. Based on these two valuation methods, AAA concluded that the reconciled value for Village in the Woods under the sales comparison approach was $19,000,000. AAA assumed a marketing and exposure period of 6 to 12 months. Valuation Under Income Capitalization Approach. Under the income capitalization approach, AAA performed: (1) a direct capitalization analysis and (2) a discounted cash flow analysis to derive a value for Village in the Woods. 32 AAA first utilized a discounted cash flow method to analyze the value of the property. Under this method, anticipated future cash flow and a reversionary value are discounted at an appropriate rate of return to arrive at an estimate of present value. AAA also employed a direct capitalization analysis on the property by dividing a forecast of net operating income ("NOI") by an appropriate capitalization rate. AAA performed a market rent analysis for the property to derive a projected rental income. The analysis included both a review of the subject's current asking and actual rent rates as well as a comparison with comparable apartment properties. AAA calculated 's effective gross income ("EGI") by adding apartment rental collections to other income and then making an adjustment for vacancy and collection loss. Under this analysis, AAA arrived at an EGI of $3,899,628. Once the EGI was established, operating expenses were deducted from the EGI in order to arrive at an NOI for Village in the Woods of approximately $1,946,943. AAA performed a pro forma analysis of revenue and expenses for the property to derive the subject's stabilized NOI. AAA relied on the subject's historical and budgeted income and expenses for this estimate. AAA derived appropriate investment criteria, including an overall capitalization rate, terminal capitalization rate and a discount rate based upon analysis of comparable sales and a survey of real estate investors. The assumptions employed by AAA to determine the value of Village in the Woods under the income approach included: (1) stabilized vacancy and collection loss rate of 9%; (2) replacement reserve of $350 per unit; (3) overall capitalization rate of 10.00%; (4) terminal capitalization rate of 10.50%; (5) discount rate of 11.50%; (6) 3.00% cost of sale at reversion; and (7) holding period of 10 years. No adjustment was made for lease-up costs because the property was near or at a stabilized condition. An adjustment was made for concessions due to soft market conditions, and AAA estimated the present value of concessions to be $366,000. An adjustment of $115,000 was made for deferred maintenance. Based on these assumptions, AAA's estimate of cash flows for a 10-year period resulted in an indicated value of $18,800,00 through the discounted cash flow method. The reversion value contributed approximately 38% of the value. Under the direct capitalization method, utilizing a capitalization rate of 10.00%, the projected NOI resulted in a value (after rounding) of $19,000,000 after adjustments for deferred maintenance and present value of concessions. Using the income capitalization approach, AAA determined on an as-is basis that the direct capitalization method and the discounted cash flow method indicated the value for Village in the Woods was $18,800,000. Reconciliation of Values and Conclusions of Appraisal. The final step in the appraisal process was to reconcile the sales comparison approach and the income capitalization approach values to arrive at a final value conclusion. The reconciliation of the two approaches involved weighing the valuation techniques in relation to their substantiation by market and other sources of data, the relativity and applicability of the approaches to the property type, and the purpose of the valuation. AAA concluded that the estimated market value under the sales comparison approach was $19,000,000 and the estimated market value under the income capitalization approach was $18,800,000. After reconciling the various factors, AAA determined a final "as is" market value for Village in the Woods of $18,800,000 as of May 12, 2003. 33 ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS OF AAA'S VALUATION. In preparing the appraisal, AAA relied, without independent verification, on the accuracy and completeness of all information supplied or otherwise made available to it by or on behalf of the partnership. In arriving at the appraisal, AAA assumed: o good and marketable title to the property; o validity of owner's claim to the property; o no encumbrances which could not be cleared through normal processes, unless otherwise stated; o accuracy of land areas and descriptions obtained from public records; o no subsurface mineral and use rights or conditions; o no substances such as asbestos, urea-formaldehyde foam insulation, other chemicals, toxic wastes, or other potentially hazardous materials in existence or present on or in the property; o full compliance with applicable federal, state and local environmental regulations and laws, unless otherwise stated, defined and considered; o possession of all required licenses, consents, or other legislative or administrative authority from any local, state, or national government or private entity organization and that the renewal of these items is possible; o compliance with all applicable zoning and use regulations and restrictions, unless a nonconformity has been stated, defined, and considered; o utilization of the land and improvements within property boundaries and no encroachment or trespass of the improvements, unless otherwise stated; o 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 not readily apparent during inspection; and o compliance with the Americans with Disabilities Act of 1992. COMPENSATION OF APPRAISER. AAA was appointed by the court to perform all the real estate appraisals in connection with the settlement and this Litigation Settlement Offer. AAA was paid a fee of $619,100 for the appraisals. We have agreed to pay 50% of the costs of the appraisals, with the other 50% to be paid from the settlement fund. AAA has conducted other appraisals of property in connection with the other offers being made pursuant to the settlement agreement. Other than the appraisals performed in connection with the settlement agreement, during the prior two years, no material relationship has existed between AAA and your partnership or any of its affiliates, including the AIMCO Entities. AVAILABILITY OF APPRAISAL REPORTS. You may obtain a full copy of AAA's appraisals upon request, without charge, by contacting the Information Agent at one of the addresses or the telephone number on the back cover of this Litigation Settlement Offer. Copies of the appraisal for the property are also available for inspection and copying at the principal executive offices of the partnership during regular business hours by any interested unitholder or his or her designated representative at his or her cost. In addition, a copy of the appraisals has been filed with the SEC as an exhibit to the Tender Offer Statement and Rule 13e-3 Transaction Statement on Schedule TO. In estimating the net liquidation proceeds that would be payable per unit based on the total appraised value of your partnership's properties, we applied the same basic methodology as described under "Valuation of Units", except that we did not deduct any amounts that were reflected in the total appraised value nor did we include any payment from the settlement fund. As indicated below, based on the total appraised value of the partnership properties, the estimated net liquidation proceeds per unit is $283.83, which is higher than our offer price of $208.02. 34 Appraised value of partnership properties................... $ 81,200,000 Plus: Cash and cash equivalents (net of tenant security deposits)................................................. 311,038 Plus: Other partnership assets, including any amounts payable by the general partner and its affiliates upon liquidation............................................... 960,306 Less: Mortgage debt, including accrued interest and any prepayment penalty........................................ (58,976,330) Less: Accounts payable and accrued expenses................. (306,954) Less: Other liabilities..................................... (1,336,493) ------------ Partnership valuation before taxes and certain costs........ $ 21,851,567 Less: Extraordinary capital expenditures and deferred maintenance (to the extent not reflected in the appraised value of partnership properties).......................... (166,640) Less: Estimated closing costs............................... (1,106,790) Plus: general partner contributions under deficit reduction provision................................................. 1,120,961 ------------ Estimated net liquidation proceeds of your partnership...... $ 21,699,098 Percentage of estimated net liquidation proceeds allocable to holders of units based on the partnership agreement.... 98% ------------ Estimated net liquidation proceeds of units................. $ 21,287,535 Total number of units..................................... 75,000.00 ------------ Estimated net liquidation proceeds per unit................. $ 283.83 ============
(5) The second paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 11. Background and Reasons for the Offer - Alternatives Considered by Your General Partner -- Liquidation" is amended and restated as follows: "If your partnership was liquidated, and the properties sold at prices equal to the values recently determined by the independent appraiser (see Annex II), we estimate that your net liquidation proceeds would be $283.83 per unit. See "The Litigation Settlement Offer -- Section 8. Valuation of Units." However, in the opinion of your general partner, which is our affiliate, the present time may not be the most desirable time to sell the real estate assets of your partnership in a private transaction, and the proceeds realized from any such sale would be uncertain. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Although future operating results and sales prices are uncertain, your general partner believes that the operating performance of your partnership's property may improve in the future. This improvement, should it occur, may result in higher property values. Such values, however, are also a function of capitalization rates in the market and the interest rate environment at the time. However, because your general partner and property manager (which are our affiliates) receive fees for managing your partnership and its property, a conflict of 35 interest exists between continuing the partnership and receiving such fees, on the one hand, and the liquidation of the partnership and the termination of such fees, on the other. See "The Litigation Settlement Offer -- Section 15. Certain Information Concerning Your Partnership -- Investment Objectives and Policies; Sale or Financing of Investments" and "--Section 13. Conflicts of Interest and Transactions with Affiliates." The term of the partnership will continue until December 31, 2006, unless the partnership is terminated sooner under the provisions of the partnership agreement." (6) The paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 11. Background and Reasons for the Offer - Alternative Transactions Considered by Us" is amended and restated as follows: "Alternative Transactions Considered by Us. At the present time, we have decided to proceed with this offer pursuant to the court approved settlement. From time to time in the past, we have considered proposing a number of alternative transactions, including the purchase of your partnership's property or a merger of your partnership in which you would receive cash in exchange for your units. We decided not to pursue these alternative transactions because, in each case, we determined that a tender offer would be a less expensive means of acquiring additional interests in your partnership, and would not require the consent or approval of any limited partners (other than those who elect to tender their units). In the future, however, we may consider purchasing your partnership's property or effecting such a merger. See "The Litigation Settlement Offer -- Section 14. Future Plans of the Purchaser." We also considered an offer to exchange units in your partnership for limited partnership interests in AIMCO Properties, L.P. However, because of the expense and delay associated with making such an exchange offer, we decided to make an offer for cash only. In addition, our historical experience has been that when we have offered limited partners an opportunity to receive cash or limited partnership interests in AIMCO Properties, L.P., the limited partners who tender usually prefer the cash option." (7) Section 12 under "THE LITIGATION SETTLEMENT OFFER" is amended and restated as follows: "12. POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER The partnership and the general partner of your partnership (which is our affiliate) have provided the following information for inclusion in this Litigation Settlement Offer: Factors in Favor of Fairness Determination. The general partner of your partnership believes the offer price and the structure of the transaction are fair to the unaffiliated limited partners. In support of such determination, the general partner considered the factors and information set forth below, but did not quantify or otherwise attach particular weight to any such factors or information: o the Court's approval of the settlement pursuant to which the offer is being made; o the fact that the interests of the unaffiliated limited partners were represented by counsel in the negotiation of the settlement agreement; o the method we used to determine our offer price is a method commonly relied upon by investors to value income producing property; o the offer gives limited partners an opportunity to make an individual decision on whether to tender their units or to continue to hold them; 36 o there is no established trading market for the limited partnership units, and the offer would provide immediate liquidity for tendering limited partners; o the uncertainty of the resulting proceeds from the possible alternative transactions, particularly a property sale or a liquidation of the partnership, o the fact that no unaffiliated limited partners would be able to participate in the future performance of the partnership following such alternative transactions; o the offer price exceeds the book value per unit of $(93.28) at September 30, 2003; o the fact that our offer price does not reflect any discount for minority interests; and o the absence of any other firm offers by third parties for all or substantially all of the partnership's assets, a merger or other extraordinary transaction during the past two years with which to compare the Litigation Settlement Offer. Factors Not in Favor of Fairness Determination. In addition to the foregoing factors, the general partner considered the following countervailing factors: o the recent valuation of your partnership's property by American Appraisal Associates, Inc., an independent appraiser appointed by the Court, which results in an estimate of net liquidation proceeds per unit of $283.83, which is higher than our offer price of $208.02; o the fact that offer prices in our prior tender offers were higher than our current offer price; and o prices at which the units have recently sold were higher than our current offer price. The general partner believes that consideration of the offer was procedurally fair because, among other things, (1) the Court approved the settlement agreement pursuant to which the offer is being made, (2) limited partners are provided the opportunity to retain their units, (3) the unaffiliated limited partners were represented by counsel in the negotiation of the settlement agreement, and (4) limited partners can evaluate our offer price by comparing it to the net liquidation proceeds per unit derived from the independent appraiser's property valuation. While the general partner believes our offer is fair, the general partner also believes that you must make your own decision whether or not to participate in any offer, based upon a number of factors, including several factors that may be personal to you, such as your financial position, your need or desire for liquidity, your preferences regarding the timing of when you might wish to sell your units, other financial opportunities available to you, and your tax position and the tax consequences to you of selling your units. Consequently, the general partner makes no recommendation as to whether or not you should tender or refrain from tendering your units in this offer. YOU ARE ENCOURAGED TO CAREFULLY REVIEW THIS LITIGATION SETTLEMENT OFFER, THE EXECUTIVE SUMMARY OF THE INDEPENDENT APPRAISER'S REPORT (ATTACHED AS ANNEX II) AND ANY OTHER INFORMATION AVAILABLE TO YOU AND TO SEEK ADVICE FROM YOUR INDEPENDENT LAWYER, TAX ADVISOR AND/OR FINANCIAL ADVISOR BEFORE DECIDING WHETHER OR NOT TO ACCEPT THIS LITIGATION SETTLEMENT OFFER. Neither the general partner of your partnership or its affiliates have any plans or arrangements to tender any units. Except as otherwise provided in "The Litigation Settlement Offer -- Section 14. 37 Future Plans of the Purchaser," the general partner does not have any present plans or proposals which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation, involving your partnership; a purchase or sale or transfer of a material amount of your partnership's assets; or any changes in your partnership's present capitalization, indebtedness or distribution policies. For information relating to certain relationships between your partnership and its general partner, on one hand, and AIMCO and its affiliates, on the other, and conflicts of interests with respect to the tender offer, see "The Litigation Settlement Offer -- Section 11. Background and Reasons for the Offer" and "-- Section 13. Conflicts of Interest and Transactions with Affiliates." See also "The Litigation Settlement Offer -- Section 8. Valuation of Units -- Comparison to Alternative Consideration" for certain information regarding transactions with respect to units of your partnership. Your partnership did not receive any report, opinion or appraisal with respect to the fairness of this Litigation Settlement Offer or the offer price being offered to limited partners. However, the partnership did receive the appraisals prepared by AAA, as described above. Although the AIMCO Entities have interests that may be in conflict with those of the partnership's unaffiliated limited partners, each of the AIMCO Entities believes that the offer price and the structure of the transaction are fair to the unaffiliated limited partners based on the information and factors considered by the general partner of your partnership. Each of AIMCO Entities expressly adopts the analysis, and the factors underlying such analysis, of the general partner of your partnership." (8) The first paragraph of "THE LITIGATION SETTLEMENT OFFER - Section 13. Conflicts of Interest and Transactions with Affiliates -- Transactions with Affiliates" is amended and restated as follows: "NHP Management Company (which is our affiliate) received fees of approximately $44,000 and $43,000 for the years ended December 31, 2002 and 2001, respectively, for construction management services. The construction management service fees are calculated based on a percentage of current additions to investment properties." (9) The third paragraph of "THE LITIGATION SETTLEMENT OFFER - Section 13. Conflicts of Interest and Transactions with Affiliates -- Transactions with Affiliates" is amended and restated as follows: "We have made available to the partnership a credit line of up to $150,000 per property owned by the partnership. The partnership has no outstanding amounts due under this line of credit. Based on present plans, the general partner does not anticipate the need to borrow in the near future. Other than cash and cash equivalents, the line of credit is the partnership's only unused source of liquidity." (10) The fourth and fifth paragraphs under "THE LITIGATION SETTLEMENT OFFER - Section 14. Future Plans of the Purchaser" are amended and restated as follows: "We have been advised that the general partner does not currently expect to consider, on behalf of your partnership any of the following transactions: (i) payment of extraordinary distributions; (ii) refinancing, reducing or increasing existing indebtedness of the partnership; (iii) sales of assets, individually or as part of a complete liquidation; and (iv) mergers or other consolidation transactions involving the partnership. Any such merger or consolidation 38 transaction could involve other limited partnerships in which your general partner or its affiliates serve as general partners, or a combination of the partnership with one or more existing, publicly traded entities (including, possibly, affiliates of AIMCO), in any of which limited partners might receive cash, common stock or other securities or consideration. As discussed under "The Litigation Settlement Offer - Section 15. Certain Information Concerning Your Partnership - Investment Objectives and Policies; Sale or Financing of Investments," the general partner regularly evaluates the real estate and capital markets. The general partner may consider refinancing the partnership's existing indebtedness to the extent that the general partner is able to obtain a lower interest rate or if such indebtedness is approaching maturity. Furthermore, in the event that the general partner receives an attractive offer for any of your partnership's properties, the general partner would give due consideration to such an offer. If any of the transactions referred to above occur, and financial benefits accrue to the limited partners, we will participate in those benefits to the extent of our ownership of units. The agreement of limited partnership prohibits limited partners from voting on actions taken by the partnership, unless otherwise specifically permitted therein. Limited partners may vote on a liquidation, and we will be able to significantly influence or control the outcome of any such vote. Our primary objective in seeking to acquire the units pursuant to the offer is not, however, to influence the vote on any particular transaction, but rather to generate a profit on the investment represented by those units." (11) The chart under "THE LITIGATION SETTLEMENT OFFER - Section 15. Certain Information Concerning Your Partnership - Financial Data" is amended by adding the following line items:
FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, ---------------------------- -------------------------------------- 2003 2002 2002 2001 2000 ------------- ------------- ------------- ------------- --------- (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Income (loss) per unit from continuing operations $ (9.28) $ 14.85 $ 17.80 $ 26.79 $ 29.00 Ratio of earnings to fixed charges (deficit)....... 70.8% 145.6% 141.1% 160.5% 164.3% Book value per limited partnership unit............ (93.28) (80.53) (82.45) (72.01) (52.64)
(12) The following chart under Annex I is amended and restated as follows:
NAME POSITION - -------------------------- ------------------------------------------------------------------ Terry Considine............ Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez......... Vice Chairman, President and Director Harry G. Alcock............ Executive Vice President and Chief Investment Officer Miles Cortez............... Executive Vice President, General Counsel and Secretary Joseph DeTuno.............. Executive Vice President -- Redevelopment Patti K. Fielding.......... Executive Vice President -- Securities and Debt Patrick J. Foye............ Executive Vice President Lance J. Graber............ Executive Vice President -- AIMCO Capital Paul J. McAuliffe.......... Executive Vice President and Chief Financial Officer Ronald D. Monson........... Executive Vice President and Head of Property Operations David Robertson............ Executive Vice President -- President and Chief Executive Officer of AIMCO Capital Jim Purvis................. Executive Vice President -- Human Resources Randall J. Fein............ Executive Vice President -- Student Housing James N. Bailey............ Director Richard S. Ellwood......... Director J. Landis Martin........... Director Thomas L. Rhodes........... Director
39 SIGNATURE After due inquiry and to the best of its knowledge and belief, the undersigned hereby certify that the information set forth in this statement is true, complete and correct. Date: December 9, 2003 AIMCO PROPERTIES, L.P. By: AIMCO-GP, INC. Its General Partner By: /s/ Patrick J. Foye ------------------------------- Patrick J. Foye Executive Vice President 40 SCHEDULE 13E-3 After due inquiry and to the best of its knowledge and belief, the undersigned hereby certify that the information set forth in this statement is true, complete and correct. Date: December 9, 2003 AIMCO-GP, INC. By: /s/ Patrick J. Foye ------------------------------- Patrick J. Foye Executive Vice President APARTMENT INVESTMENT AND MANAGEMENT COMPANY By: /s/ Patrick J. Foye ------------------------------- Patrick J. Foye Executive Vice President FOX CAPITAL MANAGEMENT CORPORATION By: /s/ Patrick J. Foye ------------------------------- Patrick J. Foye Executive Vice President 41 EXHIBIT INDEX
Exhibit No. Description - ----------- ----------- (c)(1) Appraisal of Cherry Creek Garden (c)(2) Appraisal of Cooper's Pond (c)(3) Appraisal of Creekside (c)(4) Appraisal of The Lodge (c)(5) Appraisal of Village in the Woods
42 EX-99.(C)(1) 3 d07246a2exv99wxcyx1y.txt APPRAISAL OF CHERRY CREEK GARDEN CHERRY CREEK GARDEN 9959 EAST PEAKVIEW AVE UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO MARKET VALUE - FEE SIMPLE ESTATE AS OF MAY 17, 2003 PREPARED FOR: APARTMENT INVESTMENT AND MANAGEMENT COMPANY (AIMCO) C/O LINER YANKELEVITZ SUNSHINE & REGENSTREIF LLP & LIEFF CABRASER HEIMANN & BERNSTEIN ON BEHALF OF NUANES, ET. AL. [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LETTERHEAD] JUNE 28, 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: CHERRY CREEK GARDEN 9959 EAST PEAKVIEW AVE UNINCORPORATED AREA OF ARAPAHOE COUNTY, ARAPAHOE COUNTY, COLORADO 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 295 units with a total of 262,637 square feet of rentable area. The improvements were built in 1978. The improvements are situated on 14.39 acres. Overall, the improvements are in good condition. As of the date of this appraisal, the subject property is 71% 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 CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO 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 17, 2003 is: ($14,500,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. -s- Douglas Needham June 28, 2003 Douglas Needham, MAI #053272 Managing Principal, Real Estate Group Colorado State Certified General Real Estate Appraiser #CG40017035 Report By: James Newell AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO 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 CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Cherry Creek Garden LOCATION: 9959 East Peakview Ave Unincorporated area of Arapahoe County, Colorado 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 17, 2003 DATE OF REPORT: June 28, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 14.39 acres, or 626,828 square feet Assessor Parcel No.: 2075-22-4-22-001 Floodplain: Community Panel No. 08005C0480J (August 16, 1995) Flood Zone X, an area outside the floodplain. Zoning: R-4 (Obsolete Zone - Residential) BUILDING: No. of Units: 295 Units Total NRA: 262,637 Square Feet Average Unit Size: 890 Square Feet Apartment Density: 20.5 units per acre Year Built: 1978 UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
Market Rent Square ----------------- Monthly Annual Unit Type Feet Per Unit Per SF Income Income - --------- ------ -------- ------ -------- ---------- 1Bd/1Ba 710 $ 665 $ 0.94 $ 74,480 $ 893,760 2Bd/2Ba 923 $ 760 $ 0.82 $ 90,440 $1,085,280 3Bd/2Ba 1,145 $ 950 $ 0.83 $ 60,800 $ 729,600 -------- ---------- Total $225,720 $2,708,640 ======== ==========
OCCUPANCY: 71% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 15 Years REMAINING ECONOMIC LIFE: 30 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO SUBJECT PHOTOGRAPHS [EXTERIOR - APARTMENT BUILDING PICTURE] [EXTERIOR - PARKING LOT PICTURE] AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO 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 CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION Amount $/Unit --------------------- ------------------- -------------- Potential Rental Income $ 2,708,640 $9,182 Effective Gross Income $ 2,473,980 $8,386 Operating Expenses $ 1,042,034 $3,532 42.1% of EGI Net Operating Income: $ 1,372,946 $4,654 Capitalization Rate 9.00% DIRECT CAPITALIZATION VALUE $ 14,700,000 * $49,831 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 21% Stabilized Vacancy & Collection Loss: 14% Lease-up / Stabilization Period 16 months Terminal Capitalization Rate 10.00% Discount Rate 11.00% Selling Costs 2.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $ 14,300,000 * $48,475 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $ 14,500,000 $49,153 / UNIT SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $57,727 to $109,804 Range of Sales $/Unit (Adjusted) $ 45,652 to $52,188 VALUE INDICATION - PRICE PER UNIT $ 14,200,000 * $48,136 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 7.14 to 9.55 Selected EGIM for Subject 6.00 Subject's Projected EGI $ 2,473,980 EGIM ANALYSIS CONCLUSION $ 14,300,000 * $48,475 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $ 15,100,000 * $51,186 / UNIT RECONCILED SALES COMPARISON VALUE $ 14,300,000 $48,475 / 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 CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $ 14,200,000 NOI Per Unit $ 15,100,000 EGIM Multiplier $ 14,300,000 INDICATED VALUE BY SALES COMPARISON $ 14,300,000 $48,475 / UNIT INCOME APPROACH: Direct Capitalization Method: $ 14,700,000 Discounted Cash Flow Method: $ 14,300,000 INDICATED VALUE BY THE INCOME APPROACH $ 14,500,000 $49,153 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $ 14,500,000 $49,153 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 9959 East Peakview Ave, Unincorporated area of Arapahoe County, Arapahoe County, Colorado. Unincorporated area of Arapahoe County identifies it as 2075-22-4-22-001. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by James Newell on May 17, 2003. Douglas Needham, MAI has not made a personal inspection of the subject property. James Newell performed the research, valuation analysis and wrote the report. Douglas Needham, MAI reviewed the report and concurs with the value. Douglas Needham, MAI and James Newell 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 17, 2003. The date of the report is June 28, 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 CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO 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 Apartment CCG 17, L.P.. 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 CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO 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 Unincorporated area of Arapahoe County, Colorado. 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 Peoria Street West - Interstate 25 South - East Arapahoe Road North - East Belleview Avenue MAJOR EMPLOYERS The property is located in the Denver Metropolitan area, within which there are many large employers. 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 CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO NEIGHBORHOOD DEMOGRAPHICS
AREA -------------------------------------------- CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA - --------------------------- ------------ ------------ ------------ --------- POPULATION TRENDS Current Population 9,320 55,350 195,134 2,198,122 5-Year Population 10,463 59,259 216,841 2,428,641 % Change CY-5Y 12.3% 7.1% 11.1% 10.5% Annual Change CY-5Y 2.5% 1.4% 2.2% 2.1% HOUSEHOLDS Current Households 3,477 21,165 78,790 858,219 5-Year Projected Households 3,929 23,019 87,504 942,278 % Change CY - 5Y 13.0% 8.8% 11.1% 9.8% Annual Change CY-5Y 2.6% 1.8% 2.2% 2.0% INCOME TRENDS Median Household Income $ 85,772 $ 93,331 $ 79,771 $ 60,438 Per Capita Income $ 40,898 $ 42,218 $ 38,972 $ 27,463 Average Household Income $ 110,663 $ 110,764 $ 96,572 $ 70,339
Source: Demographics Now The subject neighborhood's population is expected to show increases above that of the region. The immediate market offers superior 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 33.19% 26.39% 24.86% 30.19% 5-Year Projected % Renting 31.68% 27.47% 23.78% 28.87% % of Households Owning 62.09% 70.59% 70.28% 61.93% 5-Year Projected % Owning 63.90% 69.63% 71.71% 63.83%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Single-family housing South - Automotive dealerships East - Condominiums West - Condominiums CONCLUSIONS The subject is well located within an area of unincorporated area of Arapahoe County. 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 CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO MARKET ANALYSIS The subject property is located in an area of unincorporated area of Arapahoe County in Arapahoe County. The overall pace of development in the subject's market is more or less stable. There is no known newly constructed properties in the subject's neighborhood. The following table illustrates historical vacancy rates for the subject's market. HISTORICAL VACANCY RATE
Period Region Submarket - ------ ------ --------- 2001 5.9% 6.1% 2002 8.1% 8.8%
(Source: REIS: Denver-Aurora South - 1st Quarter 2003) Occupancy trends in the subject's market are decreasing. Historically speaking, the subject's submarket has underperformed the overall market. The region in which the subject lies, known as the Denver Tech Center, has suffered with the collapse of the telecom sector. As the economy begins to bounce back, the subject's area is in a strong position to rebound. 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 - ------ ------ -------- --------- -------- 2001 $682 - $622 - 2002 $671 -1.6% $626 0.6%
The following table illustrates a summary of the subject's competitive set. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject - --- ------------------- ----- ----- ---------- ---------------------------------- R-1 The Lodge 376 79% 1973 Approx. 4 miles north of subject R-2 Stone Creek 450 80% 1974 Approx. 4 miles north of subject R-3 The Glen 300 90% 1975 Approx. 4 miles north of subject R-4 Kennedy Ridge 959 85% 1975 Approx. 4.5 miles north of subject R-5 Timberline 200 93% 1977 Approx. 5 miles north of subject Subject Cherry Creek Garden 295 71% 1978
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO PROPERTY DESCRIPTION SITE ANALYSIS Site Area 14.39 acres, or 626,828 square feet Shape Irregular Topography Level Utilities All necessary utilities are available to the site. Soil Conditions Stable Easements Affecting Site None other than typical utility easements Overall Site Appeal Good Flood Zone: Community Panel 08005C0480J, dated August 16, 1995 Flood Zone Zone X Zoning R-4, 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 - ------------- ---- -------- ----- ---------- -------- 2075-22-4-22- 001 $230,210 $1,828,170 $2,058,380 $0.07919 $163,011
IMPROVEMENT ANALYSIS Year Built 1978 Number of Units 295 Net Rentable Area 262,637 Square Feet Construction: Foundation Reinforced concrete slab Frame Heavy or light wood Exterior Walls Wood or vinyl siding Roof Wood Shingle over a wood truss structure Project Amenities Amenities at the subject include a swimming pool, spa/jacuzzi, tennis court, gym room, laundry room, and parking area. Unit Amenities Individual unit amenities include a balcony, fireplace, cable TV connection, and washer dryer connection. Appliances available in each unit include a refrigerator, stove, dishwasher, garbage disposal, and oven.
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) - --------- --------------- --------- 1Bd/1Ba 112 710 2Bd/2Ba 119 923 3Bd/2Ba 64 1,145
Overall Condition Good Effective Age 15 years Economic Life 45 years Remaining Economic Life 30 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 1978 and consist of a 295-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 CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO 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 CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO 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 CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO 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 CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 I - 3 ----------- ------- ----- ----- ----- Property Name Cherry Creek Saddle Ridge Reflections at Cherry The Colonnade Garden Creek LOCATION: Address 9959 East Peakview Ave 8707 E. Dry Creek Road 14012 E Tufts Drive 15301 E Ford Circle City, State Unincorporated area of Arapahoe Englewood, Colorado Aurora, Colorado Aurora, Colorado County Arapahoe County Arapahoe County Arapahoe County Arapahoe County PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 262,637 223,257 353,104 115,968 Year Built 1978 1994 1996 1984 Number of Units 295 230 416 138 Unit Mix: Type Total Type Total Type Total Type Total ------- ----- ------- ----- ------- ----- ------- ----- 1Bd/1Ba 112 1Bd/1Ba 76 1Bd/1Ba 160 1Bd/1Ba 72 2Bd/2Ba 119 2Bd/2Ba 154 2Bd/2Ba 192 2Bd/2Ba 66 3Bd/2Ba 64 3Bd/2Ba 64 Average Unit Size (SF) 890 971 849 840 Land Area (Acre) 14.3900 14.7400 20.4600 5.2700 Density (Units/Acre) 20.5 15.6 20.3 26.2 Parking Ratio (Spaces/Unit) 1.58 2.00 1.75 1.72 Parking Type (Gr., Cov., etc.) Open Garage, open Garage, open covered, Open covered, open open CONDITION: 0 Very Good Very Good Good APPEAL: 0 Very Good Very Good Good AMENITIES: Pool/Spa Yes/Yes Yes/Yes Yes/Yes Yes/Yes Gym Room Yes Yes Yes Yes Laundry Room Yes Yes Yes Yes Secured Parking No No No No Sport Courts No No No No OCCUPANCY: 71% 93% 95% 94% TRANSACTION DATA: Sale Date September, 2002 April, 2002 August, 2002 Sale Price ($) $25,255,000 $33,400,000 $9,000,000 Grantor WMFMT Real Estate Archstone-Smith WXI/SPN Real Estate Operating Trust Group Grantee Summitview Eagle Venture Reflections Kinnickinnic Realty Co. Sale Documentation 2159295 2079717 2155658 Verification Seller's broker Marcus & Millichap Listing Broker Telephone Number 303-779-9000 303-320-1300 720-528-6300 ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF ---------- ------- ------ ---------- ------ ------ ---------- ------ ------ Potential Gross Income $2,844,420 $12,367 $12.74 $4,080,000 $9,808 $11.55 $1,257,528 $9,113 $10.84 Vacancy/Credit Loss $ 199,109 $ 866 $ 0.89 $ 204,000 $ 490 $ 0.58 $ 75,452 $ 547 $ 0.65 Effective Gross Income $2,645,311 $11,501 $11.85 $3,876,000 $9,317 $10.98 $1,182,076 $8,566 $10.19 Operating Expenses $ 793,593 $ 3,450 $ 3.55 $1,414,400 $3,400 $ 4.01 $ 481,471 $3,489 $ 4.15 Net Operating Income $1,851,718 $ 8,051 $ 8.29 $2,461,600 $5,917 $ 6.97 $ 700,605 $5,077 $ 6.04 NOTES: Approx. $1mil of operating expenses estimated for deferred maintenance. PRICE PER UNIT $109,804 $80,288 $65,217 PRICE PER SQUARE FOOT $ 113.12 $ 94.59 $ 77.61 EXPENSE RATIO 30.0% 36.5% 40.7% EGIM 9.55 8.62 7.61 OVERALL CAP RATE 7.33% 7.37% 7.78% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA ACTUAL COMPARABLE COMPARABLE DESCRIPTION I - 4 I - 5 ----------- ----- ----- Property Name Knollwood AMLI at Park Meadows LOCATION: Address 15196 E Louisiana Drive 10200 Park Meadows Drive City, State Aurora, Colorado Littleton, Colorado County Arapahoe County Douglas County PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 96,296 532,996 Year Built 1982 2000 Number of Units 110 518 Unit Mix: Type Total Type Total ------- ----- ------- ----- 1Bd/1Ba 38 1Bd/1Ba 248 2Bd/2Ba 72 2Bd/2Ba 228 3Bd/2Ba 42 Average Unit Size (SF) 875 1,029 Land Area (Acre) 5.6900 33.3700 Density (Units/Acre) 19.3 15.5 Parking Ratio (Spaces/Unit) 2.82 0.00 Parking Type (Gr., Cov., etc.) Open covered, open Garage, open CONDITION: Good Very Good APPEAL: Good Very Good AMENITIES: Pool/Spa Yes/Yes Yes/Yes Gym Room Yes Yes Laundry Room Yes Yes Secured Parking No Yes Sport Courts Yes OCCUPANCY: 95% 85% TRANSACTION DATA: Sale Date May, 2002 April, 2002 Sale Price ($) $6,350,000 $56,500,000 Grantor Scott Properties Park Meadows Estates Grantee F. Malcolm & Kathryn AMLI at Park Meadows Wall Sale Documentation 2080847 39385 Verification Marcus & Millichap Seller Telephone Number 303-320-1300 ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF -------- ------ ----- ---------- ------- ------ Potential Gross Income $936,000 $8,509 $9.72 $6,878,976 $13,280 $12.91 Vacancy/Credit Loss $ 46,800 $ 425 $0.49 $ 687,898 $ 1,328 $ 1.29 Effective Gross Income $889,200 $8,084 $9.23 $6,191,078 $11,952 $11.62 Operating Expenses $355,680 $3,233 $3.69 $1,953,313 $ 3,771 $ 3.66 Net Operating Income $533,520 $4,850 $5.54 $4,237,765 $ 8,181 $ 7.95 NOTES: PRICE PER UNIT $57,727 $109,073 PRICE PER SQUARE FOOT $ 65.94 $ 106.00 EXPENSE RATIO 40.0% 31.6% EGIM 7.14 9.13 OVERALL CAP RATE 8.40% 7.50% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $57,727 to $109,804 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 $45,652 to $52,188 per unit with a mean or average adjusted price of $48,503 per unit. The median adjusted price is $49,083 per unit. Based on the following analysis, we have concluded to a value of $50,000 per unit, which results in an "as is" value of $14,200,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO SALES ADJUSTMENT GRID
DESCRIPTION SUBJECT COMPARABLE COMPARABLE COMPARABLE COMPARABLE COMPARABLE I - 1 I - 2 I - 3 I - 4 I - 5 - ----------- ------- ---------- ---------- ---------- ---------- ---------- Property Name Cherry Creek Saddle Ridge Reflections at The Knollwood AMLI at Park Garden Cherry Creek Colonnade Meadows Address 9959 East 8707 E. Dry Creek 14012 E Tufts 15301 E Ford 15196 E Louisiana 10200 Park Peakview Ave Road Drive Circle Drive Meadows Drive City Unincorporated Englewood, Aurora, Aurora, Aurora, Littleton, area of Arapahoe Colorado Colorado Colorado Colorado Colorado Sale Date September, 2002 April, 2002 August, 2002 May, 2002 April, 2002 Sale Price ($) $25,255,000 $33,400,000 $9,000,000 $6,350,000 $56,500,000 Net Rentable Area (SF) 262,637 223,257 353,104 115,968 96,296 532,996 Number of Units 295 230 416 138 110 518 Price Per Unit $ 109,804 $ 80,288 $ 65,217 $ 57,727 $ 109,073 Year Built 1978 1994 1996 1984 1982 2000 Land Area (Acre) 14.3900 14.7400 20.4600 5.2700 5.6900 33.3700 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Fee Simple Fee Simple Fee Simple Fee Simple Fee Simple Fee Simple Conveyed Estate Estate 0% Estate 0% Estate 0% Estate 0% Estate 0% Financing Cash To Cash To Cash To Cash To Cash To Seller 0% Seller 0% Seller 0% Seller 0% Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) 09-2002 0% 04-2002 0% 08-2002 0% 05-2002 0% 04-2002 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $109,804 $80,288 $65,217 $57,727 $109,073 Location Superior -5% Comparable 0% Comparable 0% Comparable 0% Superior -10% Number of Units 295 230 0% 416 5% 138 -10% 110 -15% 518 10% Quality / Appeal Good Superior -25% Superior -20% Superior -10% Comparable 0% Superior -25% Age / Condition 1978 1994 / 1996 / 1984 / 1982 / Good -5% 2000 / Very Good -25% Very Good -20% Good -10% Very Good -25% Occupancy at Sale 71% 93% 0% 95% 0% 94% 0% 95% 0% 85% 0% Amenities Good Comparable 0% Comparable 0% Comparable 0% Comparable 0% Comparable 0% Average Unit Size (SF) 890 971 0% 849 0% 840 0% 875 0% 1,029 -5% PHYSICAL ADJUSTMENT -55% -35% -30% -20% -55% FINAL ADJUSTED VALUE ($/UNIT) $49,412 $52,188 $45,652 $46,182 $49,083
SUMMARY VALUE RANGE (PER UNIT) $45,652 TO $52,188 MEAN (PER UNIT) $48,503 MEDIAN (PER UNIT) $49,083 VALUE CONCLUSION (PER UNIT) $50,000
VALUE OF IMPROVEMENT & MAIN SITE $14,750,000 LESS: LEASE-UP COST -$ 285,000 PV OF CONCESSIONS -$ 265,000 VALUE INDICATED BY SALES COMPARISON APPROACH $14,200,000 ROUNDED $14,200,000
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 CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO
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-1 230 $25,255,000 7.33% $1,851,718 $1,372,946 0.578 $63,475 $ 109,804 $ 8,051 $ 4,654 I-2 416 $33,400,000 7.37% $2,461,600 $1,372,946 0.787 $63,148 $ 80,288 $ 5,917 $ 4,654 I-3 138 $ 9,000,000 7.78% $ 700,605 $1,372,946 0.917 $59,786 $ 65,217 $ 5,077 $ 4,654 I-4 110 $ 6,350,000 8.40% $ 533,520 $1,372,946 0.960 $55,393 $ 57,727 $ 4,850 $ 4,654 I-5 518 $56,500,000 7.50% $4,237,765 $1,372,946 0.569 $62,050 $ 109,073 $ 8,181 $ 4,654
PRICE/UNIT
Low High Average Median $55,393 $63,475 $60,771 $62,050
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT Estimated Price Per Unit $ 53,000 Number of Units 295 Value $15,635,000 Less: Lease-Up Cost -$ 285,000 PV of Concessions -$ 265,000 ------------ Value Based on NOI Analysis $15,085,000 Rounded $15,100,000
The adjusted sales indicate a range of value between $55,393 and $63,475 per unit, with an average of $60,771 per unit. Based on the subject's competitive position within the improved sales, a value of $53,000 per unit is estimated. This indicates an "as is" market value of $15,100,000 (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 CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO
EFFECTIVE GROSS INCOME MULTIPLIER COMPARISON SALE PRICE COMPARABLE NO. OF ----------- EFFECTIVE OPERATING SUBJECT EGIM NO. UNITS PRICE/UNIT GROSS INCOME EXPENSE OER PROJECTED OER - ------------------------------------------------------------------------------------------------------- I-1 230 $25,255,000 $2,645,311 $ 793,593 30.00% 9.55 $ 109,804 I-2 416 $33,400,000 $3,876,000 $1,414,400 36.49% 8.62 $ 80,288 I-3 138 $ 9,000,000 $1,182,076 $ 481,471 40.73% 7.61 42.12% $ 65,217 I-4 110 $ 6,350,000 $ 889,200 $ 355,680 40.00% 7.14 $ 57,727 I-5 518 $56,500,000 $6,191,078 $1,953,313 31.55% 9.13 $ 109,073
EGIM
Low High Average Median - --- ---- ------- ------ 7.14 9.55 8.41 8.62
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES Estimate EGIM 6.00 Subject EGI $ 2,473,980 Value $14,843,882 Less: Lease-Up Cost -$ 285,000 PV of Concessions -$ 265,000 ------------ Value Based on EGIM Analysis $14,293,882 Rounded $14,300,000 Value Per Unit $ 48,475
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 42.12% before reserves. The comparable sales indicate a range of expense ratios from 30.00% to 40.73%, while their EGIMs range from 7.14 to 9.55. Overall, we conclude to an EGIM of 6.00, which results in an "as is" value estimate in the EGIM Analysis of $14,300,000. 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 $14,300,000. Price Per Unit $14,200,000 NOI Per Unit $15,100,000 EGIM Analysis $14,300,000 Sales Comparison Conclusion $14,300,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO 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 CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO 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 ============================================================================== 1Bd/1Ba 710 $628 $0.88 59.8% 2Bd/2Ba 923 $751 $0.81 74.8% 3Bd/2Ba 1145 $858 $0.75 81.3%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO RENT ANALYSIS
COMPARABLE RENTS ---------------------------------------------- R-1 R-2 R-3 R-4 R-5 ---------------------------------------------- The Stone The Kennedy Timberline Lodge Creek Glen Ridge SUBJECT SUBJECT ---------------------------------------------- SUBJECT UNIT ACTUAL ASKING COMPARISON TO SUBJECT MIN MAX MEDIAN AVERAGE DESCRIPTION TYPE RENT RENT ---------------------------------------------- Slightly Similar Similar Similar Superior Similar - ----------------------------------------------------------------------------------------------------------------------------------- Monthly Rent 1Bd/1Ba $ 628 $ 599 $ 579 $ 700 $ 615 $ 643 $ 645 $ 579 $ 700 $ 643 $ 636 Unit Area (SF) 710 710 625 724 660 625 609 609 724 625 649 Monthly Rent Per Sq. Ft. $0.88 $0.84 $0.93 $ 0.97 $0.93 $1.03 $ 1.06 $ 0.93 $ 1.06 $ 0.97 $ 0.98 Monthly Rent 2Bd/2Ba $ 751 $ 719 $ 769 $ 798 $ 725 $ 773 $ 775 $ 725 $ 798 $ 773 $ 768 Unit Area (SF) 923 923 825 930 873 875 928 825 930 875 886 Monthly Rent Per Sq. Ft. $0.81 $0.78 $0.93 $ 0.86 $0.83 $0.88 $ 0.84 $ 0.83 $ 0.93 $ 0.86 $ 0.87 Monthly Rent 3Bd/2Ba $ 858 $ 859 $1,015 $1,015 $1,015 $1,015 $1,015 Unit Area (SF) 1,145 1,145 1,079 1,079 1,079 1,079 1,079 Monthly Rent Per Sq. Ft. $0.75 $0.75 $ 0.94 $ 0.94 $ 0.94 $ 0.94 $ 0.94
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 Type Number of Units Unit Area -------------------- Monthly Annual (Sq. Ft.) Per Unit Per SF Income Income - ------------------------------------------------------------------------------------------------------------- 1Bd/1Ba 112 710 $665 $0.94 $ 74,480 $ 893,760 2Bd/2Ba 119 923 $760 $0.82 $ 90,440 $1,085,280 3Bd/2Ba 64 1,145 $950 $0.83 $ 60,800 $ 729,600 Total $225,720 $2,708,640
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 CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO 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 $2,979,217 $ 10,09 $3,132,738 $ 10,619 $2,936,888 $ 9,956 $2,810,316 $ 9,526 Vacancy $ 150,265 $ 509 $ 409,459 $ 1,388 $ 519,407 $ 1,761 $ 501,000 $ 1,698 Credit Loss/Concessions $ 23,808 $ 81 $ 112,310 $ 381 $ 93,314 $ 316 $ 0 $ 0 Subtotal $ 174,073 $ 590 $ 521,769 $ 1,769 $ 612,721 $ 2,077 $ 501,000 $ 1,698 Laundry Income $ 12,630 $ 43 $ 19,125 $ 65 $ 9,831 $ 33 $ 43,104 $ 146 Garage Revenue $ 560 $ 2 $ 280 $ 1 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 149,487 $ 507 $ 197,949 $ 671 $ 124,690 $ 423 $ 79,350 $ 269 Subtotal Other Income $ 162,677 $ 551 $ 217,354 $ 737 $ 134,521 $ 456 $ 122,454 $ 415 Effective Gross Income $2,967,821 $10,060 $2,828,323 $ 9,588 $2,458,688 $ 8,335 $2,431,770 $ 8,243 Operating Expenses Taxes $ 118,075 $ 400 $ 162,685 $ 551 $ 166,104 $ 563 $ 170,759 $ 579 Insurance $ 33,353 $ 113 $ 38,534 $ 131 $ 46,530 $ 158 $ 52,396 $ 178 Utilities $ 156,550 $ 531 $ 209,757 $ 711 $ 177,483 $ 602 $ 156,328 $ 530 Repair & Maintenance $ 110,944 $ 376 $ 120,792 $ 409 $ 122,374 $ 415 $ 159,763 $ 542 Cleaning $ 58,383 $ 198 $ 61,604 $ 209 $ 40,464 $ 137 $ 0 $ 0 Landscaping $ 15,453 $ 52 $ 17,515 $ 59 $ 20,328 $ 69 $ 39,460 $ 134 Security $ 8,311 $ 28 $ 6,512 $ 22 $ 4,741 $ 16 $ 0 $ 0 Marketing & Leasing $ 49,135 $ 167 $ 83,552 $ 283 $ 71,929 $ 244 $ 59,500 $ 202 General Administrative $ 235,445 $ 798 $ 217,441 $ 737 $ 265,099 $ 899 $ 252,932 $ 857 Management $ 150,438 $ 510 $ 159,692 $ 541 $ 118,471 $ 402 $ 125,029 $ 424 Miscellaneous $ 1,443 $ 5 $ 1,959 $ 7 $ 850 $ 3 $ 0 $ 0 Total Operating Expenses $ 937,530 $ 3,178 $1,080,043 $ 3,661 $1,034,373 $ 3,506 $1,016,167 $ 3,445 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Net Income $2,030,291 $ 6,882 $1,748,280 $ 5,926 $1,424,315 $ 4,828 $1,415,603 $ 4,799 ANNUALIZED 2003 ----------------------- PROJECTION AAA PROJECTION ---------------------------------------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT % - ------------------------------------------------------------------------------------ Revenues Rental Income $2,707,552 $ 9,178 $2,708,640 $ 9,182 100.0% Vacancy $ 871,568 $ 2,954 $ 325,037 $ 1,102 12.0% Credit Loss/Concessions $ 16,084 $ 55 $ 54,173 $ 184 2.0% Subtotal $ 887,652 $ 3,009 $ 379,210 $ 1,285 14.0% Laundry Income $ 52 $ 0 $ 11,800 $ 40 0.4% Garage Revenue $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 562,600 $ 1,907 $ 132,750 $ 450 4.9% Subtotal Other Income $ 562,652 $ 1,907 $ 144,550 $ 490 5.3% Effective Gross Income $2,382,552 $ 8,076 $2,473,980 $ 8,386 100.0% Operating Expenses Taxes $ 166,492 $ 564 $ 166,675 $ 565 6.7% Insurance $ 51,116 $ 173 $ 51,035 $ 173 2.1% Utilities $ 146,484 $ 497 $ 162,250 $ 550 6.6% Repair & Maintenance $ 160,728 $ 545 $ 132,750 $ 450 5.4% Cleaning $ 46,912 $ 159 $ 59,000 $ 200 2.4% Landscaping $ 0 $ 0 $ 19,175 $ 65 0.8% Security $ 2,544 $ 9 $ 1,475 $ 5 0.1% Marketing & Leasing $ 31,448 $ 107 $ 73,750 $ 250 3.0% General Administrative $ 288,412 $ 978 $ 250,750 $ 850 10.1% Management $ 87,328 $ 296 $ 123,699 $ 419 5.0% Miscellaneous $ 2,076 $ 7 $ 1,475 $ 5 0.1% Total Operating Expenses $ 983,540 $ 3,334 $1,042,034 $ 3,532 42.1% Reserves $ 0 $ 0 $ 59,000 $ 200 5.7% Net Income $1,399,012 $ 4,742 $1,372,946 $ 4,654 55.5%
REVENUES AND EXPENSES The subject's revenue and expense projections are displayed on the previous chart. Rental income is based on the market analysis previously discussed. Other income consists of forfeited deposits, laundry income, late rent payments, month to month fees, pet fees, vending machine revenue, etc. We forecasted the property's annual operating expenses after reviewing its historical performance at the subject property. We analyzed each item of expense and attempted to forecast amounts a typical informed investor would consider reasonable. VACANCY AND COLLECTION LOSS An investor is primarily interested in the annual revenue an income property is likely to produce over a specified period of time, rather than the income it could produce if it were always 100% occupied and all tenants were paying their rent in full and on time. An investor normally expects some income loss as tenants vacate, fail to pay rent, or pay their rent late. We have projected a stabilized vacancy and collection loss rate of 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 CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO 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 $200 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 $200 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 CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO
SUMMARY OF OVERALL CAPITALIZATION RATES -------------------- COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR - ------------------------------------------------------------------ I-1 Sep-02 93% $109,804 7.33% I-2 Apr-02 95% $ 80,288 7.37% I-3 Aug-02 94% $ 65,217 7.78% I-4 May-02 95% $ 57,727 8.40% I-5 Apr-02 85% $109,073 7.50% High 8.40% Low 7.33% Average 7.68%
Based on this information, we have concluded the subject's overall capitalization rate should be 9.00%. The terminal capitalization rate is applied to the net operating income estimated for the year following the end of the holding period. Based on the concluded overall capitalization rate, the age of the property and the surveyed information, we have concluded the subject's terminal capitalization rate to be 10.00%. Finally, the subject's discount rate or yield rate is estimated based on the previous investor survey and an examination of returns available on alternative investments in the market. Based on this analysis, the subject's discount rate is estimated to be 11.00%. HOLDING PERIOD The survey of investors indicates that most investors are completing either 10-year cash flows or extending the analysis to the end of the lease if it is more than 10-years. A 10-year period has been used in the analysis of the subject with the eleventh year stabilized NOI used to determine the reversion. SELLING COSTS Sales of similar size properties are typically accomplished with the aid of a broker and will also incur legal and other transaction related cost. Based on our survey of brokers and a review of institutional investor projections, an allowance of 2.00% of the sale amount is applied. DISCOUNTED CASH FLOW CONCLUSION Discounting the annual cash flows and the equity reversion at the selected rate of 11.00% indicates a value of $14,300,000. In this instance, the reversion figure contributes AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32 CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO approximately 41% 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 APPROACH PAGE 33 CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO DISCOUNTED CASH FLOW ANALYSIS
CHERRY CREEK GARDEN ------------------- YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 FISCAL YEAR 1 2 3 4 5 6 - ----------------------------------------------------------------------------------------------------- REVENUE Base Rent $2,708,640 $2,708,640 $2,735,726 $2,817,798 $2,902,332 $2,989,402 Vacancy $ 635,836 $ 349,703 $ 328,287 $ 338,136 $ 348,280 $ 358,728 Credit Loss $ 54,173 $ 54,173 $ 54,715 $ 56,356 $ 58,047 $ 59,788 Concessions $ 226,560 $ 75,520 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- ---------- Subtotal $ 916,569 $ 479,396 $ 383,002 $ 394,492 $ 406,326 $ 418,516 Laundry Income $ 11,800 $ 11,800 $ 11,918 $ 12,276 $ 12,644 $ 13,023 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 132,750 $ 132,750 $ 134,078 $ 138,100 $ 142,243 $ 146,510 ---------- ---------- ---------- ---------- ---------- ---------- Subtotal Other Income $ 144,550 $ 144,550 $ 145,996 $ 150,375 $ 154,887 $ 159,533 ---------- ---------- ---------- ---------- ---------- ---------- EFFECTIVE GROSS $1,936,621 $2,373,794 $2,498,720 $2,573,682 $2,650,892 $2,730,419 INCOME OPERATING EXPENSES: Taxes $ 166,675 $ 171,675 $ 176,826 $ 182,130 $ 187,594 $ 193,222 Insurance $ 51,035 $ 52,566 $ 54,143 $ 55,767 $ 57,440 $ 59,164 Utilities $ 162,250 $ 167,118 $ 172,131 $ 177,295 $ 182,614 $ 188,092 Repair & $ 132,750 $ 136,733 $ 140,834 $ 145,060 $ 149,411 $ 153,894 Maintenance Cleaning $ 59,000 $ 60,770 $ 62,593 $ 64,471 $ 66,405 $ 68,397 Landscaping $ 19,175 $ 19,750 $ 20,343 $ 20,953 $ 21,582 $ 22,229 Security $ 1,475 $ 1,519 $ 1,565 $ 1,612 $ 1,660 $ 1,710 Marketing & Leasing $ 73,750 $ 75,963 $ 78,241 $ 80,589 $ 83,006 $ 85,496 General Administrative $ 250,750 $ 258,273 $ 266,021 $ 274,001 $ 282,221 $ 290,688 Management $ 96,831 $ 118,690 $ 124,936 $ 128,684 $ 132,545 $ 136,521 Miscellaneous $ 1,475 $ 1,519 $ 1,565 $ 1,612 $ 1,660 $ 1,710 ---------- ---------- ---------- ---------- ---------- ---------- TOTAL OPERATING $1,015,166 $1,064,575 $1,099,198 $1,132,174 $1,166,139 $1,201,123 EXPENSES Reserves $ 59,000 $ 60,770 $ 62,593 $ 64,471 $ 66,405 $ 68,397 ---------- ---------- ---------- ---------- ---------- ---------- NET OPERATING INCOME $ 862,455 $1,248,449 $1,336,929 $1,377,037 $1,418,348 $1,460,899 ========== ========== ========== ========== ========== ========== Operating Expense Ratio (% of EGI) 52.4% 44.8% 44.0% 44.0% 44.0% 44.0% Operating Expense Per Unit $ 3,441 $ 3,609 $ 3,726 $ 3,838 $ 3,953 $ 4,072 ========== ========== ========== ========== ========== ========== YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 7 8 9 10 11 - ----------------------------------------------------------------------------------------- REVENUE Base Rent $3,079,084 $3,171,457 $3,266,600 $3,364,598 $3,465,536 Vacancy $ 369,490 $ 380,575 $ 391,992 $ 403,752 $ 415,864 Credit Loss $ 61,582 $ 63,429 $ 65,332 $ 67,292 $ 69,311 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- Subtotal $ 431,072 $ 444,004 $ 457,324 $ 471,044 $ 485,175 Laundry Income $ 13,414 $ 13,816 $ 14,231 $ 14,658 $ 15,097 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 150,905 $ 155,433 $ 160,096 $ 164,898 $ 169,845 ---------- ---------- ---------- ---------- ---------- Subtotal Other Income $ 164,319 $ 169,249 $ 174,326 $ 179,556 $ 184,943 ---------- ---------- ---------- ---------- ---------- EFFECTIVE GROSS $2,812,332 $2,896,702 $2,983,603 $3,073,111 $3,165,304 INCOME OPERATING EXPENSES: Taxes $ 199,019 $ 204,989 $ 211,139 $ 217,473 $ 223,997 Insurance $ 60,938 $ 62,767 $ 64,650 $ 66,589 $ 68,587 Utilities $ 193,735 $ 199,547 $ 205,533 $ 211,699 $ 218,050 Repair & $ 158,510 $ 163,266 $ 168,164 $ 173,209 $ 178,405 Maintenance Cleaning $ 70,449 $ 72,563 $ 74,739 $ 76,982 $ 79,291 Landscaping $ 22,896 $ 23,583 $ 24,290 $ 25,019 $ 25,770 Security $ 1,761 $ 1,814 $ 1,868 $ 1,925 $ 1,982 Marketing & Leasing $ 88,061 $ 90,703 $ 93,424 $ 96,227 $ 99,114 General Administrative $ 299,409 $ 308,391 $ 317,643 $ 327,172 $ 336,987 Management $ 140,617 $ 144,835 $ 149,180 $ 153,656 $ 158,265 Miscellaneous $ 1,761 $ 1,814 $ 1,868 $ 1,925 $ 1,982 ---------- ---------- ---------- ---------- ---------- TOTAL OPERATING $1,237,157 $1,274,271 $1,312,499 $1,351,874 $1,392,431 EXPENSES Reserves $ 70,449 $ 72,563 $ 74,739 $ 76,982 $ 79,291 ---------- ---------- ---------- ---------- ---------- NET OPERATING INCOME $1,504,726 $1,549,868 $1,596,364 $1,644,255 $1,693,582 ========== ========== ========== ========== ========== Operating Expense Ratio (% of EGI) 44.0% 44.0% 44.0% 44.0% 44.0% Operating Expense Per Unit $ 4,194 $ 4,320 $ 4,449 $ 4,583 $ 4,720 ========== ========== ========== ========== ==========
Gross Residual Sale Price $16,935,823 Deferred Maintenance $ 0 Estimated Stabilized NOI $1,372,94 Sales Expense Rate 2.00% Less: Sales Expense $ 338,716 Add: Excess Land $ 0 ----------- Months to Stabilized 16 Discount Rate 11.00% Net Residual Sale Price $16,597,106 Other Adjustments $ 0 ----------- Stabilized Occupancy 88.0% Terminal Cap Rate 10.00% PV of Reversion $ 5,845,243 Value Indicated By $14,280,702 "DCF" Add: NPV of NOI $ 8,435,458 Rounded $14,300,000 ----------- PV Total $14,280,702
"DCF" VALUE SENSITIVITY TABLE ----------------------------- DISCOUNT RATE TOTAL VALUE 10.50% 10.75% 11.00% 11.25% 11.50% - ----------------------------------------------------------------------------------------------------------- TERMINAL 9.50% $15,083,710 $14,833,290 $14,588,346 $14,348,740 $14,114,337 CAP RATE 9.75% $14,918,658 $14,671,926 $14,430,580 $14,194,483 $13,963,504 10.00% $14,761,858 $14,518,630 $14,280,702 $14,047,939 $13,820,213 10.25% $14,612,707 $14,372,812 $14,138,135 $13,908,544 $13,683,912 10.50% $14,470,659 $14,233,938 $14,002,357 $13,775,786 $13,554,101
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 34 CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO INCOME LOSS DURING LEASE-UP The subject is currently 71% occupied, below our stabilized occupancy projection. We have estimated a 16-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 $285,000 as shown in the following table.
DESCRIPTION YEAR 1 YEAR 2 - ----------- ------ ------ "As Is" Net Operating Income $ 862,455 $1,248,449 Stabilized Net Operating Income $1,157,714 $1,271,882 ========== ========== Difference $ 295,259 $ 23,433 PV of Income Loss During Lease-Up $ 285,018 ---------- ---------- Rounded $ 285,000 ----------
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 $265,000 (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 APPROACH PAGE 35 CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO 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 APPROACH PAGE 36 CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO CHERRY CREEK GARDEN
TOTAL PER SQ. FT. PER UNIT %OF EGI ----- ----------- -------- ------- REVENUE Base Rent $ 2,708,640 $10.31 $ 9,182 Less: Vacancy & Collection Loss 14.00% $ 379,210 $ 1.44 $ 1,285 Plus: Other Income Laundry Income $ 11,800 $ 0.04 $ 40 0.48% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 132,750 $ 0.51 $ 450 5.37% ----------- ------ ------- ----- Subtotal Other Income $ 144,550 $ 0.55 $ 490 5.84% EFFECTIVE GROSS INCOME $ 2,473,980 $ 9.42 $ 8,386 OPERATING EXPENSES: Taxes $ 166,675 $ 0.63 $ 565 6.74% Insurance $ 51,035 $ 0.19 $ 173 2.06% Utilities $ 162,250 $ 0.62 $ 550 6.56% Repair & Maintenance $ 132,750 $ 0.51 $ 450 5.37% Cleaning $ 59,000 $ 0.22 $ 200 2.38% Landscaping $ 19,175 $ 0.07 $ 65 0.78% Security $ 1,475 $ 0.01 $ 5 0.06% Marketing & Leasing $ 73,750 $ 0.28 $ 250 2.98% General Administrative $ 250,750 $ 0.95 $ 850 10.14% Management 5.00% $ 123,699 $ 0.47 $ 419 5.00% Miscellaneous $ 1,475 $ 0.01 $ 5 0.06% TOTAL OPERATING EXPENSES $ 1,042,034 $ 3.97 $ 3,532 42.12% Reserves $ 59,000 $ 0.22 $ 200 2.38% =========== ====== ======= ===== NET OPERATING INCOME $ 1,372,946 $ 5.23 $ 4,654 55.50% "GOING IN" CAPITALIZATION RATE 9.00% VALUE INDICATION $15,254,960 $58.08 $51,712 LESS: LEASE-UP COST ($ 285,000) PV OF CONCESSIONS ($ 265,000) "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $14,704,960 ROUNDED $14,700,000 $55.97 $49,831
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 37 CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO
DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE --------------------------------------------- CAP RATE VALUE ROUNDED $/UNIT $/SF - -------- ----- ------- ------ ---- 8.25% $16,091,774 $16,100,000 $54,576 $61.30 8.50% $15,602,310 $15,600,000 $52,881 $59.40 8.75% $15,140,816 $15,100,000 $51,186 $57.49 9.00% $14,704,960 $14,700,000 $49,831 $55.97 9.25% $14,292,664 $14,300,000 $48,475 $54.45 9.50% $13,902,067 $13,900,000 $47,119 $52.92 9.75% $13,531,501 $13,500,000 $45,763 $51.40
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $14,700,000. 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 $14,700,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $14,500,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 38 CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO 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 $14,300,000 Income Approach $14,500,000 Reconciled Value $14,500,000
The Direct Capitalization Method is considered a reliable indicator of value. Income and expenses were estimated and projected based on historical operating statements and market oriented expenses. This method is primarily used by investors in their underwriting analysis. Furthermore, there was good support for an overall rate in the Direct Capitalization Method. The Sales Comparison Approach to value supported the value conclusion by the Income Approach and was given secondary consideration. Investment-grade, income-producing properties such as the subject are not typically traded based on cost. Therefore, the Cost Approach has not been considered in our valuation. FINAL VALUE - FEE SIMPLE ESTATE Based on the investigation and premise outlined, it is our opinion that as of May 17, 2003 the market value of the fee simple estate in the property is: $14,500,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO SUBJECT PHOTOGRAPHS [PICTURE] EXTERIOR - APARTMENT BUILDING [PICTURE] EXTERIOR - PARKING LOT [PICTURE] INTERIOR - APARTMENT UNIT [PICTURE] INTERIOR - APARTMENT UNIT [PICTURE] INTERIOR - APARTMENT UNIT [PICTURE] EXTERIOR - POOL AND TENNIS COURTS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO SUBJECT PHOTOGRAPHS [PICTURE] INTERIOR - CLUBHOUSE GYM [PICTURE] INTERIOR - LAUNDRY ROOM [PICTURE] EXTERIOR - APARTMENT BUILDING AND LANDSCAPE [PICTURE] EXTERIOR - APARTMENT BUILDING [PICTURE] EXTERIOR - APARTMENT BUILDING [PICTURE] EXTERIOR - OFFICE AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 SADDLE RIDGE 8707 E. Dry Creek Road Englewood, Colorado [PICTURE] COMPARABLE I-2 REFLECTIONS AT CHERRY CREEK 14012 E Tufts Drive Aurora, Colorado [PICTURE] COMPARABLE I-3 THE COLONNADE 15301 E Ford Circle Aurora, Colorado [PICTURE] COMPARABLE I-4 KNOLLWOOD 15196 E Louisiana Drive Aurora, Colorado [PICTURE] COMPARABLE I-5 AMLI AT PARK MEADOWS 10200 Park Meadows Drive Littleton, Colorado [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 - ----------- ------- ---------- Property Name Cherry Creek Garden The Lodge Management Company AIMCO AIMCO LOCATION: Address 9959 East Peakview Ave 8405 East Hampden Avenue City, State Unincorporated area of Arapahoe County, Colorado Denver, Colorado County Arapahoe County Denver County Proximity to Subject Approx. 4 miles north of subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 262,637 233,400 Year Built 1978 1973 Effective Age 15 25 Building Structure Type Parking Type (Gr., Cov., etc.) Garage, Open Covered Open Covered, Open Number of Units 295 376 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1Bd/1Ba 710 112 $628 Studio 425 $499 2 2Bd/2Ba 923 119 $751 1 Bd/1Ba 625 $579 3 3Bd/2Ba 1,145 64 $858 2 Bd/2Ba 825 $769 Average Unit Size (SF) 890 Unit Breakdown: Efficiency 2-Bedroom Efficiency 2-Bedroom 1-Bedroom 3-Bedroom 1-Bedroom 3-Bedroom CONDITION: Good Good APPEAL: Good Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X Balcony X Fireplace Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool X Spa/Jacuzzi Car Wash X Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Basketball Court 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 Business Office Jogging Track Business Office X Gym Room X Gym Room OCCUPANCY: 71% 79% LEASING DATA: Available Leasing Terms 6-12 month leases 6-12 month leases Concessions $100 off each month $99 move-in Pet Deposit $250 $250 Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water X Trash X Water X Trash Confirmation Leasing agent Leasing agent Telephone Number 303-755-1972 NOTES: COMPARISON TO SUBJECT: Similar COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 - ----------- ---------- ---------- Property Name Stone Creek The Glen Management Company OMNI Asher LOCATION: Address 9825 E. Girard Avenue 9600 E. Girard Avenue City, State Denver, Colorado Denver, Colorado County Denver, County Denver, County Proximity to Subject Approx. 4 miles north of subject Approx. 4 miles north of subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) Year Built 1974 1975 Effective Age 25 25 Building Structure Type Parking Type (Gr., Cov., etc.) Open covered, open Open Number of Units 450 300 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1Bd/1Ba 735 $ 680 Studio 440 $ 535 1 1Bd/1Ba loft 713 $ 720 1 1Bd/1Ba 660 $ 615 2 2Bd/1Ba TH 910 $ 780 2 2Bd/2Ba 873 $ 725 2 2Bd/2Ba 940 $ 785 2 2Bd/2.5Ba 940 $ 830 3 3Bd/2Ba 1,085 $ 980 3 3Bd/1.5Ba TH 1,072 $ 1,050 Average Unit Size (SF) Unit Breakdown: Efficiency 2-Bedroom Efficiency 2-Bedroom 1-Bedroom 3-Bedroom 1-Bedroom 3-Bedroom CONDITION: Good Good APPEAL: Good Good AMENITIES: Unit Amenities Attach. Garage X Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X Balcony X Fireplace X Fireplace X Cable TV Ready Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool X 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 Business Office X Gym Room X Gym Room OCCUPANCY: 80% 90% LEASING DATA: Available Leasing Terms 6-12 month leases 6-12 month leases Concessions $100-200 off each month none Pet Deposit $300 none allowed Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water Trash Water X Trash Confirmation Leasing agent Leasing agent Telephone Number 303-755-2978 303-755-5117 NOTES: COMPARISON TO SUBJECT: Similar Similar COMPARABLE COMPARABLE DESCRIPTION R - 4 R - 5 - ----------- ---------- ---------- Property Name Kennedy Ridge Timberline Management Company Thompson Michie Associates, Inc. Woodhaven Management Company LOCATION: Address 10700 East Dartmouth 7300 E. Harvard Avenue City, State Denver, Colorado Denver, Colorado County Denver, County Denver, County Proximity to Subject Approx. 4.5 miles north of subject Approx. 5 miles north of subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) Year Built 1975 1977 Effective Age 25 25 Building Structure Type Parking Type (Gr., Cov., etc.) Open Open Number of Units 959 200 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. Studio 368 $550 1 1Bd/1Ba 609 $645 1Bd/1Ba 450 $615 2 2Bd/2Ba 928 $775 1 1Bd/1Ba 550 $635 1 1Bd/1Ba 700 $650 2 2Bd/1Ba 850 $745 2 2Bd/2Ba 900 $800 Average Unit Size (SF) Unit Breakdown: Efficiency 2-Bedroom Efficiency 2-Bedroom 1-Bedroom 3-Bedroom 1-Bedroom 3-Bedroom CONDITION: Good Good APPEAL: Good Good AMENITIES: Unit Amenities Attach. Garage X Vaulted Ceiling Attach. Garage 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/Jacuzzi Car Wash X Basketball Court BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room X Sand Volley Ball Meeting Hall Sand Volley Ball 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 Jogging Track Business Office X Gym Room Gym Room OCCUPANCY: 85% 93% LEASING DATA: Available Leasing Terms 6-12 month leases 6-12 month leases Concessions $200 off each month on 12 month lease 1 month free & $100 off each month Pet Deposit $300 none allowed Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas Water Trash Water Trash Confirmation Leasing agent Leasing agent Telephone Number 303-743-1500 303-750-0660 NOTES: COMPARISON TO SUBJECT: Slightly Superior Similar
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 THE LODGE 8405 East Hampden Avenue Denver, Colorado [PICTURE] COMPARABLE R-2 STONE CREEK 9825 E. Girard Avenue Denver, Colorado [PICTURE] COMPARABLE R-3 THE GLEN 9600 E. Girard Avenue Denver, Colorado [PICTURE] COMPARABLE R-4 KENNEDY RIDGE 10700 East Dartmouth Denver, Colorado [PICTURE] COMPARABLE R-5 TIMBERLINE 7300 E. Harvard Avenue Denver, Colorado [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO 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 CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO 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 CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO such testimony, and then such testimony shall be at American Appraisal Associates, Inc.'s, prevailing per diem for the individuals involved. Possession of this report or any copy thereof does not carry with it the right of publication. No portion of this report (especially any conclusion to use, the identity of the appraiser or the firm with which the appraiser is connected, or any reference to the American Society of Appraisers or the designations awarded by this organization) shall be disseminated to the public through prospectus, advertising, public relations, news, or any other means of communication without the written consent and approval of American Appraisal Associates, Inc. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO 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. James Newell provided significant real property appraisal assistance in the preparation of this report. I am currently in compliance with the Appraisal Institutes continuing education requirements. /s/ Douglas Needham ------------------------- Douglas Needham, MAI Managing Principal, Real Estate Group Colorado State Certified General Real Estate Appraiser #CG40017035 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO 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 CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO VALUATION AND Appraisal Institute SPECIAL COURSES Advanced Income Capitalization Appraisal Principles Appraisal Procedures Basic Income Capitalization Standards of Professional Practice AMERICAN APPRAISAL ASSOCIATES, INC. CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. CHERRY CREEK GARDEN, UNINCORPORATED AREA OF ARAPAHOE COUNTY, COLORADO 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. EX-99.(C)(2) 4 d07246a2exv99wxcyx2y.txt APPRAISAL OF COOPER'S POND COOPER'S POND 6221 N DALE MABRY HWY TAMPA, FLORIDA MARKET VALUE - FEE SIMPLE ESTATE AS OF MAY 13, 2003 PREPARED FOR: APARTMENT INVESTMENT AND MANAGEMENT COMPANY (AIMCO) C/O LINER YANKELEVITZ SUNSHINE & REGENSTREIF LLP & LIEFF CABRASER HEIMANN & BERNSTEIN ON BEHALF OF NUANES, ET. AL. [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LETTERHEAD] JULY 9, 2003 Apartment Investment and Management Company ("AIMCO") c/o Mr. Steven A. Velkei, Esq. Liner Yankelevitz Sunshine & Regenstreif LLP 1100 Glendon Avenue, 14th Floor Los Angeles, California 90024-3503 Nuanes, et al.( "Plaintiffs") c/o Ms. Joy Kruse Lieff Cabraser Heimann & Bernstein Embarcadero Center West 275 Battery Street, 30th Floor San Francisco, California 94111 RE: COOPER'S POND 6221 N DALE MABRY HWY TAMPA, HILLSBOROUGH COUNTY, FLORIDA 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 463 units with a total of 304,342 square feet of rentable area. The improvements were built in 1980. The improvements are situated on 25.75 acres. Overall, the improvements are in average condition. As of the date of this appraisal, the subject property is 94% 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 COOPER'S POND, TAMPA, FLORIDA 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 13, 2003 is: ($14,500,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. -s- Alice MacQueen July 9, 2003 Alice MacQueen #053272 Vice President, Real Estate Group Florida Certified General Real Estate Appraiser #RZ0002202 Report By: Alice MacQueen AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 COOPER'S POND, TAMPA, FLORIDA 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 COOPER'S POND, TAMPA, FLORIDA EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Cooper's Pond LOCATION: 6221 N Dale Mabry Hwy Tampa, Florida 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 13, 2003 DATE OF REPORT: July 9, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 25.75 acres, or 1,121,670 square feet Assessor Parcel No.: 029223-0000 Floodplain: Community Panel No. 120112-0195-C (See comments) Flood Zone X, an area outside the floodplain. Zoning: PD-H (Planned Development) BUILDING: No. of Units: 463 Units Total NRA: 304,342 Square Feet Average Unit Size: 657 Square Feet Apartment Density: 18.0 units per acre Year Built: 1980 UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION Market Rent Square ------------------- Monthly Annual Unit Type Feet Per Unit Per SF Income Income - -------------------------------------------------------------------------------------------- 1A10 - 1Br/1Ba 600 $515 $0.86 $ 88,580 $1,062,960 1B10 - 1Br/1Ba 615 $530 $0.86 $ 10,600 $ 127,200 1C10 - 1 Br/1Ba 726 $590 $0.81 $ 37,760 $ 453,120 2A20 - 2 Br/2Ba 810 $650 $0.80 $ 57,200 $ 686,400 2B20 - 2 Br/2Ba 886 $720 $0.81 $ 5,040 $ 60,480 2C20 - 2Br/2Ba 903 $775 $0.86 $ 24,800 $ 297,600 EA10 - Efficiency 450 $450 $1.00 $ 36,000 $ 432,000 -------- ---------- Total $259,980 $3,119,760 ======== ==========
OCCUPANCY: 94% ECONOMIC LIFE: 45 Years AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 COOPER'S POND, TAMPA, FLORIDA EFFECTIVE AGE: 23 Years REMAINING ECONOMIC LIFE: 22 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] OFFICE CLUBHOUSE - FRONT VIEW OFFICE CLUBHOUSE - REAR VIEW AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 COOPER'S POND, TAMPA, FLORIDA 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 COOPER'S POND, TAMPA, FLORIDA PART TWO - ECONOMIC INDICATORS
Amount $/Unit ------ ------ INCOME CAPITALIZATION APPROACH DIRECT CAPITALIZATION Potential Rental Income $ 3,119,760 $ 6,738 Effective Gross Income $ 3,080,071 $ 6,652 Operating Expenses $ 1,505,964 $ 3,253 48.9% of EGI Net Operating Income: $ 1,458,357 $ 3,150 Capitalization Rate 10.00% DIRECT CAPITALIZATION VALUE $14,600,000 * $31,533 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 14% Stabilized Vacancy & Collection Loss: 15% Lease-up / Stabilization Period N/A Terminal Capitalization Rate 11.00% Discount Rate 13.00% Selling Costs 2.00% Growth Rates: Income 2.50% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $13,600,000 * $29,374 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $14,500,000 $31,317 / UNIT SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $25,000 to $34,583 Range of Sales $/Unit (Adjusted) $27,239 to $32,840 VALUE INDICATION - PRICE PER UNIT $13,900,000 * $30,022 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 4.02 to 5.69 Selected EGIM for Subject 4.70 Subject's Projected EGI $3,080,071 EGIM ANALYSIS CONCLUSION $14,500,000 * $31,317 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $13,900,000 * $30,022 / UNIT RECONCILED SALES COMPARISON VALUE $13,900,000 $30,022 / 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 COOPER'S POND, TAMPA, FLORIDA PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $13,900,000 NOI Per Unit $13,900,000 EGIM Multiplier $14,500,000 INDICATED VALUE BY SALES COMPARISON $13,900,000 $30,022 / UNIT INCOME APPROACH: Direct Capitalization Method: $14,600,000 Discounted Cash Flow Method: $13,600,000 INDICATED VALUE BY THE INCOME APPROACH $14,500,000 $31,317 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $14,500,000 $31,317 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 COOPER'S POND, TAMPA, FLORIDA INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 6221 N Dale Mabry Hwy, Tampa, Hillsborough County, Florida. Tampa identifies it as 029223-0000. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Alice MacQueen on May 13, 2003. Alice MacQueen performed the research, valuation analysis and wrote the report. Alice MacQueen has extensive experience in appraising similar properties and meets 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 13, 2003. The date of the report is July 9, 2003. PURPOSE AND USE OF APPRAISAL The purpose of the appraisal is to estimate the market value of the fee simple interest in the subject property. It is understood that the appraisal is intended to assist the clients in litigation settlement proceedings. The appraisal was not based on a requested minimum valuation, a specific valuation, or the approval of a loan. PROPERTY RIGHTS APPRAISED We have appraised the Fee Simple Estate in the subject property (as applied in the Sales & Income Approaches), subject to the existing short-term leases. A Fee Simple Estate is defined in The Dictionary of Real Estate Appraisal, 3rd ed. (Chicago: Appraisal Institute, 1993), as: AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 10 COOPER'S POND, TAMPA, FLORIDA "Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat." MARKETING/EXPOSURE PERIOD MARKETING PERIOD: 6 to 12 months EXPOSURE PERIOD: 6 to 12 months HISTORY OF THE PROPERTY Ownership in the subject property is currently vested in Century Properties Fund XVII. 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 COOPER'S POND, TAMPA, FLORIDA 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 Tampa, Florida. Overall, the neighborhood is characterized as a suburban setting with the predominant land use being residential. The subject's neighborhood is generally defined by the following boundaries. NEIGHBORHOOD BOUNDARIES East - I-275 West - Anderson Road South - Dr. Martin Luther King Jr Blvd North - Busch Boulevard (Rt. 580) MAJOR EMPLOYERS Major employers in the subject's area include Hillsborough County School System, GTE Florida, Tampa International Airport, University of South Florida, City of Tampa, Publix, Tampa General Hospital, AT&T, Paradyne and Kash n' Karry Food Stores, Inc. As Florida's wealthiest market, Tampa Bay ranks 1st in effective buying income and 1st in retail sales. Housing is very affordable and household incomes are increasing. The cost of living is about 5% below the national average. Employment throughout the Bay Area is very diverse. 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 COOPER'S POND, TAMPA, FLORIDA NEIGHBORHOOD DEMOGRAPHICS
AREA -------------------------------------------- CATEGORY 1-Mi. RADIUS 3-Mi. RADIUS 5-Mi. RADIUS MSA - ------------------------------------------------------------------------------------------ POPULATION TRENDS Current Population 15,973 95,011 279,469 2,442,120 5-Year Population 16,429 98,558 287,221 2,591,303 % Change CY-5Y 2.9% 3.7% 2.8% 6.1% Annual Change CY-5Y 0.6% 0.7% 0.6% 1.2% HOUSEHOLDS Current Households 6,042 39,430 113,376 1,029,700 5-Year Projected Households 6,141 40,743 116,943 1,095,882 % Change CY - 5Y 1.6% 3.3% 3.1% 6.4% Annual Change CY-5Y 0.3% 0.7% 0.6% 1.3% INCOME TRENDS Median Household Income $ 29,292 $ 31,369 $ 32,460 $ 35,241 Per Capita Income $ 15,615 $ 17,971 $ 19,429 $ 22,508 Average Household Income $ 40,831 $ 43,505 $ 47,882 $ 53,389
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 43.56% 41.74% 38.20% 24.86% 5-Year Projected % Renting 41.65% 41.25% 37.73% 24.59% % of Households Owning 48.28% 49.10% 50.91% 60.90% 5-Year Projected % Owning 50.27% 49.82% 51.70% 61.88%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 COOPER'S POND, TAMPA, FLORIDA SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Lambright Avenue, improved with retail commercial uses and vacant land South - Idlewild Avenue, improved with very small old single family homes, condos and apartments East - Himes Avenue, single family homes transitions to commercial uses plus 7-11 convenience store West - Dale Mabry Hwy, improved with auto dealerships, furniture stores and other major commercial uses CONCLUSIONS The subject is well located within the city of Tampa. 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 COOPER'S POND, TAMPA, FLORIDA MARKET ANALYSIS The subject property is located in the city of Tampa in Hillsborough County. The overall pace of development in the subject's market is more or less stable. There has been no new development in the subject's submarket during the past six months. Additionally, the new units that have been added to the area in recent years has been in the western section of the sub-market, to the west of Veteran's Expressway. The following table illustrates historical vacancy rates for the subject's market. HISTORICAL VACANCY RATE
Period Region Submarket - --------------------------------- 3Q00 5.7% 5.4%t 1Q01 6.4% 7.2%t 3Q01 7.7% 5.9% 1Q02 9.1% 6.2% 3Q02 9.2% 7.2%
Source: Apartment Index Report, December 2002, by Carolinas Real Data Occupancy trends in the subject's market are decreasing. Historically speaking, the subject's submarket has out performed the overall market. Although the vacancy rate increased to 7.4% toward year-end 2002, the subject's submarket continued to have one of the lowest rates reported in the Bay Area. This increase in vacancy is attributed to a drop in absorption (-86 units) leaving the area with a total annual negative 2002 absorption of -176 units. 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 - ---------------------------------------------------------- 3Q00 $675 - $682 - 1Q01 $689 2.1% $692 1.5% 3Q01 $703 2.0% $723 4.5% 1Q02 $725 3.1% $714 -1.2% 3Q02 $726 0.1% $715 0.1%
Source: Apartment Index Report, December 2002, by Carolinas Real Data The following table illustrates a summary of the subject's competitive set. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 COOPER'S POND, TAMPA, FLORIDA COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject - ------------------------------------------------------------------------------------------------- R-1 Ralston Place 200 95% 1978 1-mile southwest R-2 Park Place 120 95% 1984 0.2-mile southwest R-3 Hidden Lake 267 98% 1986 1-mile north R-4 Courtney Cove 324 91% 1983 1.5-mile southwest R-5 Countrywood Apartments 536 97% 1978 3-mile north Subject Cooper's Pond 463 94% 1980
Average rent in the subject's submarket stands at $715 with rents increasing only $1.00 for existing units between May and November 2002. This is down considerably from the increases seen during 2000 and 2001. It is believed to be attributed primarily to the increase in new units added to the Tampa Bay area over recent years, coupled with low interest rates and an increased desire in homeownership. These factors have resulted in slower absorption, higher vacancies, and minimal rent increases throughout the Tampa Bay Area. This trend will likely continue until such time as supply and demand equalizes and the market stabilizes. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 COOPER'S POND, TAMPA, FLORIDA PROPERTY DESCRIPTION SITE ANALYSIS Site Area 25.75 acres, or 1,121,670 square feet Shape Irregular Topography Level Utilities All necessary utilities are available to the site. Soil Conditions Stable Easements Affecting Site None other than typical utility easements Overall Site Appeal Good Flood Zone: Community Panel 120112-0195-C, dated See comments Flood Zone Zone X Zoning PD-H, the subject improvements represent a legal conforming use of the site. REAL ESTATE TAXES
ASSESSED VALUE - 2002 ---------------------------------------------- TAX RATE / PROPERTY PARCEL NUMBER LAND BUILDING TOTAL MILL RATE TAXES - --------------------------------------------------------------------------------------------------------------- 029223-0000 $2,778,000 $9,813,548 $12,591,548 0.01822 $229,371
IMPROVEMENT ANALYSIS Year Built 1980 Number of Units 463 Net Rentable Area 304,342 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, sand volleyball, tennis court, racquetball court, gym room, car wash, laundry room, freshwater lake, and parking area. Unit Amenities Individual unit amenities include a balcony, 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 COOPER'S POND, TAMPA, FLORIDA Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) - --------------------------------------------------------- 1A10 - 1Br/1Ba 172 600 1B10 - 1Br/1Ba 20 615 1C10 - 1 Br/1Ba 64 726 2A20 - 2 Br/2Ba 88 810 2B20 - 2 Br/2Ba 7 886 2C20 - 2Br/2Ba 32 903 EA10 - Efficiency 80 450
Overall Condition Average Effective Age 23 years Economic Life 45 years Remaining Economic Life 22 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 463-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 COOPER'S POND, TAMPA, FLORIDA 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 COOPER'S POND, TAMPA, FLORIDA 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 COOPER'S POND, TAMPA, FLORIDA 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 COOPER'S POND, TAMPA, FLORIDA SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - -------------------------------------------------------------------------------------------------------------------------------- Property Name Cooper's Pond Country Crossing Ashley Square LOCATION: Address 6221 N Dale Mabry Hwy 7903 Holly Lea Court 5606 Josephine Court City, State Tampa, Florida Tampa, FL Tampa, FL County Hillsborough Hillsborough Hillsborough PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 304,342 204,335 198,528 Year Built 1980 1974 1970 Number of Units 463 232 188 Unit Mix: Type Total Type Total Type Total 1A10 - 1Br/1Ba 172 1Br/1BA 128 1Br/1BA 77 1B10 - 1Br/1Ba 20 2Br/2BA 74 2Br/2BA 88 1C10 - 1 Br/1Ba 64 3Br/2BA 30 3Br/2BA 23 2A20 - 2 Br/2Ba 88 2B20 - 2 Br/2Ba 7 2C20 - 2Br/2Ba 32 EA10 - Efficiency 80 Average Unit Size (SF) 657 881 1,056 Land Area (Acre) 25.7500 11.8800 9.4100 Density (Units/Acre) 18.0 19.5 20.0 Parking Ratio (Spaces/Unit) 0.00 Adequate Adequate Parking Type (Gr., Cov., etc.) Garage, Open Covered Open Open CONDITION: Good Fair Average APPEAL: Good Fair Average AMENITIES: Pool/Spa Yes/Yes Yes/No Yes/No Gym Room Yes Yes Yes Laundry Room Yes Yes Yes Secured Parking No No No Sport Courts No No No Washer/Dryer Connection Yes No No Other Other OCCUPANCY: 94% 90% 80% TRANSACTION DATA: Sale Date July, 2002 February, 2002 Sale Price ($) $5,800,000 $5,600,000 Grantor TCI Country Crossing, Inc. Davna Investments, Ltd Grantee Centurion Partners II, LLC Ashley Square Realty Corp Sale Documentation Doc# 11829-0478 Doc# 11405-0982 Verification CoStar Realty CoStar Realty Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF ---------- ------ ----- ---------- ------ ----- Potential Gross Income $1,604,832 $6,917 $7.85 $1,558,560 $8,290 $7.85 Vacancy/Credit Loss $ 160,483 $ 692 $0.79 $ 311,712 $1,658 $1.57 ---------- ------ ----- ---------- ------ ----- Effective Gross Income $1,444,349 $6,226 $7.07 $1,246,848 $6,632 $6.28 Operating Expenses $ 893,200 $3,850 $4.37 $ 718,724 $3,823 $3.62 ---------- ------ ----- ---------- ------ ----- Net Operating Income $ 551,149 $2,376 $2.70 $ 528,124 $2,809 $2.66 ---------- ------ ----- ---------- ------ ----- NOTES: Similar neighborhood. Located off Dale Mabry, Overall fair to avg condition very near subject. Small but overall inferior to the community w/limited land- subject scaping/curb appeal PRICE PER UNIT $25,000 $29,787 PRICE PER SQUARE FOOT $ 28.38 $ 28.21 EXPENSE RATIO 61.8% 57.6% EGIM 4.02 4.49 OVERALL CAP RATE 9.50% 9.43% Cap Rate based on Pro Forma or Actual Income? ACTUAL ACTUAL COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 - -------------------------------------------------------------------------------------------------------------------------------- Property Name Falls of Tampa Bay Horizon Park Swan Lake LOCATION: Address 4610 North Armenia Avenue 4900 N MacDill Avenue 3401 N. Lakeview Drive City, State Tampa, FL Tampa, FL Tampa, FL County Hillsborough Hillsborough Hillsborough PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 165,600 96,200 165,000 Year Built 1984 1976 1982 Number of Units 240 128 244 Unit Mix: Type Total Type Total Type Total 1Br/1BA 132 1Br/1BA 84 1Br/1BA 2Br/2BA 108 2Br/2BA 44 2Br/2BA 3Br/2BA 3Br/2BA Average Unit Size (SF) 690 752 676 Land Area (Acre) 5.0290 5.1300 14.0000 Density (Units/Acre) 47.7 25.0 17.4 Parking Ratio (Spaces/Unit) Adequate Adequate Adequate Parking Type (Gr., Cov., etc.) Open Open Open CONDITION: Average Average Average APPEAL: Average Average Average AMENITIES: Pool/Spa Yes/No Yes/No Yes/No Gym Room Yes Yes Yes Laundry Room Yes Yes Yes Secured Parking No No No Sport Courts No No No Washer/Dryer Connection No No No Other Other OCCUPANCY: 95% 93% Unknown TRANSACTION DATA: Sale Date December, 2001 June, 2000 December, 2000 Sale Price ($) $8,300,000 $3,550,000 $6,360,000 Grantor ERP Operating, LP Merecorp, Inc UNUM Life Insurance Company Grantee ADHI mantrha, LLC Horizon Pointe Realty Corp Swan Lake Investors, LLC Sale Documentation Doc# 11261-1133 Doc#10245-1621 Doc#10534-0403 Verification CoStar Realty CoStar Realty CoStar Realty/AAA Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF ---------- ------ ------ -------- ------ ----- ------- ------ ----- Potential Gross Income $1,781,856 $7,424 $10.76 $670,560 $5,239 $6.97 $0 $0 $0.00 Vacancy/Credit Loss $ 89,093 $ 371 $ 0.54 $ 46,939 $ 367 $0.49 $0 $0 $0.00 ---------- ------ ------ -------- ------ ----- -- -- ----- Effective Gross Income $1,692,763 $7,053 $10.22 $623,621 $4,872 $6.48 $0 $0 $0.00 Operating Expenses $ 840,000 $3,500 $ 5.07 $280,000 $2,188 $2.91 $0 $0 $0.00 ---------- ------ ------ -------- ------ ----- -- -- ----- Net Operating Income $ 852,763 $3,553 $ 5.15 $343,621 $2,685 $3.57 $0 $0 $0.00 NOTES: Good location/curb appeal. Similar neighborhood. Good location. Well-kept Higher density development Property is being property in superior with some covered parking. totally renovated. condition Fair condition Now a gated community PRICE PER UNIT $34,583 $27,734 $26,066 PRICE PER SQUARE FOOT $ 50.12 $ 36.90 $ 38.55 EXPENSE RATIO 49.6% 44.9% N/A EGIM 4.90 5.69 N/A OVERALL CAP RATE 10.27% 9.68% 0.00% Cap Rate based on Pro Forma or Actual Income? PRO FORMA ACTUAL UNKNOWN
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 COOPER'S POND, TAMPA, FLORIDA IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $25,000 to $34,583 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 $27,239 to $32,840 per unit with a mean or average adjusted price of $29,717 per unit. The median adjusted price is $30,433 per unit. Based on the following analysis, we have concluded to a value of $30,000 per unit, which results in an "as is" value of $13,900,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 COOPER'S POND, TAMPA, FLORIDA SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 I - 3 - ------------------------------------------------------------------------------------------------------------------------------- Property Name Cooper's Pond Country Crossing Ashley Square Falls of Tampa Bay Address 6221 N Dale Mabry 7903 Holly Lea 5606 Josephine 4610 North Armenia Hwy Court Court Avenue City Tampa, Florida Tampa, FL Tampa, FL Tampa, FL Sale Date July, 2002 February, 2002 December, 2001 Sale Price ($) $5,800,000 $5,600,000 $8,300,000 Net Rentable Area (SF) 304,342 204,335 198,528 165,600 Number of Units 463 232 188 240 Price Per Unit $25,000 $29,787 $34,583 Year Built 1980 1974 1970 1984 Land Area (Acre) 25.7500 11.8800 9.4100 5.0290 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) 07-2002 5% 02-2002 5% 12-2001 10% VALUE AFTER TRANS. ADJUST. ($/UNIT) $26,250 $31,277 $38,042 Location Comparable 0% Comparable 0% Comparable 0% Number of Units 463 232 -5% 188 -5% 240 -5% Quality / Appeal Good Comparable 0% Comparable 0% Comparable 0% Age / Condition 1980 1974 / Fair 10% 1970 / Average 10% 1984 / Average -15% Occupancy at Sale 94% 90% 0% 80% 5% 95% 0% Amenities Good Comparable 0% Comparable 0% Comparable 0% Average Unit Size (SF) 657 881 0% 1,056 -5% 690 0% PHYSICAL ADJUSTMENT 5% 5% -20% FINAL ADJUSTED VALUE $27,563 $32,840 $30,433 ($/UNIT) COMPARABLE COMPARABLE DESCRIPTION I - 4 I - 5 - ----------------------------------------------------------------------------------- Property Name Horizon Park Swan Lake Address 4900 N MacDill 3401 N. Lakeview Avenue Drive City Tampa, FL Tampa, FL Sale Date June, 2000 December, 2000 Sale Price ($) $3,550,000 $6,360,000 Net Rentable Area (SF) 96,200 165,000 Number of Units 128 244 Price Per Unit $27,734 $26,066 Year Built 1976 1982 Land Area (Acre) 5.1300 14.0000 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 06-2000 10% 12-2000 10% VALUE AFTER TRANS. ADJUST. ($/UNIT) $30,508 $28,672 Location Comparable 0% Comparable 0% Number of Units 128 -5% 244 -5% Quality / Appeal Comparable 0% Comparable 0% Age / Condition 1976 / Average 5% 1982 / Average 0% Occupancy at Sale 93% 0% Unknown 0% Amenities Comparable 0% Comparable 0% Average Unit Size (SF) 752 0% 676 0% PHYSICAL ADJUSTMENT 0% -5% FINAL ADJUSTED VALUE $30,508 $27,239 ($/UNIT)
SUMMARY VALUE RANGE (PER UNIT) $27,239 TO $32,840 MEAN (PER UNIT) $29,717 MEDIAN (PER UNIT) $30,433 VALUE CONCLUSION (PER UNIT) $30,000
VALUE INDICATED BY SALES COMPARISON APPROACH $13,890,000 ROUNDED $13,900,000
NET OPERATING INCOME (NOI) ANALYSIS We have also conducted a net operating income (NOI) comparison analysis. The NOI effectively takes into account the various physical, location, and operating aspects of the sale. When the subject's NOI is compared to the sale NOI, a percent adjustment can be arrived at. The following table illustrates this analysis. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 24 COOPER'S POND, TAMPA, FLORIDA 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-1 232 $5,800,000 9.50% $551,149 $ 1,458,357 1.326 $ 33,147 $ 25,000 $ 2,376 $ 3,150 I-2 188 $5,600,000 9.43% $528,124 $ 1,458,357 1.121 $ 33,399 $ 29,787 $ 2,809 $ 3,150 I-3 240 $8,300,000 10.27% $852,763 $ 1,458,357 0.886 $ 30,657 $ 34,583 $ 3,553 $ 3,150 I-4 128 $3,550,000 9.68% $343,621 $ 1,458,357 1.173 $ 32,541 $ 27,734 $ 2,685 $ 3,150 I-5 244 $6,360,000 0.00% $ 1,458,357 $ 26,066 $ 3,150
PRICE/UNIT
Low High Average Median $30,657 $33,399 $32,436 $32,844
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT Estimated Price Per Unit $ 30,000 Number of Units 463 Value Based on NOI Analysis $13,890,000 Rounded $13,900,000
The adjusted sales indicate a range of value between $30,657 and $33,399 per unit, with an average of $32,436 per unit. Based on the subject's competitive position within the improved sales, a value of $30,000 per unit is estimated. This indicates an "as is" market value of $13,900,000 (rounded after necessary adjustment, if any) for the NOI Per Unit Analysis. EFFECTIVE GROSS INCOME MULTIPLIER (EGIM) ANALYSIS The effective gross income multiplier (EGIM) is derived by dividing the sales price by the total effective gross income. The following table illustrates the EGIMs for the comparable improved sales. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 25 COOPER'S POND, TAMPA, FLORIDA 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-1 232 $5,800,000 $ 1,444,349 $ 893,200 61.84% 4.02 $ 25,000 I-2 188 $5,600,000 $ 1,246,848 $ 718,724 57.64% 4.49 $ 29,787 I-3 240 $8,300,000 $ 1,692,763 $ 840,000 49.62% 48.89% 4.90 $ 34,583 I-4 128 $3,550,000 $ 623,621 $ 280,000 44.90% 5.69 $ 27,734 I-5 244 $6,360,000 $ 26,066
EGIM
Low High Average Median 4.02 5.69 4.78 4.70
VALUE ANALYSIS BASED ON EGIM's OF COMPARABLE SALES Estimate EGIM 4.70 Subject EGI $ 3,080,071 Value Based on EGIM Analysis $14,476,334 Rounded $14,500,000 Value Per Unit $ 31,317
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 48.89% before reserves. The comparable sales indicate a range of expense ratios from 44.90% to 61.84%, while their EGIMs range from 4.02 to 5.69. Overall, we conclude to an EGIM of 4.70, which results in an "as is" value estimate in the EGIM Analysis of $14,500,000. 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 $13,900,000. Price Per Unit $13,900,000 NOI Per Unit $13,900,000 EGIM Analysis $14,500,000 Sales Comparison Conclusion $13,900,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 COOPER'S POND, TAMPA, FLORIDA 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 COOPER'S POND, TAMPA, FLORIDA 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 - ------------------------------------------------------------------------------------ 1A10 - 1Br/1Ba 600 $ 526 $ 0.88 97.5% 1B10 - 1Br/1Ba 615 $ 548 $ 0.89 97.1% 1C10 - 1 Br/1Ba 726 $ 609 $ 0.84 95.0% 2A20 - 2 Br/2Ba 810 $ 689 $ 0.85 81.3% 2B20 - 2 Br/2Ba 886 $ 759 $ 0.86 95.5% 2C20 - 2Br/2Ba 903 $ 786 $ 0.87 95.0% EA10 - Efficiency 450 $ 461 $ 1.02 97.5%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 COOPER'S POND, TAMPA, FLORIDA RENT ANALYSIS
COMPARABLE RENTS ---------------- R-1 R-2 R-3 R-4 R-5 -------------------------------------------------------- Ralston Hidden Courtney Countrywood Place Park Place Lake Cove Apartments -------------------------------------------------------- COMPARISON TO SUBJECT SUBJECT SUBJECT -------------------------------------------------------- SUBJECT UNIT ACTUAL ASKING Slightly Slightly DESCRIPTION TYPE RENT RENT Superior Superior Superior Superior Superior - ----------------------------------------------------------------------------------------------------------------------- Monthly Rent 1A10 - 1Br/1Ba $ 526 $ 534 $ 505 $ 609 $ 539 $ 535 $ 480 Unit Area (SF) 600 600 600 626 650 600 600 Monthly Rent Per Sq. Ft. $ 0.88 $ 0.89 $ 0.84 $ 0.97 $ 0.83 $0.89 $0.80 Monthly Rent 1B10 - 1Br/1Ba $ 548 $ 544 $ 505 $ 609 $ 509 $ 550 $ 480 Unit Area (SF) 615 615 600 626 550 615 600 Monthly Rent Per Sq. Ft. $ 0.89 $ 0.88 $ 0.84 $ 0.97 $ 0.93 $0.89 $0.80 Monthly Rent 1C10 - 1 Br/1Ba $ 609 $ 659 $ 559 $ 729 $ 680 Unit Area (SF) 726 726 750 726 810 Monthly Rent Per Sq. Ft. $ 0.84 $ 0.91 $ 0.75 $1.00 $0.84 Monthly Rent 2A20 - 2 Br/2Ba $ 689 $ 697 $ 670 $ 645 $ 660 $ 680 Unit Area (SF) 810 810 810 710 810 810 Monthly Rent Per Sq. Ft. $ 0.85 $ 0.86 $ 0.83 $ 0.91 $0.81 $0.84 Monthly Rent 2B20 - 2 Br/2Ba $ 759 $ 779 $ 670 $ 775 $ 760 $ 680 Unit Area (SF) 886 886 810 990 885 810 Monthly Rent Per Sq. Ft. $ 0.86 $ 0.88 $ 0.83 $ 0.78 $0.86 $0.84 Monthly Rent 2C20 - 2Br/2Ba $ 786 $ 699 $ 775 $ 679 $ 700 $ 680 Unit Area (SF) 903 903 990 1,002 903 810 Monthly Rent Per Sq. Ft. $ 0.87 $ 0.77 $ 0.78 $ 0.68 $0.78 $0.84 Monthly Rent EA10 - $ 461 $ 469 $ 502 $ 585 $ 470 $ 530 Unit Area (SF) EFFICIENCY 450 450 450 570 450 450 Monthly Rent Per Sq. Ft. $ 1.02 $ 1.04 $ 1.12 $ 1.03 $1.04 $1.18 DESCRIPTION MIN MAX MEDIAN AVERAGE - ----------------------------------------------------------------- Monthly Rent $ 480 $ 609 $ 535 $ 534 Unit Area (SF) 600 650 600 615 Monthly Rent Per Sq. Ft. $0.80 $ 0.97 $0.84 $0.87 Monthly Rent $ 480 $ 609 $ 509 $ 531 Unit Area (SF) 550 626 600 598 Monthly Rent Per Sq. Ft. $0.80 $ 0.97 $0.89 $0.89 Monthly Rent $ 559 $ 729 $ 680 $ 656 Unit Area (SF) 726 810 750 762 Monthly Rent Per Sq. Ft. $0.75 $ 1.00 $0.84 $0.86 Monthly Rent $ 645 $ 680 $ 665 $ 664 Unit Area (SF) 710 810 810 785 Monthly Rent Per Sq. Ft. $0.81 $ 0.91 $0.83 $0.85 Monthly Rent $ 670 $ 775 $ 720 $ 721 Unit Area (SF) 810 990 848 874 Monthly Rent Per Sq. Ft. $0.78 $ 0.86 $0.83 $0.83 Monthly Rent $ 679 $ 775 $ 690 $ 709 Unit Area (SF) 810 1,002 947 926 Monthly Rent Per Sq. Ft. $0.68 $ 0.84 $0.78 $0.77 Monthly Rent $ 470 $ 585 $ 516 $ 522 Unit Area (SF) 450 570 450 480 Monthly Rent Per Sq. Ft. $1.03 $ 1.18 $1.08 $1.09
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 - ---------------------------------------------------------------------------------------------------------- 1A10 - 1Br/1Ba 172 600 $515 $0.86 $ 88,580 $1,062,960 1B10 - 1Br/1Ba 20 615 $530 $0.86 $ 10,600 $ 127,200 1C10 - 1 Br/1Ba 64 726 $590 $0.81 $ 37,760 $ 453,120 2A20 - 2 Br/2Ba 88 810 $650 $0.80 $ 57,200 $ 686,400 2B20 - 2 Br/2Ba 7 886 $720 $0.81 $ 5,040 $ 60,480 2C20 - 2Br/2Ba 32 903 $775 $0.86 $ 24,800 $ 297,600 EA10 - Efficiency 80 450 $450 $1.00 $ 36,000 $ 432,000 -------- ---------- Total $259,980 $3,119,760
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 29 COOPER'S POND, TAMPA, FLORIDA PRO FORMA ANALYSIS For purposes of this appraisal, we were provided with income and expense data for the subject property. A summary of this data is presented on the following page. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30 COOPER'S POND, TAMPA, FLORIDA 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 $2,860,964 $ 6,179 $2,957,495 $ 6,388 $2,970,184 $ 6,415 Vacancy $ 98,214 $ 212 $ 132,352 $ 286 $ 185,567 $ 401 Credit Loss/Concessions $ 62,958 $ 136 $ 42,976 $ 93 $ 221,594 $ 479 ------------------------------------------------------------------------------------------- Subtotal $ 161,172 $ 348 $ 175,328 $ 379 $ 407,161 $ 879 Laundry Income $ 34,930 $ 75 $ 36,037 $ 78 $ 33,524 $ 72 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 257,860 $ 557 $ 241,898 $ 522 $ 390,189 $ 843 ------------------------------------------------------------------------------------------- Subtotal Other Income $ 292,790 $ 632 $ 277,935 $ 600 $ 423,713 $ 915 ------------------------------------------------------------------------------------------- Effective Gross Income $2,992,582 $ 6,463 $3,060,102 $ 6,609 $2,986,736 $ 6,451 Operating Expenses Taxes $ 195,807 $ 423 $ 230,976 $ 499 $ 225,052 $ 486 Insurance $ 47,573 $ 103 $ 149,892 $ 324 $ 115,160 $ 249 Utilities $ 180,868 $ 391 $ 170,941 $ 369 $ 199,178 $ 430 Repair & Maintenance $ 70,645 $ 153 $ 49,514 $ 107 $ 31,525 $ 68 Cleaning $ 99,182 $ 214 $ 111,583 $ 241 $ 110,484 $ 239 Landscaping $ 150,750 $ 326 $ 157,894 $ 341 $ 197,480 $ 427 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 33,989 $ 73 $ 40,583 $ 88 $ 39,232 $ 85 General Administrative $ 375,879 $ 812 $ 386,722 $ 835 $ 315,932 $ 682 Management $ 150,532 $ 325 $ 164,252 $ 355 $ 149,048 $ 322 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------------------------------- Total Operating Expenses $1,305,225 $ 2,819 $1,462,357 $ 3,158 $1,383,091 $ 2,987 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------------------------------- Net Income $1,687,357 $ 3,644 $1,597,745 $ 3,451 $1,603,645 $ 3,464 FISCAL YEAR 2003 ANNUALIZED 2003 --------------------------- ---------------------------- MANAGEMENT BUDGET PROJECTION AAA PROJECTION --------------------------- ---------------------------- -------------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT % - ------------------------------------------------------------------------------------------------------------------------------------ Revenues Rental Income $3,042,000 $ 6,570 $3,013,812 $ 6,509 $3,119,760 $ 6,738 100.0% Vacancy $ 136,440 $ 295 $ 283,688 $ 613 $ 280,778 $ 606 9.0% Credit Loss/Concessions $ 186,600 $ 403 $ 279,112 $ 603 $ 187,186 $ 404 6.0% ----------------------------------------------------------------------------------------------- Subtotal $ 323,040 $ 698 $ 562,800 $ 1,216 $ 467,964 $ 1,011 15.0% Laundry Income $ 57,600 $ 124 $ 23,060 $ 50 $ 34,725 $ 75 1.1% Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 315,600 $ 682 $ 400,856 $ 866 $ 393,550 $ 850 12.6% ----------------------------------------------------------------------------------------------- Subtotal Other Income $ 373,200 $ 806 $ 423,916 $ 916 $ 428,275 $ 925 13.7% ----------------------------------------------------------------------------------------------- Effective Gross Income $3,092,160 $ 6,679 $2,874,928 $ 6,209 $3,080,071 $ 6,652 100.0% Operating Expenses Taxes $ 290,912 $ 628 $ 291,396 $ 629 $ 291,690 $ 630 9.5% Insurance $ 112,695 $ 243 $ 111,168 $ 240 $ 113,435 $ 245 3.7% Utilities $ 188,400 $ 407 $ 244,352 $ 528 $ 219,925 $ 475 7.1% Repair & Maintenance $ 36,000 $ 78 $ 53,704 $ 116 $ 57,875 $ 125 1.9% Cleaning $ 114,000 $ 246 $ 113,652 $ 245 $ 113,435 $ 245 3.7% Landscaping $ 174,000 $ 376 $ 171,720 $ 371 $ 173,625 $ 375 5.6% Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Marketing & Leasing $ 45,000 $ 97 $ 36,632 $ 79 $ 57,875 $ 125 1.9% General Administrative $ 333,900 $ 721 $ 304,404 $ 657 $ 324,100 $ 700 10.5% Management $ 155,688 $ 336 $ 145,568 $ 314 $ 154,004 $ 333 5.0% Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% ----------------------------------------------------------------------------------------------- Total Operating Expenses $1,450,595 $ 3,133 $1,472,596 $ 3,181 $1,505,964 $ 3,253 48.9% Reserves $ 0 $ 0 $ 0 $ 0 $ 115,750 $ 250 7.7% ----------------------------------------------------------------------------------------------- Net Income $1,641,565 $ 3,545 $1,402,332 $ 3,029 $1,458,357 $ 3,150 47.3%
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 15% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 31 COOPER'S POND, TAMPA, FLORIDA RESERVES FOR REPLACEMENT "Reserves for replacements" is a contingency account allocated to the expenses of the property to provide for replacement of short-lived items and for unforeseen necessary capital expenditures. We have utilized the Korpacz Real Estate Investor Survey of the national apartment market, which reports a range of replacement reserves between $150 and $400 per unit. For purposes of this analysis, we have included an allowance of $250 per unit for reserves for replacement. CAPITAL EXPENDITURES Capital expenditures represent expenses for immediate repair or replacement of items that have average to long lives. Based on our inspection of the property as well as discussions with property management personnel, there are no major items remaining in need of repair or replacement that would require an expense beyond our reserves for replacement. Therefore an allowance of $250 per unit should be satisfactory in our reserves for replacement to cover future capital expenditures. DISCOUNTED CASH FLOW ANALYSIS As the subject is a multi-tenant income property, the Discounted Cash Flow Method is considered appropriate. This method is especially meaningful in that it isolates the timing of the annual cash flows and discounts them, along with the expected equity reversion, to a present value. The present value of the cash flow is added to the present value of the reversion, resulting in a total property value. INVESTMENT CRITERIA Appropriate investment criteria will be derived for the subject based upon analysis of comparable sales and a survey of real estate investors. The following table summarizes the findings of Korpacz National Investor Survey for the most recent period. KORPACZ NATIONAL INVESTOR SURVEY 1ST QUARTER 2003 NATIONAL APARTMENT MARKET
CAPITALIZATION RATES -------------------- GOING-IN TERMINAL -------- -------- LOW HIGH LOW HIGH - --------------------------------------------------------------------------- RANGE 6.00% 10.00% 7.00% 10.00% AVERAGE 8.14% 8.47%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32 COOPER'S POND, TAMPA, FLORIDA SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR - -------------------------------------------------------------------------------- I-1 Jul-02 90% $25,000 9.50% I-2 Feb-02 80% $29,787 9.43% I-3 Dec-01 95% $34,583 10.27% I-4 Jun-00 93% $27,734 9.68% I-5 Dec-00 Unknown $26,066 NA High 10.27% Low 9.43% Average 9.72%
Based on this information, we have concluded the subject's overall capitalization rate should be 10.00%. 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 11.00%. 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 13.00%. HOLDING PERIOD The survey of investors indicates that most investors are completing either 10-year cash flows or extending the analysis to the end of the lease if it is more than 10-years. A 10-year period has been used in the analysis of the subject with the eleventh year stabilized NOI used to determine the reversion. SELLING COSTS Sales of similar size properties are typically accomplished with the aid of a broker and will also incur legal and other transaction related cost. Based on our survey of brokers and a review of institutional investor projections, an allowance of 2.00% of the sale amount is applied. DISCOUNTED CASH FLOW CONCLUSION Discounting the annual cash flows and the equity reversion at the selected rate of 13.00% indicates a value of $13,600,000. In this instance, the reversion figure contributes AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 33 COOPER'S POND, TAMPA, FLORIDA approximately 34% of the total value. Investors surveyed for this assignment indicated they would prefer to have the cash flow contribute anywhere from 50% to 60%. Overall, the blend seems reasonable. The cash flow and pricing matrix are located on the following pages. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 34 COOPER'S POND, TAMPA, FLORIDA DISCOUNTED CASH FLOW ANALYSIS COOPER'S POND
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 FISCAL YEAR 1 2 3 4 5 6 - ---------------------------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $3,119,760 $3,197,754 $3,277,698 $3,359,640 $3,443,631 $3,529,722 Vacancy $ 280,778 $ 287,798 $ 294,993 $ 302,368 $ 309,927 $ 317,675 Credit Loss $ 187,186 $ 191,865 $ 196,662 $ 201,578 $ 206,618 $ 211,783 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------------------------------------------------------------------------------------- Subtotal $ 467,964 $ 479,663 $ 491,655 $ 503,946 $ 516,545 $ 529,458 Laundry Income $ 34,725 $ 35,593 $ 36,483 $ 37,395 $ 38,330 $ 39,288 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 393,550 $ 403,389 $ 413,473 $ 423,810 $ 434,406 $ 445,266 ---------------------------------------------------------------------------------------- Subtotal Other Income $ 428,275 $ 438,982 $ 449,956 $ 461,205 $ 472,735 $ 484,554 ---------------------------------------------------------------------------------------- EFFECTIVE GROSS INCOME $3,080,071 $3,157,073 $3,236,000 $3,316,900 $3,399,822 $3,484,818 OPERATING EXPENSES: Taxes $ 291,690 $ 300,441 $ 309,454 $ 318,738 $ 328,300 $ 338,149 Insurance $ 113,435 $ 116,838 $ 120,343 $ 123,953 $ 127,672 $ 131,502 Utilities $ 219,925 $ 226,523 $ 233,318 $ 240,318 $ 247,528 $ 254,953 Repair & Maintenance $ 57,875 $ 59,611 $ 61,400 $ 63,242 $ 65,139 $ 67,093 Cleaning $ 113,435 $ 116,838 $ 120,343 $ 123,953 $ 127,672 $ 131,502 Landscaping $ 173,625 $ 178,834 $ 184,199 $ 189,725 $ 195,416 $ 201,279 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 57,875 $ 59,611 $ 61,400 $ 63,242 $ 65,139 $ 67,093 General Administrative $ 324,100 $ 333,823 $ 343,838 $ 354,153 $ 364,777 $ 375,721 Management $ 154,004 $ 157,854 $ 161,800 $ 165,845 $ 169,991 $ 174,241 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $1,505,964 $1,550,372 $1,596,094 $1,643,168 $1,691,634 $1,741,533 Reserves $ 115,750 $ 119,223 $ 122,799 $ 126,483 $ 130,278 $ 134,186 ---------------------------------------------------------------------------------------- NET OPERATING INCOME $1,458,357 $1,487,478 $1,517,106 $1,547,248 $1,577,910 $1,609,099 Operating Expense Ratio (% of EGI) 48.9% 49.1% 49.3 49.5% 49.8 50.0% Operating Expense Per Unit $ 3,253 $ 3,349 $ 3,447 $ 3,549 $ 3,654 $ 3,761 YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 7 8 9 10 11 - ------------------------------------------------------------------------------------------------------------------------ REVENUE Base Rent $3,617,965 $3,708,414 $3,801,125 $3,896,153 $3,993,557 Vacancy $ 325,617 $ 333,757 $ 342,101 $ 350,654 $ 359,420 Credit Loss $ 217,078 $ 222,505 $ 228,067 $ 233,769 $ 239,613 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------------------ Subtotal $ 542,695 $ 556,262 $ 570,169 $ 584,423 $ 599,033 Laundry Income $ 40,270 $ 41,277 $ 42,309 $ 43,367 $ 44,451 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 456,397 $ 467,807 $ 479,502 $ 491,490 $ 503,777 ------------------------------------------------------------------------------ Subtotal Other Income $ 496,668 $ 509,084 $ 521,812 $ 534,857 $ 548,228 ------------------------------------------------------------------------------ EFFECTIVE GROSS INCOME $3,571,938 $3,661,237 $3,752,767 $3,846,587 $3,942,751 OPERATING EXPENSES: Taxes $ 348,293 $ 358,742 $ 369,504 $ 380,589 $ 392,007 Insurance $ 135,447 $ 139,511 $ 143,696 $ 148,007 $ 152,447 Utilities $ 262,602 $ 270,480 $ 278,594 $ 286,952 $ 295,561 Repair & Maintenance $ 69,106 $ 71,179 $ 73,314 $ 75,514 $ 77,779 Cleaning $ 135,447 $ 139,511 $ 143,696 $ 148,007 $ 152,447 Landscaping $ 207,317 $ 213,537 $ 219,943 $ 226,541 $ 233,337 Security $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 69,106 $ 71,179 $ 73,314 $ 75,514 $ 77,779 General Administrative $ 386,992 $ 398,602 $ 410,560 $ 422,877 $ 435,563 Management $ 178,597 $ 183,062 $ 187,638 $ 192,329 $ 197,138 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------------------ TOTAL OPERATING EXPENSES $1,792,908 $1,845,802 $1,900,261 $1,956,330 $2,014,059 Reserves $ 138,212 $ 142,358 $ 146,629 $ 151,027 $ 155,558 ------------------------------------------------------------------------------ NET OPERATING INCOME $1,640,819 $1,673,077 $1,705,878 $1,739,229 $1,773,134 Operating Expense Ratio (% of EGI) 50.2% 50.4% 50.6% 50.9% 51.1% Operating Expense Per Unit $ 3,872 $ 3,987 $ 4,104 $ 4,225 $ 4,350
Estimated Stabilized NOI $ 1,458,357 Sales Expense Rate 2.00% Months to Stabilized 1 Discount Rate 13.00% Stabilized Occupancy 91.0% Terminal Cap Rate 11.00%
Gross Residual Sale Price $16,119,402 Deferred Maintenance $ 0 Less: Sales Expense $ 322,388 Add: Excess Land $ 0 ----------- Other Adjustments $ 0 Net Residual Sale Price $15,797,014 ----------- PV of Reversion $ 4,653,616 Value Indicated By "DCF" $13,608,066 Add: NPV of NOI $ 8,954,450 ----------- Rounded $13,600,000 PV Total $13,608,066
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE ----------------------------------------------------------------------------------------- TOTAL VALUE 12.50% 12.75% 13.00% 13.25% 13.50% - ------------------------------------------------------------------------------------------------------------------------- 10.50% $14,252,129 $14,038,669 $13,829,667 $13,625,013 $13,424,603 10.75% $14,133,611 $13,922,752 $13,716,289 $13,514,114 $13,316,122 TERMINAL 11.00% $14,020,480 $13,812,105 $13,608,066 $13,408,256 $13,212,573 CAP RATE 11.25% $13,912,377 $13,706,375 $13,504,652 $13,307,103 $13,113,626 11.50% $13,808,974 $13,605,243 $13,405,735 $13,210,347 $13,018,980
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 35 COOPER'S POND, TAMPA, FLORIDA INCOME LOSS DURING LEASE-UP The subject is currently near or at a stabilized condition. Therefore, there is no income loss during lease-up at the subject property. CONCESSIONS Concessions have historically not been utilized at the subject property or in the subject's market. Therefore, no adjustment was included for concessions. DIRECT CAPITALIZATION METHOD After having projected the income and expenses for the property, the next step in the valuation process is to capitalize the net income into an estimate of value. The selected overall capitalization rate ("OAR") covers both return on and return of capital. It is the overall rate of return an investor expects. After considering the market transactions and the investor surveys, we previously conclude that an overall rate of 10.00% 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 COOPER'S POND, TAMPA, FLORIDA COOPER'S POND
TOTAL PER Sq. Ft. PER UNIT % OF EGI - --------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $ 3,119,760 $ 10.25 $ 6,738 Less: Vacancy & Collection Loss 15.00% $ 467,964 $ 1.54 $ 1,011 Plus: Other Income Laundry Income $ 34,725 $ 0.11 $ 75 1.13% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 393,550 $ 1.29 $ 850 12.78% --------------------------------------------------------------- Subtotal Other Income $ 428,275 $ 1.41 $ 925 13.90% EFFECTIVE GROSS INCOME $ 3,080,071 $ 10.12 $ 6,652 OPERATING EXPENSES: Taxes $ 291,690 $ 0.96 $ 630 9.47% Insurance $ 113,435 $ 0.37 $ 245 3.68% Utilities $ 219,925 $ 0.72 $ 475 7.14% Repair & Maintenance $ 57,875 $ 0.19 $ 125 1.88% Cleaning $ 113,435 $ 0.37 $ 245 3.68% Landscaping $ 173,625 $ 0.57 $ 375 5.64% Security $ 0 $ 0.00 $ 0 0.00% Marketing & Leasing $ 57,875 $ 0.19 $ 125 1.88% General Administrative $ 324,100 $ 1.06 $ 700 10.52% Management 5.00% $ 154,004 $ 0.51 $ 333 5.00% Miscellaneous $ 0 $ 0.00 $ 0 0.00% TOTAL OPERATING EXPENSES $ 1,505,964 $ 4.95 $ 3,253 48.89% Reserves $ 115,750 $ 0.38 $ 250 3.76% --------------------------------------------------------------- NET OPERATING INCOME $ 1,458,357 $ 4.79 $ 3,150 47.35% "GOING IN" CAPITALIZATION RATE 10.00% VALUE INDICATION $14,583,575 $ 47.92 $ 31,498 "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $14,583,575 ROUNDED $14,600,000 $ 47.97 $ 31,533
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 37 COOPER'S POND, TAMPA, FLORIDA DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF - --------------------------------------------------------------------------------------------------- 9.25% $15,766,026 $15,800,000 $34,125 $51.92 9.50% $15,351,131 $15,400,000 $33,261 $50.60 9.75% $14,957,512 $15,000,000 $32,397 $49.29 10.00% $14,583,575 $14,600,000 $31,533 $47.97 10.25% $14,227,878 $14,200,000 $30,670 $46.66 10.50% $13,889,119 $13,900,000 $30,022 $45.67 10.75% $13,566,116 $13,600,000 $29,374 $44.69
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $14,600,000. 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 $13,600,000 Direct Capitalization Method $14,600,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $14,500,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 38 COOPER'S POND, TAMPA, FLORIDA 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 $13,900,000 Income Approach $14,500,000 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 13, 2003 the market value of the fee simple estate in the property is: $14,500,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA COOPER'S POND, TAMPA, FLORIDA ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A COOPER'S POND, TAMPA, FLORIDA EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A COOPER'S POND, TAMPA, FLORIDA SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] OFFICE CLUBHOUSE - FRONT VIEW OFFICE CLUBHOUSE - REAR VIEW [PICTURE] [PICTURE] CLUBHOUSE - INTERIOR VIEW OF CLUBROOM CLUBHOUSE POOL AREA [PICTURE] [PICTURE] TYPICAL APARTMENT BUILDING- FRONT ANGLE VIEW TYPICAL APARTMENT BUILDING - REAR ANGLE VIEW AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A COOPER'S POND, TAMPA, FLORIDA SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] INTERIOR VIEW - MODEL APARTMENT INTERIOR VIEW - MODEL APARTMENT [PICTURE] [PICTURE] 2ND CLUBHOUSE - EXTERIOR VIEW 2ND POOL VIEW [PICTURE] [PICTURE] LANDSCAPING VIEW (REAR OF 2ND CLUBHOUSE) TYPICAL WATER VIEWS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B COOPER'S POND, TAMPA, FLORIDA EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B COOPER'S POND, TAMPA, FLORIDA PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 COUNTRY CROSSING ASHLEY SQUARE FALLS OF TAMPA BAY 7903 Holly Lea Court 5606 Josephine Court 4610 North Armenia Avenue Tampa, FL Tampa, FL Tampa, FL [PICTURE] [PICTURE] [PICTURE] COMPARABLE I-4 COMPARABLE I-5 HORIZON PARK SWAN LAKE 4900 N MacDill Avenue 3401 N. Lakeview Drive Tampa, FL Tampa, FL [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B COOPER'S POND, TAMPA, FLORIDA SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 - --------------------------------------------------------------------------------------------------------------------------- Property Name Cooper's Pond Ralston Place Management Company Aimco Aimco LOCATION: Address 6221 N Dale Mabry Hwy 2803 W Sligh Avenue City, State Tampa, Florida Tampa, FL County Hillsborough Hillsborough Proximity to Subject 1-mile southwest PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 304,342 121,200 Year Built 1980 1978 Effective Age 23 25 Building Structure Type Wood/Stucco Wood Parking Type (Gr., Cov., etc.) Open Open Number of Units 463 200 Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo. 1 1A10 - 1Br/1Ba 600 172 $526 1 1Br/1Ba 600 112 $505 2 1B10 - 1Br/1Ba 615 20 $548 2 1Br/1Ba 600 112 $505 3 1C10 - 1 Br/1Ba 726 64 $609 4 2 Br/2Ba 810 40 $670 4 2A20 - 2 Br/2Ba 810 88 $689 5 2 Br/2Ba 810 40 $670 5 2B20 - 2 Br/2Ba 886 7 $759 7 1Br/1Ba-Studio 450 48 $502 6 2C20 - 2Br/2Ba 903 32 $786 7 EA10 - Efficiency 450 80 $461 Average Unit Size (SF) 657 627 Unit Breakdown: Efficiency 2-Bedroom Efficiency 2-Bedroom 1-Bedroom 3-Bedroom 1-Bedroom 3-Bedroom CONDITION: Average APPEAL: Average AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony W/D Connect. X Balcony X W/D Connect. Fireplace Other Fireplace Other Cable TV Ready Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool X Spa/Jacuzzi X Car Wash Spa/Jacuzzi X Car Wash Basketball Court BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room X Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall X Tennis Court Secured Parking Tennis Court Secured Parking X Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track Business Office Jogging Track Business Office X Gym Room X Freshwater Lake X Gym Room X Freshwater Lake OCCUPANCY: 94% 95% LEASING DATA: Available Leasing Terms 6 to 12 months 6 to 12 months Concessions Pet Deposit Yes Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas Water Trash Water Trash Confirmation Manager Leasing Agent Telephone Number 813-933-2449 813-933-2449 NOTES: Nearby property also managed by Aimco. Rents shown are base rate for unit type. Add up to $50/month to each unit type for premiums COMPARISON TO SUBJECT: Slightly Superior COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 - ------------------------------------------------------------------------------------------------------------------------------ Property Name Park Place Hidden Lake Management Company NPV Realty AIMCO LOCATION: Address 3132 W Lambright Street 2701 West Waters Avenue City, State Tampa, FL Tampa, FL County Hillsborough Hillsborough Proximity to Subject 0.2-mile southwest 1-mile north PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 89,640 199,983 Year Built 1984 1986 Effective Age 19 16 Building Structure Type Wood/stucco/brick Wood/stucco/brick Parking Type (Gr., Cov., etc.) Open Open Number of Units 120 267 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1 Br/1Ba 710 32 $645 1 1 Br/1Ba 650 64 $539 1 1Br/1Ba - Studio 570 48 $585 2 1Br/1Ba - Studio 550 64 $509 2 1Br/1Ba - Studio 570 48 $585 6 2 Br/2Ba 1,000 72 $679 2 1 Br/1Ba 710 32 $645 6 2 Br/2Ba 1,050 3 $679 5 2 Br/2Ba 990 40 $775 3 1 Br/1Ba 750 64 $559 6 2 Br/2Ba 990 40 $775 7 1Br/1Ba - Studio 570 48 $585 4 1 Br/1Ba 710 32 $645 Average Unit Size (SF) 717 749 Unit Breakdown: Efficiency 2-Bedroom Efficiency 2-Bedroom 1-Bedroom 3-Bedroom 1-Bedroom 3-Bedroom CONDITION: Slightly Superior Slightly Superior APPEAL: Good Slightly Superior AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X W/D Connect. X Balcony W/D Connect. Fireplace X Other X Fireplace X Other Cable TV Ready WD in all units Cable TV Ready Screened Patios Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall Tennis Court X Secured Parking Tennis Court X Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track Business Office Jogging Track Business Office X Gym Room X Freshwater Lake Gym Room X Freshwater Lake OCCUPANCY: 95% 98% LEASING DATA: Available Leasing Terms 6 to 13 months 6 to 12 months Concessions 1st & last mo free on 13 month lease $99 move-in special Pet Deposit Yes Yes Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas Water Trash Water Trash Confirmation Leasing Agent Leasing Agent Telephone Number 813-935-8953 813-932-9533 NOTES: Similar in terms of location. Superior in Very similar property in terms of location. terms of age and construction, gated Located off Waters Avenue, between Habana community, and washer dryers in all units. and Amenia. Overall average condition but superior to subject in terms of age and appeal Rents shown are base rate for unit type. Add Rents shown are base rate for unit type. Add up to $50/month to each unit type for up to $50/month to each unit type for premiums premiums COMPARISON TO SUBJECT: Superior Superior COMPARABLE COMPARABLE DESCRIPTION R - 4 R - 5 - ----------------------------------------------------------------------------------------------------------------------------------- Property Name Courtney Cove Countrywood Apartments Management Company GMH Associates JMG Realty LOCATION: Address 5510 Himes Avenue 12101 Dale Mabry Hwy City, State Tampa, FL Tampa, FL County Hillsborough Hillsborough Proximity to Subject 1.5-mile southwest 3-mile north PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 224,856 336,608 Year Built 1983 1978 Effective Age 20 25 Building Structure Type Wood/stucco Wood/stucco Parking Type (Gr., Cov., etc.) Open Open Number of Units 324 536 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1 Br/1Ba 600 107 $535 1 1 Br/1Ba 600 112 $480 7 1Br/1Ba - Studio 450 32 $470 7 1Br/1Ba - Studio 450 272 $530 4 2 Br/2Ba 810 96 $660 4 2 Br/2Ba 810 152 $680 2 1 Br/1Ba 615 21 $550 2 1 Br/1Ba 600 112 $480 3 1 Br/1Ba 726 32 $729 3 2 Br/2Ba 810 152 $680 5 2 Br/2Ba 885 4 $760 5 2 Br/2Ba 810 152 $680 6 2 Br/2Ba 903 32 $700 6 2 Br/2Ba 810 152 $680 Average Unit Size (SF) 694 679 Unit Breakdown: Efficiency 2-Bedroom Efficiency 2-Bedroom 1-Bedroom 3-Bedroom 1-Bedroom 3-Bedroom CONDITION: Average Average APPEAL: Average Average AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony W/D Connect. X Balcony W/D Connect. Fireplace Other Fireplace Other Cable TV Ready Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall Tennis Court X Secured Parking X Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track Business Office Jogging Track Business Office X Gym Room X Freshwater Lake X Gym Room Freshwater Lake OCCUPANCY: 91% 97% LEASING DATA: Available Leasing Terms 6 to 12 months 6 to 12 months Concessions $99 move-in special plus 1st month free $600 off on 12 month lease for 1 BR unit Pet Deposit Yes Yes Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas Water Trash Water Trash Confirmation Leasing Agent Leasing Agent Telephone Number 813-879-1251 813-961-7932 NOTES: Very similar to subject property but considered Good location off Dale Mabry, near the subject to be in superior condition. Parking lot property. Superior in terms of location and recently resurfaced and buildings are freshly visibility, overall curb appeal painted. Rents shown are base rate for unit type. Add up Rents shown are base rate for unit type. Add to $50/month to each unit type for premiums up to $50/month to each unit type for premiums COMPARISON TO SUBJECT: Slightly Superior Superior
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B COOPER'S POND, TAMPA, FLORIDA PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 RALSTON PLACE PARK PLACE HIDDEN LAKE 2803 W Sligh Avenue 3132 W Lambright Street 2701 West Waters Avenue Tampa, FL Tampa.FL Tampa, FL [PICTURE] [PICTURE] [PICTURE] COMPARABLE R-4 COMPARABLE R-5 COURTNEY COVE COUNTRYWOOD APARTMENTS 5510 Himes Avenue 12101 Dale Mabry Hwy Tampa, FL Tampa, FL [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C COOPER'S POND, TAMPA, FLORIDA EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C COOPER'S POND, TAMPA, FLORIDA 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 COOPER'S POND, TAMPA, FLORIDA 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 COOPER'S POND, TAMPA, FLORIDA such testimony, and then such testimony shall be at American Appraisal Associates, Inc.'s, prevailing per diem for the individuals involved. Possession of this report or any copy thereof does not carry with it the right of publication. No portion of this report (especially any conclusion to use, the identity of the appraiser or the firm with which the appraiser is connected, or any reference to the American Society of Appraisers or the designations awarded by this organization) shall be disseminated to the public through prospectus, advertising, public relations, news, or any other means of communication without the written consent and approval of American Appraisal Associates, Inc. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D COOPER'S POND, TAMPA, FLORIDA 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 report analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and represent the impartial and 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 or bias with respect to the property that is the subject of this report and have no personal interest or bias with respect to the parties involved. The engagement of American Appraisal Associates, Inc., and myself personally in this assignment and compensation for American Appraisal Associates, Inc., are not contingent on the development or reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal. The analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice and the Principles of Appraisal Practice and Code of Ethics of the American Society of Appraisers. I have made an inspection of the real property that is the subject of this report. No one has provided me with significant real property appraisal assistance. -s- Alice MacQueen ------------------- Alice MacQueen Vice President, Real Estate Group Florida Certified General Real Estate Appraiser #RZ0002202 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E COOPER'S POND, TAMPA, FLORIDA EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E COOPER'S POND, TAMPA, FLORIDA ALICE MACQUEEN VICE PRESIDENT AND PRINCIPAL, REAL ESTATE GROUP POSITION Alice MacQueen serves as a Vice President and Principal for the Dallas Real Estate Group of American Appraisal Associates, Inc. ("AAA"). EXPERIENCE Valuation Ms. MacQueen specializes in the appraisal of investment real estate and is annually involved in the valuation of several billion dollars of real property. The purposes of these valuations include allocation of purchase price, charitable donation, financing, purchase, sale, and syndication. She has also been involved in land planning analyses for major mixed-use developments. She has appraised various types of real estate including congregate care facilities, industrial properties, manufacturing facilities, office buildings, recreational subdivisions and planned unit developments, single- and multifamily residential properties, and shopping centers. Special-purpose properties she has appraised include campgrounds, churches, country clubs, golf courses, historic landmarks, proprietary cemeteries, and schools. In addition to market value opinions, Ms. MacQueen has provided feasibility and highest and best use studies. She has also been involved in several research projects, providing background studies involving major property tax appeal cases. These studies included the impact of inflation, rate of return considerations, sales-assessment ratio analyses, and the applicability of income capitalization to commercial and industrial properties. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E COOPER'S POND, TAMPA, FLORIDA Ms. MacQueen has appraised real estate in 46 U.S. states, Mexico, and Puerto Rico. Business Ms. MacQueen joined AAA in 1983. She served as Regional Real Estate Director for the southeastern United States from 1987 to 1992 and as National Director of the Real Estate Valuation Group from 1992 through 1995, when she assumed her current position. Before joining the firm, she was involved in property management for five years and spent an additional five years as an appraiser, consultant, and research analyst. EDUCATION Realtors Institute of Virginia Greenbrier College for Women - Liberal Arts STATE CERTIFICATIONS State of Arizona, Certified General Real Estate Appraiser, #30987 State of Florida, Certified General Appraiser, #RZ0002202 State of Georgia, Certified General Real Property Appraiser, #239776 State of Minnesota, Certified General Real Property Appraiser, #AP-20144872 State of New Mexico, General Certified Appraiser, #001626-G State of Utah, State Certified General Appraiser, #CG00057001 PROFESSIONAL American Society of Appraisers, Candidate AFFILIATIONS AMERICAN APPRAISAL ASSOCIATES, INC. COOPER'S POND, TAMPA, FLORIDA GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. COOPER'S POND, TAMPA, FLORIDA 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. EX-99.(C)(3) 5 d07246a2exv99wxcyx3y.txt APPRAISAL OF CREEKSIDE CREEKSIDE 5250 CHERRY CREEK DRIVE SOUTH DENVER, COLORADO MARKET VALUE - FEE SIMPLE ESTATE AS OF MAY 13, 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] [LETTERHEAD OF AMERICAN APPRAISAL ASSOCIATES (R)] JUNE 28, 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: CREEKSIDE 5250 CHERRY CREEK DRIVE SOUTH DENVER, DENVER COUNTY, COLORADO 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 328 units with a total of 196,448 square feet of rentable area. The improvements were built in 1977. The improvements are situated on 11.694 acres. Overall, the improvements are in good condition. As of the date of this appraisal, the subject property is 82% 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 CREEKSIDE, DENVER, COLORADO 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 13, 2003 is: ($16,200,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. /s/ Douglas Needham June 28, 2003 Douglas Needham, MAI #053272 Managing Principal, Real Estate Group Colorado State Certified General Real Estate Appraiser #CG40017035 Report By: James Newell AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 CREEKSIDE, DENVER, COLORADO 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 CREEKSIDE, DENVER, COLORADO EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Creekside LOCATION: 5250 Cherry Creek Drive South Denver, Colorado 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 13, 2003 DATE OF REPORT: June 28, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 11.694 acres, or 509,391 square feet Assessor Parcel No.: 06184-00-014-000 Floodplain: Community Panel No. 0800460015C (September 28, 1990) Flood Zone X, an area outside the floodplain. Zoning: R-2-A (Multi-family Residential) BUILDING: No. of Units: 328 Units Total NRA: 196,448 Square Feet Average Unit Size: 599 Square Feet Apartment Density: 28.0 units per acre Year Built: 1977 UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
Square Market Rent Monthly Annual Unit Type Feet Per Unit Per SF Income Income - ------------------------------------------------------------------ Studio 404 $540 $1.34 $ 30,240 $ 362,880 1Bd/1Ba 552 $620 $1.12 $ 49,600 $ 595,200 1Bd/1Ba 611 $650 $1.06 $ 83,200 $ 998,400 2Bd/2Ba 804 $790 $0.98 $ 50,560 $ 606,720 Total $213,600 $2,563,200
OCCUPANCY: 82% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 15 Years REMAINING ECONOMIC LIFE: 30 Years AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 CREEKSIDE, DENVER, COLORADO SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - STREET VIEW EXTERIOR - APARTMENT BUILDING AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 CREEKSIDE, DENVER, COLORADO NEIGHBORHOOD 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 CREEKSIDE, DENVER, COLORADO PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
Amount $/Unit ------ ------ DIRECT CAPITALIZATION Potential Rental Income $2,563,200 $7,815 Effective Gross Income $2,493,720 $7,603 Operating Expenses $ 858,094 $2,616 34.4% of EGI Net Operating Income: $1,570,026 $4,787 Capitalization Rate 9.50% DIRECT CAPITALIZATION VALUE $16,300,000 * $49,695 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 15% Stabilized Vacancy & Collection Loss: 12.5% Lease-up / Stabilization Period 8 months Terminal Capitalization Rate 10.00% Discount Rate 12.00% Selling Costs 2.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $15,900,000 * $48,476 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $16,200,000 $49,390 / UNIT SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $43,357 to $87,162 Range of Sales $/Unit (Adjusted) $47,692 to $56,655 VALUE INDICATION - PRICE PER UNIT $16,200,000 * $49,390 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 5.41 to 8.78 Selected EGIM for Subject 6.75 Subject's Projected EGI $2,493,720 EGIM ANALYSIS CONCLUSION $16,600,000 * $50,610 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $16,500,000 * $50,305 / UNIT RECONCILED SALES COMPARISON VALUE $16,500,000 $50,305 / 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 CREEKSIDE, DENVER, COLORADO PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $16,200,000 NOI Per Unit $16,500,000 EGIM Multiplier $16,600,000 INDICATED VALUE BY SALES COMPARISON $16,500,000 $50,305 / UNIT INCOME APPROACH: Direct Capitalization Method: $16,300,000 Discounted Cash Flow Method: $15,900,000 INDICATED VALUE BY THE INCOME APPROACH $16,200,000 $49,390 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $16,200,000 $49,390 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 CREEKSIDE, DENVER, COLORADO INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 5250 Cherry Creek Drive South, Denver, Denver County, Colorado. Denver identifies it as 06184-00-014-000. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by James Newell on May 13, 2003. Douglas Needham, MAI has not made a personal inspection of the subject property. James Newell performed the research, valuation analysis and wrote the report. Douglas Needham, MAI reviewed the report and concurs with the value. Douglas Needham, MAI and James Newell 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 13, 2003. The date of the report is June 28, 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 CREEKSIDE, DENVER, COLORADO 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 Apartment Creek 17 A LLC. 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 CREEKSIDE, DENVER, COLORADO 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 Denver, Colorado. 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 Holly Street West - South Colorado Boulevard South - East Mississippi Avenue North - East Alameda Avenue MAJOR EMPLOYERS The property is located in the Denver Metropolitan area, within which there are many large employers. 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 CREEKSIDE, DENVER, COLORADO NEIGHBORHOOD DEMOGRAPHICS
AREA ---------------------------------------- CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA - ----------------------------------------------------------------------------------- POPULATION TRENDS Current Population 24,382 159,355 447,735 2,198,122 5-Year Population 26,423 169,555 477,617 2,428,641 % Change CY-5Y 8.4% 6.4% 6.7% 10.5% Annual Change CY-5Y 1.7% 1.3% 1.3% 2.1% HOUSEHOLDS Current Households 12,342 80,307 211,537 858,219 5-Year Projected Households 13,214 84,520 222,301 942,278 % Change CY - 5Y 7.1% 5.2% 5.1% 9.8% Annual Change CY-5Y 1.4% 1.0% 1.0% 2.0% INCOME TRENDS Median Household Income $ 36,691 $ 45,533 $ 38,034 $ 60,438 Per Capita Income $ 24,831 $ 36,313 $ 28,974 $ 27,463 Average Household Income $ 48,740 $ 71,876 $ 61,346 $ 70,339 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 55.11% 43.00% 45.05% 30.19% 5-Year Projected % Renting 54.24% 42.23% 43.72% 28.87% % of Households Owning 35.18% 48.40% 42.87% 61.93% 5-Year Projected % Owning 36.60% 49.50% 44.78% 63.83% Source: Demographics Now
AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 CREEKSIDE, DENVER, COLORADO SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Offices South - Residential Condominiums East - Cherry Creek West - Apartments and condominiums CONCLUSIONS The subject is well located within the city of Denver. 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 CREEKSIDE, DENVER, COLORADO MARKET ANALYSIS The subject property is located in the city of Denver in Denver County. The overall pace of development in the subject's market is more or less stable. There is no known new construction in the subject's neighborhood. The following table illustrates historical vacancy rates for the subject's market. HISTORICAL VACANCY RATE
Period Region Submarket - ------------------------- 2001 7.0% 7.0% 2002 9.4% 8.5%
Source: Hendricks & Partners: Apartment Update, Rocky Mountain Region, Denver Occupancy trends in the subject's market are decreasing. Historically speaking, the subject's submarket has equated the overall market. The subject's submarket is fairly well-positioned in the current economic downturn, due to its location in proximity to downtown Denver. Market rents in the subject's market have been following a decreasing trend. The following table illustrates historical rental rates for the subject's market. HISTORICAL AVERAGE RENT
Period Region % Change Submarket % Change - --------------------------------------------------- 2001 $ 852 - $ 778 - 2002 $ 829 -2.7% $ 758 -2.6%
The following table illustrates a summary of the subject's competitive set. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 CREEKSIDE, DENVER, COLORADO COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject - ------------------------------------------------------------------------------------------ R-1 Spyglass Approx. 350 98% 1975 Approx. 1 mile from subject R-2 Cypress Point 292 96% 1972 Approx. 1 mile from subject R-3 Cherry Creek Club 890 90% 1980 Adjacent to property R-4 Central Park 312 93% 1980 2 miles southeast of subject R-5 Torrey Pines 270 97% 1980 Approx. 1 mile from subject Subject Creekside 328 82% 1977
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 CREEKSIDE, DENVER, COLORADO SITE ANALYSIS Site Area 11.694 acres, or 509,391 square feet Shape Irregular Topography Level Utilities All necessary utilities are available to the site. Soil Conditions Stable Easements Affecting Site None other than typical utility easements Overall Site Appeal Good Flood Zone: Community Panel 0800460015C, dated September 28, 1990 Flood Zone Zone X Zoning R-2-A, the subject improvements represent a legal conforming use of the site. REAL ESTATE TAXES
ASSESSED VALUE - 2002 ---------------------------------- TAX RATE / PROPERTY PARCEL NUMBER LAND BUILDING TOTAL MILL RATE TAXES - -------------------------------------------------------------------------- 06184-00-014-000 $279,680 $1,110,980 $1,390,660 $0.05986 $83,238
IMPROVEMENT ANALYSIS Year Built 1977 Number of Units 328 Net Rentable Area 196,448 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, sand volleyball, tennis court, gym room, barbeque equipment, theater room, meeting hall, laundry room, and parking area. Unit Amenities Individual unit amenities include a balcony, fireplace, cable TV connection, vaulted ceiling, and washer dryer connection. Appliances available in each unit include a AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 CREEKSIDE, DENVER, COLORADO refrigerator, stove, dishwasher, garbage disposal, and oven. Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) - --------------------------------------- Studio 56 404 1Bd/1Ba 80 552 1Bd/1Ba 128 611 2Bd/2Ba 64 804
Overall Condition Good Effective Age 15 years Economic Life 45 years Remaining Economic Life 30 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 1977 and consist of a 328-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 CREEKSIDE, DENVER, COLORADO 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 CREEKSIDE, DENVER, COLORADO 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 CREEKSIDE, DENVER, COLORADO 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 CREEKSIDE, DENVER, COLORADO SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - -------------------------------------------------------------------------------------------------------------------------------- Property Name Creekside The Colonnade Sierra Vista LOCATION: Address 5250 Cherry Creek Drive South 15301 E Ford Circle 8851 E Florida Avenue City, State Denver, Colorado Aurora, Colorado Aurora, Colorado County Denver County Arapahoe County Arapahoe County PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 196,448 115,968 133,860 Year Built 1977 1984 1976 Number of Units 328 138 209 Unit Mix: Type Total Type Total Type Total Studio 56 1Bd/1Ba 72 1Bd/1Ba 152 1Bd/1Ba 80 2Bd/2Ba 66 2Bd/2Ba 57 1Bd/1Ba 128 2Bd/2Ba 64 Average Unit Size (SF) 599 840 640 Land Area (Acre) 11.6940 5.2700 5.9700 Density (Units/Acre) 28.0 26.2 35.0 Parking Ratio (Spaces/Unit) 1.52 1.72 1.05 Parking Type (Gr., Cov., etc.) Open Covered, open open Open CONDITION: 0 Good Average APPEAL: 0 Good Average AMENITIES: Pool/Spa Yes/Yes Yes/Yes Yes/No Gym Room Yes Yes No Laundry Room Yes Yes Yes Secured Parking No No No Sport Courts Yes Yes No OCCUPANCY: 82% 94% 95% TRANSACTION DATA: Sale Date August, 2002 March, 2003 Sale Price ($) $9,000,000 $9,400,000 Grantor WXI/SPN Real Estate Sundance Housing Assoc. Grantee Kinnickinnic Realty Coolidge Sierra Sale Documentation 2155658 3018857 Verification Seller's broker Buyer's broker Telephone Number 720-528-6300 720-528-6300 ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $1,257,528 $9,113 $10.84 $1,741,656 $8,333 $13.01 Vacancy/Credit Loss $ 75,452 $ 547 $ 0.65 $ 87,083 $ 417 $ 0.65 Effective Gross Income $1,182,076 $8,566 $10.19 $1,654,573 $7,917 $12.36 Operating Expenses $ 481,471 $3,489 $ 4.15 $ 724,283 $3,465 $ 5.41 Net Operating Income $ 700,605 $5,077 $ 6.04 $ 930,290 $4,451 $ 6.95 NOTES: PRICE PER UNIT $65,217 $ 44,976 PRICE PER SQUARE FOOT $ 77.61 $ 70.22 EXPENSE RATIO 40.7% 43.8% EGIM 7.61 5.68 OVERALL CAP RATE 7.78% 9.90% 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 Knollwood Windsor Court Cascade Village LOCATION: Address 15196 E Louisiana Drive 1570 Joliet Street 6880 W 91st Street City, State Aurora, Colorado Aurora, Colorado Westminster, Colorado County Araphaoe County Araphaoe County Jefferson County PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 96,296 102,408 340,548 Year Built 1982 1973 1987 Number of Units 110 143 444 Unit Mix: Type Total Type Total Type Total 1Bd/1Ba 38 1Bd/1Ba 72 1Bd/1Ba 222 2Bd/1Ba 72 2Bd/2Ba 71 2Bd/2Ba 222 Average Unit Size (SF) 875 716 767 Land Area (Acre) 5.6900 3.9200 16.9220 Density (Units/Acre) 19.3 36.5 26.2 Parking Ratio (Spaces/Unit) 2.82 1.50 2.04 Parking Type (Gr., Cov., etc.) Open covered, open Open Open covered, open CONDITION: Good Average Good APPEAL: Good Average Good AMENITIES: Pool/Spa Yes/Yes Yes/No Yes/Yes Gym Room Yes No Yes Laundry Room Yes Yes Yes Secured Parking Yes Yes No Sport Courts No No Yes OCCUPANCY: 95% 95% 90% TRANSACTION DATA: Sale Date May, 2002 January, 2003 December, 2002 Sale Price ($) $6,350,000 $6,200,000 $38,700,000 Grantor Scott Properties Windsor Court Housing LBK 3 Associates Grantee F. Malcolm & Kathryn Wall Coolidge Windsor Henderson Global Investors Sale Documentation 2080847 1085774 N/A Verification Broker Buyer's broker Seller's Broker Telephone Number 303-320-1300 720-528-6300 303-730-1675 ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $936,000 $8,509 $9.72 $1,205,899 $8,433 $11.78 $4,898,856 $11,033 $14.39 Vacancy/Credit Loss $ 46,800 $ 425 $0.49 $ 60,295 $ 422 $ 0.59 $ 489,886 $ 1,103 $ 1.44 Effective Gross Income $889,200 $8,084 $9.23 $1,145,604 $8,011 $11.19 $4,408,970 $ 9,930 $12.95 Operating Expenses $355,680 $3,233 $3.69 $ 525,454 $3,675 $ 5.13 $1,198,800 $ 2,700 $ 3.52 Net Operating Income $533,520 $4,850 $5.54 $ 620,150 $4,337 $ 6.06 $3,210,170 $ 7,230 $ 9.43 NOTES: PRICE PER UNIT $57,727 $43,357 $87,162 PRICE PER SQUARE FOOT $ 65.94 $ 60.54 $113.64 EXPENSE RATIO 40.0% 45.9% 27.2% EGIM 7.14 5.41 8.78 OVERALL CAP RATE 8.40% 10.00% 8.30% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA ACTUAL
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 CREEKSIDE, DENVER, COLORADO IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $43,357 to $87,162 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 $47,692 to $56,655 per unit with a mean or average adjusted price of $52,564 per unit. The median adjusted price is $53,971 per unit. Based on the following analysis, we have concluded to a value of $50,000 per unit, which results in an "as is" value of $16,200,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 CREEKSIDE, DENVER, COLORADO SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - --------------------------------------------------------------------------------------------------------------------------- Property Name Creekside The Colonnade Sierra Vista Address 5250 Cherry Creek Drive South 15301 E Ford Circle 8851 E Florida Avenue City Denver, Colorado Aurora, Colorado Aurora, Colorado Sale Date August, 2002 March, 2003 Sale Price ($) $9,000,000 $9,400,000 Net Rentable Area (SF) 196,448 115,968 133,860 Number of Units 328 138 209 Price Per Unit $65,217 $44,976 Year Built 1977 1984 1976 Land Area (Acre) 11.6940 5.2700 5.9700 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. - --------------------------------------------------------------------------------------------------------------------------- Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 08-2002 0% 03-2003 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $65,217 $44,976 Location Comparable 0% Inferior 10% Number of Units 328 138 -5% 209 0% Quality / Appeal Good Comparable 0% Inferior 5% Age / Condition 1977 1984 / Good 0% 1976 / Average 5% Occupancy at Sale 82% 94% 0% 95% 0% Amenities Good Comparable 0% Comparable 0% Average Unit Size (SF) 599 840 -10% 640 0% PHYSICAL ADJUSTMENT -15% 20% FINAL ADJUSTED VALUE ($/UNIT) $55,435 $53,971 COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 - ------------------------------------------------------------------------------------------------------------------------ Property Name Knollwood Windsor Court Cascade Village Address 15196 E Louisiana Drive 1570 Joliet Street 6880 W 91st Street City Aurora, Colorado Aurora, Colorado Westminster, Colorado Sale Date May, 2002 January, 2003 December, 2002 Sale Price ($) $6,350,000 $6,200,000 $38,700,000 Net Rentable Area (SF) 96,296 102,408 340,548 Number of Units 110 143 444 Price Per Unit $57,727 $43,357 $87,162 Year Built 1982 1973 1987 Land Area (Acre) 5.6900 3.9200 16.9220 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. - ------------------------------------------------------------------------------------------------------------------------ Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) 05-2002 0% 01-2003 0% 12-2002 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $57,727 $43,357 $87,162 Location Comparable 0% Inferior 10% Superior -10% Number of Units 110 -5% 143 -5% 444 0% Quality / Appeal Comparable 0% Comparable 0% Superior -10% Age / Condition 1982 / Good 0% 1973 / Average 5% 1987 / Good -10% Occupancy at Sale 95% 0% 95% 0% 90% 0% Amenities Comparable 0% Comparable 0% Comparable 0% Average Unit Size (SF) 875 -10% 716 0% 767 -5% PHYSICAL ADJUSTMENT -15% 10% -35% FINAL ADJUSTED VALUE ($/UNIT) $49,068 $47,692 $56,655
SUMMARY VALUE RANGE (PER UNIT) $47,692 TO $ 56,655 MEAN (PER UNIT) $52,564 MEDIAN (PER UNIT) $53,971 VALUE CONCLUSION (PER UNIT) $50,000 VALUE OF IMPROVEMENT & MAIN SITE $16,400,000 LESS: LEASE-UP COST -$ 68,000 PV OF CONCESSIONS -$ 127,000 VALUE INDICATED BY SALES COMPARISON APPROACH $16,205,000 ROUNDED $16,200,000
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 CREEKSIDE, DENVER, COLORADO 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-1 138 $ 9,000,000 7.78% $ 700,605 $1,570,026 0.943 $61,490 ---------- ---------- $ 65,217 $ 5,077 $ 4,787 I-2 209 $ 9,400,000 9.90% $ 930,290 $1,570,026 1.075 $48,366 ---------- ---------- $ 44,976 $ 4,451 $ 4,787 I-3 110 $ 6,350,000 8.40% $ 533,520 $1,570,026 0.987 $56,971 ---------- ---------- $ 57,727 $ 4,850 $ 4,787 I-4 143 $ 6,200,000 10.00% $ 620,150 $1,570,026 1.104 $47,855 ---------- ---------- $ 43,357 $ 4,337 $ 4,787 I-5 444 $38,700,000 8.30% $3,210,170 $1,570,026 0.662 $57,705 ---------- ---------- $ 87,162 $ 7,230 $ 4,787
PRICE/UNIT
Low High Average Median $47,855 $61,490 $54,478 $56,971
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT Estimated Price Per Unit $ 51,000 ------------ Number of Units 328 Value $16,728,000 Less: Lease-Up Cost -$ 68,000 PV of Concessions -$ 127,000 ------------ Value Based on NOI Analysis $16,533,000 Rounded $16,500,000
The adjusted sales indicate a range of value between $47,855 and $61,490 per unit, with an average of $54,478 per unit. Based on the subject's competitive position within the improved sales, a value of $51,000 per unit is estimated. This indicates an "as is" market value of $16,500,000 (rounded after necessary adjustment, if any) for the NOI Per Unit Analysis. EFFECTIVE GROSS INCOME MULTIPLIER (EGIM) ANALYSIS The effective gross income multiplier (EGIM) is derived by dividing the sales price by the total effective gross income. The following table illustrates the EGIMs for the comparable improved sales. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 25 CREEKSIDE, DENVER, COLORADO 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-1 138 $ 9,000,000 $1,182,076 $ 481,471 40.73% 7.61 $ 65,217 I-2 209 $ 9,400,000 $1,654,573 $ 724,283 43.77% 5.68 $ 44,976 I-3 110 $ 6,350,000 $ 889,200 $ 355,680 40.00% 7.14 $ 57,727 I-4 143 $ 6,200,000 $1,145,604 $ 525,454 45.87% 5.41 $ 43,357 I-5 444 $38,700,000 $4,408,970 $1,198,800 27.19% 8.78 $ 87,162
EGIM
Low High Average Median 5.41 8.78 6.93 7.14
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES Estimate EGIM 6.75 ------------ Subject EGI $ 2,493,720 Value $16,832,610 Less: Lease-Up Cost -$ 68,000 PV of Concessions -$ 127,000 ------------ Value Based on EGIM Analysis $16,637,610 Rounded $16,600,000 Value Per Unit $ 50,610
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 34.41% before reserves. The comparable sales indicate a range of expense ratios from 27.19% to 45.87%, while their EGIMs range from 5.41 to 8.78. Overall, we conclude to an EGIM of 6.75, which results in an "as is" value estimate in the EGIM Analysis of $16,600,000. SALES COMPARISON CONCLUSION The three valuation methods in the Sales Comparison Approach are shown below. The overall value via the Sales Comparison Approach is estimated at $16,500,000. Price Per Unit $16,200,000 NOI Per Unit $16,500,000 EGIM Analysis $16,600,000 Sales Comparison Conclusion $16,500,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 CREEKSIDE, DENVER, COLORADO 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 CREEKSIDE, DENVER, COLORADO 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 - ---------------------------------------------------- Studio 404 $512 $1.27 90.9% 1Bd/1Ba 552 $576 $1.04 85.0% 1Bd/1Ba 611 $621 $1.02 82.8% 2Bd/2Ba 804 $807 $1.00 67.2%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 CREEKSIDE, DENVER, COLORADO RENT ANALYSIS
COMPARABLE RENTS ----------------------------------------------------------- R-1 R-2 R-3 R-4 R-5 ----------------------------------------------------------- Cypress Cherry Torrey Spyglass Point Creek Club Central Park Pines ----------------------------------------------------------- COMPARISON TO SUBJECT SUBJECT SUBJECT ----------------------------------------------------------- SUBJECT UNIT ACTUAL ASKING Slightly Slightly Slightly DESCRIPTION TYPE RENT RENT Similar Similar Superior Superior Inferior - ----------------------------------------------------------------------------------------------------------------------------------- Monthly Rent STUDIO $ 512 $ 539 $ 565 $ 580 $ 595 Unit Area (SF) 404 404 475 450 757 Monthly Rent Per Sq. Ft $ 1.27 $ 1.33 $ 1.19 $ 1.29 $ 0.79 Monthly Rent 1BD/1BA $ 576 $ 619 $ 625 Unit Area (SF) 552 552 525 Monthly Rent Per Sq. Ft $ 1.04 $ 1.12 $ 1.19 Monthly Rent 1BD/1BA $ 621 $ 669 $ 615 $ 665 $ 708 $ 695 $ 645 Unit Area (SF) 611 611 675 660 625 782 710 Monthly Rent Per Sq. Ft $ 1.02 $ 1.09 $ 0.91 $ 1.01 $ 1.13 $ 0.89 $ 0.91 Monthly Rent 2BD/2BA $ 807 $ 819 $ 720 $ 895 $ 807 $ 878 $ 838 Unit Area (SF) 804 804 950 975 817 1,042 1,025 Monthly Rent Per Sq. Ft $ 1.00 $ 1.02 $ 0.76 $ 0.92 $ 0.99 $ 0.84 $ 0.82 DESCRIPTION MIN MAX MEDIAN AVERAGE - ----------------------------------------------------------------------------- Monthly Rent $ 565 $ 595 $ 580 $ 580 Unit Area (SF) 450 757 475 561 Monthly Rent Per Sq. Ft $ 0.79 $ 1.29 $ 1.19 $ 1.09 Monthly Rent $ 625 $ 625 $ 625 $ 625 Unit Area (SF) 525 525 525 525 Monthly Rent Per Sq. Ft $ 1.19 $ 1.19 $ 1.19 $ 1.19 Monthly Rent $ 615 $ 708 $ 665 $ 666 Unit Area (SF) 625 782 675 690 Monthly Rent Per Sq. Ft $ 0.89 $ 1.13 $ 0.91 $ 0.97 Monthly Rent $ 720 $ 895 $ 838 $ 827 Unit Area (SF) 817 1,042 975 962 Monthly Rent Per Sq. Ft $ 0.76 $ 0.99 $ 0.84 $ 0.86
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 - --------------------------------------------------------------------------------------------- Studio 56 404 $ 540 $1.34 $ 30,240 $ 362,880 1Bd/1Ba 80 552 $ 620 $1.12 $ 49,600 $ 595,200 1Bd/1Ba 128 611 $ 650 $1.06 $ 83,200 $ 998,400 2Bd/2Ba 64 804 $ 790 $0.98 $ 50,560 $ 606,720 Total $ 213,600 $2,563,200
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 CREEKSIDE, DENVER, COLORADO 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 $2,612,480 $ 7,965 $2,789,794 $ 8,505 $2,689,488 $ 8,200 $2,564,959 $ 7,820 Vacancy $ 66,923 $ 204 $ 171,425 $ 523 $ 313,347 $ 955 $ 166,694 $ 508 Credit Loss/Concessions $ 3,206 $ 10 $ 20,764 $ 63 $ 78,446 $ 239 $ 11,000 $ 34 -------------------------------------------------------------------------------------------------------- Subtotal $ 70,129 $ 214 $ 192,189 $ 586 $ 391,793 $ 1,194 $ 177,694 $ 542 Laundry Income $ 20,691 $ 63 $ 24,539 $ 75 $ 37,167 $ 113 $ 56,179 $ 171 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 157,640 $ 481 $ 178,130 $ 543 $ 211,536 $ 645 $ 192,569 $ 587 -------------------------------------------------------------------------------------------------------- Subtotal Other Income $ 178,331 $ 544 $ 202,669 $ 618 $ 248,703 $ 758 $ 248,748 $ 758 -------------------------------------------------------------------------------------------------------- Effective Gross Income $2,720,682 $ 8,295 $2,800,274 $ 8,537 $2,546,398 $ 7,763 $2,636,013 $ 8,037 Operating Expenses Taxes $ 79,364 $ 242 $ 155,073 $ 473 $ 81,905 $ 250 $ 91,375 $ 279 Insurance $ 23,736 $ 72 $ 35,747 $ 109 $ 48,103 $ 147 $ 45,972 $ 140 Utilities $ 149,958 $ 457 $ 226,019 $ 689 $ 166,929 $ 509 $ 181,082 $ 552 Repair & Maintenance $ 70,591 $ 215 $ 69,539 $ 212 $ 53,542 $ 163 $ 76,512 $ 233 Cleaning $ 21,157 $ 65 $ 21,805 $ 66 $ 23,708 $ 72 $ 0 $ 0 Landscaping $ 456 $ 1 $ 2,122 $ 6 $ 1,435 $ 4 $ 0 $ 0 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 48,348 $ 147 $ 31,361 $ 96 $ 63,070 $ 192 $ 59,000 $ 180 General Administrative $ 243,130 $ 741 $ 260,687 $ 795 $ 245,370 $ 748 $ 226,059 $ 689 Management $ 135,680 $ 414 $ 150,325 $ 458 $ 128,552 $ 392 $ 136,375 $ 416 Miscellaneous $ 42,480 $ 130 $ 42,841 $ 131 $ 38,971 $ 119 $ 42,572 $ 130 -------------------------------------------------------------------------------------------------------- Total Operating Expenses $ 814,900 $ 2,484 $ 995,519 $ 3,035 $ 851,585 $ 2,596 $ 858,947 $ 2,619 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------------------------------------------------- Net Income $1,905,782 $ 5,810 $1,804,755 $ 5,502 $1,694,813 $ 5,167 $1,777,066 $ 5,418 ANNUALIZED 2003 ----------------------- PROJECTION AAA PROJECTION ----------------------- -------------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT % Revenues Rental Income $2,484,332 $ 7,574 $2,563,200 $ 7,815 100.0% Vacancy $ 345,460 $ 1,053 $ 256,320 $ 781 10.0% Credit Loss/Concessions $ 70,036 $ 214 $ 64,080 $ 195 2.5% ---------------------------------------------------------- Subtotal $ 415,496 $ 1,267 $ 320,400 $ 977 12.5% Laundry Income $ 37,832 $ 115 $ 37,720 $ 115 1.5% Garage Revenue $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 108,524 $ 331 $ 213,200 $ 650 8.3% ---------------------------------------------------------- Subtotal Other Income $ 146,356 $ 446 $ 250,920 $ 765 9.8% ---------------------------------------------------------- Effective Gross Income $2,215,192 $ 6,754 $2,493,720 $ 7,603 100.0% Operating Expenses Taxes $ 95,232 $ 290 $ 85,280 $ 260 3.4% Insurance $ 44,992 $ 137 $ 45,920 $ 140 1.8% Utilities $ 139,260 $ 425 $ 168,920 $ 515 6.8% Repair & Maintenance $ 48,780 $ 149 $ 71,504 $ 218 2.9% Cleaning $ 11,716 $ 36 $ 23,944 $ 73 1.0% Landscaping $ 1,120 $ 3 $ 1,640 $ 5 0.1% Security $ 0 $ 0 $ 0 $ 0 0.0% Marketing & Leasing $ 43,324 $ 132 $ 59,040 $ 180 2.4% General Administrative $ 231,752 $ 707 $ 234,520 $ 715 9.4% Management $ 118,792 $ 362 $ 124,686 $ 380 5.0% Miscellaneous $ 35,316 $ 108 $ 42,640 $ 130 1.7% ---------------------------------------------------------- Total Operating Expenses $ 770,284 $ 2,348 $ 858,094 $ 2,616 34.4% Reserves $ 0 $ 0 $ 65,600 $ 200 7.6% ---------------------------------------------------------- Net Income $1,444,908 $ 4,405 $1,570,026 $ 4,787 63.0%
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 12.5% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30 CREEKSIDE, DENVER, COLORADO 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 $200 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 $200 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 CREEKSIDE, DENVER, COLORADO SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR - ------------------------------------------------------------- I-1 Aug-02 94% $65,217 7.78% I-2 Mar-03 95% $44,976 9.90% I-3 May-02 95% $57,727 8.40% I-4 Jan-03 95% $43,357 10.00% I-5 Dec-02 90% $87,162 8.30% High 10.00% Low 7.78% Average 8.88%
Based on this information, we have concluded the subject's overall capitalization rate should be 9.50%. The terminal capitalization rate is applied to the net operating income estimated for the year following the end of the holding period. Based on the concluded overall capitalization rate, the age of the property and the surveyed information, we have concluded the subject's terminal capitalization rate to be 10.00%. Finally, the subject's discount rate or yield rate is estimated based on the previous investor survey and an examination of returns available on alternative investments in the market. Based on this analysis, the subject's discount rate is estimated to be 12.00%. HOLDING PERIOD The survey of investors indicates that most investors are completing either 10-year cash flows or extending the analysis to the end of the lease if it is more than 10-years. A 10-year period has been used in the analysis of the subject with the eleventh year stabilized NOI used to determine the reversion. SELLING COSTS Sales of similar size properties are typically accomplished with the aid of a broker and will also incur legal and other transaction related cost. Based on our survey of brokers and a review of institutional investor projections, an allowance of 2.00% of the sale amount is applied. DISCOUNTED CASH FLOW CONCLUSION Discounting the annual cash flows and the equity reversion at the selected rate of 12.00% indicates a value of $15,900,000. In this instance, the reversion figure contributes AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32 CREEKSIDE, DENVER, COLORADO approximately 39% 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 APPROACH PAGE 33 CREEKSIDE, DENVER, COLORADO DISCOUNTED CASH FLOW ANALYSIS CREEKSIDE
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 FISCAL YEAR 1 2 3 4 5 6 - ------------------------------------------------------------------------------------------------------------------------ REVENUE Base Rent $2,563,200 $2,563,200 $2,588,832 $2,666,497 $2,746,492 $2,828,887 Vacancy $ 336,334 $ 256,320 $ 258,883 $ 266,650 $ 274,649 $ 282,889 Credit Loss $ 64,080 $ 64,080 $ 64,721 $ 66,662 $ 68,662 $ 70,722 Concessions $ 141,696 $ 0 $ 0 $ 0 $ 0 $ 0 --------------------------------------------------------------------------------- Subtotal $ 542,110 $ 320,400 $ 323,604 $ 333,312 $ 343,311 $ 353,611 Laundry Income $ 37,720 $ 37,720 $ 38,097 $ 39,240 $ 40,417 $ 41,630 GarageRevenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 213,200 $ 213,200 $ 215,332 $ 221,792 $ 228,446 $ 235,299 --------------------------------------------------------------------------------- Subtotal Other Income $ 250,920 $ 250,920 $ 253,429 $ 261,032 $ 268,863 $ 276,929 --------------------------------------------------------------------------------- EFFECTIVE GROSS INCOME $2,272,010 $2,493,720 $2,518,657 $2,594,217 $2,672,043 $2,752,205 OPERATING EXPENSES: Taxes $ 85,280 $ 87,838 $ 90,474 $ 93,188 $ 95,983 $ 98,863 Insurance $ 45,920 $ 47,298 $ 48,717 $ 50,178 $ 51,683 $ 53,234 Utilities $ 168,920 $ 173,988 $ 179,207 $ 184,583 $ 190,121 $ 195,825 Repair & Maintenance $ 71,504 $ 73,649 $ 75,859 $ 78,134 $ 80,478 $ 82,893 Cleaning $ 23,944 $ 24,662 $ 25,402 $ 26,164 $ 26,949 $ 27,758 Landscaping $ 1,640 $ 1,689 $ 1,740 $ 1,792 $ 1,846 $ 1,901 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 59,040 $ 60,811 $ 62,636 $ 64,515 $ 66,450 $ 68,444 GeneralAdministrative $ 234,520 $ 241,556 $ 248,802 $ 256,266 $ 263,954 $ 271,873 Management $ 113,600 $ 124,686 $ 125,933 $ 129,711 $ 133,602 $ 137,610 Miscellaneous $ 42,640 $ 43,919 $ 45,237 $ 46,594 $ 47,992 $ 49,431 --------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $ 847,008 $ 880,096 $ 904,005 $ 931,126 $ 959,059 $ 987,831 Reserves $ 65,600 $ 67,568 $ 69,595 $ 71,683 $ 73,833 $ 76,048 --------------------------------------------------------------------------------- NET OPERATING INCOME $1,359,401 $1,546,056 $1,545,057 $1,591,408 $1,639,151 $1,688,325 Operating Expense Ratio (% of EGI) 37.3% 35.3% 35.9% 35.9% 35.9% 35.9% Operating Expense Per Unit $ 2,582 $ 2,683 $ 2,756 $ 2,839 $ 2,924 $ 3,012 YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 7 8 9 10 11 - --------------------------------------------------------------------------------------------------------- REVENUE Base Rent $2,913,753 $3,001,166 $3,091,201 $3,183,937 $3,279,455 Vacancy $ 291,375 $ 300,117 $ 309,120 $ 318,394 $ 327,945 Credit Loss $ 72,844 $ 75,029 $ 77,280 $ 79,598 $ 81,986 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------ Subtotal $ 364,219 $ 375,146 $ 386,400 $ 397,992 $ 409,932 Laundry Income $ 42,879 $ 44,165 $ 45,490 $ 46,855 $ 48,260 GarageRevenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 242,358 $ 249,629 $ 257,118 $ 264,831 $ 272,776 ------------------------------------------------------------------ Subtotal Other Income $ 285,237 $ 293,794 $ 302,608 $ 311,686 $ 321,037 ------------------------------------------------------------------ EFFECTIVE GROSS INCOME $2,834,771 $2,919,814 $3,007,408 $3,097,631 $3,190,560 OPERATING EXPENSES: Taxes $ 101,829 $ 104,884 $ 108,030 $ 111,271 $ 114,609 Insurance $ 54,831 $ 56,476 $ 58,170 $ 59,915 $ 61,713 Utilities $ 201,699 $ 207,750 $ 213,983 $ 220,402 $ 227,014 Repair & Maintenance $ 85,380 $ 87,941 $ 90,579 $ 93,297 $ 96,095 Cleaning $ 28,590 $ 29,448 $ 30,332 $ 31,241 $ 32,179 Landscaping $ 1,958 $ 2,017 $ 2,078 $ 2,140 $ 2,204 Security $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 70,497 $ 72,612 $ 74,790 $ 77,034 $ 79,345 GeneralAdministrative $ 280,029 $ 288,430 $ 297,083 $ 305,995 $ 315,175 Management $ 141,739 $ 145,991 $ 150,370 $ 154,882 $ 159,528 Miscellaneous $ 50,914 $ 52,442 $ 54,015 $ 55,636 $ 57,305 ------------------------------------------------------------------ TOTAL OPERATING EXPENSES $1,017,466 $1,047,990 $1,079,430 $1,111,813 $1,145,167 Reserves $ 78,330 $ 80,680 $ 83,100 $ 85,593 $ 88,161 ------------------------------------------------------------------ NET OPERATING INCOME $1,738,975 $1,791,144 $1,844,879 $1,900,225 $1,957,232 Operating Expense Ratio (% of EGI) 35.9% 35.9% 35.9% 35.9% 35.9% Operating Expense Per Unit $ 3,102 $ 3,195 $ 3,291 $ 3,390 $ 3,491
Estimated Stabilized NOI $1,570,026 Sales Expense Rate 2.00% Months to Stabilized 8 Discount Rate 12.00% Stabilized Occupancy 90.0% Terminal Cap Rate 10.00%
Gross Residual Sale Price $19,572,317 Deferred Maintenance $ 0 Less: Sales Expense $ 391,446 Add: Excess Land $ 0 ----------- Net Residual Sale Price $19,180,870 Other Adjustments $ 0 ----------- PV of Reversion $ 6,175,727 Value Indicated By "DCF" $15,868,348 Add: NPV of NOI $ 9,692,621 Rounded $15,900,000 ----------- PV Total $15,868,348
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE -------------------------------------------------------------------------- TOTAL VALUE 11.50% 11.75% 12.00% 12.25% 12.50% - --------------------------------------------------------------------------------------------------------------- TERMINAL CAP RATE 9.50% $16,719,924 $16,453,794 $16,193,386 $15,938,558 $15,689,170 9.75% $16,545,610 $16,283,341 $16,026,700 $15,775,547 $15,529,746 10.00% $16,380,012 $16,121,411 $15,868,348 $15,620,687 $15,378,293 10.25% $16,222,492 $15,967,379 $15,717,721 $15,473,381 $15,234,227 10.50% $16,072,473 $15,820,683 $15,574,266 $15,333,089 $15,097,022
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 34 CREEKSIDE, DENVER, COLORADO INCOME LOSS DURING LEASE-UP The subject is currently 82% occupied, below our stabilized occupancy projection. We have estimated a 08-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 $68,000 as shown in the following table.
DESCRIPTION YEAR 1 - --------------------------------------------------------- "As Is" Net Operating Income $1,359,401 Stabilized Net Operating Income $1,435,415 ---------- Difference $ 76,013 PV of Income Loss During Lease-Up $ 67,869 ---------- Rounded $ 68,000 ----------
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 $127,000 (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 APPROACH PAGE 35 CREEKSIDE, DENVER, COLORADO After considering the market transactions and the investor surveys, we previously conclude that an overall rate of 9.50% percent is applicable to the subject. The results of our direct capitalization analysis are as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 36 CREEKSIDE, DENVER, COLORADO CREEKSIDE
TOTAL PER SQ. FT. PER UNIT %OF EGI - -------------------------------------------------------------------------------------------------------- REVENUE Base Rent $ 2,563,200 $13.05 $ 7,815 Less: Vacancy & Collection Loss 12.50% $ 320,400 $ 1.63 $ 977 Plus: Other Income Laundry Income $ 37,720 $ 0.19 $ 115 1.51% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 213,200 $ 1.09 $ 650 8.55% ----------------------------------------------- Subtotal Other Income $ 250,920 $ 1.28 $ 765 10.06% EFFECTIVE GROSS INCOME $ 2,493,720 $12.69 $ 7,603 OPERATING EXPENSES: Taxes $ 85,280 $ 0.43 $ 260 3.42% Insurance $ 45,920 $ 0.23 $ 140 1.84% Utilities $ 168,920 $ 0.86 $ 515 6.77% Repair & Maintenance $ 71,504 $ 0.36 $ 218 2.87% Cleaning $ 23,944 $ 0.12 $ 73 0.96% Landscaping $ 1,640 $ 0.01 $ 5 0.07% Security $ 0 $ 0.00 $ 0 0.00% Marketing & Leasing $ 59,040 $ 0.30 $ 180 2.37% General Administrative $ 234,520 $ 1.19 $ 715 9.40% Management 5.00% $ 124,686 $ 0.63 $ 380 5.00% Miscellaneous $ 42,640 $ 0.22 $ 130 1.71% TOTAL OPERATING EXPENSES $ 858,094 $ 4.37 $ 2,616 34.41% Reserves $ 65,600 $ 0.33 $ 200 2.63% ----------------------------------------------- NET OPERATING INCOME $ 1,570,026 $ 7.99 $ 4,787 62.96% "GOING IN" CAPITALIZATION RATE 9.50% VALUE INDICATION $ 16,526,589 $84.13 $ 50,386 LESS: LEASE-UP COST ($ 68,000) PV OF CONCESSIONS ($ 127,000) "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $ 16,331,589 ROUNDED $ 16,300,000 $82.97 $ 49,695
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 37 CREEKSIDE, DENVER, COLORADO DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF - ---------------------------------------------------------------------- 8.75% $17,748,154 $17,700,000 $53,963 $90.10 9.00% $17,249,733 $17,200,000 $52,439 $87.55 9.25% $16,778,254 $16,800,000 $51,220 $85.52 9.50% $16,331,589 $16,300,000 $49,695 $82.97 9.75% $15,907,831 $15,900,000 $48,476 $80.94 10.00% $15,505,260 $15,500,000 $47,256 $78.90 10.25% $15,122,327 $15,100,000 $46,037 $76.87
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $16,300,000. 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 $15,900,000 Direct Capitalization Method $16,300,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $16,200,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 38 CREEKSIDE, DENVER, COLORADO RECONCILIATION AND CONCLUSION This appraisal was made to express an opinion as of the Market Value of the fee simple estate in the property. AS IS MARKET VALUE OF THE FEE SIMPLE ESTATE Cost Approach Not Utilized Sales Comparison Approach $16,500,000 Income Approach $16,200,000 Reconciled Value $16,200,000
The Direct Capitalization Method is considered a reliable indicator of value. Income and expenses were estimated and projected based on historical operating statements and market oriented expenses. This method is primarily used by investors in their underwriting analysis. Furthermore, there was good support for an overall rate in the Direct Capitalization Method. The Sales Comparison Approach to value supported the value conclusion by the Income Approach and was given secondary consideration. Investment-grade, income-producing properties such as the subject are not typically traded based on cost. Therefore, the Cost Approach has not been considered in our valuation. FINAL VALUE - FEE SIMPLE ESTATE Based on the investigation and premise outlined, it is our opinion that as of May 13, 2003 the market value of the fee simple estate in the property is: $16,200,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA CREEKSIDE, DENVER, COLORADO ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A CREEKSIDE, DENVER, COLORADO EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A CREEKSIDE, DENVER, COLORADO SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - STREET VIEW EXTERIOR - APARTMENT BUILDING [PICTURE] [PICTURE] EXTERIOR - APARTMENT BUILDING AND PARKING LOT INTERIOR - APARTMENT UNIT [PICTURE] [PICTURE] INTERIOR - APARTMENT UNIT INTERIOR - APARTMENT UNIT AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A CREEKSIDE, DENVER, COLORADO SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] INTERIOR - APARTMENT UNIT INTERIOR - LAUNDRY ROOM [PICTURE] [PICTURE] EXTERIOR - APARTMENT BUILDING AND LANDSCAPE INTERIOR - GYM ROOM [PICTURE] [PICTURE] INTERIOR - CLUBHOUSE EXTERIOR - POOL AREA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B CREEKSIDE, DENVER, COLORADO EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B CREEKSIDE, DENVER, COLORADO PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 THE COLONNADE SIERRA VISTA KNOLLWOOD 15301 E Ford Circle 8851 E Florida Avenue 15196 E Louisiana Drive Aurora, Colorado Aurora, Colorado Aurora, Colorado [PICTURE] [PICTURE] [PICTURE] COMPARABLE I-4 COMPARABLE I-5 WINDSOR COURT CASCADE VILLAGE 1570 Joliet Street 6880 W 91st Street Aurora, Colorado Westminster, Colorado [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B CREEKSIDE, DENVER, COLORADO SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 - ------------------------------------------------------------------------------------------------------------------------------ Property Name Creekside Spyglass Management Company AIMCO Carmel Communities LOCATION: Address 5250 Cherry Creek Drive South 7100 E Mississippi Avenue City, State Denver, Colorado Denver, Colorado County Denver County Denver County Proximity to Subject Approx. 1 mile from subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 196,448 Year Built 1977 1975 Effective Age 15 25 Building Structure Type Parking Type (Gr., Cov., etc.) Garage, Open Covered Open Number of Units 328 Approx. 350 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 Studio 404 56 $512 3 1Bd/1Ba 675 $615 2 1Bd/1Ba 552 80 $576 4 2Bd/1Ba 950 $720 3 1Bd/1Ba 611 128 $621 4 2Bd/2Ba 804 64 $807 Average Unit Size (SF) 599 Unit Breakdown: Efficiency 2-Bedroom Efficiency 2-Bedroom 1-Bedroom 3-Bedroom 1-Bedroom 3-Bedroom CONDITION: Good Good APPEAL: Good Good AMENITIES: Unit Amenities Attach. Garage X Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X Balcony X Fireplace Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool X Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court X BBQ Equipment Basketball Court BBQ Equipment Volleyball Court X Theater Room Volleyball Court Theater Room X Sand Volley Ball X Meeting Hall 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 Business Office Jogging Track Business Office X Gym Room X Gym Room OCCUPANCY: 82% 98% LEASING DATA: Available Leasing Terms 6-12 month leases 6-12 Month leases Concessions $99 deposit, 1 month free 1 month free & $50 off each month Pet Deposit $250 $400 Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water X Trash X Water Trash Confirmation Candy Watson (Property Manager) Leasing agent Telephone Number 303-758-1670 303-753-9080 NOTES: COMPARISON TO SUBJECT: Similar COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 - ------------------------------------------------------------------------------------------------------------------------------- Property Name Cypress Point Cherry Creek Club Management Company Carmel Communities Weidner LOCATION: Address 1211 S Quebec Way 5001 E. Mississippi Avenue City, State Denver, Colorado Glendale, Colorado County Denver County Denver County Proximity to Subject Approx. 1 mile from subject Adjacent to property PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) Year Built 1972 1980 Effective Age 25 20 Building Structure Type Parking Type (Gr., Cov., etc.) Open covered, open Open Number of Units 292 890 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 3 1Bd/1Ba 660 $665 1 1Bd/1Ba 450 $580 4 2Bd/1Ba 950 $965 2 1Bd/1Ba 500 $610 4 2Bd/2Ba 1,000 $825 2 1Bd/1Ba 550 $640 1 1Bd/1Ba Jr 475 $565 3 1Bd/1Ba 600 $660 3 2Bd/1Ba 650 $755 4 2Bd/1Ba 700 $765 4 2Bd/1Ba 800 $815 4 2Bd/1Ba 950 $840 Average Unit Size (SF) Unit Breakdown: Efficiency 2-Bedroom Efficiency 2-Bedroom 1-Bedroom 3-Bedroom 1-Bedroom 3-Bedroom CONDITION: Good Good APPEAL: Good Good AMENITIES: Unit Amenities Attach. Garage X Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony Balcony X Fireplace Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool X Spa/Jacuzzi Car Wash X Spa/Jacuzzi Car Wash 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 X Tennis Court Secured Parking X Tennis Court X Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track Business Office Jogging Track Business Office X Gym Room X Gym Room OCCUPANCY: 96% 90% LEASING DATA: Available Leasing Terms 6-12 Month leases 6-12 Month leases Concessions 1 month free & $50 off each month $50-100 off each month Pet Deposit $300 no pets allowed Utilities Paid by Tenant: X Electric X Natural Gas X Electric Natural Gas X Water Trash Water Trash Confirmation Leasing agent Leasing agent Telephone Number 303-750-3638 303-759-4441 NOTES: COMPARISON TO SUBJECT: Similar Slightly Superior COMPARABLE COMPARABLE DESCRIPTION R - 4 R - 5 - ---------------------------------------------------------------------------------------------------------------------------------- Property Name Central Park Torrey Pines Management Company Carmel Communities Carmel Communities LOCATION: Address 7555 East Warren Drive 7575 E Arkansas Avenue City, State Denver, Colorado Denver, Colorado County Denver County Denver County Proximity to Subject 2 miles southeast of Approx. 1 mile from subject subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) Year Built 1980 1980 Effective Age 25 25 Building Structure Type Parking Type (Gr., Cov., etc.) Open covered, open Open covered, open Number of Units 312 270 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 3 1Bd/1Ba 782 $695 1 1Bd/1Ba Jr 757 $595 4 2Bd/1Ba 995 $855 3 1Bd/1Ba 710 $645 4 2Bd/2Ba 1,089 $900 4 2Bd/2Ba 1,000 $835 4 2Bd/2Ba 1,050 $840 Average Unit Size (SF) Unit Breakdown: Efficiency 2-Bedroom Efficiency 2-Bedroom 1-Bedroom 3-Bedroom 1-Bedroom 3-Bedroom CONDITION: Good Good APPEAL: Good Good AMENITIES: Unit Amenities Attach. Garage X Vaulted Ceiling 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 X 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 X Tennis Court Secured Parking Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track Business Office Jogging Track Business Office X Gym Room X Gym Room OCCUPANCY: 93% 97% LEASING DATA: Available Leasing Terms 6-12 month leases 6-12 Month leases Concessions 6 weeks free 1 month free Pet Deposit $350 $300 Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water Trash X Water Trash Confirmation Leasing Agent Leasing Agent Telephone Number 303-745-1114 303-696-1060 NOTES: COMPARISON TO SUBJECT: Slightly Superior Slightly Inferior
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B CREEKSIDE, DENVER, COLORADO PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 SPYGLASS CYPRESS POINT CHERRY CREEK CLUB 7100 E Mississippi Avenue 1211 S Quebec Way 5001 E. Mississippi Avenue Denver, Colorado Denver, Colorado Glendale, Colorado [PICTURE] [PICTURE] [PICTURE] COMPARABLE R-4 COMPARABLE R-5 CENTRAL PARK TORREY PINES 7555 East Warren Drive 7575 E Arkansas Avenue Denver, Colorado Denver, Colorado [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C CREEKSIDE, DENVER, COLORADO EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C CREEKSIDE, DENVER, COLORADO 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 CREEKSIDE, DENVER, COLORADO 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 CREEKSIDE, DENVER, COLORADO such testimony, and then such testimony shall be at American Appraisal Associates, Inc.'s, prevailing per diem for the individuals involved. Possession of this report or any copy thereof does not carry with it the right of publication. No portion of this report (especially any conclusion to use, the identity of the appraiser or the firm with which the appraiser is connected, or any reference to the American Society of Appraisers or the designations awarded by this organization) shall be disseminated to the public through prospectus, advertising, public relations, news, or any other means of communication without the written consent and approval of American Appraisal Associates, Inc. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D CREEKSIDE, DENVER, COLORADO 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. James Newell provided significant real property appraisal assistance in the preparation of this report. I am currently in compliance with the Appraisal Institutes continuing education requirements. /s/ Douglas Needham ---------------------------- Douglas Needham, MAI Managing Principal, Real Estate Group Colorado State Certified General Real Estate Appraiser #CG40017035 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E CREEKSIDE, DENVER, COLORADO EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E CREEKSIDE, DENVER, COLORADO 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 CREEKSIDE, DENVER, COLORADO VALUATION AND Appraisal Institute SPECIAL COURSES Advanced Income Capitalization Appraisal Principles Appraisal Procedures Basic Income Capitalization Standards of Professional Practice AMERICAN APPRAISAL ASSOCIATES, INC. CREEKSIDE, DENVER, COLORADO GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. CREEKSIDE, DENVER, COLORADO 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. EX-99.(C)(4) 6 d07246a2exv99wxcyx4y.txt APPRAISAL OF THE LODGE THE LODGE 8405 E HAMPDEN AVENUE DENVER, COLORADO MARKET VALUE - FEE SIMPLE ESTATE AS OF MAY 12, 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] [LETTERHEAD OF AMERICAN APPRAISAL ASSOCIATES(R)] 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: THE LODGE 8405 E HAMPDEN AVENUE DENVER, DENVER COUNTY, COLORADO 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 376 units with a total of 233,400 square feet of rentable area. The improvements were built in 1974. The improvements are situated on 12.979 acres. Overall, the improvements are in good condition. As of the date of this appraisal, the subject property is 70% 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 THE LODGE, DENVER, COLORADO 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 12, 2003 is: ($17,200,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. - s - Douglas Needham --------------------- June 28, 2003 Douglas Needham, MAI #053272 Managing Principal, Real Estate Group Colorado State Certified General Real Estate Appraiser #CG40017035 Report By: James Newell AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 THE LODGE, DENVER, COLORADO 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 THE LODGE, DENVER, COLORADO EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: The Lodge LOCATION: 8405 E Hampden Avenue Denver, Colorado 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 12, 2003 DATE OF REPORT: June 28, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 12.979 acres, or 565,365 square feet Assessor Parcel No.: 06334-00-040-000 Floodplain: Community Panel No. 0800460025E (September 7, 1998) Flood Zone X, an area outside the floodplain. Zoning: R-2-A (Multi-family Residential) BUILDING: No. of Units: 376 Units Total NRA: 233,400 Square Feet Average Unit Size: 621 Square Feet Apartment Density: 29.0 units per acre Year Built: 1974 UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
Market Rent Square ------------------ Monthly Annual Unit Type Feet Per Unit Per SF Income Income - --------------------------------------------------------------------- Studio 425 $499 $1.17 $ 39,920 $ 479,040 1Bd/1Ba 625 $580 $0.93 $129,920 $1,559,040 2Bd/2Ba 825 $765 $0.93 $ 55,080 $ 660,960 Total $224,920 $2,699,040
OCCUPANCY: 70% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 18 Years REMAINING ECONOMIC LIFE: 27 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 THE LODGE, DENVER, COLORADO SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - APARTMENT BUILDING EXTERIOR - LANDSCAPE & APARTMENT BUILDING AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 THE LODGE, DENVER, COLORADO 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 THE LODGE, DENVER, COLORADO PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
Amount $/Unit ------ ------ DIRECT CAPITALIZATION Potential Rental Income $2,699,040 $7,178 Effective Gross Income $2,670,315 $7,102 Operating Expenses $898,676 $2,390 33.7% of EGI Net Operating Income: $1,696,439 $4,512 Capitalization Rate 9.50% DIRECT CAPITALIZATION VALUE $17,300,000 * $46,011 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 14% Stabilized Vacancy & Collection Loss: 12% Lease-up / Stabilization Period 15 months Terminal Capitalization Rate 10.00% Discount Rate 12.00% Selling Costs 2.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $16,800,000 * $44,681 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $17,200,000 $45,745 / UNIT SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $43,357 to $87,162 Range of Sales $/Unit (Adjusted) $46,182 to $48,913 VALUE INDICATION - PRICE PER UNIT $17,100,000 * $45,479 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 5.41 to 8.78 Selected EGIM for Subject 6.75 Subject's Projected EGI $2,670,315 EGIM ANALYSIS CONCLUSION $17,500,000 * $46,543 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $17,500,000 * $46,543 / UNIT RECONCILED SALES COMPARISON VALUE $17,300,000 $46,011 / 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 THE LODGE, DENVER, COLORADO PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $17,100,000 NOI Per Unit $17,500,000 EGIM Multiplier $17,500,000 INDICATED VALUE BY SALES COMPARISON $17,300,000 $46,011 / UNIT INCOME APPROACH: Direct Capitalization Method: $17,300,000 Discounted Cash Flow Method: $16,800,000 INDICATED VALUE BY THE INCOME APPROACH $17,200,000 $45,745 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $17,200,000 $45,745 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 THE LODGE, DENVER, COLORADO INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 8405 E Hampden Avenue, Denver, Denver County, Colorado. Denver identifies it as 06334-00-040-000. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by James Newell on May 12, 2003. Douglas Needham, MAI has not made a personal inspection of the subject property. James Newell performed the research, valuation analysis and wrote the report. Douglas Needham, MAI reviewed the report and concurs with the value. Douglas Needham, MAI and James Newell 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 12, 2003. The date of the report is June 28, 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 THE LODGE, DENVER, COLORADO 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 Apartment Lodge 17 A LLC. 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 THE LODGE, DENVER, COLORADO 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 Denver, Colorado. 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 Havana Street West - Interstate 25 South - Interstate 225 North - East Evans Avenue MAJOR EMPLOYERS The property is located in the Denver Metropolitan area, within which there are many large employers. 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 THE LODGE, DENVER, COLORADO NEIGHBORHOOD DEMOGRAPHICS
AREA -------------------------------------------------- CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA - ------------------------------------------------------------------------------------------------------- POPULATION TRENDS Current Population 18,235 107,956 325,918 2,198,122 5-Year Population 18,940 115,716 348,281 2,428,641 % Change CY-5Y 3.9% 7.2% 6.9% 10.5% Annual Change CY-5Y 0.8% 1.4% 1.4% 2.1% HOUSEHOLDS Current Households 9,160 52,326 148,894 858,219 5-Year Projected Households 9,488 55,609 158,491 942,278 % Change CY - 5Y 3.6% 6.3% 6.4% 9.8% Annual Change CY-5Y 0.7% 1.3% 1.3% 2.0% INCOME TRENDS Median Household Income $ 46,463 $ 51,320 $ 52,087 $ 60,438 Per Capita Income $ 32,023 $ 34,072 $ 33,450 $ 27,463 Average Household Income $ 63,239 $ 70,819 $ 73,241 $ 70,339
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 34.34% 41.12% 38.38% 30.19% 5-Year Projected % Renting 34.88% 40.24% 37.40% 28.87% % of Households Owning 55.67% 50.31% 53.60% 61.93% 5-Year Projected % Owning 55.63% 51.51% 54.93% 63.83%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 THE LODGE, DENVER, COLORADO SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Single-family housing South - Cemetery and church East - Apartments West - Church CONCLUSIONS The subject is well located within the city of Denver. 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 THE LODGE, DENVER, COLORADO MARKET ANALYSIS The subject property is located in the city of Denver in Denver County. The overall pace of development in the subject's market is more or less stable. There has been no known new construction in the subject's neighborhood. The following table illustrates historical vacancy rates for the subject's market. HISTORICAL VACANCY RATE
Period Region Submarket - -------------------------------------------------------- 1Q2002-1Q2003 (Annualized) 8.6% 7.1% 1Q2000-1Q2003 (Annualized) 6.1% 5.1% 4Q2002 8.6% 8.8% 1Q2003 11.5% 9.6%
Source: Reis: SubTrend Futures: Denver, Apartment: Denver-Far Southeast - 1st Quarter 2003 Occupancy trends in the subject's market are decreasing. Historically speaking, the subject's submarket has outperformed the overall market. Market rents in the subject's market have been following a decreasing trend. The following table illustrates historical rental rates for the subject's market. HISTORICAL AVERAGE RENT
Period Region % Change Submarket % Change - --------------------------------------------------------- 2001 $682 -- $807 -- 2002 $671 -1.6% $775 -4.0% 1Q2003 $663 -1.2% $764 -1.4%
The following table illustrates a summary of the subject's competitive set. COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject R-1 The Willows at Tamarac 214 86% 1972 1/2 mile east of subject R-2 The Glen 300 90% 1975 3/4 mile east of subject R-3 Tamarac Village 564 81% 1977 1/4 mile west of subject R-4 Stone Creek 450 80% 1974 3/4 mile east of subject R-5 The Prescott 125 89% 1974 Across the street from subject Subject The Lodge 376 70% 1974
AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 THE LODGE, DENVER, COLORADO The newer properties in the subject's submarket, built since 1994, have outperformed the rest of the market in recent months, with an average vacancy of 8.5%. The subject's age range has an average vacancy of 10.1%. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 THE LODGE, DENVER, COLORADO PROPERTY DESCRIPTION SITE ANALYSIS Site Area 12.979 acres, or 565,365 square feet Shape Irregular Topography Level Utilities All necessary utilities are available to the site. Soil Conditions Stable Easements Affecting Site None other than typical utility easements Overall Site Appeal Good Flood Zone: Community Panel 0800460025E, dated September 7, 1998 Flood Zone Zone X Zoning R-2-A, the subject improvements represent a legal conforming use of the site. REAL ESTATE TAXES
ASSESSED VALUE - 2002 TAX RATE / PROPERTY -------------------------------------------- PARCEL NUMBER LAND BUILDING TOTAL MILL RATE TAXES - -------------------------------------------------------------------------------------------------------------- 06334-00-040-000 $310,400 $1,179,320 $1,489,720 $0.05985 $89,167
IMPROVEMENT ANALYSIS Year Built 1974 Number of Units 376 Net Rentable Area 233,400 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, laundry room, and parking area. Unit Amenities Individual unit amenities include a balcony, fireplace, cable TV connection, and washer dryer connection. Appliances available in each unit include a refrigerator, stove, dishwasher, garbage disposal, and oven. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 THE LODGE, DENVER, COLORADO Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) - --------------------------------------------------------- Studio 80 425 1Bd/1Ba 224 625 2Bd/2Ba 72 825
Overall Condition Good Effective Age 18 years Economic Life 45 years Remaining Economic Life 27 years Deferred Maintenance None HIGHEST AND BEST USE ANALYSIS In accordance with the definition of highest and best use, an analysis of the site relating to its legal uses, physical possibilities, and financial feasibility is appropriate. The highest and best use as vacant is to hold for future multi-family development. The subject improvements were constructed in 1974 and consist of a 376-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 THE LODGE, DENVER, COLORADO 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 THE LODGE, DENVER, COLORADO 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 THE LODGE, DENVER, COLORADO 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 THE LODGE, DENVER, COLORADO SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - ------------------------------------------------------------------------------------------------------------------------- Property Name The Lodge The Colonnade Sierra Vista Location: Address 8405 E Hampden Avenue 15301 E Ford Circle 8851 E Florida Avenue City, State Denver, Colorado Aurora, Colorado Aurora, Colorado County Denver County Arapahoe County Arapahoe County Physical Characteristics: Net Rentable Area (SF) 233,400 115,968 133,860 Year Built 1974 1984 1976 Number of Units 376 138 209 Unit Mix: Type Total Type Total Type Total Studio 80 1Bd/1Ba 72 1Bd/1Ba 152 1Bd/1Ba 224 2Bd/2Ba 66 2Bd/2Ba 57 2Bd/2Ba 72 Average Unit Size (SF) 621 840 640 Land Area (Acre) 12.9790 5.2700 5.9700 Density (Units/Acre) 29.0 26.2 35.0 Parking Ratio (Spaces/Unit) 1.36 1.72 1.05 Parking Type (Gr., Cov., etc.) Open Covered, open Open Open CONDITION: 0 Good Average APPEAL: 0 Good Average Amenities: Pool/Spa Yes/Yes Yes/Yes Yes/No Gym Room Yes Yes No Laundry Room Yes Yes Yes Secured Parking No No No Sport Courts No Yes No OCCUPANCY: 70% 94% 95% Transaction Data: Sale Date August, 2002 March, 2003 Sale Price ($) $9,000,000 $9,400,000 Grantor WXI/SPN Real Estate Sundance Housing Assoc. Grantee Kinnickinnic Realty Coolidge Sierra Sale Documentation 2155658 3018857 Verification Seller's Broker Buyer's Broker Telephone Number 720-528-6300 720-528-6300 Estimated Pro-Forma: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $1,257,528 $9,113 $10.84 $1,741,656 $8,333 $13.01 Vacancy/Credit Loss $ 75,452 $ 547 $ 0.65 $ 87,083 $ 417 $ 0.65 Effective Gross Income $1,182,076 $8,566 $10.19 $1,654,573 $7,917 $12.36 Operating Expenses $ 481,471 $3,489 $ 4.15 $ 724,283 $3,465 $ 5.41 Net Operating Income $ 700,605 $5,077 $ 6.04 $ 930,290 $4,451 $ 6.95 Notes: Price Per Unit $65,217 $44,976 Price Per Square Foot $ 77.61 $ 70.22 Expense Ratio 40.7% 43.8% EGIM 7.61 5.68 Overall Cap Rate 7.78% 9.90% Cap Rate based on Pro Forma or Actual PRO FORMA PRO FORMA Income? COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 - ------------------------------------------------------------------------------------------------------------------------- Property Name Knollwood Windsor Court Cascade Village Location: Address 15196 E Louisiana Drive 1570 Joliet 6880 W 91st Street City, State Aurora, Colorado Aurora, Colorado Westminster, Colorado County Arapahoe County Arapahoe County Jefferson County Physical Characteristics: Net Rentable Area (SF) 96,296 102,408 340,548 Year Built 1982 1973 1987 Number of Units 110 143 444 Unit Mix: Type Total Type Total Type Total 1Bd/1Ba 38 1Bd/1Ba 72 1Bd/1Ba 222 2Bd/2Ba 72 2Bd/2Ba 71 2Bd/2Ba 222 Average Unit Size (SF) 875 716 767 Land Area (Acre) 5.6900 3.9200 16.9200 Density (Units/Acre) 19.3 36.5 26.2 Parking Ratio (Spaces/Unit) 2.82 1.50 2.04 Parking Type (Gr., Cov., etc.) Open covered, open Open Open covered, open CONDITION: Good Average Good APPEAL: Good Average Good Amenities: Pool/Spa Yes/Yes Yes/No Yes/Yes Gym Room Yes No Yes Laundry Room Yes Yes Yes Secured Parking Yes Yes No Sport Courts No No Yes OCCUPANCY: 95% 95% 90% Transaction Data: Sale Date May, 2002 January, 2003 December, 2002 Sale Price ($) $6,350,000 $6,200,000 $38,700,000 Grantor Scott Properties Windsor Court Housing LBK 3 Associates Grantee F. Malcolm & Kathryn Wall Coolidge Windsor Henderson Global Investors Sale Documentation 2080847 1085774 N/A Verification Broker Buyer's Broker Seller's Broker Telephone Number 303-320-1300 720-528-6300 303-730-1675 Estimated Pro-Forma: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $936,000 $8,509 $9.72 $1,205,899 $8,433 $11.78 $4,898,856 $11,033 $14.39 Vacancy/Credit Loss $ 46,800 $ 425 $0.49 $ 60,295 $ 422 $ 0.59 $ 489,886 $ 1,103 $ 1.44 Effective Gross Income $889,200 $8,084 $9.23 $1,145,604 $8,011 $11.19 $4,408,970 $ 9,930 $12.95 Operating Expenses $355,680 $3,233 $3.69 $ 525,454 $3,675 $ 5.13 $1,198,800 $ 2,700 $ 3.52 Net Operating Income $533,520 $4,850 $5.54 $ 620,150 $4,337 $ 6.06 $3,210,170 $ 7,230 $ 9.43 Notes: Price Per Unit $ 57,727 $ 43,357 $87,162 Price Per Square Foot $ 65.94 $ 60.54 $113.64 Expense Ratio 40.0% 45.9% 27.2% EGIM 7.14 5.41 8.78 Overall Cap Rate 8.40% 10.00% 8.30% Cap Rate based on Pro Forma or Actual PRO FORMA PRO FORMA ACTUAL Income?
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 THE LODGE, DENVER, COLORADO IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $43,357 to $87,162 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 $46,182 to $48,913 per unit with a mean or average adjusted price of $47,590 per unit. The median adjusted price is $47,692 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 $17,100,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 THE LODGE, DENVER, COLORADO SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - ------------------------------------------------------------------------------------------------------------------------ Property Name The Lodge The Colonnade Sierra Vista Address 8405 E Hampden Avenue 15301 E Ford Circle 8851 E Florida Avenue City Denver, Colorado Aurora, Colorado Aurora, Colorado Sale Date August, 2002 March, 2003 Sale Price ($) $9,000,000 $9,400,000 Net Rentable Area (SF) 233,400 115,968 133,860 Number of Units 376 138 209 Price Per Unit $65,217 $44,976 Year Built 1974 1984 1976 Land Area (Acre) 12.9790 5.2700 5.9700 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 08-2002 0% 03-2003 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $65,217 $44,976 Location Comparable 0% Comparable 0% Number of Units 376 138 -10% 209 -5% Quality / Appeal Good Superior -5% Inferior 10% Age / Condition 1974 1984 / Good -10% 1976 / Average 0% Occupancy at Sale 70% 94% 0% 95% 0% Amenities Good Comparable 0% Comparable 0% Average Unit Size (SF) 621 840 0% 640 0% PHYSICAL ADJUSTMENT -25% 5% FINAL ADJUSTED VALUE ($/UNIT) $48,913 $47,225 COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 - --------------------------------------------------------------------------------------------------------------------------- Property Name Knollwood Windsor Court Cascade Village Address 15196 E Louisiana Drive 1570 Joliet 6880 W 91st Street City Aurora, Colorado Aurora, Colorado Westminster, Colorado Sale Date May, 2002 January, 2003 December, 2002 Sale Price ($) $6,350,000 $6,200,000 $38,700,000 Net Rentable Area (SF) 96,296 102,408 340,548 Number of Units 110 143 444 Price Per Unit $57,727 $43,357 $87,162 Year Built 1982 1973 1987 Land Area (Acre) 5.6900 3.9200 16.9200 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) 05-2002 0% 01-2003 0% 12-2002 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $57,727 $43,357 $87,162 Location Comparable 0% Inferior 5% Superior -15% Number of Units 110 -10% 143 -10% 444 0% Quality / Appeal Comparable 0% Inferior 10% Superior -20% Age / Condition 1982 / Good -10% 1973 / Average 0% 1987 / Good -10% Occupancy at Sale 95% 0% 95% 0% 90% 0% Amenities Comparable 0% Inferior 5% Comparable 0% Average Unit Size (SF) 875 0% 716 0% 767 0% PHYSICAL ADJUSTMENT -20% 10% -45% FINAL ADJUSTED VALUE ($/UNIT) $46,182 $47,692 $47,939
SUMMARY VALUE RANGE (PER UNIT) $46,182 TO $48,913 MEAN (PER UNIT) $47,590 MEDIAN (PER UNIT) $47,692 VALUE CONCLUSION (PER UNIT) $47,000
VALUE OF IMPROVEMENT & MAIN SITE $17,672,000 LESS: LEASE-UP COST -$ 305,000 PV OF CONCESSIONS -$ 246,000 VALUE INDICATED BY SALES COMPARISON APPROACH $17,121,000 ROUNDED $17,100,000
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 THE LODGE, DENVER, COLORADO 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-1 138 $9,000,000 7.78% $ 700,605 $1,696,439 0.889 $57,959 $ 65,217 $ 5,077 $ 4,512 I-2 209 $9,400,000 9.90% $ 930,290 $1,696,439 1.014 $45,589 $ 44,976 $ 4,451 $ 4,512 I-3 110 $6,350,000 8.40% $ 533,520 $1,696,439 0.930 $53,700 $ 57,727 $ 4,850 $ 4,512 I-4 143 $6,200,000 10.00% $ 620,150 $1,696,439 1.040 $45,107 $ 43,357 $ 4,337 $ 4,512 I-5 444 $38,700,000 8.30% $3,210,170 $1,696,439 0.624 $54,392 $ 87,162 $ 7,230 $ 4,512
PRICE PER UNIT VALUE ANALYSIS BASED ON COMPARABLE NOI PER UNIT Low High Average Median Estimated Price Per Unit $ 48,000 ----------- $45,107 $57,959 $51,349 $53,700 Number of Units 376 Value $18,048,000 Less: Lease-Up Cost -$ 305,000 PV of Concessions -$ 246,000 ----------- Value Based on NOI Analysis $17,497,000 Rounded $17,500,000
The adjusted sales indicate a range of value between $45,107 and $57,959 per unit, with an average of $51,349 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 $17,500,000 (rounded after necessary adjustment, if any) for the NOI Per Unit Analysis. EFFECTIVE GROSS INCOME MULTIPLIER (EGIM) ANALYSIS The effective gross income multiplier (EGIM) is derived by dividing the sales price by the total effective gross income. The following table illustrates the EGIMs for the comparable improved sales. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 25 THE LODGE, DENVER, COLORADO 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-1 138 $ 9,000,000 $1,182,076 $ 481,471 40.73% 7.61 $ 65,217 I-2 209 $ 9,400,000 $1,654,573 $ 724,283 43.77% 5.68 $ 44,976 I-3 110 $ 6,350,000 $ 889,200 $ 355,680 40.00% 7.14 33.65% $ 57,727 I-4 143 $ 6,200,000 $1,145,604 $ 525,454 45.87% 5.41 $ 43,357 I-5 444 $38,700,000 $4,408,970 $1,198,800 27.19% 8.78 $ 87,162
EGIM VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES --------------------------------------------------------------------------------------------- Low High Average Median Estimate EGIM 6.75 - ----------------------------------------------- ---------- 5.41 8.78 6.93 7.14 Subject EGI $2,670,315 Value $18,024,628 Less: Lease-Up Cost -$ 305,000 PV of Concessions -$ 246,000 ----------- Value Based on EGIM Analysis $17,473,628 Rounded $17,500,000 Value Per Unit $ 46,543
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 33.65% before reserves. The comparable sales indicate a range of expense ratios from 27.19% to 45.87%, while their EGIMs range from 5.41 to 8.78. Overall, we conclude to an EGIM of 6.75, which results in an "as is" value estimate in the EGIM Analysis of $17,500,000. 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 $17,300,000. Price Per Unit $17,100,000 NOI Per Unit $17,500,000 EGIM Analysis $17,500,000 Sales Comparison Conclusion $17,300,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 THE LODGE, DENVER, COLORADO 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 THE LODGE, DENVER, COLORADO method is normally more appropriate for properties with relatively stable operating histories and expectations. A pro forma analysis for the first year of the investment is made to estimate a reasonable potential net operating income for the Subject Property. Such an analysis entails an estimate of the gross income the property should command in the marketplace. From this total gross income must be deducted an allowance for vacancy/collection loss and operating expenses as dictated by general market conditions and the overall character of the subject's tenancy and leased income to arrive at a projected estimate of net operating income. Conversion of the net operating income to an indication of value is accomplished by the process of capitalization, as derived primarily from market data. MARKET RENT ANALYSIS In order to determine a market rental rate for the subject, a survey of competing apartment communities was performed. This survey was displayed previously in the market analysis section of the report. Detailed information pertaining to each of the comparable rental communities, along with photographs, is presented in the Addenda of this report. The following charts display the subject's current asking and actual rent rates as well as a comparison with the previous referenced comparable rental properties. SUMMARY OF ACTUAL AVERAGE RENTS
Unit Area Average Unit Type (Sq. Ft.) Per Unit Per SF %Occupied - ------------------------------------------------------------------ Studio 425 $516 $1.21 66.3% 1Bd/1Ba 625 $595 $0.95 72.8% 2Bd/2Ba 825 $765 $0.93 64.8%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 THE LODGE, DENVER, COLORADO RENT ANALYSIS
COMPARABLE RENTS ------------------------------------------------------------------- R-1 R-2 R-3 R-4 R-5 ------------------------------------------------------------------- The Willows at Tamarac Tamarac The Glen Village Stone Creek The Prescott ------------------------------------------------------------------- COMPARISON TO SUBJECT SUBJECT SUBJECT ------------------------------------------------------------------- SUBJECT UNIT ACTUAL ASKING Slightly DESCRIPTION TYPE RENT RENT Slightly Inferior Similar Superior Similar Similar Monthly Rent STUDIO $ 516 $ 499 $ 500 $ 535 $530 $ 508 Unit Area (SF) 425 425 545 440 450 533 Monthly Rent Per Sq. Ft. $1.21 $1.17 $0.92 $1.22 $1.18 $ 0.95 Monthly Rent 1BD/1BA $ 595 $ 579 $ 550 $ 615 $695 $ 680 $ 658 Unit Area (SF) 625 625 633 660 638 735 778 Monthly Rent Per Sq. Ft. $0.95 $0.93 $0.87 $0.93 $1.09 $0.93 $ 0.85 Monthly Rent 2BD/2BA $ 765 $ 769 $ 738 $ 725 $843 $ 808 $ 794 Unit Area (SF) 825 825 934 873 925 940 1,057 Monthly Rent Per Sq. Ft. $0.93 $0.93 $0.79 $0.83 $0.91 $0.86 $ 0.75 DESCRIPTION MIN MAX MEDIAN AVERAGE Monthly Rent $ 500 $ 535 $ 519 $ 518 Unit Area (SF) 440 545 492 492 Monthly Rent Per Sq. Ft. $ 0.92 $ 1.22 $ 1.06 $ 1.07 Monthly Rent $ 550 $ 695 $ 658 $ 640 Unit Area (SF) 633 778 660 689 Monthly Rent Per Sq. Ft. $ 0.85 $ 1.09 $ 0.93 $ 0.93 Monthly Rent $ 725 $ 843 $ 794 $ 781 Unit Area (SF) 873 1,057 934 946 Monthly Rent Per Sq. Ft. $ 0.75 $ 0.91 $ 0.83 $ 0.83
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 - ------------------------------------------------------------------------------------------ Studio 80 425 $499 $1.17 $ 39,920 $ 479,040 1Bd/1Ba 224 625 $580 $0.93 $129,920 $1,559,040 2Bd/2Ba 72 825 $765 $0.93 $ 55,080 $ 660,960 Total $224,920 $2,699,040
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 THE LODGE, DENVER, COLORADO 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 $ 2,715,939 $ 7,223 $ 2,906,961 $ 7,731 $ 2,821,229 $ 7,503 Vacancy $ 62,684 $ 167 $ 146,564 $ 390 $ 311,916 $ 830 Credit Loss/Concessions $ 23 $ 0 $ 10,948 $ 29 $ 86,128 $ 229 Subtotal $ 62,707 $ 167 $ 157,512 $ 419 $ 398,044 $ 1,059 Laundry Income $ 45,496 $ 121 $ 69,709 $ 185 $ 49,076 $ 131 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 606 $ 2 Other Misc. Revenue $ 192,728 $ 513 $ 244,278 $ 650 $ 226,559 $ 603 Subtotal Other Income $ 238,224 $ 634 $ 313,987 $ 835 $ 276,241 $ 735 Effective Gross Income $ 2,891,456 $ 7,690 $ 3,063,436 $ 8,147 $ 2,699,426 $ 7,179 Operating Expenses Taxes $ 89,312 $ 238 $ 108,081 $ 287 $ 85,680 $ 228 Insurance $ 26,734 $ 71 $ 40,711 $ 108 $ 55,128 $ 147 Utilities $ 181,794 $ 483 $ 248,243 $ 660 $ 195,839 $ 521 Repair & Maintenance $ 137,064 $ 365 $ 125,800 $ 335 $ 119,999 $ 319 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 35,776 $ 95 $ 26,128 $ 69 $ 48,607 $ 129 General Administrative $ 279,044 $ 742 $ 237,805 $ 632 $ 261,524 $ 696 Management $ 143,956 $ 383 $ 162,262 $ 432 $ 137,290 $ 365 Miscellaneous ($ 11,559) -$31 ($ 22,116) -$59 $ 15,810 $ 42 Total Operating Expenses $ 882,121 $ 2,346 $ 926,914 $ 2,465 $ 919,877 $ 2,446 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Net Income $ 2,009,335 $ 5,344 $ 2,136,522 $ 5,682 $ 1,779,549 $ 4,733 Fiscal Year 2003 Annualized 2003 ------------------------------------------------------- MANAGEMENT BUDGET PROJECTION AAA PROJECTION ------------------------------------------------------- -------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT % - ------------------------------------------------------------------------------------------------------------------------------ Revenues Rental Income $ 2,785,311 $ 7,408 $ 2,758,964 $ 7,338 $ 2,699,040 $ 7,178 100.0% Vacancy $ 361,004 $ 960 $ 726,164 $ 1,931 $ 269,904 $ 718 10.0% Credit Loss/Concessions $ 20,300 $ 54 $ 86,600 $ 230 $ 53,981 $ 144 2.0% Subtotal $ 381,304 $ 1,014 $ 812,764 $ 2,162 $ 323,885 $ 861 12.0% Laundry Income $ 75,400 $ 201 $ 24,732 $ 66 $ 50,760 $ 135 1.9% Garage Revenue $ 0 $ 0 $ 3,388 $ 9 $ 0 $ 0 0.0% Other Misc. Revenue $ 259,808 $ 691 $ 78,324 $ 208 $ 244,400 $ 650 9.1% Subtotal Other Income $ 335,208 $ 892 $ 106,444 $ 283 $ 295,160 $ 785 10.9% Effective Gross Income $ 2,739,215 $ 7,285 $ 2,052,644 $ 5,459 $ 2,670,315 $ 7,102 100.0% Operating Expenses Taxes $ 95,765 $ 255 $ 98,088 $ 261 $ 94,000 $ 250 3.5% Insurance $ 52,446 $ 139 $ 51,324 $ 137 $ 54,520 $ 145 2.0% Utilities $ 203,412 $ 541 $ 123,660 $ 329 $ 203,040 $ 540 7.6% Repair & Maintenance $ 114,361 $ 304 $ 145,820 $ 388 $ 114,680 $ 305 4.3% Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Marketing & Leasing $ 47,278 $ 126 $ 56,344 $ 150 $ 47,000 $ 125 1.8% General Administrative $ 235,630 $ 627 $ 255,040 $ 678 $ 251,920 $ 670 9.4% Management $ 146,811 $ 390 $ 112,016 $ 298 $ 133,516 $ 355 5.0% Miscellaneous $ 0 $ 0 $ 22,272 $ 59 $ 0 $ 0 0.0% Total Operating Expenses $ 895,703 $ 2,382 $ 864,564 $ 2,299 $ 898,676 $ 2,390 33.7% Reserves $ 0 $ 0 $ 0 $ 0 $ 75,200 $ 200 8.4% Net Income $ 1,843,512 $ 4,903 $ 1,188,080 $ 3,160 $ 1,696,439 $ 4,512 63.5%
REVENUES AND EXPENSES The subject's revenue and expense projections are displayed on the previous chart. Rental income is based on the market analysis previously discussed. Other income consists of forfeited deposits, laundry income, late rent payments, month to month fees, pet fees, vending machine revenue, etc. We forecasted the property's annual operating expenses after reviewing its historical performance at the subject property. We analyzed each item of expense and attempted to forecast amounts a typical informed investor would consider reasonable. VACANCY AND COLLECTION LOSS An investor is primarily interested in the annual revenue an income property is likely to produce over a specified period of time, rather than the income it could produce if it were always 100% occupied and all tenants were paying their rent in full and on time. An investor normally expects some income loss as tenants vacate, fail to pay rent, or pay their rent late. We have projected a stabilized vacancy and collection loss rate of 12% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30 THE LODGE, DENVER, COLORADO 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 $200 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 $200 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 THE LODGE, DENVER, COLORADO SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR - --------------------------------------------------- I-1 Aug-02 94% $65,217 7.78% I-2 Mar-03 95% $44,976 9.90% I-3 May-02 95% $57,727 8.40% I-4 Jan-03 95% $43,357 10.00% I-5 Dec-02 90% $87,162 8.30% High 10.00% Low 7.78% Average 8.88%
Based on this information, we have concluded the subject's overall capitalization rate should be 9.50%. The terminal capitalization rate is applied to the net operating income estimated for the year following the end of the holding period. Based on the concluded overall capitalization rate, the age of the property and the surveyed information, we have concluded the subject's terminal capitalization rate to be 10.00%. Finally, the subject's discount rate or yield rate is estimated based on the previous investor survey and an examination of returns available on alternative investments in the market. Based on this analysis, the subject's discount rate is estimated to be 12.00%. HOLDING PERIOD The survey of investors indicates that most investors are completing either 10-year cash flows or extending the analysis to the end of the lease if it is more than 10-years. A 10-year period has been used in the analysis of the subject with the eleventh year stabilized NOI used to determine the reversion. SELLING COSTS Sales of similar size properties are typically accomplished with the aid of a broker and will also incur legal and other transaction related cost. Based on our survey of brokers and a review of institutional investor projections, an allowance of 2.00% of the sale amount is applied. DISCOUNTED CASH FLOW CONCLUSION Discounting the annual cash flows and the equity reversion at the selected rate of 12.00% indicates a value of $16,800,000. In this instance, the reversion figure contributes AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32 THE LODGE, DENVER, COLORADO 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 APPROACH PAGE 33 THE LODGE, DENVER, COLORADO DISCOUNTED CASH FLOW ANALYSIS
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 FISCAL YEAR 1 2 3 4 5 6 - ---------------------------------------------------------------------------------------------------------------------------- Revenue Base Rent $2,699,040 $2,699,040 $2,726,030 $2,807,811 $2,892,046 $2,978,807 Vacancy $ 613,746 $ 288,001 $ 272,603 $ 280,781 $ 289,205 $ 297,881 Credit Loss $ 53,981 $ 53,981 $ 54,521 $ 56,156 $ 57,841 $ 59,576 Concessions $ 225,600 $ 56,400 $ 0 $ 0 $ 0 $ 0 Subtotal $ 893,327 $ 398,382 $ 327,124 $ 336,937 $ 347,045 $ 357,457 Laundry Income $ 50,760 $ 50,760 $ 51,268 $ 52,806 $ 54,390 $ 56,021 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 244,400 $ 244,400 $ 246,844 $ 254,249 $ 261,877 $ 269,733 Subtotal Other Income $ 295,160 $ 295,160 $ 298,112 $ 307,055 $ 316,267 $ 325,755 Effective Gross Income $2,100,873 $2,595,818 $2,697,018 $2,777,929 $2,861,267 $2,947,105 Operating Expenses: Taxes $ 94,000 $ 96,820 $ 99,725 $ 102,716 $ 105,798 $ 108,972 Insurance $ 54,520 $ 56,156 $ 57,840 $ 59,575 $ 61,363 $ 63,204 Utilities $ 203,040 $ 209,131 $ 215,405 $ 221,867 $ 228,523 $ 235,379 Repair & Maintenance $ 114,680 $ 118,120 $ 121,664 $ 125,314 $ 129,073 $ 132,946 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 47,000 $ 48,410 $ 49,862 $ 51,358 $ 52,899 $ 54,486 General Administrative $ 251,920 $ 259,478 $ 267,262 $ 275,280 $ 283,538 $ 292,044 Management $ 105,044 $ 129,791 $ 134,851 $ 138,896 $ 143,063 $ 147,355 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Total Operating Expenses $ 870,204 $ 917,906 $ 946,609 $ 975,007 $1,004,258 $1,034,385 Reserves $ 75,200 $ 77,456 $ 79,780 $ 82,173 $ 84,638 $ 87,177 Net Operating Income $1,155,469 $1,600,457 $1,670,630 $1,720,748 $1,772,371 $1,825,542 Operating Expense Ratio (% of EGI) 41.4% 35.4% 35.1% 35.1% 35.1% 35.1% Operating Expense Per Unit $ 2,314 $ 2,441 $ 2,518 $ 2,593 $ 2,671 $ 2,751 YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 7 8 9 10 11 - ----------------------------------------------------------------------------------------------------------- Revenue Base Rent $3,068,171 $3,160,216 $3,255,023 $3,352,674 $3,453,254 Vacancy $ 306,817 $ 316,022 $ 325,502 $ 335,267 $ 345,325 Credit Loss $ 61,363 $ 63,204 $ 65,100 $ 67,053 $ 69,065 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 Subtotal $ 368,181 $ 379,226 $ 390,603 $ 402,321 $ 414,390 Laundry Income $ 57,702 $ 59,433 $ 61,216 $ 63,053 $ 64,944 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 277,825 $ 286,160 $ 294,745 $ 303,587 $ 312,695 Subtotal Other Income $ 335,527 $ 345,593 $ 355,961 $ 366,640 $ 377,639 Effective Gross Income $3,035,518 $3,126,583 $3,220,381 $3,316,992 $3,416,502 Operating Expenses: Taxes $ 112,241 $ 115,608 $ 119,076 $ 122,649 $ 126,328 Insurance $ 65,100 $ 67,053 $ 69,064 $ 71,136 $ 73,270 Utilities $ 242,440 $ 249,714 $ 257,205 $ 264,921 $ 272,869 Repair & Maintenance $ 136,934 $ 141,042 $ 145,273 $ 149,631 $ 154,120 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 Security $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 56,120 $ 57,804 $ 59,538 $ 61,324 $ 63,164 General Administrative $ 300,806 $ 309,830 $ 319,125 $ 328,698 $ 338,559 Management $ 151,776 $ 156,329 $ 161,019 $ 165,850 $ 170,825 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 Total Operating Expenses $1,065,417 $1,097,379 $1,130,301 $1,164,210 $1,199,136 Reserves $ 89,793 $ 92,487 $ 95,261 $ 98,119 $ 101,063 Net Operating Income $1,880,308 $1,936,717 $1,994,819 $2,054,664 $2,116,303 Operating Expense Ratio (% of EGI) 35.1% 35.1% 35.1% 35.1% 35.1% Operating Expense Per Unit $ 2,834 $ 2,919 $ 3,006 $ 3,096 $ 3,189
Estimated Stabilized NOI $1,696,439 Sales Expense Rate 2.00% Months to Stabilized 15 Discount Rate 12.00% Stabilized Occupancy 90.0% Terminal Cap Rate 10.00%
"DCF" VALUE ANALYSIS Gross Residual Sale Price $21,163,035 Deferred Maintenance $ 0 Less: Sales Expense $ 423,261 ----------- Add: Excess Land $ 0 Net Residual Sale Price $ 20,739,774 Other Adjustments $ 0 ----------- PV of Reversion $ 6,677,652 Value Indicated By "DCF" $16,820,499 Add: NPV of NOI $ 10,142,847 Rounded $16,800,000 PV Total $ 16,820,499
"DCF" VALUE SENSITIVITY TABLE ================================================================================================================================ DISCOUNT RATE --------------------------------------------------------------------------------------------- TOTAL VALUE 11.50% 11.75% 12.00% 12.25% 12.50% 9.50% $17,739,516 $17,452,644 $17,171,954 $16,897,293 $16,628,510 - ------------------------------------------------------------------------------------------------------------------------------ TERMINAL 9.75% $17,551,035 $17,268,338 $16,991,721 $16,721,034 $16,456,129 CAP RATE ------------------------------------------------------------------------------------------------------------------ 10.00% $17,371,979 $17,093,246 $16,820,499 $16,553,587 $16,292,366 ------------------------------------------------------------------------------------------------------------------ 10.25% $17,201,656 $16,926,696 $16,657,629 $16,394,309 $16,136,592 ------------------------------------------------------------------------------------------------------------------ 10.50% $17,039,445 $16,768,077 $16,502,516 $16,242,615 $15,988,236
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 34 THE LODGE, DENVER, COLORADO INCOME LOSS DURING LEASE-UP The subject is currently 70% occupied, below our stabilized occupancy projection. We have estimated a 15-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 $305,000 as shown in the following table.
DESCRIPTION YEAR 1 YEAR 2 - ------------------------------------------------------------------ "As Is" Net Operating Income $1,155,469 $1,600,457 Stabilized Net Operating Income $1,482,119 $1,617,649 ---------- ---------- Difference $ 326,650 $ 17,192 PV of Income Loss During Lease-Up $ 305,357 ---------- Rounded $ 305,000
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 $246,000 (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 APPROACH PAGE 35 THE LODGE, DENVER, COLORADO After considering the market transactions and the investor surveys, we previously conclude that an overall rate of 9.50% percent is applicable to the subject. The results of our direct capitalization analysis are as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 36 THE LODGE, DENVER, COLORADO THE LODGE
TOTAL PER SQ. FT. PER UNIT %OF EGI - ------------------------------------------------------------------------------------------------------- REVENUE Base Rent $ 2,699,040 $11.56 $ 7,178 Less: Vacancy & Collection Loss 12.00% $ 323,885 $ 1.39 $ 861 Plus: Other Income Laundry Income $ 50,760 $ 0.22 $ 135 1.90% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 244,400 $ 1.05 $ 650 9.15% ----------- ------ ------- ------- Subtotal Other Income $ 295,160 $1.26 $ 785 11.05% EFFECTIVE GROSS INCOME $ 2,670,315 $11.44 $ 7,102 OPERATING EXPENSES: Taxes $ 94,000 $ 0.40 $ 250 3.52% Insurance $ 54,520 $ 0.23 $ 145 2.04% Utilities $ 203,040 $ 0.87 $ 540 7.60% Repair & Maintenance $ 114,680 $ 0.49 $ 305 4.29% Cleaning $ 0 $ 0.00 $ 0 0.00% Landscaping $ 0 $ 0.00 $ 0 0.00% Security $ 0 $ 0.00 $ 0 0.00% Marketing & Leasing $ 47,000 $ 0.20 $ 125 1.76% General Administrative $ 251,920 $ 1.08 $ 670 9.43% Management 5.00% $ 133,516 $ 0.57 $ 355 5.00% Miscellaneous $ 0 $ 0.00 $ 0 0.00% TOTAL OPERATING EXPENSES $ 898,676 $ 3.85 $ 2,390 33.65% Reserves $ 75,200 $ 0.32 $ 200 2.82% ----------- ------ ------- ------- NET OPERATING INCOME $ 1,696,439 $ 7.27 $ 4,512 63.53% =========== ====== ======= ======= "GOING IN" CAPITALIZATION RATE 9.50% VALUE INDICATION $17,857,257 $76.51 $47,493 LESS: LEASE-UP COST ($ 305,000) PV OF CONCESSIONS ($ 246,000) "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $17,306,257 ROUNDED $17,300,000 $74.12 $46,011 =========== ====== =======
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 37 THE LODGE, DENVER, COLORADO DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF - -------------------------------------------------------------------------- 8.75% $18,836,879 $18,800,000 $50,000 $80.55 9.00% $18,298,327 $18,300,000 $48,670 $78.41 9.25% $17,788,886 $17,800,000 $47,340 $76.26 9.50% $17,306,257 $17,300,000 $46,011 $74.12 9.75% $16,848,379 $16,800,000 $44,681 $71.98 10.00% $16,413,394 $16,400,000 $43,617 $70.27 10.25% $15,999,629 $16,000,000 $42,553 $68.55
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $17,300,000. CORRELATION AND CONCLUSION BY THE INCOME APPROACH The two methods used to estimate the market value of the subject property by the income approach resulted in the following indications of value: Discounted Cash Flow Analysis $16,800,000 Direct Capitalization Method $17,300,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $17,200,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 38 THE LODGE, DENVER, COLORADO 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 $ 17,300,000 Income Approach $ 17,200,000 Reconciled Value $ 17,200,000
The Direct Capitalization Method is considered a reliable indicator of value. Income and expenses were estimated and projected based on historical operating statements and market oriented expenses. This method is primarily used by investors in their underwriting analysis. Furthermore, there was good support for an overall rate in the Direct Capitalization Method. The Sales Comparison Approach to value supported the value conclusion by the Income Approach and was given secondary consideration. Investment-grade, income-producing properties such as the subject are not typically traded based on cost. Therefore, the Cost Approach has not been considered in our valuation. FINAL VALUE - FEE SIMPLE ESTATE Based on the investigation and premise outlined, it is our opinion that as of May 12, 2003 the market value of the fee simple estate in the property is: $17,200,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA THE LODGE, DENVER, COLORADO ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A THE LODGE, DENVER, COLORADO EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A THE LODGE, DENVER, COLORADO SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - APARTMENT BUILDING EXTERIOR - LANDSCAPE & APARTMENT BUILDING [PICTURE] [PICTURE] EXTERIOR - APARTMENT BUILDING INTERIOR - APARTMENT UNIT [PICTURE] [PICTURE] INTERIOR - APARTMENT UNIT INTERIOR - APARTMENT UNIT AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A THE LODGE, DENVER, COLORADO SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] INTERIOR - APARTMENT UNIT EXTERIOR - PARKING [PICTURE] [PICTURE] INTERIOR - CLUBHOUSE GYM EXTERIOR - POOL AREA [PICTURE] [PICTURE] EXTERIOR - APARTMENT BUILDING EXTERIOR - TENNIS COURT AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B THE LODGE, DENVER, COLORADO EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B THE LODGE, DENVER, COLORADO PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 THE COLONNADE SIERRA VISTA KNOLLWOOD 15301 E Ford Circle 8851 E Florida Avenue 15196 E Louisiana Drive Aurora, Colorado Aurora, Colorado Aurora, Colorado [PICTURE] [PICTURE] [PICTURE] COMPARABLE I-4 COMPARABLE I-5 WINDSOR COURT CASCADE VILLAGE 1570 Joliet 6880 W 91st Street Aurora, Colorado Westminster, Colorado [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B THE LODGE, DENVER, COLORADO SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 - ------------------------------------------------------------------------------------------------------------------------------- Property Name The Lodge The Willows at Tamarac Management Company AIMCO Terry Johnson & Associates LOCATION: Address 8405 E Hampden Avenue 8525 E Hampden Avenue City, State Denver, Colorado Denver, Colorado County Denver County Denver County Proximity to Subject 1/2 mile east of subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 233,400 Year Built 1974 1972 Effective Age 18 25 Building Structure Type Parking Type (Gr., Cov., etc.) Open Covered, open open Number of Units 376 214 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 Studio 425 80 $516 1 1Bd/1Ba Jr 545 $500 2 1Bd/1Ba 625 224 $595 2 1Bd/1Ba 572 $500 3 2Bd/2Ba 825 72 $765 2 1Bd/1Ba 621 $525 2 1Bd/1Ba 705 $625 3 2Bd/1Ba 890 $725 3 2Bd/2Ba 977 $750 1Bd/1.5Ba TH 832 $650 3Bd/2.5Ba TH 1,432 $900 Average Unit Size (SF) 621 Unit Breakdown: Efficiency 2-Bedroom Efficiency 2-Bedroom 1-Bedroom 3-Bedroom 1-Bedroom 3-Bedroom CONDITION: Good Good APPEAL: Good Good AMENITIES: Unit Amenities Attach. Vaulted Ceiling Attach. Garage Vaulted Ceiling Garage 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 X 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 X Tennis Court Secured Parking Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track Business Office Jogging Track Business Office X Gym Room X Gym Room OCCUPANCY: 70% 86% LEASING DATA: Available Leasing Terms 6-12 month leases 6-12 Month leases Concessions $99 move-in and 1 month free, no net rent 1 month free w/ 12 month lease Pet Deposit $250 none allowed Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water X Trash Water Trash Confirmation Solena Hernandez (property manager) Leasing Agent Telephone Number 303-750-0124 NOTES: COMPARISON TO SUBJECT: Slightly Inferior COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 - ------------------------------------------------------------------------------------------------------------------------------- Property Name The Glen Tamarac Village Management Company Asher AIMCO LOCATION: Address 9600 E Girard 3300 S Tamarac Drive City, State Denver, Colorado Denver, Colorado County Denver County Denver County Proximity to Subject 3/4 mile east of subject 1/4 mile west of subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 411,529 Year Built 1975 1977 Effective Age 25 25 Building Structure Type Parking Type (Gr., Cov., etc.) Open Open covered, open Number of Units 300 564 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 Studio 440 $535 1 Studio 450 $530 2 1Bd/1Ba 660 $615 2 1Bd/1Ba 530 $635 3 2Bd/2Ba 873 $725 2 1Bd/1Ba 560 $705 2 1Bd/1Ba 660 $685 2 1Bd/1Ba 700 $715 2 1Bd/1Ba 740 $735 3 2Bd/1Ba 900 $835 3 2Bd/2Ba 950 $850 2Bd/2Ba 1,016 $860 2Bd/2Ba 1,020 $880 2Bd/2Ba 1,035 $900 Average Unit Size (SF) Unit Breakdown: Efficiency 2-Bedroom Efficiency 2-Bedroom 1-Bedroom 3-Bedroom 1-Bedroom 3-Bedroom CONDITION: Good Good APPEAL: Good Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage 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 Spa/Jacuzzi Car Wash X 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 X Sand Volley Ball X Meeting Hall Tennis Court Secured Parking X Tennis Court Secured Parking Racquet Ball X Laundry Room X Racquet Ball X Laundry Room Jogging Track Business Office Jogging Track X Business Office X Gym Room X Gym Room OCCUPANCY: 90% 81% LEASING DATA: Available Leasing Terms 6-12 month leases 6-12 month leases Concessions none $199 move-in Pet Deposit none allowed $250 Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas Water X Trash X Water X Trash Confirmation Leasing agent Leasing agent Telephone Number 303-755-5117 303-750-1606 NOTES: COMPARISON TO SUBJECT: Similar Slightly Superior COMPARABLE COMPARABLE DESCRIPTION R - 4 R - 5 - ---------------------------------------------------------------------------------------------------------------------------- Property Name Stone Creek The Prescott Management Company OMNI LOCATION: Address 9825 E Girard Avenue 3150 South Tamarac Drive City, State Denver, Colorado Denver, Colorado County Denver County Denver County Proximity to Subject 3/4 mile east of subject Across the street from subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) Year Built 1974 1974 Effective Age 25 25 Building Structure Type Parking Type (Gr., Cov., etc.) Open covered, open Open Number of Units 450 125 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 2 1Bd/1Ba 735 $ 680 2 1Bd/1Ba 660 $615 1Bd/1Ba loft 713 $ 720 2 1Bd/1Ba 742 $635 1Bd/1Ba TH 910 $ 780 2 1Bd/1Ba 932 $725 3 2Bd/2Ba 940 $ 785 3 2Bd/2Ba 1,000 $750 3 2Bd/2.5Ba 940 $ 830 3 2Bd/2Ba 1,040 $770 3Bd/2Ba 1,085 $ 980 3 2Bd/2Ba 1,060 $800 3Bd/1.5Ba TH 1,072 $1,050 3 2Bd/2Ba 1,085 $820 3 2Bd/2Ba 1,100 $830 1 Studio 460 $500 1 Studio 606 $515 Average Unit Size (SF) Unit Breakdown: Efficiency 2-Bedroom Efficiency 2-Bedroom 1-Bedroom 3-Bedroom 1-Bedroom 3-Bedroom CONDITION: APPEAL: AMENITIES: Unit Amenities Attach. Garage X Vaulted Ceiling Attach. Vaulted Ceiling Garage X Balcony X Balcony X Fireplace Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool X Spa/Jacuzzi Car Wash X Spa/Jacuzzi Car Wash 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: 80% 89% LEASING DATA: Available Leasing Terms 6-12 month leases 6-12 Month leases Concessions $100-200 off each month none Pet Deposit $300 $250 Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water Trash Water Trash Confirmation Leasing agent Leasing agent Telephone Number 303-755-2978 N/A NOTES: COMPARISON TO SUBJECT: Similar Similar
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B THE LODGE, DENVER, COLORADO PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 THE WILLOWS AT TAMARAC THE GLEN TAMARAC VILLAGE 8525 E Hampden Avenue 9600 E Girard 3300 S Tamarac Drive Denver, Colorado Denver, Colorado Denver, Colorado [PICTURE] [PICTURE] [PICTURE] COMPARABLE R-4 COMPARABLE R-5 STONE CREEK THE PRESCOTT 9825 E Girard Avenue 3150 South Tamarac Drive Denver, Colorado Denver, Colorado [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C THE LODGE, DENVER, COLORADO EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C THE LODGE, DENVER, COLORADO 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 THE LODGE, DENVER, COLORADO 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 THE LODGE, DENVER, COLORADO such testimony, and then such testimony shall be at American Appraisal Associates, Inc.'s, prevailing per diem for the individuals involved. Possession of this report or any copy thereof does not carry with it the right of publication. No portion of this report (especially any conclusion to use, the identity of the appraiser or the firm with which the appraiser is connected, or any reference to the American Society of Appraisers or the designations awarded by this organization) shall be disseminated to the public through prospectus, advertising, public relations, news, or any other means of communication without the written consent and approval of American Appraisal Associates, Inc. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D THE LODGE, DENVER, COLORADO EXHIBIT D CERTIFICATE OF APPRAISER (1 PAGE) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D THE LODGE, DENVER, COLORADO 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. James Newell provided significant real property appraisal assistance in the preparation of this report. I am currently in compliance with the Appraisal Institutes continuing education requirements. - s - Douglas Needham --------------------- Douglas Needham, MAI Managing Principal, Real Estate Group Colorado State Certified General Real Estate Appraiser #CG40017035 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E THE LODGE, DENVER, COLORADO EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E THE LODGE, DENVER, COLORADO 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 THE LODGE, DENVER, COLORADO VALUATION AND Appraisal Institute SPECIAL COURSES Advanced Income Capitalization Appraisal Principles Appraisal Procedures Basic Income Capitalization Standards of Professional Practice AMERICAN APPRAISAL ASSOCIATES, INC. THE LODGE, DENVER, COLORADO GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. THE LODGE, DENVER, COLORADO 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. EX-99.(C)(5) 7 d07246a2exv99wxcyx5y.txt APPRAISAL OF VILLAGE IN THE WOODS VILLAGE IN THE WOODS 11800 GRANT ROAD CYPRESS, TEXAS MARKET VALUE - FEE SIMPLE ESTATE AS OF MAY 12, 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: VILLAGE IN THE WOODS 11800 GRANT ROAD CYPRESS, HARRIS 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 530 units with a total of 518,808 square feet of rentable area. The improvements were built in 1983. The improvements are situated on 22.627 acres. Overall, the improvements are in fair condition. As of the date of this appraisal, the subject property is 90% 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 VILLAGE IN THE WOODS, CYPRESS, 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 12, 2003 is: ($18,800,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. -s- Frank Fehribach July 14, 2003 Frank Fehribach, MAI #053272 Managing Principal, Real Estate Group Texas State Certified General Real Estate Appraiser #1323954-G Report By: Tiffany B. Roberts Texas Appraiser Trainee #TX-1329671-T AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 VILLAGE IN THE WOODS, CYPRESS, 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 ........................................... 25 Reconciliation and Conclusion ............................................ 36 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 VILLAGE IN THE WOODS, CYPRESS, TEXAS EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Village in the Woods LOCATION: 11800 Grant Road Cypress, 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 12, 2003 DATE OF REPORT: July 14, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 22.627 acres, or 985,632 square feet Assessor Parcel No.: 044-016-000-040 Floodplain: Community Panel No. 48201C0430K (April 20, 2000) Flood Zone X, AE, an area inside the floodplain. Zoning: None BUILDING: No. of Units: 530 Units Total NRA: 518,808 Square Feet Average Unit Size: 979 Square Feet Apartment Density: 23.4 units per acre Year Built: 1983 UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
Market Rent Square ----------------- Monthly Annual Unit Type Feet Per Unit Per SF Income Income - --------------- ------ -------- ------ -------- ---------- 1A10 - Aspen 679 $ 500 $ 0.74 $ 44,000 $ 528,000 2A20 - Juniper 967 $ 565 $ 0.58 $ 54,240 $ 650,880 2B20 - Magnolia 996 $ 600 $ 0.60 $ 93,600 $1,123,200 2C20 - Cypress 1,136 $ 710 $ 0.63 $ 61,060 $ 732,720 3A20 - Elm 1,088 $ 750 $ 0.69 $ 78,000 $ 936,000 -------- ---------- Total $330,900 $3,970,800 ======== ==========
OCCUPANCY: 90% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 20 Years REMAINING ECONOMIC LIFE: 25 Years AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 VILLAGE IN THE WOODS, CYPRESS, TEXAS SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - OFFICE TYPICAL BUILDING EXTERIOR AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 VILLAGE IN THE WOODS, CYPRESS, 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 VILLAGE IN THE WOODS, CYPRESS, TEXAS PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
Amount $/Unit ------ ------ DIRECT CAPITALIZATION Potential Rental Income $3,970,800 $7,492 Effective Gross Income $3,899,628 $7,358 Operating Expenses $1,767,185 $3,334 45.3% of EGI Net Operating Income: $1,946,943 $3,673 Capitalization Rate 10.00% DIRECT CAPITALIZATION VALUE $19,000,000 * $35,849 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 14% Stabilized Vacancy & Collection Loss: 9% Lease-up / Stabilization Period N/A Terminal Capitalization Rate 10.50% Discount Rate 11.50% Selling Costs 3.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $18,800,000 * $35,472 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $18,800,000 $35,472 / UNIT SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $23,512 to $36,500 Range of Sales $/Unit (Adjusted) $32,917 to $39,100 VALUE INDICATION - PRICE PER UNIT $18,900,000 * $35,660 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales N/A to N/A Selected EGIM for Subject Not Utilized Subject's Projected EGI $3,899,628 EGIM ANALYSIS CONCLUSION NOT UTILIZED * NOT UTILIZED NOI PER UNIT ANALYSIS CONCLUSION $19,100,000 * $36,038 / UNIT RECONCILED SALES COMPARISON VALUE $19,000,000 $35,849 / 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 VILLAGE IN THE WOODS, CYPRESS, TEXAS PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $18,900,000 NOI Per Unit $19,100,000 EGIM Multiplier Not Utilized INDICATED VALUE BY SALES COMPARISON $19,000,000 $35,849 / UNIT INCOME APPROACH: Direct Capitalization Method: $19,000,000 Discounted Cash Flow Method: $18,800,000 INDICATED VALUE BY THE INCOME APPROACH $18,800,000 $35,472 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $18,800,000 $35,472 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 VILLAGE IN THE WOODS, CYPRESS, TEXAS INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 11800 Grant Road, Cypress, Harris County, Texas. Cypress identifies it as 044-016-000-040. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Tiffany B. Roberts on May 12, 2003. Frank Fehribach, MAI has not made a personal inspection of the subject property. Tiffany B. Roberts performed the research, valuation analysis and wrote the report. Frank Fehribach, MAI reviewed the report and concurs with the value. Frank Fehribach, MAI and Tiffany B. Roberts 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 12, 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 & Income Approaches), subject to the existing short-term leases. A Fee Simple Estate is AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 10 VILLAGE IN THE WOODS, CYPRESS, 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 Properties Fund Multipoint. 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 VILLAGE IN THE WOODS, CYPRESS, 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 Cypress, Texas. Overall, the neighborhood is characterized as a suburban setting with the predominant land use being single family residential. The subject's neighborhood is generally defined by the following boundaries. NEIGHBORHOOD BOUNDARIES East - Highway 249 West - Grant Road South - Cypress North Houston North - Louetta Road MAJOR EMPLOYERS Major employers in the subject's area include Hewlett Packard. The overall economic outlook for the area is considered very 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 VILLAGE IN THE WOODS, CYPRESS, TEXAS NEIGHBORHOOD DEMOGRAPHICS
AREA -------------------------------------------- CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA - --------------------------- ------------ ------------ ------------ ---------- POPULATION TRENDS Current Population 10,349 70,806 168,531 4,331,861 5-Year Population 10,998 79,545 194,672 4,734,261 % Change CY-5Y 6.3% 12.3% 15.5% 9.3% Annual Change CY-5Y 1.3% 2.5% 3.1% 1.9% HOUSEHOLDS Current Households 3,855 25,075 60,227 1,511,658 5-Year Projected Households 4,142 28,159 69,615 1,636,192 % Change CY - 5Y 7.4% 12.3% 15.6% 8.2% Annual Change CY-5Y 1.5% 2.5% 3.1% 1.6% INCOME TRENDS Median Household Income $ 93,410 $ 86,115 $ 85,556 $ 44,047 Per Capita Income $ 34,359 $ 31,191 $ 31,294 $ 22,629 Average Household Income $ 92,657 $ 87,961 $ 87,758 $ 64,844
Source: Demographics Now The subject neighborhood's population is expected to show increases above that of the region. The immediate market offers superior 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 24.17% 23.06% 24.70% 35.39% 5-Year Projected % Renting 22.56% 22.00% 24.19% 34.24% % of Households Owning 70.78% 72.85% 71.62% 53.61% 5-Year Projected % Owning 72.71% 74.26% 72.51% 55.41%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 VILLAGE IN THE WOODS, CYPRESS, TEXAS SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Single family South - Commercial, church with private school East - Retail center including local and national tenants such as La Maria Mexican Restaurant, Dollar General, Mail Plus, Century 21 West - Retail center including local medical tenants, single family CONCLUSIONS The subject is well located within the city of Cypress. 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 very favorable with a good economic base. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 14 VILLAGE IN THE WOODS, CYPRESS, TEXAS MARKET ANALYSIS The subject property is located in the city of Cypress in Harris County. The overall pace of development in the subject's market is more or less decreasing. Any new construction added to the subject's market will not compete with the subject. A new class A community has been constructed at the corner of Grant Road and Jones Road, however due to the quality, this property is not expected to compete with the subject property. The following table illustrates historical vacancy rates for the subject's market. HISTORICAL VACANCY RATE
Period Region Submarket - ------ ------ --------- 4Q01 N/A 3.5% 1Q02 N/A 4.9% 2Q02 N/A 5.0% 3Q02 N/A 5.6% 4Q02 7.1% 7.0% 1Q03 8.1% 8.1%
Source: REIS Houston, Apartment: Cypress/Fairbanks - 1st Quarter 2003 SubTrend Futures Occupancy trends in the subject's market are decreasing. Historically speaking, the subject's submarket has outperformed the overall market. Historically, the subject's submarket, when compared to the Houston Metro area, has usually enjoyed a lower vacancy rate. The subject was constructed in 1983. The communities constructed between 1980 and 1989 have an average vacancy rate of 8.7% in the 1st Quarter 2003. The overall vacancy of the submarket is not expected to improve significantly until 2007. Market rents in the subject's market have been following a decreasing trend. The following table illustrates historical rental rates for the subject's market. HISTORICAL AVERAGE RENT
Period Region % Change Submarket % Change - ------ ------ -------- --------- -------- 4Q01 N/A - $ 711 - 1Q02 N/A N/A $ 704 -1.0% 2Q02 N/A N/A $ 706 0.3% 3Q02 N/A N/A $ 706 0.0% 4Q02 N/A N/A $ 698 -1.1% 1Q03 N/A N/A $ 696 -0.3%
Source: REIS Houston, Apartment: Cypress/Fairbanks - 1st Quarter 2003 SubTrend Futures The following table illustrates a summary of the subject's competitive set. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 VILLAGE IN THE WOODS, CYPRESS, TEXAS COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject - ------- -------------------- ----- ----- ---------- -------------------- R-1 Brandon Oaks 190 95% Unknown 1 mile south R-2 Woodedge Apartments 126 80% 1981 1 mile south R-3 Willow Green 332 98% 1995 3 miles south R-4 Central Park Regency 348 93% 1983 1 mile south R-5 Copper Creek 300 N/A 1982 5 miles east Subject Village in the Woods 530 90% 1983
According to information obtained by REIS, the current average asking rent within the subject's submarket is $732. The submarket's average effective rent is currently $696 and is not expected to significantly improve until 2004. The subject's 1980 - 1989 category has an average asking rental rate of $643. This is $89 less than the average for the submarket. In terms of annual rental growth rates, the Cypress / Fairbanks submarket has had little growth when compared to the Houston Metro area. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 VILLAGE IN THE WOODS, CYPRESS, TEXAS PROPERTY DESCRIPTION SITE ANALYSIS Site Area 22.627 acres, or 985,632 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 48201C0430K, dated April 20, 2000 Flood Zone Zone X, AE Zoning Not available, 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 - --------------- ---------- ----------- ----------- ---------- -------- 044-016-000-040 $1,973,700 $12,806,300 $14,780,000 0.02872 $424,448
IMPROVEMENT ANALYSIS Year Built 1983 Number of Units 530 Net Rentable Area 518,808 Square Feet Construction: Foundation Reinforced concrete slab Frame Heavy or light wood Exterior Walls Brick or masonry Roof Composition shingle over a wood truss structure Project Amenities Amenities at the subject include a swimming pool, spa/jacuzzi, playground, sports court, laundry room, business office, 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 VILLAGE IN THE WOODS, CYPRESS, TEXAS Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) - --------------- --------------- --------- 1A10 - Aspen 88 679 2A20 - Juniper 96 967 2B20 - Magnolia 156 996 2C20 - Cypress 86 1,136 3A20 - Elm 104 1,088
Overall Condition Fair Effective Age 20 years Economic Life 45 years Remaining Economic Life 25 years Deferred Maintenance The deferred maintenance at the subject property was estimated for a total amount of $115,000. HIGHEST AND BEST USE ANALYSIS In accordance with the definition of highest and best use, an analysis of the site relating to its legal uses, physical possibilities, and financial feasibility is appropriate. The highest and best use as vacant is to hold for future multi-family development. The subject improvements were constructed in 1983 and consist of a 530-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 VILLAGE IN THE WOODS, CYPRESS, 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 VILLAGE IN THE WOODS, CYPRESS, 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 VILLAGE IN THE WOODS, CYPRESS, 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 VILLAGE IN THE WOODS, CYPRESS, TEXAS SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - --------------------------------------------------------------------------------------------------------------------------- Property Name Village in the Woods Ashley Crest Willow Brook Crossing LOCATION: Address 11800 Grant Road 11900 Barwood Bend Drive 7150 Smiling Wood Lane City, State Cypress, Texas Houston, Texas Houston, Texas County Harris Harris Harris PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 518,808 133,104 152,746 Year Built 1983 1981 1982 Number of Units 530 168 208 Unit Mix: Type Total Type Total Type Total 1A10 - Aspen 88 1Br/1Ba 96 1Br/1Ba N/A 2A20 - Juniper 96 2Br/2Ba 72 2Br/2Ba N/A 2B20 - Magnolia 156 3Br/2Ba N/A 2C20 - Cypress 86 3A20 - Elm 104 Average Unit Size (SF) 979 792 734 Land Area (Acre) 22.6270 6.7500 7.0000 Density (Units/Acre) 23.4 24.9 29.7 Parking Ratio (Spaces/Unit) 2.08 1.48 Unknown Parking Type (Gr., Cov., etc.) Open Open, covered Open CONDITION: Fair Average Average APPEAL: Average Fair Average AMENITIES: Pool/Spa Yes/Yes Yes/No Yes/Yes Gym Room No No Yes Laundry Room Yes Yes Yes Secured Parking No Yes Yes Sport Courts No No No Washer/Dryer Connection Yes No Yes Fireplace No Yes Yes Alarms No No No OCCUPANCY: 90% N/A N/A TRANSACTION DATA: Sale Date August, 2000 January, 2001 Sale Price ($) $3,950,000 $6,750,000 Grantor Continental Ashley, Inc. Glenborough Fund X, Inc. LP Grantee Ashley Crest Limited Westdale Fanny Properties Sale Documentation U579358 U806867 Verification CompsInc. CompsInc. Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $ 0 $ 0 $ 0.00 $ 0 $ 0 $ 0.00 Vacancy/Credit Loss $ 0 $ 0 $ 0.00 $ 0 $ 0 $ 0.00 -------------------------------------------------------- Effective Gross Income $ 0 $ 0 $ 0.00 $ 0 $ 0 $ 0.00 Operating Expenses $ 0 $ 0 $ 0.00 $ 0 $ 0 $ 0.00 -------------------------------------------------------- Net Operating Income $434,503 $2,586 $ 3.26 $621,000 $2,986 $ 4.07 NOTES: PRICE PER UNIT $ 23,512 $ 32,452 PRICE PER SQUARE FOOT $ 29.68 $ 44.19 EXPENSE RATIO N/A N/A EGIM N/A N/A OVERALL CAP RATE 11.00% 9.20% Cap Rate based on Pro Forma or Actual Income? ACTUAL ACTUAL COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 - --------------------------------------------------------------------------------------------------------- Property Name Copper Mill Apartments Windfern Meadows Apartments LOCATION: Address 15910 FM 529 Road 12919 Windfern Road City, State Houston, Texas Houston, Texas County Harris Harris PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 178,215 175,490 Year Built 1982 1983 Number of Units 235 184 Unit Mix: Type Total Type Total 1Br/1Ba 131 1Br/1Ba 92 2Br/2Ba 104 2Br/2Ba 46 3Br/2Ba 46 Average Unit Size (SF) 758 954 Land Area (Acre) 9.7600 10.6100 Density (Units/Acre) 24.1 17.3 Parking Ratio (Spaces/Unit) Unknown 1.70 Parking Type (Gr., Cov., etc.) Open Open, covered CONDITION: Good Average APPEAL: Good Average AMENITIES: Pool/Spa Yes/Yes Yes/No Gym Room Yes No Laundry Room Yes No Secured Parking Yes Yes Sport Courts No No Washer/Dryer Connection Yes No Fireplace Yes No Alarms Yes Yes OCCUPANCY: N/A N/A TRANSACTION DATA: Sale Date May, 2000 June, 2002 Sale Price ($) $7,925,000 $6,716,000 Grantor VPM Realty Holding Company, Inc. BKL Texas Investments No. 2 Ltd. Grantee FPC / Copper mill Apartments Ltd. Shengs Houston Property LLC Sale Documentation U383719 V911247 Verification CompsInc. CompsInc. Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $ 0 $ 0 $ 0.00 $ 0 $ 0 $ 0.00 Vacancy/Credit Loss $ 0 $ 0 $ 0.00 $ 0 $ 0 $ 0.00 ------------------------------------------------------------------ Effective Gross Income $1,518,396 $6,461 $ 8.52 $ 0 $ 0 $ 0.00 Operating Expenses $ 757,414 $3,223 $ 4.25 $ 0 $ 0 $ 0.00 ------------------------------------------------------------------ Net Operating Income $ 760,982 $3,238 $ 4.27 $604,440 $3,285 $ 3.44 NOTES: PRICE PER UNIT $ 33,723 $ 36,500 PRICE PER SQUARE FOOT $ 44.47 $ 38.27 EXPENSE RATIO 49.9% N/A EGIM 5.22 N/A OVERALL CAP RATE 9.60% 9.00% Cap Rate based on Pro Forma or Actual Income? ACTUAL ACTUAL COMPARABLE DESCRIPTION I - 5 - ------------------------------------------------------------------ Property Name Bear Creek Crossing Apartments LOCATION: Address 5535 Timber Creek Place Drive City, State Houston, Texas County Harris PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 140,860 Year Built 1982 Number of Units 200 Unit Mix: Type Total 1Br/1Ba 176 2Br/2Ba 24 Average Unit Size (SF) 704 Land Area (Acre) 5.9300 Density (Units/Acre) 33.7 Parking Ratio (Spaces/Unit) Unknown Parking Type (Gr., Cov., etc.) Open CONDITION: Average APPEAL: Average AMENITIES: Pool/Spa Yes/Yes Gym Room Yes Laundry Room No Secured Parking Yes Sport Courts No Washer/Dryer Connection Yes Fireplace No Alarms No OCCUPANCY: N/A TRANSACTION DATA: Sale Date January, 2001 Sale Price ($) $6,800,000 Grantor Glenborough Fund X, Inc. LP Grantee Westdale Fanny Properties Sale Documentation U806867 Verification CompsInc. Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Potential Gross Income $ 0 $ 0 $0.00 Vacancy/Credit Loss $ 0 $ 0 $0.00 ------------------------- Effective Gross Income $ 0 $ 0 $0.00 Operating Expenses $ 0 $ 0 $0.00 ------------------------- Net Operating Income $625,600 $3,128 $4.44 NOTES: PRICE PER UNIT $ 34,000 PRICE PER SQUARE FOOT $ 48.27 EXPENSE RATIO N/A EGIM N/A OVERALL CAP RATE 9.20% Cap Rate based on Pro Forma or Actuual Income? ACTUAL
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 VILLAGE IN THE WOODS, CYPRESS, TEXAS IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $23,512 to $36,500 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 $32,917 to $39,100 per unit with a mean or average adjusted price of $36,559 per unit. The median adjusted price is $37,320 per unit. Based on the following analysis, we have concluded to a value of $36,500 per unit, which results in an "as is" value of $18,900,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 VILLAGE IN THE WOODS, CYPRESS, TEXAS SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - --------------------------------------------------------------------------------------------------------------------------- Property Name Village in the Woods Ashley Crest Willow Brook Crossing Address 11800 Grant Road 11900 Barwood Bend Drive 7150 Smiling Wood Lane City Cypress, Texas Houston, Texas Houston, Texas Sale Date August, 2000 January, 2001 Sale Price ($) $3,950,000 $6,750,000 Net Rentable Area (SF) 518,808 133,104 152,746 Number of Units 530 168 208 Price Per Unit $23,512 $32,452 Year Built 1983 1981 1982 Land Area (Acre) 22.6270 6.7500 7.0000 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 08-2000 0% 01-2001 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $23,512 $32,452 Location Inferior 10% Comparable 0% Number of Units 530 168 -5% 208 -5% Quality / Appeal Average Inferior 15% Comparable 0% Age / Condition 1983 1981 / Average 0% 1982 / Average 0% Occupancy at Sale 90% N/A 0% N/A 0% Amenities Good Comparable 0% Comparable 0% Average Unit Size (SF) 979 792 20% 734 20% PHYSICAL ADJUSTMENT 40% 15% FINAL ADJUSTED VALUE ($/UNIT) $32,917 $37,320
COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 - ----------------------------------- ---------------------- --------------------------- ------------------------------ Property Name Copper Mill Apartments Windfern Meadows Apartments Bear Creek Crossing Apartments Address 15910 FM 529 Road 12919 Windfern Road 5535 Timber Creek Place Drive City Houston, Texas Houston, Texas Houston, Texas Sale Date May, 2000 June, 2002 January, 2001 Sale Price ($) $7,925,000 $6,716,000 $6,800,000 Net Rentable Area (SF) 178,215 175,490 140,860 Number of Units 235 184 200 Price Per Unit $33,723 $36,500 $34,000 Year Built 1982 1983 1982 Land Area (Acre) 9.7600 10.6100 5.9300 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Fee Simple 0% Fee Simple 0% Fee Simple 0% Conveyed Estate Estate Estate Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) 05-2000 0% 06-2002 0% 01-2001 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $33,723 $36,500 $34,000 Location Comparable 0% Comparable 0% Comparable 0% Number of Units 235 -5% 184 -5% 200 -5% Quality / Appeal Comparable 0% Comparable 0% Comparable 0% Age / Condition 1982 / Good 0% 1983 / Average 0% 1982 / Average 0% Occupancy at Sale N/A 0% N/A 0% N/A 0% Amenities Comparable 0% Comparable 0% Comparable 0% Average Unit Size (SF) 758 20% 954 0% 704 20% PHYSICAL ADJUSTMENT 15% -5% 15% FINAL ADJUSTED VALUE ($/UNIT) $38,782 $34,675 $39,100
SUMMARY VALUE RANGE (PER UNIT) $ 32,917 TO $39,100 MEAN (PER UNIT) $ 36,559 MEDIAN (PER UNIT) $ 37,320 VALUE CONCLUSION (PER UNIT) $ 36,500
VALUE OF IMPROVEMENT & MAIN SITE $19,345,000 DEFERRED MAINTENANCE -$ 115,000 PV OF CONCESSIONS -$ 366,000 VALUE INDICATED BY SALES COMPARISON APPROACH $18,864,000 ROUNDED $18,900,000
NET OPERATING INCOME (NOI) ANALYSIS We have also conducted a net operating income (NOI) comparison analysis. The NOI effectively takes into account the various physical, location, and operating aspects of the sale. When the subject's NOI is compared to the sale NOI, a percent adjustment can be arrived at. The following table illustrates this analysis. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 24 VILLAGE IN THE WOODS, CYPRESS, 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-1 168 $3,950,000 11.00% $434,503 $ 1,946,943 1.420 $ 33,395 $ 23,512 $ 2,586 $ 3,673 I-2 208 $6,750,000 9.20% $621,000 $ 1,946,943 1.230 $ 39,929 $ 32,452 $ 2,986 $ 3,673 I-3 235 $7,925,000 9.60% $760,982 $ 1,946,943 1.134 $ 38,256 $ 33,723 $ 3,238 $ 3,673 I-4 184 $6,716,000 9.00% $604,440 $ 1,946,943 1.118 $ 40,816 $ 36,500 $ 3,285 $ 3,673 I-5 200 $6,800,000 9.20% $625,600 $ 1,946,943 1.174 $ 39,929 $ 34,000 $ 3,128 $ 3,673
PRICE/UNIT
Low High Average Median $33,395 $40,816 $38,465 $39,929
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT Estimated Price Per Unit $ 37,000 ----------- Number of Units 530 Value $19,610,000 Deferred Maintenance -$ 115,000 PV of Concessions -$ 366,000 ----------- Value Based on NOI Analysis $19,129,000 Rounded $19,100,000
The adjusted sales indicate a range of value between $33,395 and $40,816 per unit, with an average of $38,465 per unit. Based on the subject's competitive position within the improved sales, a value of $37,000 per unit is estimated. This indicates an "as is" market value of $19,100,000 (rounded after necessary adjustment, if any) for the NOI Per Unit Analysis. EFFECTIVE GROSS INCOME MULTIPLIER (EGIM) ANALYSIS Because of the lack of data, the effective gross income multiplier (EGIM) is not used. SALES COMPARISON CONCLUSION The valuation methods in the Sales Comparison Approach are shown below. The overall value via the Sales Comparison Approach is estimated at $19,000,000. Price Per Unit $ 18,900,000 NOI Per Unit $ 19,100,000 EGIM Analysis Not Utilized Sales Comparison Conclusion $ 19,000,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 25 VILLAGE IN THE WOODS, CYPRESS, 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 26 VILLAGE IN THE WOODS, CYPRESS, 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 - -------------------------------------------------------------------- 1A10 - Aspen 679 $ 494 $ 0.73 85.2% 2A20 - Juniper 967 $ 565 $ 0.58 96.9% 2B20 - Magnolia 996 $ 598 $ 0.60 87.2% 2C20 - Cypress 1136 $ 708 $ 0.62 93.0% 3A20 - Elm 1088 $ 754 $ 0.69 89.4%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 27 VILLAGE IN THE WOODS, CYPRESS, TEXAS RENT ANALYSIS
COMPARABLE RENTS ---------------------------------------------------------- R-1 R-2 R-3 R-4 R-5 ---------------------------------------------------------- Brando Woodedge Willow Central Park Copper Oaks Apartments Green Regency Creek ---------------------------------------------------------- COMPARISON TO SUBJECT SUBJECT SUBJECT ---------------------------------------------------------- SUBJECT UNIT ACTUAL ASKING Slightly DESCRIPTION TYPE RENT RENT Superior Superior Superior Superior Superior - ---------------------------------------------------------------------------------------------------------------------------- Monthly Rent 1A10 - ASPEN $ 494 $ 514 $ 580 $ 555 $ 539 $ 565 $ 553 Unit Area (SF) 679 679 689 682 700 679 691 Monthly Rent Per Sq. Ft. $ 0.73 $ 0.76 $ 0.84 $ 0.81 $ 0.77 $ 0.83 $ 0.80 Monthly Rent 2A20 - JUNIPER $ 565 $ 614 $ 720 $ 730 Unit Area (SF) 967 967 985 960 Monthly Rent Per Sq. Ft. $ 0.58 $ 0.63 $ 0.73 $ 0.76 Monthly Rent 2B20 - MAGNOLIA $ 598 $ 634 $ 720 $ 720 $ 649 $ 765 Unit Area (SF) 996 996 982 985 1,000 996 Monthly Rent Per Sq. Ft. $ 0.60 $ 0.64 $ 0.73 $ 0.73 $ 0.65 $ 0.77 Monthly Rent 2C20 - CYPRESS $ 708 $ 754 $ 830 $ 880 Unit Area (SF) 1,136 1,136 1,212 1,107 Monthly Rent Per Sq. Ft. $ 0.62 $ 0.66 $ 0.68 $ 0.79 Monthly Rent 3A20 - ELM $ 754 $ 814 $ 749 Unit Area (SF) 1,088 1,088 1,100 Monthly Rent Per Sq. Ft. $ 0.69 $ 0.75 $ 0.68 DESCRIPTION MIN MAX MEDIAN AVERAGE - ----------------------------------------------------------------- Monthly Rent $ 539 $ 580 $ 555 $ 558 Unit Area (SF) 679 700 689 688 Monthly Rent Per Sq. Ft. $ 0.77 $ 0.84 $ 0.81 $ 0.81 Monthly Rent $ 720 $ 730 $ 725 $ 725 Unit Area (SF) 960 985 973 973 Monthly Rent Per Sq. Ft. $ 0.73 $ 0.76 $ 0.75 $ 0.75 Monthly Rent $ 649 $ 765 $ 720 $ 714 Unit Area (SF) 982 1,000 991 991 Monthly Rent Per Sq. Ft. $ 0.65 $ 0.77 $ 0.73 $ 0.72 Monthly Rent $ 830 $ 880 $ 855 $ 855 Unit Area (SF) 1,107 1,212 1,160 1,160 Monthly Rent Per Sq. Ft. $ 0.68 $ 0.79 $ 0.74 $ 0.74 Monthly Rent $ 749 $ 749 $ 749 $ 749 Unit Area (SF) 1,100 1,100 1,100 1,100 Monthly Rent Per Sq. Ft. $ 0.68 $ 0.68 $ 0.68 $ 0.68
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 - --------------- --------------- --------- -------- ------ -------- ---------- 1A10 - Aspen 88 679 $ 500 $ 0.74 $ 44,000 $ 528,000 2A20 - Juniper 96 967 $ 565 $ 0.58 $ 54,240 $ 650,880 2B20 - Magnolia 156 996 $ 600 $ 0.60 $ 93,600 $1,123,200 2C20 - Cypress 86 1,136 $ 710 $ 0.63 $ 61,060 $ 732,720 3A20 - Elm 104 1,088 $ 750 $ 0.69 $ 78,000 $ 936,000 ---------------------- Total $330,900 $3,970,800
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 28 VILLAGE IN THE WOODS, CYPRESS, 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 $3,973,817 $ 7,498 $4,066,196 $ 7,672 $3,979,004 $ 7,508 $3,947,016 $ 7,447 Vacancy $ 414,546 $ 782 $ 298,640 $ 563 $ 388,270 $ 733 $ 315,761 $ 596 Credit Loss/Concessions $ 186,115 $ 351 $ 287,103 $ 542 $ 173,883 $ 328 $ 114,000 $ 215 ----------------------------------------------------------------------------------------------------- Subtotal $ 600,661 $ 1,133 $ 585,743 $ 1,105 $ 562,153 $ 1,061 $ 429,761 $ 811 Laundry Income $ 11,419 $ 22 $ 9,940 $ 19 $ 11,793 $ 22 $ 19,800 $ 37 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 109,394 $ 206 $ 276,647 $ 522 $ 310,824 $ 586 $ 273,660 $ 516 ----------------------------------------------------------------------------------------------------- Subtotal Other Income $ 120,813 $ 228 $ 286,587 $ 541 $ 322,617 $ 609 $ 293,460 $ 554 ----------------------------------------------------------------------------------------------------- Effective Gross Income $3,493,969 $ 6,592 $3,767,040 $ 7,108 $3,739,468 $ 7,056 $3,810,715 $ 7,190 Operating Expenses Taxes $ 438,761 $ 828 $ 412,810 $ 779 $ 425,758 $ 803 $ 432,970 $ 817 Insurance $ 48,452 $ 91 $ 106,564 $ 201 $ 147,751 $ 279 $ 155,988 $ 294 Utilities $ 246,853 $ 466 $ 289,627 $ 546 $ 278,823 $ 526 $ 252,000 $ 475 Repair & Maintenance $ 237,583 $ 448 $ 154,989 $ 292 $ 144,054 $ 272 $ 176,400 $ 333 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 41,336 $ 78 $ 31,479 $ 59 $ 47,928 $ 90 $ 85,200 $ 161 Security $ 8,764 $ 17 $ 13,289 $ 25 $ 8,723 $ 16 $ 0 $ 0 Marketing & Leasing $ 109,877 $ 207 $ 94,452 $ 178 $ 76,580 $ 144 $ 73,200 $ 138 General Administrative $ 417,439 $ 788 $ 441,155 $ 832 $ 374,154 $ 706 $ 376,840 $ 711 Management $ 179,595 $ 339 $ 227,475 $ 429 $ 187,215 $ 353 $ 188,136 $ 355 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ----------------------------------------------------------------------------------------------------- Total Operating Expenses $1,728,660 $ 3,262 $1,771,840 $ 3,343 $1,690,986 $ 3,191 $1,740,734 $ 3,284 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ----------------------------------------------------------------------------------------------------- Net Income $1,765,309 $ 3,331 $1,995,200 $ 3,765 $2,048,482 $ 3,865 $2,069,906 $ 3,906
ANNUALIZED 2003 ----------------------- PROJECTION AAA PROJECTION ----------------------- ----------------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT % - ------------------------------------------------------------------------------------------- Revenues Rental Income $3,921,012 $ 7,398 $3,970,800 $ 7,492 100.0% ------------------------------------------------------------- Vacancy $ 505,656 $ 954 $ 277,956 $ 524 7.0% Credit Loss/Concessions $ 184,500 $ 348 $ 79,416 $ 150 2.0% ------------------------------------------------------------- Subtotal $ 690,156 $ 1,302 $ 357,372 $ 674 9.0% Laundry Income $ 11,536 $ 22 $ 13,250 $ 25 0.3% Garage Revenue $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 217,048 $ 410 $ 272,950 $ 515 6.9% ------------------------------------------------------------- Subtotal Other Income $ 228,584 $ 431 $ 286,200 $ 540 7.2% ------------------------------------------------------------- Effective Gross Income $3,459,440 $ 6,527 $3,899,628 $ 7,358 100.0% Operating Expenses Taxes $ 434,996 $ 821 $ 450,500 $ 850 11.6% Insurance $ 163,764 $ 309 $ 159,000 $ 300 4.1% Utilities $ 305,180 $ 576 $ 280,900 $ 530 7.2% Repair & Maintenance $ 89,608 $ 169 $ 174,900 $ 330 4.5% Cleaning $ 0 $ 0 $ 0 $ 0 0.0% Landscaping $ 0 $ 0 $ 84,800 $ 160 2.2% Security $ 8,988 $ 17 $ 10,600 $ 20 0.3% Marketing & Leasing $ 19,968 $ 38 $ 74,200 $ 140 1.9% General Administrative $ 437,032 $ 825 $ 376,300 $ 710 9.6% Management $ 176,720 $ 333 $ 155,985 $ 294 4.0% Miscellaneous $ 0 $ 0 $ 0 $ 0 0.0% ------------------------------------------------------------- Total Operating Expenses $1,636,256 $ 3,087 $1,767,185 $ 3,334 45.3% Reserves $ 0 $ 0 $ 185,500 $ 350 10.5% ------------------------------------------------------------- Net Income $1,823,184 $ 3,440 $1,946,943 $ 3,673 49.9%
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 9% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 29 VILLAGE IN THE WOODS, CYPRESS, 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 $350 per unit for reserves for replacement. CAPITAL EXPENDITURES Capital expenditures represent expenses for immediate repair or replacement of items that have average to long lives. Based on our inspection of the property as well as discussions with property management personnel, there are some major items remaining in need of repair or replacement that would require an expense beyond our reserves for replacement. Therefore an additional $115,000 has been deducted. DISCOUNTED CASH FLOW ANALYSIS As the subject is a multi-tenant income property, the Discounted Cash Flow Method is considered appropriate. This method is especially meaningful in that it isolates the timing of the annual cash flows and discounts them, along with the expected equity reversion, to a present value. The present value of the cash flow is added to the present value of the reversion, resulting in a total property value. INVESTMENT CRITERIA Appropriate investment criteria will be derived for the subject based upon analysis of comparable sales and a survey of real estate investors. The following table summarizes the findings of Korpacz National Investor Survey for the most recent period. KORPACZ NATIONAL INVESTOR SURVEY 1ST QUARTER 2003 NATIONAL APARTMENT MARKET
CAPITALIZATION RATES ---------------------------------- GOING-IN TERMINAL --------------- --------------- LOW HIGH LOW HIGH ---------------------------------- RANGE 6.00% 10.00% 7.00% 10.00% AVERAGE 8.14% 8.47%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30 VILLAGE IN THE WOODS, CYPRESS, TEXAS SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR - ----------------------------------------------------- I-1 Aug-00 N/A $ 23,512 11.00% I-2 Jan-01 N/A $ 32,452 9.20% I-3 May-00 N/A $ 33,723 9.60% I-4 Jun-02 N/A $ 36,500 9.00% I-5 Jan-01 N/A $ 34,000 9.20% -------------------- High 11.00% -------------------- Low 9.00% -------------------- Average 9.60%
Based on this information, we have concluded the subject's overall capitalization rate should be 10.00%. 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 10.50%. 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 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 3.00% of the sale amount is applied. DISCOUNTED CASH FLOW CONCLUSION Discounting the annual cash flows and the equity reversion at the selected rate of 11.50% indicates a value of $18,800,000. In this instance, the reversion figure contributes approximately 38% of the total value. Investors surveyed for this assignment indicated they AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 31 VILLAGE IN THE WOODS, CYPRESS, TEXAS 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 32 VILLAGE IN THE WOODS, CYPRESS, TEXAS DISCOUNTED CASH FLOW ANALYSIS VILLAGE IN THE WOODS
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 FISCAL YEAR 1 2 3 4 5 6 - ----------------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $3,970,800 $3,970,800 $4,050,216 $4,131,220 $4,213,845 $4,298,122 Vacancy $ 277,956 $ 277,956 $ 283,515 $ 289,185 $ 294,969 $ 300,869 Credit Loss $ 79,416 $ 79,416 $ 81,004 $ 82,624 $ 84,277 $ 85,962 Concessions $ 215,085 $ 79,416 $ 81,004 $ 41,312 $ 42,138 $ 0 -------------------------------------------------------------------------------- Subtotal $ 572,457 $ 436,788 $ 445,524 $ 413,122 $ 421,384 $ 386,831 Laundry Income $ 13,250 $ 13,250 $ 13,515 $ 13,785 $ 14,061 $ 14,342 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 272,950 $ 272,950 $ 278,409 $ 283,977 $ 289,657 $ 295,450 -------------------------------------------------------------------------------- Subtotal Other Income $ 286,200 $ 286,200 $ 291,924 $ 297,762 $ 303,718 $ 309,792 -------------------------------------------------------------------------------- EFFECTIVE GROSS INCOME $3,684,543 $3,820,212 $3,896,616 $4,015,861 $4,096,178 $4,221,083 OPERATING EXPENSES: Taxes $ 450,500 $ 464,015 $ 477,935 $ 492,274 $ 507,042 $ 522,253 Insurance $ 159,000 $ 163,770 $ 168,683 $ 173,744 $ 178,956 $ 184,325 Utilities $ 280,900 $ 289,327 $ 298,007 $ 306,947 $ 316,155 $ 325,640 Repair & Maintenance $ 174,900 $ 180,147 $ 185,551 $ 191,118 $ 196,851 $ 202,757 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 84,800 $ 87,344 $ 89,964 $ 92,663 $ 95,443 $ 98,306 Security $ 10,600 $ 10,918 $ 11,246 $ 11,583 $ 11,930 $ 12,288 Marketing & Leasing $ 74,200 $ 76,426 $ 78,719 $ 81,080 $ 83,513 $ 86,018 General Administrative $ 376,300 $ 387,589 $ 399,217 $ 411,193 $ 423,529 $ 436,235 Management $ 147,382 $ 152,808 $ 155,865 $ 160,634 $ 163,847 $ 168,843 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $1,758,582 $1,812,344 $1,865,187 $1,921,236 $1,977,267 $2,036,666 Reserves $ 185,500 $ 191,065 $ 196,797 $ 202,701 $ 208,782 $ 215,045 -------------------------------------------------------------------------------- NET OPERATING INCOME $1,740,461 $1,816,803 $1,834,633 $1,891,924 $1,910,129 $1,969,372 Operating Expense Ratio (% of EGI) 47.7% 47.4% 47.9% 47.8% 48.3% 48.2% Operating Expense Per Unit $ 3,318 $ 3,420 $ 3,519 $ 3,625 $ 3,731 $ 3,843 YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 7 8 9 10 11 - ------------------------------------------------------------------------------------------------------- REVENUE Base Rent $4,427,065 $4,559,877 $4,696,674 $4,837,574 $4,982,701 Vacancy $ 309,895 $ 319,191 $ 328,767 $ 338,630 $ 348,789 Credit Loss $ 88,541 $ 91,198 $ 93,933 $ 96,751 $ 99,654 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 ---------------------------------------------------------------- Subtotal $ 398,436 $ 410,389 $ 422,701 $ 435,382 $ 448,443 Laundry Income $ 14,772 $ 15,216 $ 15,672 $ 16,142 $ 16,627 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 304,313 $313,443 $ 322,846 $ 332,531 $ 342,507 ---------------------------------------------------------------- Subtotal Other Income $ 319,086 $328,658 $ 338,518 $ 348,674 $ 359,134 ---------------------------------------------------------------- EFFECTIVE GROSS INCOME $4,347,715 $4,478,147 $4,612,491 $4,750,866 $4,893,392 OPERATING EXPENSES: Taxes $ 537,921 $ 554,058 $ 570,680 $ 587,800 $ 605,434 Insurance $ 189,854 $ 195,550 $ 201,416 $ 207,459 $ 213,683 Utilities $ 335,409 $ 345,472 $ 355,836 $ 366,511 $ 377,506 Repair & Maintenance $ 208,840 $ 215,105 $ 221,558 $ 228,205 $ 235,051 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 101,256 $ 104,293 $ 107,422 $ 110,645 $ 113,964 Security $ 12,657 $ 13,037 $ 13,428 $ 13,831 $ 14,246 Marketing & Leasing $ 88,599 $ 91,257 $ 93,994 $ 96,814 $ 99,719 General Administrative $ 449,322 $ 462,802 $ 476,686 $ 490,986 $ 505,716 Management $ 173,909 $ 179,126 $ 184,500 $ 190,035 $ 195,736 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 ---------------------------------------------------------------- TOTAL OPERATING EXPENSES $2,097,766 $2,160,699 $2,225,520 $2,292,285 $2,361,054 Reserves $ 221,497 $ 228,142 $ 234,986 $ 242,035 $ 249,296 ---------------------------------------------------------------- NET OPERATING INCOME $2,028,453 $2,089,306 $2,151,986 $2,216,545 $2,283,042 Operating Expense Ratio (% of EGI) 48.2% 48.2% 48.2% 48.2% 48.2% Operating Expense Per Unit $ 3,958 $ 4,077 $ 4,199 $ 4,325 $ 4,455
Estimated Stabilized NOI $1,946,943 Sales Expense Rate 3.00% Months to Stabilized 1 Discount Rate 11.50% Stabilized Occupancy 93.0% Terminal Cap Rate 10.50%
Gross Residual Sale Price $21,743,253 Deferred Maintenance -$ 115,000 Less: Sales Expense $ 652,298 Add: Excess Land $ 0 ----------- Other Adjustments $ 0 Net Residual Sale Price $21,090,956 ----------- PV of Reversion $ 7,101,459 Value Indicated By "DCF" $18,754,631 Add: NPV of NOI $11,768,172 Rounded $18,800,000 ----------- PV Total $18,869,631
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE ------------------------------------------------------------------- TOTAL VALUE 11.00% 11.25% 11.50% 11.75% 12.00% - ------------------------------------------------------------------------------------------- 10.00% $19,845,950 $19,531,948 $19,224,704 $18,924,048 $18,629,818 TERMINAL 10.25% $19,655,723 $19,345,953 $19,042,837 $18,746,209 $18,455,909 CAP RATE 10.50% $19,474,555 $19,168,815 $18,869,631 $18,576,839 $18,290,282 10.75% $19,301,813 $18,999,915 $18,704,480 $18,415,347 $18,132,358 11.00% $19,136,923 $18,838,693 $18,546,837 $18,261,195 $17,981,612
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 33 VILLAGE IN THE WOODS, CYPRESS, 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 $366,000 (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 10.00% percent is applicable to the subject. The results of our direct capitalization analysis are as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 34 VILLAGE IN THE WOODS, CYPRESS, TEXAS VILLAGE IN THE WOODS
TOTAL PER Sq. Ft. PER UNIT %OF EGI - ---------------------------------------------------------------- -------------- ------------ ------- REVENUE Base Rent $ 3,970,800 $ 7.65 $ 7,492 Less: Vacancy & Collection Loss 9.00% $ 357,372 $ 0.69 $ 674 Plus: Other Income Laundry Income $ 13,250 $ 0.03 $ 25 0.34% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 272,950 $ 0.53 $ 515 7.00% ----------------------------------------------------------- Subtotal Other Income $ 286,200 $ 0.55 $ 540 7.34% EFFECTIVE GROSS INCOME $ 3,899,628 $ 7.52 $ 7,358 OPERATING EXPENSES: Taxes $ 450,500 $ 0.87 $ 850 11.55% Insurance $ 159,000 $ 0.31 $ 300 4.08% Utilities $ 280,900 $ 0.54 $ 530 7.20% Repair & Maintenance $ 174,900 $ 0.34 $ 330 4.49% Cleaning $ 0 $ 0.00 $ 0 0.00% Landscaping $ 84,800 $ 0.16 $ 160 2.17% Security $ 10,600 $ 0.02 $ 20 0.27% Marketing & Leasing $ 74,200 $ 0.14 $ 140 1.90% General Administrative $ 376,300 $ 0.73 $ 710 9.65% Management 4.00% $ 155,985 $ 0.30 $ 294 4.00% Miscellaneous $ 0 $ 0.00 $ 0 0.00% TOTAL OPERATING EXPENSES $ 1,767,185 $ 3.41 $ 3,334 45.32% Reserves $ 185,500 $ 0.36 $ 350 4.76% ----------------------------------------------------------- NET OPERATING INCOME $ 1,946,943 $ 3.75 $ 3,673 49.93% "GOING IN" CAPITALIZATION RATE 10.00% VALUE INDICATION $ 19,469,429 $ 37.53 $ 36,735 DEFERRED MAINTENANCE ($ 115,000) PV OF CONCESSIONS ($ 366,000) "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $ 18,988,429 ROUNDED $ 19,000,000 $ 36.62 $ 35,849
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 35 VILLAGE IN THE WOODS, CYPRESS, TEXAS DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF - -------------------------------------------------------------------------- 9.25% $20,567,031 $20,600,000 $38,868 $39.71 9.50% $20,013,136 $20,000,000 $37,736 $38.55 9.75% $19,487,645 $19,500,000 $36,792 $37.59 10.00% $18,988,429 $19,000,000 $35,849 $36.62 10.25% $18,513,565 $18,500,000 $34,906 $35.66 10.50% $18,061,313 $18,100,000 $34,151 $34.89 10.75% $17,630,097 $17,600,000 $33,208 $33.92
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $19,000,000. 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 $18,800,000 Direct Capitalization Method $19,000,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $18,800,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 36 VILLAGE IN THE WOODS, CYPRESS, 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 $ 19,000,000 Income Approach $ 18,800,000 Reconciled Value $ 18,800,000
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 12, 2003 the market value of the fee simple estate in the property is: $18,800,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA VILLAGE IN THE WOODS, CYPRESS, TEXAS ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A VILLAGE IN THE WOODS, CYPRESS, TEXAS EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A VILLAGE IN THE WOODS, CYPRESS, TEXAS SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - OFFICE TYPICAL BUILDING EXTERIOR [PICTURE] [PICTURE] TYPICAL BUILDING EXTERIOR TYPICAL BUILDING EXTERIOR [PICTURE] [PICTURE] SUBJECT POOL TYPICAL BUILDING EXTERIOR AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A VILLAGE IN THE WOODS, CYPRESS, TEXAS SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] TYPICAL UNIT KITCHEN TYPICAL UNIT BEDROOM [PICTURE] [PICTURE] TYPICAL UNIT REST ROOM TYPICAL UNIT KITCHEN [PICTURE] BUSINESS OFFICE AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B VILLAGE IN THE WOODS, CYPRESS, TEXAS EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B VILLAGE IN THE WOODS, CYPRESS, TEXAS PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 ASHLEY CREST WILLOW BROOK CROSSING COPPER MILL APARTMENTS 11900 Barwood Bend Drive 7150 Smiling Wood Lane 15910 FM 529 Road Houston, Texas Houston, Texas Houston, Texas [PICTURE] [PICTURE] [PICTURE] COMPARABLE I-4 COMPARABLE I-5 WINDFERN MEADOWS APARTMENTS BEAR CREEK CROSSING APARTMENTS 12919 Windfern Road 5535 Timber Creek Place Drive Houston, Texas Houston, Texas [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B VILLAGE IN THE WOODS, CYPRESS, TEXAS SUMMARY OF COMPARABLE RENTAL PROPERTIES
DESCRIPTION SUBJECT - ---------------------------------------------------------------------------------------- Property Name Village in the Woods Management Company AIMCO LOCATION: Address 11800 Grant Road City, State Cypress, Texas County Harris Proximity to Subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 518,808 Year Built 1983 Effective Age 20 Building Structure Type Parking Type (Gr., Cov., etc.) Number of Units 530 Unit Mix: Type Unit Qty. Mo. Rent 1 1A10 - Aspen 679 88 $ 494 2 2A20 - Juniper 967 96 $ 565 3 2B20 - Magnolia 996 156 $ 598 4 2C20 - Cypress 1,136 86 $ 708 5 3A20 - Elm 1,088 104 $ 754 Average Unit Size (SF) 979 Unit Breakdown: Efficiency 0% 2-Bedroom 64% 1-Bedroom 16% 3-Bedroom 20% CONDITION: Fair APPEAL: Average AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling X Balcony X W/D Connect. Fireplace X Cable TV Ready Project Amenities X Swimming Pool X Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Volleyball Court Theater Room Sand Volley Ball Meeting Hall Tennis Court Secured Parking Racquet Ball X Laundry Room Jogging Track X Business Office Gym Room X Playground X Sports Court OCCUPANCY: 90% LEASING DATA: Available Leasing Terms 6 through 12 months Concessions $99 deposit, $25 application fee, and 1 month free on Pet Deposit $200 with $200 non-refundable Utilities Paid by Tenant: X Electric Natural Gas X Water X Trash Confirmation Diane Hudson Telephone Number 281.370.9000 NOTES: COMPARISON TO SUBJECT: COMPARABLE COMPARABLE DESCRIPTION R - 1 R - 2 - -------------------------------- -------------------------------------------- -------------------------------------------- Property Name Brandon Oaks Woodedge Apartments Management Company Walden Walden LOCATION: Address 11111 Saathoff Drive 10802 Greencreek Drive City, State Cypress, Texas Houston, Texas County Harris Harris Proximity to Subject 1 mile south 1 mile south PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 161,908 112,620 Year Built Unknown 1981 Effective Age 20 22 Building Structure Type Brick, siding Brick Parking Type (Gr., Cov., etc.) Open, Covered Open Number of Units 190 126 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 A 607 24 $565 1 A 682 8 $555 1 B 718 68 $585 B 776 6 $597 C 876 20 $695 C 785 8 $599 3 D 982 38 $720 D 893 4 $660 E 1,092 40 $785 E 903 24 $675 F 908 20 $680 G 920 24 $695 2 H 985 32 $720 3 H 985 32 $720 Average Unit Size (SF) 852 917 Unit Breakdown: Efficiency 0% 2-Bedroom 52% Efficiency 0% 2-Bedroom 83% 1-Bedroom 48% 3-Bedroom 0% 1-Bedroom 17% 3-Bedroom 0% CONDITION: Slightly Superior Slightly Superior APPEAL: Slightly Superior Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage X Vaulted Ceiling X Balcony X W/D Connect. Balcony W/D Connect. X Fireplace X Fireplace X Cable TV Ready Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court X BBQ Equipment Basketball Court X 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 Laundry Room Jogging Track Business Office Jogging Track Business Office Gym Room Gym Room Playground Playground Sports Court Sports Court OCCUPANCY: 95% 80% LEASING DATA: Available Leasing Terms 6 through 12 months 6 through 12 months Concessions $99 move in which includes first month rent, $99 move in which includes first month rent, Pet Deposit $300 with $150 non-refundable $300 with $150 non-refundable Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas X Water Trash X Water Trash Confirmation On site property On site property Telephone Number 281.955.1288 281.894.7612 NOTES: COMPARISON TO SUBJECT: Slightly Superior Superior COMPARABLE COMPARABLE DESCRIPTION R - 3 R - 4 - ------------------------------------------------------------------------------------------------------------------------------- Property Name Willow Green Central Park Regency Management Company Concord Management, Ltd. Walden LOCATION: Address 8301 Willow Park North 11300 Regency Green Drive City, State Houston, Texas Cypress, Texas County Harris Harris Proximity to Subject 3 miles south 1 mile south PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 383,600 318,968 Year Built 1995 1983 Effective Age 8 20 Building Structure Type Wood siding Brick, siding Parking Type (Gr., Cov., etc.) Surface Surface, Covered Number of Units 332 348 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 A 700 188 $539 1 A 679 48 $565 3 B 1,000 64 $649 B 738 68 $625 5 C 1,100 80 $749 4 TH 1,200 16 $710 C 932 136 $710 3 D 996 32 $765 4 E 1,216 48 $870 Average Unit Size (SF) 854 917 Unit Breakdown: Efficiency 0% 2-Bedroom 38% Efficiency 0% 2-Bedroom 62% 1-Bedroom 43% 3-Bedroom 19% 1-Bedroom 38% 3-Bedroom 0% CONDITION: Good Slightly Superior APPEAL: Good Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage X Vaulted Ceiling X Balcony X W/D Connect. Balcony X W/D Connect. Fireplace X Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash X Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Basketball Court X BBQ Equipment X Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall Tennis Court Secured Parking Tennis Court X Secured Parking Racquet Ball Laundry Room Racquet Ball Laundry Room Jogging Track Business Office Jogging Track X Business Office X Gym Room X Gym Room Playground Playground Sports Court Sports Court OCCUPANCY: 98% 93% LEASING DATA: Available Leasing Terms 6 through 12 months 6 through 12 months Concessions $200 off first month for 1 and 2 bedroom 1 month free on 2 bedrooms, $399 total move in on Pet Deposit No pets allowed $300 with $150 non-refundable Utilities Paid by Tenant: X Electric X Natural Gas X Electric Natural Gas X Water X Trash X Water Trash Confirmation Property leasing agent Sue Uthe Telephone Number 281.890.5600 281.469.7339 NOTES: This property has been better maintained than the subject property. It has superior appeal. COMPARISON TO SUBJECT: Superior Superior
COMPARABLE DESCRIPTION R - 5 - -------------------------------------------------------------------------------------- Property Name Copper Creek Management Company LOCATION: Address 14222 Wunderlich City, State Houston, Texas 77069 County Harris Proximity to Subject 5 miles east PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 242,448 Year Built 1982 Effective Age 21 Building Structure Type Brick, siding Parking Type (Gr., Cov., etc.) Open, garages Number of Units 300 Unit Mix: Type Unit Qty. Mo. A 534 N/A $495 1 B 681 N/A $535 1 C 700 N/A $570 D 860 N/A $655 2 E 960 N/A $730 F 818 N/A $640 4 G 1,107 N/A $880 Average Unit Size (SF) Unit Breakdown: Efficiency 2-Bedroom 1-Bedroom 3-Bedroom CONDITION: Slightly Superior APPEAL: Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Balcony X W/D Connect. X Fireplace Cable TV Ready Project Amenities X Swimming Pool X Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Volleyball Court Theater Room Sand Volley Ball Meeting Hall Tennis Court X Secured Parking Racquet Ball X Laundry Room Jogging Track Business Office Gym Room X Playground Sports Court OCCUPANCY: N/A LEASING DATA: Available Leasing Terms N/A Concessions Various, from Breakfast at Denny's to 1 month free, Pet Deposit $400 with $200 non-refundable Utilities Paid by Tenant: X Electric Natural Gas Water Trash Confirmation On site manager Telephone Number 281.583.1137 NOTES: COMPARISON TO SUBJECT: Superior
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B VILLAGE IN THE WOODS, CYPRESS, TEXAS PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 BRANDON OAKS WOODEDGE APARTMENTS WILLOW GREEN 11111 Saathoff Drive 10802 Greencreek Drive 8301 Willow Park North Cypress, Texas Houston, Texas Houston, Texas [PICTURE] [PICTURE] [PICTURE] COMPARABLE R-4 COMPARABLE R-5 CENTRAL PARK REGENCY COPPER CREEK 11300 Regency Green Drive 14222 Wunderlich Cypress, Texas Houston, Texas 77069 [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C VILLAGE IN THE WOODS, CYPRESS, TEXAS EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C VILLAGE IN THE WOODS, CYPRESS, 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 VILLAGE IN THE WOODS, CYPRESS, 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 VILLAGE IN THE WOODS, CYPRESS, 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 VILLAGE IN THE WOODS, CYPRESS, 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. Tiffany B. Roberts 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 #1323954-G AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E VILLAGE IN THE WOODS, CYPRESS, TEXAS EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E VILLAGE IN THE WOODS, CYPRESS, 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 VILLAGE IN THE WOODS, CYPRESS, TEXAS PROFESSIONAL Appraisal Institute, MAI Designated Member AFFILIATIONS Candidate Member of the CCIM Institute pursuing Certified Commercial Investment Member (CCIM) designation PUBLICATIONS "An Analysis of the Determinants of Industrial Property -authored with Dr. Ronald C. Rutherford and Dr. Mark Eakin, The Journal of Real Estate Research, Vol. 8, No. 3, Summer 1993, p. 365. AMERICAN APPRAISAL ASSOCIATES, INC. VILLAGE IN THE WOODS, CYPRESS, TEXAS GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. VILLAGE IN THE WOODS, CYPRESS, 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. -----END PRIVACY-ENHANCED MESSAGE-----