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.