-----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, P6t8QTCXNRS37YV/FAEPDHdLn8hHDGC6ZCC4wi16RqVXDXQGoJjaKv9TgxI3f86z n227xXc4iAegGkN3L0XFgw== 0000950134-03-016384.txt : 20031209 0000950134-03-016384.hdr.sgml : 20031209 20031209060830 ACCESSION NUMBER: 0000950134-03-016384 CONFORMED SUBMISSION TYPE: SC TO-T/A PUBLIC DOCUMENT COUNT: 15 FILED AS OF DATE: 20031209 GROUP MEMBERS: AIMCO-GP INC GROUP MEMBERS: APARTMENT INVESTMENT AND MANAGEMENT CO GROUP MEMBERS: CONCAP EQUITIES INC SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: CONSOLIDATED CAPITAL PROPERTIES IV CENTRAL INDEX KEY: 0000355804 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 942768742 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13E3/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-46720 FILM NUMBER: 031043538 BUSINESS ADDRESS: STREET 1: 1873 SOUTH BELLAIRE STREET STREET 2: 17TH FL CITY: DENVER STATE: CO ZIP: 80222 BUSINESS PHONE: 3037578101 MAIL ADDRESS: STREET 1: 1873 SOUTH BELLAIRE STREET STREET 2: 17TH FL CITY: DENVER STATE: CO ZIP: 80222 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: CONSOLIDATED CAPITAL PROPERTIES IV CENTRAL INDEX KEY: 0000355804 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 942768742 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC TO-T/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-46720 FILM NUMBER: 031043539 BUSINESS ADDRESS: STREET 1: 1873 SOUTH BELLAIRE STREET STREET 2: 17TH FL CITY: DENVER STATE: CO ZIP: 80222 BUSINESS PHONE: 3037578101 MAIL ADDRESS: STREET 1: 1873 SOUTH BELLAIRE STREET STREET 2: 17TH FL CITY: DENVER STATE: CO ZIP: 80222 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 d07256a1sctovtza.txt AMENDMENT NO. 1 TO SC TO SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 SCHEDULE TO/A (AMENDMENT NO. 1) TENDER OFFER STATEMENT UNDER SECTION 14(D)(1) OR 13(E)(1) OF THE SECURITIES EXCHANGE ACT OF 1934 Consolidated Capital Properties IV - -------------------------------------------------------------------------------- (Name of Subject Company (Issuer)) Apartment Investment and Management Company AIMCO-GP, Inc. ConCap Equities, Inc. 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 - ---------------------- -------------------- $15,228,895.04 $ 1,232.02
* For purposes of calculating the fee only. This amount assumes the purchase of 149,200.50 units of limited partnership interest of the subject partnership for $102.07 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: $1,232.02 Filing Party: AIMCO Properties, L.P. Form or Registration No.: Schedule TO Date Filed: November 24, 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. 1 TO SCHEDULE TO This Amendment No. 1 amends and supplements the Tender Offer Statement and Rule 13e-3 Transaction Statement on Schedule TO, (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 Consolidated Capital Properties IV, a California limited partnership (the "Partnership"), at a price of $102.07 per unit in cash, subject to the conditions set forth in the Offer to Purchase dated November 24, 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 193,572.50 units, or 56.47%, 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 $ 21.21 $ 8.52 $ 11.94 $ 11.65 $ 23.73 Ratio of earnings to fixed charges (deficit)....... 307.7% 176.3% 177.4% 171.7% 250.9% Book value per limited partnership unit............ (102.09) 113.21 (107.68) (103.96) (90.02)
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 ConCap Equities, Inc. ("ConCap Equities"). AIMCO-GP is the general partner of AIMCO OP and a wholly owned subsidiary of AIMCO. ConCap Equities 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 ConCap Equities 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 ConCap Equities 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 24, 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 24, 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 23, 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 $174.05 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, 2011, 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 $55,000 and $1,208,000 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: "In addition to reimbursement for services of affiliates, the partnership paid us approximately $110,000 and $180,000 in 2001 and 2000, respectively, for loan costs which are capitalized and included with other assets on the consolidated balance sheets. These loan costs were associated with the refinancing of two of the partnership's properties in 2001 and four of the partnership's properties in 2000." 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 193,572.50, or 56.47%, 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 ($7,271,000 for the nine months ended September 30, 2003) and net book value ($(34,992,000) 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 7,510 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 $174.05 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, 2011, 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........................ 5,250 Tax and Accounting Fees.............. 1,500 Postage.............................. 500 Appraiser............................ 31,150 Depositary........................... 500 ------------ Total.............................. $ 57,400" =============
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 193,572.50 units, or 56.47%, 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 193,572.50 units, or 56.47%, 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 the Apartment (c)(2) Appraisal of Arbours of Hermitage (c)(3) Appraisal of Briar Bay Racquet Club (c)(4) Appraisal of Chimney Hills (c)(5) Appraisal of Citadel (c)(6) Appraisal of Citadel Village (c)(7) Appraisal of Foothill Place (c)(8) Appraisal of Knollwood (c)(9) Appraisal of Lake Forest Apartments (c)(10) Appraisal of Nob Hill Villa (c)(11) Appraisal of Point West (c)(12) Appraisal of Post Ridge Apartments (c)(13) Appraisal of Rivers Edge (c)(14) Appraisal of Village East 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 193,572.50, or 56.47%, 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 ($7,271,000 for the nine months ended September 30, 2003) and net book value ($(34,992,000) 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 7,510 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:
THE APARTMENT ARBOURS OF HERMITAGE BRIAR BAY RACQUET CLUB FISCAL YEAR 2003 FISCAL YEAR 2003 FISCAL YEAR 2003 MANAGEMENT BUDGET MANAGEMENT BUDGET MANAGEMENT BUDGET PER PER PER DESCRIPTION TOTAL UNIT TOTAL UNIT TOTAL UNIT ---------- ---------- ---------- ---------- ---------- ---------- Revenues Rental Income $1,534,041 $ 7,520 $2,553,258 $ 7,295 $1,947,000 $ 10,036 Vacancy 137,005 672 116,940 334 81,000 418 Credit Loss/Concessions 67,400 330 7,400 21 63,192 326 Subtotal $ 204,405 $ 1,002 $ 124,340 $ 355 $ 144,192 $ 743 Laundry Income $ 22,800 $ 112 $ 9,500 $ 27 $ 0 $ 0 Garage Revenue 20,000 98 0 0 0 0 Other Misc. Revenue 72,265 354 243,292 695 135,000 696 Subtotal Other Income $ 115,065 $ 564 $ 252,792 $ 722 $ 135,000 $ 696 Effective Gross Income $1,444,701 $ 7,082 $2,681,710 $ 7,662 $1,937,808 $ 9,989 Operating Expenses Taxes $ 133,327 $ 654 $ 198,034 $ 566 $ 184,825 $ 953 Insurance 36,434 179 69,513 199 55,498 286 Utilities 116,300 570 279,255 798 117,180 604 Repair & Maintenance 70,187 344 119,362 341 130,800 674 Cleaning 22,165 109 0 0 0 0 Landscaping 12,998 64 67,442 193 0 0 Security 6,894 34 0 0 0 0 Marketing & Leasing 27,018 132 26,204 75 21,000 108 General Administrative 173,829 852 290,832 831 172,296 888 Management 76,900 377 132,341 378 114,822 592 Miscellaneous 0 0 0 0 0 0 Total Operating Expenses $ 676,052 $ 3,314 $1,182,983 $ 3,380 $ 796,421 $ 4,105 Reserves 0 0 0 0 0 0 Net Income $ 768,649 $ 3,768 $1,498,727 $ 4,282 $1,141,387 $ 5,883
23
CITADEL CITADEL VILLAGE FOOTHILL PLACE KNOLLWOOD FISCAL YEAR 2003 FISCAL YEAR 2003 FISCAL YEAR 2003 FISCAL YEAR 2003 MANAGEMENT BUDGET MANAGEMENT BUDGET MANAGEMENT BUDGET MANAGEMENT BUDGET PER PER PER PER DESCRIPTION TOTAL UNIT TOTAL UNIT TOTAL UNIT TOTAL UNIT ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Revenues Rental Income $1,760,000 $ 6,743 $1,107,000 $ 9,074 $3,723,330 $ 8,274 $2,603,121 $ 7,985 Vacancy 96,000 368 185,550 1,521 440,780 980 98,465 302 Credit Loss/Concessions 21,600 83 0 0 172,344 383 14,025 43 Subtotal $ 117,600 $ 451 $ 185,550 $ 1,521 $ 613,124 $ 1,362 $ 112,490 $ 345 Laundry Income $ 16,272 $ 62 $ 12,974 $ 106 $ 68,548 $ 152 $ 12,984 $ 40 Garage Revenue 0 0 0 0 0 0 0 0 Other Misc. Revenue 71,520 274 52,496 430 257,764 573 167,507 514 Subtotal Other Income $ 87,792 $ 336 $ 65,470 $ 537 $ 326,312 $ 725 $ 180,491 $ 554 Effective Gross Income $1,730,192 $ 6,629 $ 986,920 $ 8,090 $3,436,518 $ 7,637 $2,671,122 $ 8,194 Operating Expenses Taxes $ 185,609 $ 711 $ 23,525 $ 193 $ 261,529 $ 581 $ 205,908 $ 632 Insurance 68,118 261 18,698 153 69,947 155 56,823 174 Utilities 152,300 584 81,332 667 244,800 544 187,306 575 Repair & Maintenance 104,316 400 38,706 317 122,850 273 110,725 340 Cleaning 0 0 0 0 85,600 190 0 0 Landscaping 65,316 250 27,170 223 0 0 72,024 221 Security 0 0 0 0 0 0 0 0 Marketing & Leasing 24,444 94 29,440 241 51,900 115 25,505 78 General Administrative 197,409 756 119,941 983 373,731 831 333,576 1,023 Management 85,523 328 56,476 463 188,106 418 131,000 402 Miscellaneous 0 0 0 0 0 0 0 0 Total Operating Expenses $ 883,035 $ 3,383 $ 395,288 $ 3,240 $1,398,463 $ 3,108 $1,122,867 $ 3,444 Reserves 0 0 0 0 0 0 0 0 Net Income $ 847,157 $ 3,246 $ 591,632 $ 4,849 $2,038,055 $ 4,529 $1,548,255 $ 4,749
LAKE FOREST APTS NOB HILL VILLA POINT WEST POST RIDGE APTS FISCAL YEAR 2003 FISCAL YEAR 2003 FISCAL YEAR 2003 FISCAL YEAR 2003 MANAGEMENT BUDGET MANAGEMENT BUDGET MANAGEMENT BUDGET MANAGEMENT BUDGET PER PER PER PER DESCRIPTION TOTAL UNIT TOTAL UNIT TOTAL UNIT TOTAL UNIT ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Revenues Rental Income $2,373,354 $ 7,607 $2,709,206 $ 5,740 $ 831,900 $ 6,933 $1,378,000 $ 9,187 Vacancy 129,800 416 151,068 320 57,000 475 53,740 358 Credit Loss/Concessions 52,400 168 12,100 26 25,800 215 6,400 43 Subtotal $ 182,200 $ 584 $ 163,168 $ 346 $ 82,800 $ 690 $ 60,140 $ 401 Laundry Income $ 39,931 $ 128 $ 56,384 $ 119 $ 14,400 $ 120 $ 2,148 $ 14 Garage Revenue 0 0 0 0 0 0 0 0 Other Misc. Revenue 223,274 716 303,200 642 72,000 600 105,765 705 Subtotal Other Income $ 263,205 $ 844 $ 359,584 $ 762 $ 86,400 $ 720 $ 107,913 $ 719 Effective Gross Income $2,454,359 $ 7,867 $2,905,622 $ 6,156 $ 835,500 $ 6,963 $1,425,773 $ 9,505 Operating Expenses Taxes $ 176,389 $ 565 $ 224,696 $ 476 $ 74,399 $ 620 $ 104,448 $ 696 Insurance 47,032 151 92,592 196 25,090 209 33,662 224 Utilities 151,832 487 345,880 733 78,000 650 92,475 617 Repair & Maintenance 149,355 479 154,460 327 71,600 597 62,440 416 Cleaning 0 0 0 0 0 0 0 0 Landscaping 79,040 253 98,364 208 0 0 37,930 253 Security 0 0 0 0 0 0 0 0 Marketing & Leasing 41,960 134 28,622 61 13,500 113 23,648 158 General Administrative 318,387 1,020 326,394 692 99,050 825 194,478 1,297 Management 120,707 387 136,921 290 41,760 348 70,918 473 Miscellaneous 0 0 0 0 0 0 0 0 Total Operating Expenses $1,084,702 $ 3,477 $1,407,929 $ 2,983 $ 403,399 $ 3,362 $ 619,999 $ 4,133 Reserves 0 0 0 0 0 0 0 0 Net Income $1,369,657 $ 4,390 $1,497,693 $ 3,173 $ 432,101 $ 3,601 $ 805,774 $ 5,372
24
RIVERS EDGE VILLAGE EAST FISCAL YEAR 2003 FISCAL YEAR 2003 MANAGEMENT BUDGET MANAGEMENT BUDGET PER PER DESCRIPTION TOTAL UNIT TOTAL UNIT ---------- ---------- ---------- ---------- Revenues Rental Income $1,014,000 $ 8,450 $1,044,000 $ 7,620 Vacancy 63,500 529 234,000 1,708 Credit Loss/Concessions 6,750 56 57,300 418 Subtotal $ 70,250 $ 585 $ 291,300 $ 2,126 Laundry Income $ 7,212 $ 60 $ 3,288 $ 24 Garage Revenue 0 0 0 0 Other Misc. Revenue 55,080 459 68,210 498 Subtotal Other Income $ 62,292 $ 519 $ 71,498 $ 522 Effective Gross Income $1,006,042 $ 8,384 $ 824,198 $ 6,016 Operating Expenses Taxes $ 51,849 $ 432 $ 26,149 $ 191 Insurance 18,701 156 18,793 137 Utilities 44,400 370 104,340 762 Repair & Maintenance 9,300 78 36,720 268 Cleaning 11,800 98 0 0 Landscaping 37,800 315 21,965 160 Security 0 0 0 0 Marketing & Leasing 21,600 180 45,040 329 General Administrative 117,367 978 116,480 850 Management 50,304 419 42,944 313 Miscellaneous 0 0 0 0 Total Operating Expenses $ 363,121 $ 3,026 $ 412,431 $ 3,010 Reserves 0 0 0 0 Net Income $ 642,921 $ 5,358 $ 411,767 $ 3,006
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. 25 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. 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 values of the fee simple estate of your partnership's property is $136,200,000, 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 $98,958,045. THE APARTMENT Valuation Under Sales Comparison Approach. AAA compared five apartment complexes with The Apartment that were sold between April 2000 and January 2003 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 superior to the location of The Apartment. AAA rated the quality/appeal of all five comparable properties as comparable to the quality/appeal of The Apartment. AAA rated the amenities of all five comparable properties as comparable to the amenities of The Apartment. AAA made adjustments to the sales price per unit of each comparable property to reflect differences from The Apartment 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 $35,344 to $36,518 per unit with a mean or average adjusted price of $35,749 per unit and a median adjusted price of $35,538 per unit. Thus, the estimated value based on a $35,500 sales price per unit for the 204 units was approximately $7,100,000 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 The Apartment'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 26 between $33,275 and $34,855 per unit, with an average of $33,885 per unit. The appraiser concluded a value of $33,800 per unit for the 204 units of the property, resulting in an estimated "as is" market value of $6,800,000 using the NOI analysis after adjustment for deferred maintenance 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 The Apartment to be 50.16% before reserves, with the expense ratios of the five comparable properties ranging from 42.85% to 49.74%, resulting in EGIMs ranging from 5.27 to 6.08. Thus, AAA concluded an EGIM of 5.30 for The Apartment, 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 $7,200,000 after adjustment for deferred maintenance and present value of concessions. AAA estimated the value using the price per unit analysis at $7,100,000, the value using the NOI analysis at $6,800,000 and the value using the EGIM analysis at $7,200,000. Based on these three valuation methods, AAA concluded that the reconciled value for The Apartment under the sales comparison approach was $7,100,000. 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 Apartment. 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 Apartment'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 $1,380,397. Once the EGI was established, operating expenses were deducted from the EGI in order to arrive at an NOI for The Apartment of approximately $647,153. 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 Apartment 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 9.25%; (4) terminal capitalization rate of 10.00%; (5) discount rate of 11.50%; (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. An adjustment was made for concessions due to soft market conditions, and AAA estimated the present value of 27 concessions to be $49,000. An adjustment of $50,000 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 $6,900,000 through the discounted cash flow method. The reversion value contributed approximately 40% of the value. Under the direct capitalization method, utilizing a capitalization rate of 9.25%, the projected NOI resulted in a value (after rounding) of $6,900,000 after adjustments for deferred maintenance and present value of concessions, if any. 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 Apartment was $6,900,000. 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 $7,100,000 and the estimated market value under the income capitalization approach was $6,900,000. After reconciling the various factors, AAA determined a final "as is" market value for The Apartment of $7,000,000 as of May 12, 2003. ARBOURS OF HERMITAGE Valuation Under Sales Comparison Approach. AAA compared five apartment complexes with Arbours of Hermitage that were sold between January 1999 and June 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, two comparable properties as comparable and one comparable property as inferior to the location of Arbours of Hermitage. AAA rated the quality/appeal of one comparable property as superior, two comparable properties as comparable and two comparable properties as inferior to the quality/appeal of Arbours of Hermitage. AAA rated the amenities of four comparable properties as comparable and one comparable property as inferior to the amenities of Arbours of Hermitage. AAA made adjustments to the sales price per unit of each comparable property to reflect differences from Arbours of Hermitage 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 $36,507 to $47,049 per unit with a mean or average adjusted price of $43,574 per unit and a median adjusted price of $44,348 per unit. Thus, the estimated value based on a $44,000 sales price per unit for the 350 units was approximately $15,400,000. 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 Arbours of Hermitage'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 $42,633 and $47,628 per unit, with an average of $44,824 per unit. The appraiser concluded a value of $45,000 per unit for the 350 units of the property, resulting in an estimated "as is" market value of $15,800,000 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 Arbours of Hermitage to be 44.31% before reserves, with the expense ratios of the five comparable properties ranging from 40.79% to 54.52%, resulting in EGIMs ranging from 4.64 to 6.66. Thus, AAA concluded an EGIM of 5.50 for Arbours of Hermitage, 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 $15,300,000. AAA estimated the value using the price per unit analysis at $15,400,000, the value using the NOI analysis at $15,800,000 and the value using the EGIM analysis at $15,300,000. Based on these three valuation methods, 28 AAA concluded that the reconciled value for Arbours of Hermitage under the sales comparison approach was $15,400,000. 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 Arbours of Hermitage. 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 Arbours of Hermitage'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 $2,782,078. Once the EGI was established, operating expenses were deducted from the EGI in order to arrive at an NOI for Arbours of Hermitage of approximately $1,461,724. 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 Arbours of Hermitage under the income approach included: (1) stabilized vacancy and collection loss rate of 5%; (2) replacement reserve of $250 per unit; (3) overall capitalization rate of 9.75%; (4) terminal capitalization rate of 10.75%; (5) discount rate of 12.50%; (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 $15,100,000 through the discounted cash flow method. The reversion value contributed approximately 37% of the value. Under the direct capitalization method, utilizing a capitalization rate of 9.75%, the projected NOI resulted in a value (after rounding) of $15,000,000. 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 Arbours of Hermitage was $15,000,000. 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 $15,400,000 and the estimated market value under the income capitalization approach was 29 $15,000,000. After reconciling the various factors, AAA determined a final "as is" market value for Arbours of Hermitage of $15,000,000 as of May 5, 2003. BRIAR BAY RACQUET CLUB Valuation Under Sales Comparison Approach. AAA compared five apartment complexes with Briar Bay Racquet Club that were sold between November 2000 and September 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 Briar Bay Racquet Club. AAA rated the quality/appeal of all five comparable properties as inferior to the quality/appeal of Briar Bay Racquet Club. AAA rated the amenities of all five comparable properties as comparable to the amenities of Briar Bay Racquet Club. AAA made adjustments to the sales price per unit of each comparable property to reflect differences from Briar Bay Racquet Club 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 $60,860 to $76,163 per unit with a mean or average adjusted price of $65,693 per unit and a median adjusted price of $63,964 per unit. Thus, the estimated value based on a $65,000 sales price per unit for the 194 units was approximately $12,600,000. 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 Briar Bay Racquet Club'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 $41,918 and $68,366 per unit, with an average of $55,123 per unit. The appraiser concluded a value of $65,000 per unit for the 194 units of the property, resulting in an estimated "as is" market value of $12,600,000 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 Briar Bay Racquet Club to be 42.07% before reserves, with the expense ratios of the five comparable properties ranging from 31.03% to 38.21%, resulting in EGIMs ranging from 5.13 to 8.56. Thus, AAA concluded an EGIM of 6.50 for Briar Bay Racquet Club, 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 $12,500,000. AAA estimated the value using the price per unit analysis at $12,600,000, the value using the NOI analysis at $12,600,000 and the value using the EGIM analysis at $12,500,000. Based on these three valuation methods, AAA concluded that the reconciled value for Briar Bay Racquet Club under the sales comparison approach was $12,600,000. 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 Briar Bay Racquet Club. 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 Briar Bay Racquet Club'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 $1,928,641. Once the EGI was established, operating expenses were deducted from the EGI in order to arrive at an NOI for Briar Bay Racquet Club of approximately $1,068,819. 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 30 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 Briar Bay Racquet Club under the income approach included: (1) stabilized vacancy and collection loss rate of 8%; (2) replacement reserve of $250 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. 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 $12,500,000 through the discounted cash flow method. The reversion value contributed approximately 40% 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 $11,900,000. 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 Briar Bay Racquet Club was $12,500,000. 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 $12,600,000 and the estimated market value under the income capitalization approach was $12,500,000. After reconciling the various factors, AAA determined a final "as is" market value for Briar Bay Racquet Club of $12,500,000 as of May 20, 2003. CHIMNEY HILL APARTMENTS Valuation Under Sales Comparison Approach. At the time of the appraisal, the property was improved with a vacant apartment complex. For purposes of the appraisal, AAA assumed that the land was vacant and available for development and did not value the improvements. Therefore, AAA only used the sales comparison approach and did not utilize the income approach in valuing the property. Under its land sale analysis, AAA compared the 26.30 acres of Chimney Hill Apartments on a per acre basis with three comparable land sales between November 2000 and June 2001 that were located in the property's real estate market area. Based on its qualitative analysis, AAA rated the locations of two comparable properties as comparable and one comparable property as inferior to the location of Chimney Hills Apartments. AAA rated the access of all three comparable properties as superior to the Chimney Hill Apartment's access. In addition, AAA rated the topography, shape, zoning and utilities of all three comparable properties as comparable to those of 31 Chimney Hills Apartments Lastly, AAA rated the size of one comparable property as superior and two comparable properties as comparable to the size of Chimney Hills Apartments. AAA made adjustments to the sales price per acre of each comparable property to reflect differences from Chimney Hills Apartments in location, access, visibility, topography, shape, size, zoning and availability of utilities. Based on the available data, AAA concluded a value range of $84,268 to $119,932 per acre. Thus, AAA determined that the final market value for the fee simple estate of Chimney Hills Apartments was $2,900,000 as of June 23, 2003. CITADEL Valuation Under Sales Comparison Approach. AAA compared five apartment complexes with Citadel that were sold between November 1999 and November 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 Citadel. AAA rated the quality/appeal of three comparable properties as superior and two comparable properties as inferior to the quality/appeal of Citadel. AAA rated the amenities of all five comparable properties as comparable to the amenities of Citadel. AAA made adjustments to the sales price per unit of each comparable property to reflect differences from Citadel 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 $27,404 to $33,244 per unit with a mean or average adjusted price of $30,455 per unit and a median adjusted price of $30,788 per unit. Thus, the estimated value based on a $30,000 sales price per unit for the 261 units was approximately $7,800,000. 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 Citadel'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 $24,101 and $31,922 per unit, with an average of $28,416 per unit. The appraiser concluded a value of $30,000 per unit for the 261 units of the property, resulting in an estimated "as is" market value of $7,800,000 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 Citadel to be 52.97% before reserves, with the expense ratios of the five comparable properties ranging from 38.00% to 48.00%, resulting in EGIMs ranging from 4.33 to 6.84. Thus, AAA concluded an EGIM of 4.50 for Citadel, 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 $7,800,000. AAA estimated the value using the price per unit analysis at $7,800,000, the value using the NOI analysis at $7,800,000 and the value using the EGIM analysis at $7,800,000. Based on these three valuation methods, AAA concluded that the reconciled value for Citadel under the sales comparison approach was $7,800,000. 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 Citadel. 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 Citadel'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 $1,743,789. Once the 32 EGI was established, operating expenses were deducted from the EGI in order to arrive at an NOI for Citadel of approximately $754,845. 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 Citadel under the income approach included: (1) stabilized vacancy and collection loss rate of 8%; (2) replacement reserve of $250 per unit; (3) overall capitalization rate of 9.75%; (4) terminal capitalization rate of 10.75%; (5) discount rate of 12.00%; (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 $8,000,000 through the discounted cash flow method. The reversion value contributed approximately 37% of the value. Under the direct capitalization method, utilizing a capitalization rate of 9.75%, the projected NOI resulted in a value (after rounding) of $7,700,000. 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 Citadel was $8,000,000. 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 $7,800,000 and the estimated market value under the income capitalization approach was $8,000,000. After reconciling the various factors, AAA determined a final "as is" market value for Citadel of $8,000,000 as of May 11, 2003. CITADEL VILLAGE Valuation Under Sales Comparison Approach. AAA compared five apartment complexes with Citadel Village that were sold between July 2001 and January 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 Citadel Village. AAA rated the quality/appeal of three comparable properties as superior, one comparable property as comparable and one comparable property as inferior to the quality/appeal of Citadel Village. AAA rated the amenities of two comparable properties as comparable and three comparable properties as inferior to the amenities of Citadel Village. AAA made adjustments to the sales price per unit of each comparable property to reflect differences from Citadel Village 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 $46,375 to $51,667 per unit with a mean or 33 average adjusted price of $49,446 per unit and a median adjusted price of $50,556 per unit. Thus, the estimated value based on a $50,000 sales price per unit for the 122 units was approximately $5,600,000 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 Citadel Village'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 $45,755 and $58,661 per unit, with an average of $52,893 per unit. The appraiser concluded a value of $51,500 per unit for the 122 units of the property, resulting in an estimated "as is" market value of $5,800,000 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 Citadel Village to be 43.61% before reserves, with the expense ratios of the five comparable properties ranging from 35.00% to 48.38%, resulting in EGIMs ranging from 6.23 to 8.50. Thus, AAA concluded an EGIM of 6.30 for Citadel Village, 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 $5,700,000 after adjustment for lease-up costs and present value of concessions. AAA estimated the value using the price per unit analysis at $5,600,000, the value using the NOI analysis at $5,800,000 and the value using the EGIM analysis at $5,700,000. Based on these three valuation methods, AAA concluded that the reconciled value for Citadel Village under the sales comparison approach was $5,700,000. 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 Citadel Village. 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 Citadel Village'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 $982,757. Once the EGI was established, operating expenses were deducted from the EGI in order to arrive at an NOI for Citadel Village of approximately $529,799. 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 Citadel Village under the income approach included: (1) stabilized vacancy and collection loss rate of 13.5%; (2) replacement reserve of $200 per unit; (3) overall capitalization rate of 8.75%; (4) terminal capitalization rate of 9.25%; (5) discount rate of 11.25%; (6) 2.00% cost of sale at reversion; and (7) holding period of 10 years. 34 An adjustment was made for lease-up costs because Citadel Village's occupancy level was below a stabilized occupancy projection Thus, AAA assumed a 20-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 $253,000. Based on these assumptions, AAA's estimate of cash flows for a 10-year period resulted in an indicated value of $5,300,000 through the discounted cash flow method. The reversion value contributed approximately 45% of the value. Under the direct capitalization method, utilizing a capitalization rate of 8.75%, the projected NOI resulted in a value (after rounding) of $5,600,000 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 Citadel Village was $5,400,000. 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 $5,700,000 and the estimated market value under the income capitalization approach was $5,400,000. After reconciling the various factors, AAA determined a final "as is" market value for Citadel Village of $5,500,000 as of May 15, 2003. FOOTHILL PLACE Valuation Under Sales Comparison Approach. AAA compared five apartment complexes with Foothill Place that were sold between April 2001 and April 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 Foothill Place. AAA rated the quality/appeal of two comparable properties as superior and three comparable properties as comparable to the quality/appeal of Foothill Place. AAA rated the amenities of one comparable property as superior and four comparable properties as comparable to the amenities of Foothill Place. AAA made adjustments to the sales price per unit of each comparable property to reflect differences from Foothill Place 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 $45,156 to $47,783 per unit with a mean or average adjusted price of $46,400 per unit and a median adjusted price of $46,622 per unit. Thus, the estimated value based on a $47,000 sales price per unit for the 450 units was approximately $20,600,000 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 Foothill Place'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 $47,796 and $55,118 per unit, with an average of $49,931 per unit. The appraiser concluded a value of $48,000 per unit for the 450 units of the property, resulting in an estimated "as is" market value of $21,000,000 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 Foothill Place to be 38.11% before reserves, with the expense ratios of the three comparable properties ranging from 35.65% to 41.95%, resulting in EGIMs ranging from 6.36 to 8.13. Thus, AAA concluded 35 an EGIM of 6.50 for Foothill Place, 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 $21,700,000 after adjustment for lease-up costs and present value of concessions. AAA estimated the value using the price per unit analysis at $20,600,000, the value using the NOI analysis at $21,000,000 and the value using the EGIM analysis at $21,700,000. Based on these three valuation methods, AAA concluded that the reconciled value for Foothill Place under the sales comparison approach was $21,000,000. 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 Foothill Place. 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 Foothill Place'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 $3,428,306. Once the EGI was established, operating expenses were deducted from the EGI in order to arrive at an NOI for Foothill Place of approximately $1,964,207. 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 Foothill Place under the income approach included: (1) stabilized vacancy and collection loss rate of 12%; (2) replacement reserve of $350 per unit; (3) overall capitalization rate of 9.00%; (4) terminal capitalization rate of 9.75%; (5) discount rate of 11.50%; (6) 2.00% cost of sale at reversion; and (7) holding period of 10 years. An adjustment was made for lease-up costs because Foothill Place's occupancy level was below a stabilized occupancy projection Thus, AAA assumed a 12-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 $391,000. Based on these assumptions, AAA's estimate of cash flows for a 10-year period resulted in an indicated value of $21,800,000 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 $21,300,000 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 Foothill Place was $21,500,000. 36 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 $21,000,000 and the estimated market value under the income capitalization approach was $21,500,000. After reconciling the various factors, AAA determined a final "as is" market value for Foothill Place of $21,500,000 as of May 2, 2003. KNOLLWOOD Valuation Under Sales Comparison Approach. AAA compared four apartment complexes with Knollwood that were sold between October 2001 and December 2002 and located in the property's real estate market area. Based on its qualitative analysis, AAA rated the locations of all four comparable properties as comparable to the location of Knollwood. AAA rated the quality/appeal of three comparable properties as superior and one comparable property as comparable to the quality/appeal of Knollwood. AAA rated the amenities of one comparable property as superior and three comparable properties as comparable to the amenities of Knollwood. AAA made adjustments to the sales price per unit of each comparable property to reflect differences from Knollwood 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 $41,538 to $47,564 per unit with a mean or average adjusted price of $44,937 per unit and a median adjusted price of $45,322 per unit. Thus, the estimated value based on a $45,000 sales price per unit for the 326 units was approximately $14,700,000. 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 Knollwood's NOI to the NOI of the four 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 $42,121 and $48,479 per unit, with an average of $45,561 per unit. The appraiser concluded a value of $45,000 per unit for the 326 units of the property, resulting in an estimated "as is" market value of $14,700,000. 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 Knollwood to be 45.51% before reserves, with the expense ratios of the four comparable properties ranging from 39.49% to 45.01%, resulting in EGIMs ranging from 5.76 to 6.85. Thus, AAA concluded an EGIM of 5.75 for Knollwood, 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 $14,700,000. AAA estimated the value using the price per unit analysis at $14,700,000, the value using the NOI analysis at $14,700,000 and the value using the EGIM analysis at $14,700,000. Based on these three valuation methods, AAA concluded that the reconciled value for Knollwood under the sales comparison approach was $14,700,000. 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 Knollwood. 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 Knollwood's effective gross income ("EGI") by adding apartment rental collections to other income and then making an 37 adjustment for vacancy and collection loss. Under this analysis, AAA arrived at an EGI of $2,556,474. Once the EGI was established, operating expenses were deducted from the EGI in order to arrive at an NOI for Knollwood of approximately $1,311,449. 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 Knollwood under the income approach included: (1) stabilized vacancy and collection loss rate of 7%; (2) replacement reserve of $250 per unit; (3) overall capitalization rate of 9.00%; (4) terminal capitalization rate of 10.00%; (5) discount rate of 11.50%; (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 $14,800,000 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 9.00%, 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 Knollwood was $14,800,000. 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 $14,700,000 and the estimated market value under the income capitalization approach was $14,800,000. After reconciling the various factors, AAA determined a final "as is" market value for Knollwood of $14,800,000 as of May 7, 2003. LAKE FOREST Valuation Under Sales Comparison Approach. AAA compared five apartment complexes with Lake Forest that were sold between April 2000 and January 2003 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 Lake Forest. AAA rated the quality/appeal of three comparable properties as superior and two comparable properties as comparable to the quality/appeal of Lake Forest. AAA rated the amenities of all five comparable properties as comparable to the amenities of Lake Forest. AAA made adjustments to the sales price per unit of each comparable property to reflect differences from Lake Forest in location, number of units, quality/appeal, age/condition, occupancy at sale, amenities and average 38 unit size. Based on the available data, AAA concluded a value range of $37,444 to $40,615 per unit with a mean or average adjusted price of $38,977 per unit and a median adjusted price of $39,286 per unit. Thus, the estimated value based on a $39,000 sales price per unit for the 312 units was approximately $12,100,000 after adjustment for 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 Lake Forest'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 $37,415 and $39,192 per unit, with an average of $38,102 per unit. The appraiser concluded a value of $38,500 per unit for the 312 units of the property, resulting in an estimated "as is" market value of $11,900,000 using the NOI analysis after adjustment for 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 Lake Forest to be 48.56% before reserves, with the expense ratios of the five comparable properties ranging from 42.85% to 49.74%, resulting in EGIMs ranging from 5.27 to 6.08. Thus, AAA concluded an EGIM of 5.40 for Lake Forest, 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 $12,200,000 after adjustment for present value of concessions. AAA estimated the value using the price per unit analysis at $12,100,000, the value using the NOI analysis at $11,900,000 and the value using the EGIM analysis at $12,200,000. Based on these three valuation methods, AAA concluded that the reconciled value for Lake Forest under the sales comparison approach was $12,000,000. 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 Lake Forest. 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 Lake Forest'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 $2,284,838. Once the EGI was established, operating expenses were deducted from the EGI in order to arrive at an NOI for Lake Forest of approximately $1,112,916. 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 Lake Forest under the income approach included: (1) stabilized vacancy and collection loss rate of 8%; (2) replacement reserve of $200 per unit; (3) overall capitalization rate of 9.25%; (4) terminal capitalization rate of 10.00%; 39 (5) discount rate of 11.50%; (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. An adjustment was made for concessions due to soft market conditions, and AAA estimated the present value of concessions to be $114,000. Based on these assumptions, AAA's estimate of cash flows for a 10-year period resulted in an indicated value of $12,400,000 through the discounted cash flow method. The reversion value contributed approximately 40% of the value. Under the direct capitalization method, utilizing a capitalization rate of 9.25%, the projected NOI resulted in a value (after rounding) of $11,900,000 after adjustments for 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 Lake Forest was $12,200,000. 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 $12,000,000 and the estimated market value under the income capitalization approach was $12,200,000. After reconciling the various factors, AAA determined a final "as is" market value for Lake Forest of $12,200,000 as of May 12, 2003. NOB HILL VILLA Valuation Under Sales Comparison Approach. AAA compared five apartment complexes with Nob Hill Villa that were sold between May 2001 and September 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 Nob Hill Villa. AAA rated the quality/appeal of four comparable properties as superior and one comparable property as comparable to the quality/appeal of Nob Hill Villa. AAA rated the amenities of all five comparable properties as comparable to the amenities of Nob Hill Villa. AAA made adjustments to the sales price per unit of each comparable property to reflect differences from Nob Hill Villa 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 $23,045 to $27,667 per unit with a mean or average adjusted price of $25,784 per unit and a median adjusted price of $26,499 per unit. Thus, the estimated value based on a $26,000 sales price per unit for the 472 units was approximately $12,300,000. 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 Nob Hill Villa'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 $23,290 and $29,300 per unit, with an average of $27,127 per unit. The appraiser concluded a value of $27,000 per unit for the 472 units of the property, resulting in an estimated "as is" market value of $12,700,000 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 Nob Hill Villa to be 53.89% before reserves, with the expense ratios of the five comparable properties ranging from 40.38% to 49.27%, resulting in EGIMs ranging from 4.82 to 6.60. Thus, AAA concluded 40 an EGIM of 4.50 for Nob Hill Villa, 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 $12,400,000. AAA estimated the value using the price per unit analysis at $12,300,000, the value using the NOI analysis at $12,700,000 and the value using the EGIM analysis at $12,400,000. Based on these three valuation methods, AAA concluded that the reconciled value for Nob Hill Villa under the sales comparison approach was $12,400,000. 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 Nob Hill Villa. 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 Nob Hill Villa'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 $2,765,952. Once the EGI was established, operating expenses were deducted from the EGI in order to arrive at an NOI for Nob Hill Villa of approximately $1,157,374. 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 Nob Hill Villa under the income approach included: (1) stabilized vacancy and collection loss rate of 10%; (2) replacement reserve of $250 per unit; (3) overall capitalization rate of 9.50%; (4) terminal capitalization rate of 10.50%; (5) discount rate of 12.00%; (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 $12,400,000 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 9.50%, the projected NOI resulted in a value (after rounding) of $12,200,000. 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 Nob Hill Villa was $12,400,000. 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 41 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 $12,400,000 and the estimated market value under the income capitalization approach was $12,400,000. After reconciling the various factors, AAA determined a final "as is" market value for Nob Hill Villa of $12,400,000 as of May 5, 2003. POINT WEST APARTMENTS & TOWNHOMES Valuation Under Sales Comparison Approach. AAA compared five apartment complexes with Point West Apartments & Townhomes that were sold between September 1998 and February 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 Point West Apartments & Townhomes. AAA rated the quality/appeal of three comparable properties as superior and two comparable properties as comparable to the quality/appeal of Point West Apartments & Townhomes. AAA rated the amenities of four comparable properties as superior and one comparable property as comparable to the amenities of Point West Apartments & Townhomes. AAA made adjustments to the sales price per unit of each comparable property to reflect differences from Point West Apartments & Townhomes 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 $38,075 to $41,250 per unit with a mean or average adjusted price of $39,317 per unit and a median adjusted price of $38,904 per unit. Thus, the estimated value based on a $39,000 sales price per unit for the 120 units was approximately $4,700,000. 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 Point West Apartments & Townhomes' 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 $33,259 and $40,107 per unit, with an average of $38,064 per unit. The appraiser concluded a value of $38,000 per unit for the 120 units of the property, resulting in an estimated "as is" market value of $4,600,000 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 Point West Apartments & Townhomes to be 52.35% before reserves, with the expense ratios of the five comparable properties ranging from 41.50% to 52.91%, resulting in EGIMs ranging from 4.88 to 7.15. Thus, AAA concluded an EGIM of 5.50 for Point West Apartments & Townhomes, 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 $4,800,000. AAA estimated the value using the price per unit analysis at $4,700,000, the value using the NOI analysis at $4,600,000 and the value using the EGIM analysis at $4,800,000. Based on these three valuation methods, AAA concluded that the reconciled value for Point West Apartments & Townhomes under the sales comparison approach was $4,700,000. 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 Point West Apartments & Townhomes. 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 42 and actual rent rates as well as a comparison with comparable apartment properties. AAA calculated Point West Apartments & Townhomes' 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 $870,490. Once the EGI was established, operating expenses were deducted from the EGI in order to arrive at an NOI for Point West Apartments & Townhomes of approximately $384,765. 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 Point West Apartments & Townhomes under the income approach included: (1) stabilized vacancy and collection loss rate of 8%; (2) replacement reserve of $250 per unit; (3) overall capitalization rate of 8.50%; (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. 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 $4,500,000 through the discounted cash flow method. The reversion value contributed approximately 40% of the value. Under the direct capitalization method, utilizing a capitalization rate of 8.50%, the projected NOI resulted in a value (after rounding) of $4,500,000. 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 Point West Apartments & Townhomes was $4,500,000. 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 $4,700,000 and the estimated market value under the income capitalization approach was $4,500,000. After reconciling the various factors, AAA determined a final "as is" market value for Point West Apartments & Townhomes of $4,500,000 as of May 28, 2003. POST RIDGE Valuation Under Sales Comparison Approach. AAA compared four apartment complexes with Post Ridge that were sold between October 2001 and December 2002 and located in the property's real estate market area. Based on its qualitative analysis, AAA rated the locations of all four comparable properties as comparable to the location of Post Ridge. AAA rated the quality/appeal of three comparable properties as superior and one 43 comparable property as inferior to the quality/appeal of Post Ridge. AAA rated the amenities of all four comparable properties as comparable to the amenities of Post Ridge. AAA made adjustments to the sales price per unit of each comparable property to reflect differences from Post Ridge 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 $43,615 to $50,962 per unit with a mean or average adjusted price of $48,048 per unit and a median adjusted price of $48,808 per unit. Thus, the estimated value based on a $48,000 sales price per unit for the 150 units was approximately $7,200,000. 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 Post Ridge's NOI to the NOI of the four 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 $50,756 and $58,417 per unit, with an average of $54,900 per unit. The appraiser concluded a value of $50,000 per unit for the 150 units of the property, resulting in an estimated "as is" market value of $7,500,000 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 Post Ridge to be 44.95% before reserves, with the expense ratios of the four comparable properties ranging from 39.49% to 45.01%, resulting in EGIMs ranging from 5.76 to 6.85. Thus, AAA concluded an EGIM of 5.50 for Post Ridge, 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 $7,600,000. AAA estimated the value using the price per unit analysis at $7,200,000, the value using the NOI analysis at $7,500,000 and the value using the EGIM analysis at $7,600,000. Based on these three valuation methods, AAA concluded that the reconciled value for Post Ridge under the sales comparison approach was $7,500,000. 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 Post Ridge. 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 Post Ridge'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 $1,389,078. Once the EGI was established, operating expenses were deducted from the EGI in order to arrive at an NOI for Post Ridge of approximately $727,124. 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 Post Ridge under the income approach included: (1) stabilized vacancy and collection loss rate of 8%; (2) replacement reserve of $250 per unit; (3) overall capitalization rate of 10.00%; 44 (4) terminal capitalization rate of 11.00%; (5) discount rate of 12.50%; (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 $7,400,000 through the discounted cash flow method. The reversion value contributed approximately 36% 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 $7,300,000. 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 Post Ridge was $7,400,000. 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 $7,500,000 and the estimated market value under the income capitalization approach was $7,400,000. After reconciling the various factors, AAA determined a final "as is" market value for Post Ridge of $7,400,000 as of May 7, 2003. RIVER'S EDGE Valuation Under Sales Comparison Approach. AAA compared four apartment complexes with River's Edge that were sold between August 2002 and January 2003 and located in the property's real estate market area. Based on its qualitative analysis, AAA rated the locations of all four comparable properties as comparable to the location of River's Edge. AAA rated the quality/appeal of three comparable properties as superior and one comparable property as comparable to the quality/appeal of River's Edge. AAA rated the amenities of all four comparable properties as comparable to the amenities of River's Edge. AAA made adjustments to the sales price per unit of each comparable property to reflect differences from River's Edge 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 $60,617 to $65,463 per unit with a mean or average adjusted price of $63,499 per unit and a median adjusted price of $63,958 per unit. Thus, the estimated value based on a $63,000 sales price per unit for the 120 units was approximately $7,600,000. 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 River's Edge's NOI to the NOI of the four 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 $53,787 and $66,963 per unit, with an average of $60,922 per unit. The appraiser concluded a value of $62,000 per unit for the 120 units of the property, resulting in an estimated "as is" market value of $7,400,000 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 45 ratio ("OER") of River's Edge to be 38.33% before reserves, with the expense ratios of the four comparable properties ranging from 32.42% to 44.00%, resulting in EGIMs ranging from 6.92 to 7.71. Thus, AAA concluded an EGIM of 7.5 for River's Edge, 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 $7,600,000. AAA estimated the value using the price per unit analysis at $7,600,000, the value using the NOI analysis at $7,400,000 and the value using the EGIM analysis at $7,600,000. Based on these three valuation methods, AAA concluded that the reconciled value for River's Edge under the sales comparison approach was $7,600,000. 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 River's Edge. 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 River's Edge'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 $1,008,230. Once the EGI was established, operating expenses were deducted from the EGI in order to arrive at an NOI for River's Edge of approximately $591,819. 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 River's Edge under the income approach included: (1) stabilized vacancy and collection loss rate of 8.5%; (2) replacement reserve of $250 per unit; (3) overall capitalization rate of 8.00%; (4) terminal capitalization rate of 9.00%; (5) discount rate of 10.50%; (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 $7,400,000 through the discounted cash flow method. The reversion value contributed approximately 43% of the value. Under the direct capitalization method, utilizing a capitalization rate of 8.00%, the projected NOI resulted in a value (after rounding) of $7,400,000. 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 River's Edge was $7,400,000. 46 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 $7,600,000 and the estimated market value under the income capitalization approach was $7,400,000. After reconciling the various factors, AAA determined a final "as is" market value for River's Edge of $7,500,000 as of May 20, 2003. VILLAGE EAST Valuation Under Sales Comparison Approach. AAA compared five apartment complexes with Village East that were sold between July 2001 and January 2003 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 Village East. AAA rated the quality/appeal of four comparable properties as superior and one comparable property as comparable to the quality/appeal of Village East. AAA rated the amenities of two comparable properties as comparable and three comparable properties as inferior to the amenities of Village East. AAA made adjustments to the sales price per unit of each comparable property to reflect differences from Village East 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 $38,481 to $45,410 per unit with a mean or average adjusted price of $42,037 per unit and a median adjusted price of $41,333 per unit. Thus, the estimated value based on a $42,000 sales price per unit for the 137 units was approximately $5,300,000 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 Village East'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 $39,704 and $50,904 per unit, with an average of $46,120 per unit. The appraiser concluded a value of $43,000 per unit for the 137 units of the property, resulting in an estimated "as is" market value of $5,400,000 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 Village East to be 43.84% before reserves, with the expense ratios of the five comparable properties ranging from 34.96% to 51.59%, resulting in EGIMs ranging from 6.23 to 8.64. Thus, AAA concluded an EGIM of 6.25 for Village East, 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 $5,500,000 after adjustment for lease-up costs and present value of concessions. AAA estimated the value using the price per unit analysis at $5,300,000, the value using the NOI analysis at $5,400,000 and the value using the EGIM analysis at $5,500,000. Based on these three valuation methods, AAA concluded that the reconciled value for Village East under the sales comparison approach was $5,400,000. 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 East. 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 47 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 Village East'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 $968,133. Once the EGI was established, operating expenses were deducted from the EGI in order to arrive at an NOI for Village East of approximately $516,262. 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 East under the income approach included: (1) stabilized vacancy and collection loss rate of 18%; (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 12.50%; (6) 2.00% cost of sale at reversion; and (7) holding period of 10 years. An adjustment was made for lease-up costs because Village East's occupancy level was below a stabilized occupancy projection Thus, AAA assumed a 24-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 $284,000. Based on these assumptions, AAA's estimate of cash flows for a 10-year period resulted in an indicated value of $4,600,000 through the discounted cash flow method. The reversion value contributed approximately 42% 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 $4,900,000 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 Village East was $4,800,000. 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 $5,400,000 and the estimated market value under the income capitalization approach was $4,800,000. After reconciling the various factors, AAA determined a final "as is" market value for Village East of $5,000,000 as of May 15, 2003. 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; 48 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 $174.05, which is higher than our offer price of $102.07. 49 Appraised value of partnership properties................... $136,200,000 Plus: Cash and cash equivalents (net of tenant security deposits)................................................. 1,673,217 Plus: Other partnership assets, including any amounts payable by the general partner and its affiliates upon liquidation............................................... 2,182,158 Less: Mortgage debt, including accrued interest and any prepayment penalty........................................ (78,933,465) Less: Accounts payable and accrued expenses................. (1,110,776) Less: Other liabilities..................................... (2,034,106) Less: Distributions to general partners and special limited partners.................................................. (204,164) ------------ Partnership valuation before taxes and certain costs........ $ 57,772,864 Less: Extraordinary capital expenditures and deferred maintenance (to the extent not reflected in the appraised value of partnership properties).......................... (63,791) Less: Estimated closing costs............................... (2,187,549) Plus: General partner contribution under deficit restoration provision................................................. 4,138,280 ------------ Estimated net liquidation proceeds of your partnership...... $ 59,659,803 Percentage of estimated net liquidation proceeds allocable to holders of units based on the partnership agreement.... 100% ------------ Estimated net liquidation proceeds of units................. $ 59,659,803 Total number of units..................................... 342,773.00 ------------ Estimated net liquidation proceeds per unit................. $ 174.05 ============
(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 $174.05 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 50 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, 2011, 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; 51 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 $(102.09) 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 $174.05, which is higher than our offer price of $102.07; 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. 52 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 $55,000 and $1,208,000 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: "In addition to reimbursement for services of affiliates, the partnership paid us approximately $110,000 and $180,000 in 2001 and 2000, respectively, for loan costs which are capitalized and included with other assets on the consolidated balance sheets. These loan costs were associated with the refinancing of two of the partnership's properties in 2001 and four of the partnership's properties in 2000." (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 53 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 $ 21.21 $ 8.52 $ 11.94 $ 11.65 $ 23.73 Ratio of earnings to fixed charges (deficit)....... 307.7% 176.3% 177.4% 171.7% 250.9% Book value per limited partnership unit............ (102.09) 113.21 (107.68) (103.96) (90.02)
(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
54 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 55 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 CONCAP EQUITIES, INC. By: /s/ Patrick J. Foye ------------------------------- Patrick J. Foye Executive Vice President 56 EXHIBIT INDEX
Exhibit No. Description - ----------- ----------- (c)(1) Appraisal of the Apartment (c)(2) Appraisal of Arbours of Hermitage (c)(3) Appraisal of Briar Bay Racquet Club (c)(4) Appraisal of Chimney Hills (c)(5) Appraisal of Citadel (c)(6) Appraisal of Citadel Village (c)(7) Appraisal of Foothill Place (c)(8) Appraisal of Knollwood (c)(9) Appraisal of Lake Forest Apartments (c)(10) Appraisal of Nob Hill Villa (c)(11) Appraisal of Point West (c)(12) Appraisal of Post Ridge Apartments (c)(13) Appraisal of Rivers Edge (c)(14) Appraisal of Village East
57 EX-99.(C)(1) 3 d07256a1exv99wxcyx1y.txt APPRAISAL OF THE APARTMENT THE APARTMENT 7349 GRANT STREET OMAHA, NEBRASKA 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: THE APARTMENT 7349 GRANT STREET OMAHA, DOUGLAS COUNTY, NEBRASKA 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 204 units with a total of 192,960 square feet of rentable area. The improvements were built in 1974. The improvements are situated on 8.35 acres. Overall, the improvements are in average 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 THE APARTMENT, OMAHA, NEBRASKA 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: ($7,000,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. -s- Jeff W. Briggs July 14, 2003 Jeff Briggs, MAI - -053272 Engagement Director, Real Estate Group Nebraska Certified General Real Estate Appraiser #CG230072R Report By: Jeff Briggs, MAI AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 THE APARTMENT, OMAHA, NEBRASKA TABLE OF CONTENTS Cover Letter of Transmittal Table of Contents APPRAISAL DATA Executive Summary ....................................................... 4 Introduction ............................................................ 9 Area Analysis ........................................................... 11 Market Analysis ......................................................... 14 Site Analysis ........................................................... 16 Improvement Analysis .................................................... 16 Highest and Best Use .................................................... 17 VALUATION Valuation Procedure ..................................................... 18 Sales Comparison Approach ............................................... 20 Income Capitalization Approach .......................................... 26 Reconciliation and Conclusion ........................................... 37 ADDENDA Exhibit A - Photographs of Subject Property Exhibit B - Summary of Rent Comparables and Photograph of Comparables Exhibit C - Assumptions and Limiting Conditions Exhibit D - Certificate of Appraiser Exhibit E - Qualifications General Service Conditions
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 4 THE APARTMENT, OMAHA, NEBRASKA EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: The Apartment LOCATION: 7349 Grant Street Omaha, Nebraska 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: 8.35 acres, or 363,726 square feet Assessor Parcel No.: 3243 0000 06 Floodplain: Community Panel No. 315274 0025 F (February 6, 1991) Flood Zone X, an area outside the floodplain. Zoning: R7-PUD (Medium Density Multiple Family Residential (R7 PUD)) BUILDING: No. of Units: 204 Units Total NRA: 192,960 Square Feet Average Unit Size: 946 Square Feet Apartment Density: 24.4 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 - ------------------------------------------------------------------------------------------------ 1 Bd/1 Bath (1A10) 790 $499 $0.63 $ 19,461 $ 233,532 1 Bd/1 Bath (1B10) 830 $552 $0.67 $ 46,920 $ 563,040 2 Bd/1.5 Ba (2A20) 1,145 $662 $0.58 $ 52,960 $ 635,520 Total $119,341 $1,432,092
OCCUPANCY: 90% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 25 Years REMAINING ECONOMIC LIFE: 20 Years AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 THE APARTMENT, OMAHA, NEBRASKA SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - SIGNAGE AND VIEW FROM GRANT STREET EXTERIOR - TYPICAL APARTMENTS AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 THE APARTMENT, OMAHA, NEBRASKA 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 APARTMENT, OMAHA, NEBRASKA PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
Amount $/Unit ------ ------ DIRECT CAPITALIZATION Potential Rental Income $1,432,092 $7,020 Effective Gross Income $1,380,397 $6,767 Operating Expenses $692,444 $3,394 50.2% of EGI Net Operating Income: $647,153 $3,172 Capitalization Rate 9.25% DIRECT CAPITALIZATION VALUE $6,900,000 * $33,824 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 17% Stabilized Vacancy & Collection Loss: 12% Lease-up / Stabilization Period N/A Terminal Capitalization Rate 10.00% Discount Rate 11.50% Selling Costs 2.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $6,900,000 * $33,824 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $6,900,000 $33,824 / UNIT SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $29,545 to $48,817 Range of Sales $/Unit (Adjusted) $35,344 to $36,518 VALUE INDICATION - PRICE PER UNIT $7,100,000 * $34,804 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 5.27 to 6.08 Selected EGIM for Subject 5.30 Subject's Projected EGI $1,380,397 EGIM ANALYSIS CONCLUSION $7,200,000 * $35,294 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $6,800,000 * $33,333 / UNIT RECONCILED SALES COMPARISON VALUE $7,100,000 $34,804 / 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 APARTMENT, OMAHA, NEBRASKA PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $7,100,000 NOI Per Unit $6,800,000 EGIM Multiplier $7,200,000 INDICATED VALUE BY SALES COMPARISON $7,100,000 $34,804 / UNIT INCOME APPROACH: Direct Capitalization Method: $6,900,000 Discounted Cash Flow Method: $6,900,000 INDICATED VALUE BY THE INCOME APPROACH $6,900,000 $33,824 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $7,000,000 $34,314 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 THE APARTMENT, OMAHA, NEBRASKA INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 7349 Grant Street, Omaha, Douglas County, Nebraska. Omaha identifies it as 3243 0000 06. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Jeff Briggs, MAI on May 12, 2003. Jeff Briggs, MAI performed the research, valuation analysis and wrote the report. Jeff Briggs 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 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 defined in The Dictionary of Real Estate Appraisal, 3rd ed. (Chicago: Appraisal Institute, 1993), as: AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 10 THE APARTMENT, OMAHA, NEBRASKA "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 CCP 4. 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 APARTMENT, OMAHA, NEBRASKA 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 Omaha, Nebraska. 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 - North 52nd Street West - Interstate Highway Loop 680 South - West Dodge Road (State Highway 6) North - Fort Street MAJOR EMPLOYERS Major employers in the subject's area include Offutt Air Force Base, Alergent Health, Omaha Public Schools, First Data Corporation Methodist Health System, Mutual of Omaha Companies, ConAgra Foods Inc., and Union Pacific Railroad. 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 APARTMENT, OMAHA, NEBRASKA NEIGHBORHOOD DEMOGRAPHICS
AREA ----------------------------------------- CATEGORY 1-Mi. RADIUS 3-Mi. RADIUS 5-Mi. RADIUS MSA - ----------------------------------------------------------------------------------- POPULATION TRENDS Current Population 14,261 114,700 269,701 729,638 5-Year Population 13,795 114,200 271,868 763,780 % Change CY-5Y -3.3% -0.4% 0.8% 4.7% Annual Change CY-5Y -0.7% -0.1% 0.2% 0.9% HOUSEHOLDS Current Households 6,193 48,826 112,597 282,018 5-Year Projected Households 6,107 49,513 115,432 298,876 % Change CY - 5Y -1.4% 1.4% 2.5% 6.0% Annual Change CY-5Y -0.3% 0.3% 0.5% 1.2% INCOME TRENDS Median Household Income $ 33,749 $ 36,567 $ 35,525 $ 45,791 Per Capita Income $ 20,010 $ 23,406 $ 22,266 $ 23,281 Average Household Income $ 45,543 $ 54,643 $ 53,369 $ 60,232
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 34.63% 37.72% 39.61% 31.64% 5-Year Projected % Renting 33.49% 36.99% 38.33% 31.18% % of Households Owning 61.05% 56.64% 53.03% 62.25% 5-Year Projected % Owning 62.16% 57.49% 54.53% 63.04%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 THE APARTMENT, OMAHA, NEBRASKA SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - single family residential South - single family residential East - commercial uses West - single family residential CONCLUSIONS The subject is well located within the city of Omaha. 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 APARTMENT, OMAHA, NEBRASKA MARKET ANALYSIS The subject property is located in the city of Omaha in Douglas County. The overall pace of development in the subject's market is more or less decreasing. There are no new units under construction in the subject's neighborhood as the area is effectively built out. The following table illustrates historical occupancy rates for the subject's market. HISTORICAL VACANCY RATE
Period Region Submarket - ---------------------------------------------------------------- Fall 1998 95.0% 88.0% Spring 1999 98.0% N/A Fall 1999 94.0% 94.0% Spring 2000 94.0% N/A Fall 2000 94.0% 92.0% Spring 2001 94.0% N/A Fall 2001 94.0% 93.0% Spring 2002 93.0% N/A Fall 2002 93.0% 92.0% Spring 2003 93.0% 92.0%
Source: Fall 2002 IREM, & Christopher Mustoe with C. Mustoe Appraisals Occupancy trends in the subject's market are decreasing. Historically speaking, the subject's submarket has equated the overall market. Concessions in the market are not widespread but are showing up in some projects. Population growth in the area is still occurring, however, the current high unemployment rate probably promotes some doubling up or shared apartments. The economic uncertainty may also be forcing younger people to delay moving out on their own. As this market segment is historically one of the larger segments of apartment dwellers, future "pent-up" demand may be building up, hopefully to surface when the economy recovers. 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 - ------------------------------------------------------------------------------ Fall 2001 - 1 Bedroom $536 - $558 - Fall 2002 - 1 Bedroom $540 0.7% $556 -0.4% Fall 2001 - 2 Bedroom $669 - $695 - Fall 2002 - 2 Bedroom $681 1.8% $704 1.3%
AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 THE APARTMENT, OMAHA, NEBRASKA 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 Florentine Apartment Community 176 87% 1971 1.2 miles east R-2 Beacon Hill Apartments 192 N/A 1968 2.6 miles northwest R-3 Maple Manor 259 90% 1968 2.7 miles west R-4 Tudor Heights Apartments 418 96% 1970s 4.0 miles west R-5 Laurelwood Apartment Homes & Townhomes 480 94% 1969 4.1 miles northwest Subject The Apartment 204 90% 1974
While various rents have declined or remained stable over the last two years, there has been a steady progression upward in rents going back to 1991. Thus, the data going back 10 years indicates rental rates that are growing in line with inflation. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 THE APARTMENT, OMAHA, NEBRASKA PROPERTY DESCRIPTION SITE ANALYSIS Site Area 8.35 acres, or 363,726 square feet Shape Irregular Topography Moderate slope 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 315274 0025 F, dated February 6, 1991 Flood Zone Zone X Zoning R7-PUD, 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 - --------------------------------------------------------------------------------------------------- 3243 0000 06 $425,000 $6,846,000 $7,271,000 0.02086 $151,692
IMPROVEMENT ANALYSIS Year Built 1974 Number of Units 204 Net Rentable Area 192,960 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, meeting hall, laundry room, business office, detached garages, and parking area. Unit Amenities Individual unit amenities include a balcony, cable TV connection, vaulted ceiling, and washer dryer connection. Appliances available in each unit include a refrigerator, stove, dishwasher, and oven. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 THE APARTMENT, OMAHA, NEBRASKA Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) - --------------------------------------------------------------- 1 Bd/1 Bath (1A10) 39 790 1 Bd/1 Bath (1B10) 85 830 2 Bd/1.5 Ba (2A20) 80 1,145
Overall Condition Average Effective Age 25 years Economic Life 45 years Remaining Economic Life 20 years Deferred Maintenance The deferred maintenance at the subject property was estimated for a total amount of $50,000. 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 1974 and consist of a 204-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 APARTMENT, OMAHA, NEBRASKA 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 APARTMENT, OMAHA, NEBRASKA 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 APARTMENT, OMAHA, NEBRASKA 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 APARTMENT, OMAHA, NEBRASKA SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - ------------------------------------------------------------------------------------------------------------------------- Property Name The Apartment Chalet Apartments & Townhomes Orchard Park Apartments LOCATION: Address 7349 Grant Street 3810 North 108th Street 7805-7809 Harney Street City, State Omaha, Nebraska Omaha, Nebraska Omaha, Nebraska County Douglas Douglas Douglas PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 192,960 236,510 33,910 Year Built 1974 1978 1980 Number of Units 204 246 44 Unit Mix: Type Total Type Total Type Total 1 Bd/1 Bath (1A10) 39 1 Br / 1 Ba - apts. 80 N/A 1 Bd/1 Bath (1B10) 85 2 Br / 1 Ba - apts. 16 2 Bd/1.5 Ba (2A20) 80 1 Br/1 Ba - twnhm. 24 1 Br/1 Ba - twnhm. 20 1 Br/1.5Ba -twnhm. 52 2 Br/1.5Ba -twnhm. 17 2 Br/1.5Ba -twnhm. 8 2 Br/1.5Ba -twnhm. 12 2 Br/2.5 Ba-twnhm. 5 2 Br/2.5 Ba-twnhm. 12 Average Unit Size (SF) 946 961 771 Land Area (Acre) 8.3500 23.2247 1.7677 Density (Units/Acre) 24.4 10.6 24.9 Parking Ratio (Spaces/Unit) 1.93 N/A 1.64 Parking Type (Gr., Cov., etc.) Garage and open Garage and open Garage and open CONDITION: Average Average Average APPEAL: Average Average Average AMENITIES: Pool/Spa Yes/Yes Yes/Yes No/No Gym Room No Yes No Laundry Room Yes Yes No Secured Parking No No No Sport Courts Yes No No Washer/Dryer Connection No Yes Yes OCCUPANCY: 90% 94% 93% TRANSACTION DATA: Sale Date January, 2003 July, 2002 Sale Price ($) $9,600,000 $1,300,000 Grantor Chalet Investments, LLP LK Company LLC Grantee Hidden Valley Investments, J B Conway, Trustee LLC Sale Documentation Book 2231, Page 258 Book 2217, Page 325 Verification Confidential Confidential Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $1,979,362 $8,046 $8.37 $253,982 $5,772 $7.49 Vacancy/Credit Loss $ 158,349 $ 644 $0.67 $ 22,858 $ 520 $0.67 Effective Gross Income $1,821,013 $7,402 $7.70 $231,124 $5,253 $6.82 Operating Expenses $ 905,772 $3,682 $3.83 $112,806 $2,564 $3.33 Net Operating Income $ 915,241 $3,720 $3.87 $118,318 $2,689 $3.49 NOTES: Property contains 96 apt. Expenses include $200/unit units, 150 townhome units, reserve. Exposure time was & 15,494 SF comm. bldg. less than 6 months. Expenses include $200/u reserves PRICE PER UNIT $39,024 $29,545 PRICE PER SQUARE FOOT $ 40.59 $ 38.34 EXPENSE RATIO 49.7% 48.8% EGIM 5.27 5.62 OVERALL CAP RATE 9.53% 9.10% 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 Brent Village Apartments Fontenelle Hills Apartments 1001 Apartments LOCATION: Address 1402-1510 Buck Drive 200 Martin Drive 1001 North 90th Street City, State Bellevue, Nebraska Bellevue, Nebraska Omaha, Nebraska County Sarpy Sarpy Doughas PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 147,320 379,819 111,805 Year Built 1971 1974 1969 Number of Units 180 338 110 Unit Mix: Type Total Type Total Type Total N/A N/A 1 Br/1Ba 55 2Br/2Ba 55 Average Unit Size (SF) 818 1,124 1,016 Land Area (Acre) 9.2800 35.0700 4.5400 Density (Units/Acre) 19.4 9.6 24.2 Parking Ratio (Spaces/Unit) N/A N/A N/A Parking Type (Gr., Cov., etc.) Garage and open Garage and open Open, Covered CONDITION: Fair Good Average APPEAL: Average Average Average AMENITIES: Pool/Spa Yes/No Yes/No Yes/No Gym Room No Yes No Laundry Room Yes Yes Yes Secured Parking No No No Sport Courts No No No Washer/Dryer Connection Yes Yes Yes OCCUPANCY: 95% 97% 95% TRANSACTION DATA: Sale Date July, 2002 May, 2001 April, 2000 Sale Price ($) $5,970,000 $16,500,000 $4,315,000 Grantor Brent Village Associates, LLC Continental Fontenelle Inc. 90th Street Associates Grantee BV Associates LLC Haley Fontenelle Hills, LP Keystone Properties III, L.L.C. Sale Documentation Book 2002, Page 24483 Book 2002, Page 15007 Book 2150, Page 188 Verification Confidential Confidential Confidential Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $1,155,097 $6,417 $ 7.84 $2,969,923 $8,787 $7.82 $763,441 $6,940 $6.83 Vacancy/Credit Loss $ 80,857 $ 449 $ 0.55 $ 207,895 $ 615 $0.55 $ 53,441 $ 486 $0.48 Effective Gross Income $1,074,240 $5,968 $ 7.29 $2,762,028 $8,172 $7.27 $710,000 $6,455 $6.35 Operating Expenses $ 519,408 $2,886 $ 3.53 $1,196,293 $3,539 $3.15 $304,200 $2,765 $2.72 Net Operating Income $ 554,832 $3,082 $ 3.77 $1,565,735 $4,632 $4.12 $405,800 $3,689 $3.63 NOTES: Expenses include $200/unit Expenses include $200/unit Expenses include $200/unit reserve. Exposure time was reserve. Exposure time was reserve. Exposure time is less than 6 months. Property approx. 12 months. not available. underwent moderate rehab. Property was renovated. PRICE PER UNIT $33,167 $48,817 $39,227 PRICE PER SQUARE FOOT $ 40.52 $ 43.44 $38.59 EXPENSE RATIO 48.4% 43.3% 42.8% EGIM 5.56 5.97 6.08 OVERALL CAP RATE 9.29% 9.49% 9.40% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA PRO FORMA
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 THE APARTMENT, OMAHA, NEBRASKA IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $29,545 to $48,817 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 $35,344 to $36,518 per unit with a mean or average adjusted price of $35,749 per unit. The median adjusted price is $35,538 per unit. Based on the following analysis, we have concluded to a value of $35,500 per unit, which results in an "as is" value of $7,100,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 THE APARTMENT, OMAHA, NEBRASKA SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - ------------------------------------------------------------------------------------------------------------- Property Name The Apartment Chalet Apartments & Orchard Park Apartments Townhomes Address 7349 Grant Street 3810 North 108th Street 7805-7809 Harney Street City Omaha, Nebraska Omaha, Nebraska Omaha, Nebraska Sale Date January, 2003 July, 2002 Sale Price ($) $9,600,000 $1,300,000 Net Rentable Area (SF) 192,960 236,510 33,910 Number of Units 204 246 44 Price Per Unit $39,024 $29,545 Year Built 1974 1978 1980 Land Area (Acre) 8.3500 23.2247 1.7677 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 01-2003 1% 07-2002 3% VALUE AFTER TRANS. ADJUST. ($/UNIT) $39,415 $30,432 Location Superior -5% Superior -5% Number of Units 204 246 0% 44 0% Quality / Appeal Average Comparable 0% Comparable 0% Age / Condition 1974 1978 / Average 0% 1980 / Average 0% Occupancy at Sale 90% 94% -5% 93% 0% Amenities Pool, tennis, garages Comparable 0% Comparable 0% Average Unit Size (SF) 946 961 0% 771 25% PHYSICAL ADJUSTMENT -10% 20% FINAL ADJUSTED VALUE ($/UNIT) $35,473 $36,518 COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 - ------------------------------------------------------------------------------------------------------------------- Property Name Brent Village Apartments Fontenelle Hills Apartments 1001 Apartments Address 1402-1510 Buck Drive 200 Martin Drive 1001 North 90th Street City Bellevue, Nebraska Bellevue, Nebraska Omaha, Nebraska Sale Date July, 2002 May, 2001 April, 2000 Sale Price ($) $5,970,000 $16,500,000 $4,315,000 Net Rentable Area (SF) 147,320 379,819 111,805 Number of Units 180 338 110 Price Per Unit $33,167 $48,817 $39,227 Year Built 1971 1974 1969 Land Area (Acre) 9.2800 35.0700 4.5400 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) 07-2002 3% 05-2001 4% 04-2000 6% VALUE AFTER TRANS. ADJUST. ($/UNIT) $34,162 $50,769 $41,581 Location Superior -10% Superior -10% Superior -5% Number of Units 180 0% 338 0% 110 0% Quality / Appeal Comparable 0% Comparable 0% Comparable 0% Age / Condition 1971 / Fair 5% 1974 / Good -5% 1969 / Average 0% Occupancy at Sale 95% -5% 97% -5% 95% -5% Amenities Comparable 0% Comparable 0% Comparable 0% Average Unit Size (SF) 818 15% 1,124 -10% 1,016 -5% PHYSICAL ADJUSTMENT 5% -30% -15% FINAL ADJUSTED VALUE ($/UNIT) $35,870 $35,538 $35,344
SUMMARY VALUE RANGE (PER UNIT) $35,344 TO $ 36,518 MEAN (PER UNIT) $35,749 MEDIAN (PER UNIT) $35,538 VALUE CONCLUSION (PER UNIT) $35,500
VALUE OF IMPROVEMENT & MAIN SITE $7,242,000 DEFERRED MAINTENANCE -$ 50,000 PV OF CONCESSIONS -$ 49,000 VALUE INDICATED BY SALES COMPARISON APPROACH $7,143,000 ROUNDED $7,100,000
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 APARTMENT, OMAHA, NEBRASKA 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-1 246 $ 9,600,000 9.53% $ 915,241 $647,153 0.853 $33,275 $ 39,024 $ 3,720 $ 3,172 I-2 44 $ 1,300,000 9.10% $ 118,318 $647,153 1.180 $34,855 $ 29,545 $ 2,689 $ 3,172 I-3 180 $ 5,970,000 9.29% $ 554,832 $647,153 1.029 $34,134 $ 33,167 $ 3,082 $ 3,172 I-4 338 $16,500,000 9.49% $1,565,735 $647,153 0.685 $33,430 $ 48,817 $ 4,632 $ 3,172 I-5 110 $ 4,315,000 9.40% $ 405,800 $647,153 0.860 $33,732 $ 39,227 $ 3,689 $ 3,172
PRICE/UNIT
Low High Average Median $33,275 $34,855 $33,885 $33,732
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT Estimated Price Per Unit $ 33,800 Number of Units 204 Value $ 6,895,200 Deferred Maintenance -$ 50,000 PV of Concessions -$ 49,000 Value Based on NOI Analysis $ 6,796,200 Rounded $ 6,800,000
The adjusted sales indicate a range of value between $33,275 and $34,855 per unit, with an average of $33,885 per unit. Based on the subject's competitive position within the improved sales, a value of $33,800 per unit is estimated. This indicates an "as is" market value of $6,800,000 (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 APARTMENT, OMAHA, NEBRASKA 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-1 246 $ 9,600,000 $1,821,013 $ 905,772 49.74% 5.27 $ 39,024 I-2 44 $ 1,300,000 $ 231,124 $ 112,806 48.81% 5.62 $ 29,545 I-3 180 $ 5,970,000 $1,074,240 $ 519,408 48.35% 5.56 $ 33,167 50.16% I-4 338 $16,500,000 $2,762,028 $1,196,293 43.31% 5.97 $ 48,817 I-5 110 $ 4,315,000 $ 710,000 $ 304,200 42.85% 6.08 $ 39,227
EGIM
Low High Average Median - ---- ---- ------- ------ 5.27 6.08 5.70 5.62
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES Estimate EGIM 5.30 Subject EGI $1,380,397 Value $7,316,104 Deferred Maintenance -$ 50,000 PV of Concessions -$ 49,000 Value Based on EGIM Analysis $7,217,104 Rounded $7,200,000 Value Per Unit $ 35,294
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 50.16% before reserves. The comparable sales indicate a range of expense ratios from 42.85% to 49.74%, while their EGIMs range from 5.27 to 6.08. Overall, we conclude to an EGIM of 5.30, which results in an "as is" value estimate in the EGIM Analysis of $7,200,000. SALES COMPARISON CONCLUSION The three valuation methods in the Sales Comparison Approach are shown below. The overall value via the Sales Comparison Approach is estimated at $7,100,000. Price Per Unit $7,100,000 NOI Per Unit $6,800,000 EGIM Analysis $7,200,000 Sales Comparison Conclusion $7,100,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 THE APARTMENT, OMAHA, NEBRASKA 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 APARTMENT, OMAHA, NEBRASKA 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 - -------------------------------------------------------------------------------- 1 Bd/1 Bath (1A10) 790 $ 499 $ 0.63 89.7% 1 Bd/1 Bath (1B10) 830 $ 552 $ 0.67 87.1% 2 Bd/1.5 Ba (2A20) 1145 $ 662 $ 0.58 92.5%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 THE APARTMENT, OMAHA, NEBRASKA RENT ANALYSIS
COMPARABLE RENTS ---------------------------------------------------- R-1 R-2 R-3 R-4 R-5 ---------------------------------------------------- Laurelwood Florentine Tudor Apartment Apartment Beacon Hill Maple Heights Homes & Community Apartments Manor Apartments Townhomes ---------------------------------------------------- COMPARISON TO SUBJECT SUBJECT SUBJECT ---------------------------------------------------- SUBJECT UNIT ACTUAL ASKING Slightly DESCRIPTION TYPE RENT RENT Inferior Similar Similar Similar Similar MIN MAX MEDIAN AVERAGE - ------------------------------------------------------------------------------------------------------------------------------------ Monthly Rent 1 BD/1 BATH $ 499 $ 499 $ 487 $ 540 $ 535 $ 465 $ 490 $ 465 $ 540 $ 490 $ 503 Unit Area (SF) (1A10) 790 790 634 716 830 750 850 634 850 750 756 Monthly Rent Per Sq. Ft. $ 0.63 $ 0.63 $ 0.77 $ 0.75 $ 0.64 $ 0.62 $ 0.58 $ 0.58 $ 0.77 $ 0.64 $ 0.67 Monthly Rent 1 BD/1 BATH $ 552 $ 554 $ 565 $ 535 $ 465 $ 490 $ 465 $ 565 $ 513 $ 514 Unit Area (SF) (1B10) 830 830 820 830 750 850 750 850 825 813 Monthly Rent Per Sq. Ft. $ 0.67 $ 0.67 $ 0.69 $ 0.64 $ 0.62 $ 0.58 $ 0.58 $ 0.69 $ 0.63 $ 0.63 Monthly Rent 2 BD/1.5 BA $ 662 $ 664 $ 700 $ 673 $ 595 $ 588 $ 587 $ 587 $ 700 $ 595 $ 628 Unit Area (SF) (2A20) 1,145 1,145 1,200 1,098 1,000 1,025 1,025 1,000 1,200 1,025 1,070 Monthly Rent Per Sq. Ft. $ 0.58 $ 0.58 $ 0.58 $ 0.61 $ 0.60 $ 0.57 $ 0.57 $ 0.57 $ 0.61 $ 0.58 $ 0.59
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 - ----------------------------------------------------------------------------------------------------------------- 1 Bd/1 Bath (1A10) 39 790 $499 $0.63 $ 19,461 $ 233,532 1 Bd/1 Bath (1B10) 85 830 $552 $0.67 $ 46,920 $ 563,040 2 Bd/1.5 Ba (2A20) 80 1,145 $662 $0.58 $ 52,960 $ 635,520 Total $119,341 $1,432,092
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 APARTMENT, OMAHA, NEBRASKA 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 $1,449,653 $ 7,106 $1,504,160 $ 7,373 $1,472,215 $ 7,217 Vacancy $ 87,385 $ 428 $ 138,250 $ 678 $ 132,115 $ 648 Credit Loss/Concessions $ 56,564 $ 277 $ 75,301 $ 369 $ 117,851 $ 578 ---------- ---------- ---------- ---------- ---------- ---------- Subtotal $ 143,949 $ 706 $ 213,551 $ 1,047 $ 249,966 $ 1,225 Laundry Income $ 14,751 $ 72 $ 15,519 $ 76 $ 17,715 $ 87 Garage Revenue $ 22,876 $ 112 $ 20,011 $ 98 $ 19,769 $ 97 Other Misc. Revenue $ 16,916 $ 83 $ 29,558 $ 145 $ 115,200 $ 565 ---------- ---------- ---------- ---------- ---------- ---------- Subtotal Other Income $ 54,543 $ 267 $ 65,088 $ 319 $ 152,684 $ 748 ---------- ---------- ---------- ---------- ---------- ---------- Effective Gross Income $1,360,247 $ 6,668 $1,355,697 $ 6,646 $1,374,933 $ 6,740 Operating Expenses Taxes $ 126,773 $ 621 $ 128,073 $ 628 $ 164,927 $ 808 Insurance $ 18,807 $ 92 $ 26,793 $ 131 $ 32,313 $ 158 Utilities $ 115,860 $ 568 $ 155,260 $ 761 $ 124,461 $ 610 Repair & Maintenance $ 69,868 $ 342 $ 69,036 $ 338 $ 64,787 $ 318 Cleaning $ 25,752 $ 126 $ 20,978 $ 103 $ 23,618 $ 116 Landscaping $ 17,373 $ 85 $ 12,752 $ 63 $ 13,770 $ 68 Security $ 108 $ 1 $ 6,108 $ 30 $ 7,303 $ 36 Marketing & Leasing $ 30,366 $ 149 $ 27,358 $ 134 $ 22,756 $ 112 General Administrative $ 133,938 $ 657 $ 160,702 $ 788 $ 168,320 $ 825 Management $ 67,452 $ 331 $ 77,064 $ 378 $ 67,845 $ 333 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- ---------- Total Operating Expenses $ 606,297 $ 2,972 $ 684,124 $ 3,354 $ 690,100 $ 3,383 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- ---------- Net Income $ 753,950 $ 3,696 $ 671,573 $ 3,292 $ 684,833 $ 3,357 FISCAL YEAR 2003 ANNUALIZED 2003 ------------------------ ------------------------ MANAGEMENT BUDGET PROJECTION AAA PROJECTION ------------------------ ------------------------ ---------------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT % - ---------------------------------------------------------------------------------------------------------------------- Revenues Rental Income $1,534,041 $ 7,520 $1,439,932 $ 7,058 $1,432,092 $ 7,020 100.0% Vacancy $ 137,005 $ 672 $ 139,708 $ 685 $ 128,888 $ 632 9.0% Credit Loss/Concessions $ 67,400 $ 330 $ 126,284 $ 619 $ 42,963 $ 211 3.0% ---------- ---------- ---------- ---------- ---------- ---------- ---- Subtotal $ 204,405 $ 1,002 $ 265,992 $ 1,304 $ 171,851 $ 842 12.0% Laundry Income $ 22,800 $ 112 $ 14,164 $ 69 $ 18,360 $ 90 1.3% Garage Revenue $ 20,000 $ 98 $ 19,200 $ 94 $ 20,196 $ 99 1.4% Other Misc. Revenue $ 72,265 $ 354 $ 98,312 $ 482 $ 81,600 $ 400 5.7% ---------- ---------- ---------- ---------- ---------- ---------- ---- Subtotal Other Income $ 115,065 $ 564 $ 131,676 $ 645 $ 120,156 $ 589 8.4% ---------- ---------- ---------- ---------- ---------- ---------- ---- Effective Gross Income $1,444,701 $ 7,082 $1,305,616 $ 6,400 $1,380,397 $ 6,767 100.0% Operating Expenses Taxes $ 133,327 $ 654 $ 153,400 $ 752 $ 155,040 $ 760 11.2% Insurance $ 36,434 $ 179 $ 37,724 $ 185 $ 36,516 $ 179 2.6% Utilities $ 116,300 $ 570 $ 206,752 $ 1,013 $ 118,320 $ 580 8.6% Repair & Maintenance $ 70,187 $ 344 $ 52,112 $ 255 $ 71,400 $ 350 5.2% Cleaning $ 22,165 $ 109 $ 13,356 $ 65 $ 22,440 $ 110 1.6% Landscaping $ 12,998 $ 64 $ 9,016 $ 44 $ 13,260 $ 65 1.0% Security $ 6,894 $ 34 $ 3,888 $ 19 $ 7,140 $ 35 0.5% Marketing & Leasing $ 27,018 $ 132 $ 22,600 $ 111 $ 26,928 $ 132 2.0% General Administrative $ 173,829 $ 852 $ 172,392 $ 845 $ 172,380 $ 845 12.5% Management $ 76,900 $ 377 $ 65,080 $ 319 $ 69,020 $ 338 5.0% Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% ---------- ---------- ---------- ---------- ---------- ---------- ---- Total Operating Expenses $ 676,052 $ 3,314 $ 736,320 $ 3,609 $ 692,444 $ 3,394 50.2% Reserves $ 0 $ 0 $ 0 $ 0 $ 40,800 $ 200 5.9% ---------- ---------- ---------- ---------- ---------- ---------- ---- Net Income $ 768,649 $ 3,768 $ 569,296 $ 2,791 $ 647,153 $ 3,172 46.9%
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 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 APARTMENT, OMAHA, NEBRASKA 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 some major items remaining in need of repair or replacement that would require an expense beyond our reserves for replacement. Therefore an additional $50,000 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 31 THE APARTMENT, OMAHA, NEBRASKA SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR - ------------------------------------------------------------------------ I-1 Jan-03 94% $39,024 9.53% I-2 Jul-02 93% $29,545 9.10% I-3 Jul-02 95% $33,167 9.29% I-4 May-01 97% $48,817 9.49% I-5 Apr-00 95% $39,227 9.40% High 9.53% Low 9.10% Average 9.36%
Based on this information, we have concluded the subject's overall capitalization rate should be 9.25%. The terminal capitalization rate is applied to the net operating income estimated for the year following the end of the holding period. Based on the concluded overall capitalization rate, the age of the property and the surveyed information, we have concluded the subject's terminal capitalization rate to be 10.00%. Finally, the subject's discount rate or yield rate is estimated based on the previous investor survey and an examination of returns available on alternative investments in the market. Based on this analysis, the subject's discount rate is estimated to be 11.50%. HOLDING PERIOD The survey of investors indicates that most investors are completing either 10-year cash flows or extending the analysis to the end of the lease if it is more than 10-years. A 10-year period has been used in the analysis of the subject with the eleventh year stabilized NOI used to determine the reversion. SELLING COSTS Sales of similar size properties are typically accomplished with the aid of a broker and will also incur legal and other transaction related cost. Based on our survey of brokers and a review of institutional investor projections, an allowance of 2.00% of the sale amount is applied. DISCOUNTED CASH FLOW CONCLUSION Discounting the annual cash flows and the equity reversion at the selected rate of 11.50% indicates a value of $6,900,000. In this instance, the reversion figure contributes approximately 40% of the total value. Investors surveyed for this assignment indicated they AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32 THE APARTMENT, OMAHA, NEBRASKA would prefer to have the cash flow contribute anywhere from 50% to 60%. Overall, the blend seems reasonable. The cash flow and pricing matrix are located on the following pages. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 33 THE APARTMENT, OMAHA, NEBRASKA DISCOUNTED CASH FLOW ANALYSIS THE APARTMENT
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 FISCAL YEAR 1 2 3 4 5 6 - ---------------------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $1,432,092 $1,432,092 $1,475,055 $1,519,306 $1,564,886 $1,611,832 Vacancy $ 128,888 $ 128,888 $ 132,755 $ 136,738 $ 140,840 $ 145,065 Credit Loss $ 42,963 $ 42,963 $ 44,252 $ 45,579 $ 46,947 $ 48,355 Concessions $ 35,802 $ 21,481 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------------------------- Subtotal $ 207,653 $ 193,332 $ 177,007 $ 182,317 $ 187,786 $ 193,420 Laundry Income $ 18,360 $ 18,360 $ 18,911 $ 19,478 $ 20,062 $ 20,664 Garage Revenue $ 20,196 $ 20,196 $ 20,802 $ 21,426 $ 22,069 $ 22,731 Other Misc. Revenue $ 81,600 $ 81,600 $ 84,048 $ 86,569 $ 89,167 $ 91,842 ------------------------------------------------------------------------------------- Subtotal Other Income $ 120,156 $ 120,156 $ 123,761 $ 127,474 $ 131,298 $ 135,237 ------------------------------------------------------------------------------------- EFFECTIVE GROSS INCOME $1,344,595 $1,358,916 $1,421,809 $1,464,463 $1,508,397 $1,553,649 OPERATING EXPENSES: Taxes $ 155,040 $ 158,141 $ 162,885 $ 167,772 $ 172,805 $ 177,989 Insurance $ 36,516 $ 37,246 $ 38,364 $ 39,515 $ 40,700 $ 41,921 Utilities $ 118,320 $ 120,686 $ 124,307 $ 128,036 $ 131,877 $ 135,834 Repair & Maintenance $ 71,400 $ 72,828 $ 75,013 $ 77,263 $ 79,581 $ 81,969 Cleaning $ 22,440 $ 22,889 $ 23,575 $ 24,283 $ 25,011 $ 25,762 Landscaping $ 13,260 $ 13,525 $ 13,931 $ 14,349 $ 14,779 $ 15,223 Security $ 7,140 $ 7,283 $ 7,501 $ 7,726 $ 7,958 $ 8,197 Marketing & Leasing $ 26,928 $ 27,467 $ 28,291 $ 29,139 $ 30,013 $ 30,914 General Administrative $ 172,380 $ 175,828 $ 181,102 $ 186,536 $ 192,132 $ 197,896 Management $ 67,230 $ 67,946 $ 71,090 $ 73,223 $ 75,420 $ 77,682 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $ 690,654 $ 703,838 $ 726,060 $ 747,841 $ 770,277 $ 793,385 Reserves $ 40,800 $ 41,616 $ 42,864 $ 44,150 $ 45,475 $ 46,839 ------------------------------------------------------------------------------------- NET OPERATING INCOME $ 613,141 $ 613,461 $ 652,885 $ 672,471 $ 692,645 $ 713,425 Operating Expense Ratio (% of EGI) 51.4% 51.8% 51.1% 51.1% 51.1% 51.1% Operating Expense Per Unit $ 3,386 $ 3,450 $ 3,559 $ 3,666 $ 3,776 $ 3,889 YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 7 8 9 10 11 - ------------------------------------------------------------------------------------------------------------ REVENUE Base Rent $1,660,187 $1,709,993 $1,761,293 $1,814,131 $1,868,555 Vacancy $ 149,417 $ 153,899 $ 158,516 $ 163,272 $ 168,170 Credit Loss $ 49,806 $ 51,300 $ 52,839 $ 54,424 $ 56,057 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 ---------------------------------------------------------------------- Subtotal $ 199,222 $ 205,199 $ 211,355 $ 217,696 $ 224,227 Laundry Income $ 21,284 $ 21,923 $ 22,580 $ 23,258 $ 23,956 Garage Revenue $ 23,413 $ 24,115 $ 24,839 $ 25,584 $ 26,351 Other Misc. Revenue $ 94,597 $ 97,435 $ 100,358 $ 103,368 $ 106,469 ---------------------------------------------------------------------- Subtotal Other Income $ 139,294 $ 143,473 $ 147,777 $ 152,210 $ 156,776 ---------------------------------------------------------------------- EFFECTIVE GROSS INCOME $1,600,258 $1,648,266 $1,697,714 $1,748,646 $1,801,105 OPERATING EXPENSES: Taxes $ 183,329 $ 188,828 $ 194,493 $ 200,328 $ 206,338 Insurance $ 43,179 $ 44,474 $ 45,808 $ 47,183 $ 48,598 Utilities $ 139,909 $ 144,106 $ 148,429 $ 152,882 $ 157,468 Repair & Maintenance $ 84,428 $ 86,960 $ 89,569 $ 92,256 $ 95,024 Cleaning $ 26,534 $ 27,330 $ 28,150 $ 28,995 $ 29,865 Landscaping $ 15,679 $ 16,150 $ 16,634 $ 17,133 $ 17,647 Security $ 8,443 $ 8,696 $ 8,957 $ 9,226 $ 9,502 Marketing & Leasing $ 31,841 $ 32,797 $ 33,780 $ 34,794 $ 35,838 General Administrative $ 203,832 $ 209,947 $ 216,246 $ 222,733 $ 229,415 Management $ 80,013 $ 82,413 $ 84,886 $ 87,432 $ 90,055 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 ---------------------------------------------------------------------- TOTAL OPERATING EXPENSES $ 817,187 $ 841,702 $ 866,953 $ 892,962 $ 919,751 Reserves $ 48,244 $ 49,692 $ 51,182 $ 52,718 $ 54,299 ---------------------------------------------------------------------- NET OPERATING INCOME $ 734,827 $ 756,872 $ 779,578 $ 802,966 $ 827,055 Operating Expense Ratio (% of EGI) 51.1% 51.1% 51.1% 51.1% 51.1% Operating Expense Per Unit $ 4,006 $ 4,126 $ 4,250 $ 4,377 $ 4,509
Estimated Stabilized NOI $647,153 Sales Expense Rate 2.00% Months to Stabilized 0 Discount Rate 11.50% Stabilized Occupancy 91.0% Terminal Cap Rate 10.00%
Gross Residual Sale Price $8,270,548 Deferred Maintenance -$ 50,000 Less: Sales Expense $ 165,411 Add: Excess Land $ 0 ---------- Net Residual Sale Price $8,105,137 Other Adjustments $ 0 ---------- PV of Reversion $2,729,051 Value Indicated By "DCF" $6,874,261 Add: NPV of NOI $4,195,210 Rounded $6,900,000 ---------- PV Total $6,924,261
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE ------------------------------------------------------------------------ TOTAL VALUE 11.00% 11.25% 11.50% 11.75% 12.00% - ------------------------------------------------------------------------------------------------------------ TERMINAL CAP RATE 9.50% $7,300,179 $7,182,766 $7,067,896 $6,955,505 $6,845,531 9.75% $7,223,135 $7,107,435 $6,994,237 $6,883,477 $6,775,095 10.00% $7,149,942 $7,035,871 $6,924,261 $6,815,051 $6,708,181 10.25% $7,080,320 $6,967,798 $6,857,699 $6,749,963 $6,644,532 10.50% $7,014,014 $6,902,966 $6,794,307 $6,687,975 $6,583,913
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 34 THE APARTMENT, OMAHA, NEBRASKA 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 $49,000 (rounded). This amount has been deducted from the Direct Capitalization analysis, as well as the Sales Comparison Approach value. DIRECT CAPITALIZATION METHOD After having projected the income and expenses for the property, the next step in the valuation process is to capitalize the net income into an estimate of value. The selected overall capitalization rate ("OAR") covers both return on and return of capital. It is the overall rate of return an investor expects. After considering the market transactions and the investor surveys, we previously conclude that an overall rate of 9.25% percent is applicable to the subject. The results of our direct capitalization analysis are as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 35 THE APARTMENT, OMAHA, NEBRASKA THE APARTMENT
TOTAL PER Sq. Ft. PER UNIT % OF EGI - ----------------------------------------------------------------------------------------------- REVENUE Base Rent $1,432,092 $ 7.42 $ 7,020 Less: Vacancy & Collection Loss 12.00% $ 171,851 $ 0.89 $ 842 Plus: Other Income Laundry Income $ 18,360 $ 0.10 $ 90 1.33% Garage Revenue $ 20,196 $ 0.10 $ 99 1.46% Other Misc. Revenue $ 81,600 $ 0.42 $ 400 5.91% ----------------------------------------------- Subtotal Other Income $ 120,156 $ 0.62 $ 589 8.70% EFFECTIVE GROSS INCOME $1,380,397 $ 7.15 $ 6,767 OPERATING EXPENSES: Taxes $ 155,040 $ 0.80 $ 760 11.23% Insurance $ 36,516 $ 0.19 $ 179 2.65% Utilities $ 118,320 $ 0.61 $ 580 8.57% Repair & Maintenance $ 71,400 $ 0.37 $ 350 5.17% Cleaning $ 22,440 $ 0.12 $ 110 1.63% Landscaping $ 13,260 $ 0.07 $ 65 0.96% Security $ 7,140 $ 0.04 $ 35 0.52% Marketing & Leasing $ 26,928 $ 0.14 $ 132 1.95% General Administrative $ 172,380 $ 0.89 $ 845 12.49% Management 5.00% $ 69,020 $ 0.36 $ 338 5.00% Miscellaneous $ 0 $ 0.00 $ 0 0.00% TOTAL OPERATING EXPENSES $ 692,444 $ 3.59 $ 3,394 50.16% Reserves $ 40,800 $ 0.21 $ 200 2.96% ----------------------------------------------- NET OPERATING INCOME $ 647,153 $ 3.35 $ 3,172 46.88% "GOING IN" CAPITALIZATION RATE 9.25% VALUE INDICATION $6,996,250 $36.26 $34,295 DEFERRED MAINTENANCE ($ 50,000) PV OF CONCESSIONS ($ 49,000) "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $6,897,250 ROUNDED $6,900,000 $35.76 $33,824
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 36 THE APARTMENT, OMAHA, NEBRASKA DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF - ---------------------------------------------------------------- 8.50% $7,514,566 $7,500,000 $36,765 $38.87 8.75% $7,297,036 $7,300,000 $35,784 $37.83 9.00% $7,091,590 $7,100,000 $34,804 $36.80 9.25% $6,897,250 $6,900,000 $33,824 $35.76 9.50% $6,713,138 $6,700,000 $32,843 $34.72 9.75% $6,538,468 $6,500,000 $31,863 $33.69 10.00% $6,372,531 $6,400,000 $31,373 $33.17
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $6,900,000. CORRELATION AND CONCLUSION BY THE INCOME APPROACH The two methods used to estimate the market value of the subject property by the income approach resulted in the following indications of value: Discounted Cash Flow Analysis $6,900,000 Direct Capitalization Method $6,900,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $6,900,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 37 THE APARTMENT, OMAHA, NEBRASKA 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 $7,100,000 Income Approach $6,900,000 Reconciled Value $7,000,000
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: $7,000,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA THE APARTMENT, OMAHA, NEBRASKA ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A THE APARTMENT, OMAHA, NEBRASKA EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A THE APARTMENT, OMAHA, NEBRASKA SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - SIGNAGE AND VIEW FROM GRANT STREET EXTERIOR - TYPICAL APARTMENTS [PICTURE] [PICTURE] EXTERIOR - TYPICAL APARTMENTS EXTERIOR - OFFICE [PICTURE] [PICTURE] EXTERIOR - SWIMMING POOL EXTERIOR - CHIPPING PAINT ALONG WINDOW FRAME AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A THE APARTMENT, OMAHA, NEBRASKA SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] INTERIOR - OFFICE AND MEETING INTERIOR - 2 BEDROOM MODEL UNIT ROOM SPACE LIVING & DINING ROOM [PICTURE] [PICTURE] INTERIOR - 2 BEDROOM MODEL INTERIOR - 2 BEDROOM MODEL UNIT KITCHEN UNIT BATHROOM [PICTURE] [PICTURE] INTERIOR - 2 BEDROOM MODEL INTERIOR - VACANT 1 BEDROOM UNIT BEDROOM UNIT BEDROOM AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B THE APARTMENT, OMAHA, NEBRASKA EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B THE APARTMENT, OMAHA, NEBRASKA PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 CHALET APARTMENTS & TOWNHOMES ORCHARD PARK APARTMENTS BRENT VILLAGE APARTMENTS 3810 North 108th Street 7805-7809 Harney Street 1402-1510 Buck Drive Omaha, Nebraska Omaha, Nebraska Bellevue, Nebraska [PICTURE] [PICTURE] N/A COMPARABLE I-4 COMPARABLE I-5 FONTENELLE HILLS APARTMENTS 1001 APARTMENTS 200 Martin Drive 1001 North 90th Street Bellevue, Nebraska Omaha, Nebraska N/A [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B THE APARTMENT, OMAHA, NEBRASKA SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 - ----------------------------------------------------------------------------------------------------------------------------------- Property Name The Apartment Florentine Apartment Community Management Company AIMCO A. J. V. Properties LOCATION: Address 7349 Grant Street 2105-2333 Benson Garden Blvd. City, State Omaha, Nebraska Omaha, Nebraska County Douglas Douglas Proximity to Subject 1.2 miles east PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 192,960 N/A Year Built 1974 1971 Effective Age 25 30 Building Structure Type Brick & vinyl siding walls; asphalt shingle roof Brick & stucco siding; asphalt shingle roof Parking Type (Gr., Cov., etc.) Garage and open Open Number of Units 204 176 Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo. 1 1 Bd/1 Bath (1A10) 790 39 $499 1 1 Bd / 1 Ba-Ph I A 634 $487 2 1 Bd/1 Bath (1B10) 830 85 $552 0 1 Bd / 1 Ba-Ph I B 592 $495 3 2 Bd/1.5 Ba (2A20) 1,145 80 $662 0 1 Bd / 1 Ba-Ph II 615 $487 0 1 Bd / 1 Ba-Ph III 605 $495 0 2 Bd/1 Ba-Ph I 770 $555 0 2 Bd/1 Ba-Ph I Cnr. 970 $595 3 2 Bd/2 Ba-Ph I 1,200 $700 0 2 Bd/1 Ba-Ph II 728 $567 0 2 Bd/1 Ba-Ph II Cnr. 810 $587 0 2Bd/1Ba-Ph III 744 $620 0 2Bd/1Ba-Ph III Cnr. 815 $590 0 3Bd/1Ba-Ph III 1,100 $700 Average Unit Size (SF) 946 Unit Breakdown: Efficiency 0% 2-Bedroom 39% Efficiency N/A 2-Bedroom N/A 1-Bedroom 61% 3-Bedroom 0% 1-Bedroom N/A 3-Bedroom N/A CONDITION: Average Average APPEAL: Average Average AMENITIES: Unit Amenities Attach. Garage X Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X Ceiling Fans X Balcony Ceiling Fans 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 BBQ Equipment Basketball Court X BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball X 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 Gym Room Putting Green X Gym Room Putting Green Tanning Bed Washer-Dryer Tanning Bed Washer-Dryer Playground W/D Hookup Playground X W/D Hookup OCCUPANCY: 90% 87% LEASING DATA: Available Leasing Terms 6 to 12 Months 6 to 12 Months Concessions 1/2 month free $100 off deposits Pet Deposit $300 non-refundable fee/pet + $20/m pet rent No pets allowed Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas X Water Trash Water Trash Confirmation May 12, 2003; Ms. Michelle Jackson (Property May 12, 2003; Ms. Karin Babcock, (Leasing Telephone Number (402) 493-4131 (402) 391-0415 NOTES: Landlord pays for heat, water and trash. Tenant pays electric only. Security deposit is equal to one months rent (reduced by the current $100 off special). Only the 1,200 SF 2 bedroom 2 bath units have washer / dryer hookups. Garages lease for $45 per month. COMPARISON TO SUBJECT: Slightly Inferior COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 - ------------------------------------------------------------------------------------------------------------------------------------ Property Name Beacon Hill Apartments Maple Manor Management Company NP Dodge Management Company Inc. The Goodman Group LOCATION: Address 9315 Maplewood Boulevard 3022 1/2 North 97th Street City, State Omaha, Nebraska Omaha, Nebraska County Douglas Douglas Proximity to Subject 2.6 miles northwest 2.7 miles west PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) N/A N/A Year Built 1968 1968 Effective Age 30 35 Building Structure Type Brick & wood siding, asphalt shingle roof Brick veneer, wood frame, asphalt shingle roof Parking Type (Gr., Cov., etc.) Open Garage and open Number of Units 192 259 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 0 1 Bd/1 Ba-studio 559 $460 0 1Bd / 1Ba-Studio #1 520 $460 0 1 Bd/1 Ba-studio wd 559 $495 0 1Bd / 1Ba-Studio #2 540 $485 0 1 Bd/1 Ba 603 $495 1 1 Bd / 1 Bath 830 $535 0 1 Bd/1 Ba - 1st floor 716 $535 2 1 Bd / 1 Bath 830 $535 1 1 Bd/1 Ba - upstairs 716 $540 3 2 Bd / 2 Bath 1,000 $595 2 1 Bd/1 Ba 820 $565 0 3 Bd / 1.5 Bath 1,250 $815 3 2 Bd/1.5 Ba 1,044 $660 0 3 Bd / 2 Bath 1,250 $850 0 2 Bd/1.5 Ba w/FP 1,044 $665 3 2 Bd/2 Ba w/FP 1,151 $685 Average Unit Size (SF) Unit Breakdown: Efficiency N/A 2-Bedroom N/A Efficiency N/A 2-Bedroom N/A 1-Bedroom N/A 3-Bedroom N/A 1-Bedroom N/A 3-Bedroom N/A CONDITION: Average Average APPEAL: Average Average AMENITIES: Unit Amenities Attach. Garage X Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony Ceiling Fans X Balcony X Ceiling Fans 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 BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball X Meeting Hall Sand Volley Ball X Meeting Hall Tennis Court Secured Parking Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track X Business Office Jogging Track X Business Office Gym Room Putting Green X Gym Room Putting Green Tanning Bed Washer-Dryer Tanning Bed Washer-Dryer Playground X W/D Hookup X Playground X W/D Hookup OCCUPANCY: N/A 90% LEASING DATA: Available Leasing Terms 12 Months 6 to 12 Months Concessions None 1 month free with 12 month lease Pet Deposit Cats only, $150 deposit for 1st pet, $75 for 2nd $250 deposit ($150 refundable) + $15/m pet rnt. Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas Water Trash Water Trash Confirmation May 12, 2003, Ms. KaCee Peters (Leasing Agent) May 14, 2003; Ms. Lisa Hamernick (Community Telephone Number (402) 572-1610 (402) 572-1414 NOTES: Tenants qualify for a discounted membership at All utility bills are paid by the landlord for a nearby Golds Gym as the property has no the two Studio unit types. Natural gas heat is fitness center. Security deposit is $175, and paid by the landlord for all unit types. there is an application fee of $20 per person. Application fee is $25 and the security deposit is $250 for the studio, 1 and 2 bedroom units, and $300 for the 3 bedroom units. Garages rent for $35 per month. COMPARISON TO SUBJECT: Similar Similar COMPARABLE COMPARABLE DESCRIPTION R - 4 R - 5 - ------------------------------------------------------------------------------------------------------------------------------------ Property Name Tudor Heights Apartments Laurelwood Apartment Homes & Townhomes Management Company Providence Management Company, LLC N/A LOCATION: Address 10505 Evans Plaza 5439 North 100th Plaza City, State Omaha, Nebraska Omaha, Nebraska County Douglas Douglas Proximity to Subject 4.0 miles west 4.1 miles northwest PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) N/A N/A Year Built 1970s 1969 Effective Age 30+ 34 Building Structure Type Brick & stucco sidings; asphalt shingle roof Brick veneer, wood frame; asphalt shingle roof Parking Type (Gr., Cov., etc.) Garage, open and covered Garage & open Number of Units 418 480 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1 Bd / 1Bath 750 $465 1 1 Bd / 1 Ba - apt. 850 $490 2 1 Bd / 1Bath 750 $465 2 1 Bd / 1 Ba - apt. 850 $490 3 2 Bd / 1 Ba - Type 1 1,000 $565 3 2 Bd / 2 Ba - apt. 1,000 $575 3 2 Bd / 1.5Ba-Type 2 1,050 $610 3 2 Bd / 2 Ba - apt. 1,050 $599 0 1 Bd / 1 Ba-townhm. 825 $550 0 2 Bd / 2 Ba-townhm. 1,200 $805 Average Unit Size (SF) Unit Breakdown: Efficiency N/A 2-Bedroom N/A Efficiency N/A 2-Bedroom N/A 1-Bedroom N/A 3-Bedroom N/A 1-Bedroom N/A 3-Bedroom N/A CONDITION: Average Average APPEAL: Average Average AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony Ceiling Fans X Balcony Ceiling Fans Fireplace X Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X X Swimming Pool X 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 X Sand Volley Ball X Meeting Hall X Sand Volley Ball X 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 Gym Room X Putting Green X Gym Room Putting Green Tanning Bed Washer-Dryer Tanning Bed Washer-Dryer Playground W/D Hookup X Playground W/D Hookup OCCUPANCY: 96% 94% LEASING DATA: Available Leasing Terms 6 to 12 Months 6 to 12 Months Concessions $200 off 1st months rent $200 off 1st months rent on certain apt. units Pet Deposit $200 non-refundable deposit/cat + $10/cat rent None, no pets allowed Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas Water Trash Water Trash Confirmation May 14, 2003; Matt (Leasing Consultant) May 14, 2003; Mr. Eric Henderson (Leasing Telephone Number (402) 493-3777 (402) 572-1000 NOTES: Select units have been newly remodeled. Property has an indoor pool as part of the Residents qualify for a membership discount at fitness center. Application fee is $20 and a nearby fitness center, no onsite fitness center security deposits range from $200 to $500 Laundry facilities in each building. Security depending upon the unit type. Garages rent for deposit is $250, no application fee and garages $40 per month. The unit rents above reflect rent for $45 per month. Units have electric units that have had updated appliances. Rental heat, thus tenants pay heating expense. rates are approx. $25 less for units where the appliances have not been updated. COMPARISON TO SUBJECT: Similar Similar
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B THE APARTMENT, OMAHA, NEBRASKA PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 FLORENTINE APARTMENT COMMUNITY BEACON HILL APARTMENTS MAPLE MANOR 2105-2333 Benson Garden Blvd. 9315 Maplewood Boulevard 3022 1/2 North 97th Omaha, Nebraska Omaha, Nebraska Street Omaha, Nebraska [PICTURE] [PICTURE] [PICTURE] COMPARABLE R-4 COMPARABLE R-5 TUDOR HEIGHTS APARTMENTS LAURELWOOD APARTMENT 10505 Evans Plaza HOMES & TOWNHOMES Omaha, Nebraska 5439 North 100th Plaza Omaha, Nebraska [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C THE APARTMENT, OMAHA, NEBRASKA EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C THE APARTMENT, OMAHA, NEBRASKA 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 APARTMENT, OMAHA, NEBRASKA 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 APARTMENT, OMAHA, NEBRASKA 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 THE APARTMENT, OMAHA, NEBRASKA 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. No one provided me with 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- Jeff W. Briggs ---------------------------- Jeff Briggs, MAI Engagement Director, Real Estate Group Nebraska Certified General Real Estate Appraiser #CG230072R AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E THE APARTMENT, OMAHA, NEBRASKA EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E THE APARTMENT, OMAHA, NEBRASKA JEFF W. BRIGGS, MAI ENGAGEMENT DIRECTOR, REAL ESTATE GROUP POSITION Jeff W. Briggs is an engagement director for the Dallas Real Estate Group of American Appraisal Associates, Inc. ("AAA"). EXPERIENCE Valuation Mr. Briggs' valuation experience includes all types of industrial property, Class A office buildings, regional malls, neighborhood and community shopping centers, apartments, hotels, and both daily fee and private golf facilities. He has appraised the vacant land of farms and ranches, single-family residential subdivisions, commercial subdivisions, commercial urban properties, and conservation easements. Special-purpose property valuations he has performed include a large pork production facility, cemeteries, nursing homes, and outpatient surgical clinics. Purchase price allocation assignments included valuation of the land components of a professional sports stadium and a pork production facility. Mr. Briggs has completed assignments in over 30 states throughout the country. Court Mr. Briggs has testified as an expert witness in federal bankruptcy court and assisted in condemnation assignments for the Texas Highway Department. Business Mr. Briggs joined AAA in 2000. Prior to joining AAA, he was a manager in the Dallas office of Arthur Andersen LLP from 1996 to 1999. Previously, Mr. Briggs had served as a senior appraiser for Wilson K. Mason Company and Integrated Evaluation, both Dallas real estate appraisal companies, and had been employed by Harvey Cornwell and Associates, also a Dallas-based real estate valuation firm. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E THE APARTMENT, OMAHA, NEBRASKA EDUCATION University of North Texas Bachelor of Business Administration - Real Estate PROFESSIONAL Appraisal Institute, MAI Designated Member AFFILIATIONS STATE CERTIFICATIONS State of Arizona, Certified General Real Estate Appraiser, #31114 State of Arkansas, State Certified General Appraiser, #CG1588N State of Indiana, Certified General Appraiser, #CG40200493 Commonwealth of Kentucky, Certified General Real Property Appraiser, #002611 State of Michigan, Certified General Appraiser, #1201068301 State of Minnesota, Certified General Real Property Appraiser, #AP-20280553 State of Mississippi, State Certified General Real Estate Appraiser, #GA-625 State of Oregon, State Certified General Appraiser, #C000713 Commonwealth of Pennsylvania, Certified General Appraiser, #GA001870 State of Texas, State Certified General Real Estate Appraiser, #TX-1321403-G State of Washington, Certified General Real Estate Appraiser, #1101000 AMERICAN APPRAISAL ASSOCIATES, INC. THE APARTMENT, OMAHA, NEBRASKA GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. THE APARTMENT, OMAHA, NEBRASKA 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 d07256a1exv99wxcyx2y.txt APPRAISAL OF ARBOURS OF HERMITAGE ARBOURS OF HERMITAGE 6001 OLD HICKORY ROAD HERMITAGE, TENNESSEE MARKET VALUE - FEE SIMPLE ESTATE AS OF MAY 5, 2003 PREPARED FOR: APARTMENT INVESTMENT AND MANAGEMENT COMPANY (AIMCO) C/O LINER YANKELEVITZ SUNSHINE & REGENSTREIF LLP & LIEFF CABRASER HEIMANN & BERNSTEIN ON BEHALF OF NUANES, ET. AL. [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LETTERHEAD] JUNE 30, 2003 Apartment Investment and Management Company ("AIMCO") c/o Mr. Steven A. Velkei, Esq. Liner Yankelevitz Sunshine & Regenstreif LLP 1100 Glendon Avenue, 14th Floor Los Angeles, California 90024-3503 Nuanes, et al.( "Plaintiffs ") c/o Ms. Joy Kruse Lieff Cabraser Heimann & Bernstein Embarcadero Center West 275 Battery Street, 30th Floor San Francisco, California 94111 RE: ARBOURS OF HERMITAGE 6001 OLD HICKORY ROAD HERMITAGE, DAVIDSON COUNTY, TENNESSEE 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 350 units with a total of 386,100 square feet of rentable area. The improvements were built in 1972. The improvements are situated on 28.01 acres. Overall, the improvements are in average condition. As of the date of this appraisal, the subject property is 96% 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 ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE 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 5, 2003 is: ($15,000,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. -s- Frank Fehribach #053272 Managing Principal, Real Estate Group Tennessee Temporary Practice Permit #00053573 Report By: Daniel Salcedo Tennessee Temporary Practice Permit #00053558 AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE 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 ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Arbours of Hermitage LOCATION: 6001 Old Hickory Road Hermitage, Tennessee 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 5, 2003 DATE OF REPORT: June 30, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 28.01 acres, or 1,220,116 square feet Assessor Parcel No.: 128-00-0-099 Floodplain: Community Panel No. 47037C0308F (April 20, 2001) Flood Zone X, an area outside the floodplain. Zoning: RM-15 (Medium to High Density Apartment District) BUILDING: No. of Units: 350 Units Total NRA: 386,100 Square Feet Average Unit Size: 1,103 Square Feet Apartment Density: 12.5 units per acre Year Built: 1972 UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
Market Rent Square ----------------------- Monthly Annual Unit Type Feet Per Unit Per SF Income Income - --------------------------------------------------------------------------------- 1Br/1Ba -1A10 770 $ 530 $ 0.69 $ 38,160 $ 457,920 1Br/1.5Ba -1B15 750 $ 530 $ 0.71 $ 20,140 $ 241,680 2Br/1.5Ba - 2A15 1,110 $ 600 $ 0.54 $ 48,000 $ 576,000 2Br/2Ba - 2A20 1,270 $ 675 $ 0.53 $ 32,400 $ 388,800 2Br/2Ba -2B20 1,325 $ 700 $ 0.53 $ 44,800 $ 537,600 3Br/2Ba - 3A20 1,325 $ 720 $ 0.54 $ 11,520 $ 138,240 3Br/2.5Ba -3A25 1,450 $ 750 $ 0.52 $ 24,000 $ 288,000 - --------------------------------------------------------------------------------- Total $ 219,020 $2,628,240 =================================================================================
OCCUPANCY: 96% AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 20 Years REMAINING ECONOMIC LIFE: 25 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [UNIT TYPE FACADE PICTURE] [UNIT TYPE PICTURE] [AREA MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE [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 ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
Amount $/Unit ------ ------ DIRECT CAPITALIZATION Potential Rental Income $2,628,240 $7,509 Effective Gross Income $2,782,078 $7,949 Operating Expenses $1,232,854 $3,522 44.3% of EGI Net Operating Income: $1,461,724 $4,176 Capitalization Rate 9.75% DIRECT CAPITALIZATION VALUE $15,000,000 * $42,857 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 7% Stabilized Vacancy & Collection Loss: 5% Lease-up / Stabilization Period N/A Terminal Capitalization Rate 10.75% Discount Rate 12.50% Selling Costs 2.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $15,100,000 * $43,143 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $15,000,000 $42,857 / UNIT SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $17,808 to $78,415 Range of Sales $/Unit (Adjusted) $36,507 to $47,049 VALUE INDICATION - PRICE PER UNIT $15,400,000 * $44,000 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 4.64 to 6.66 Selected EGIM for Subject 5.50 Subject's Projected EGI $2,782,078 EGIM ANALYSIS CONCLUSION $15,300,000 * $43,714 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $15,800,000 * $45,143 / UNIT RECONCILED SALES COMPARISON VALUE $15,400,000 $44,000 / 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 ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $15,400,000 NOI Per Unit $15,800,000 EGIM Multiplier $15,300,000 INDICATED VALUE BY SALES COMPARISON $15,400,000 $44,000 / UNIT INCOME APPROACH: Direct Capitalization Method: $15,000,000 Discounted Cash Flow Method: $15,100,000 INDICATED VALUE BY THE INCOME APPROACH $15,000,000 $42,857 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $15,000,000 $42,857 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 6001 Old Hickory Road, Hermitage, Davidson County, Tennessee. Hermitage identifies it as 128-00-0-099. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Daniel Salcedo on May 5, 2003. Frank Fehribach, MAI has not made a personal inspection of the subject property. Daniel Salcedo performed the research, valuation analysis and wrote the report. Frank Fehribach, MAI reviewed the report and concurs with the value. Frank Fehribach, MAI and Daniel Salcedo 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 5, 2003. The date of the report is June 30, 2003. PURPOSE AND USE OF APPRAISAL The purpose of the appraisal is to estimate the market value of the fee simple interest in the subject property. It is understood that the appraisal is intended to assist the clients in litigation settlement proceedings. The appraisal was not based on a requested minimum valuation, a specific valuation, or the approval of a loan. PROPERTY RIGHTS APPRAISED We have appraised the Fee Simple Estate in the subject property (as applied in the Sales & Income Approaches), subject to the existing short-term leases. A Fee Simple Estate is AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 10 ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE 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 CCP 4. 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 ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE 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 Hermitage, Tennessee. Overall, the neighborhood is characterized as an urban setting with the predominant land use being residential. The subject's neighborhood is generally defined by the following boundaries. NEIGHBORHOOD BOUNDARIES East - Old Hickory Road West - SR-70 South - SR-70 North - I-40 MAJOR EMPLOYERS Major employers in the subject's area include ComPlus, Concentra, Staurn Corporation, Gaylord Entertainment, Nissan Motor Manufacturing Corporation, Kroger Company, Reemay Inc., United Parcel Service, First American National Bank, Shoney's Inc., BellSouth, Inter City Pro Corporation, NationsBank, and Bridgestone/Firestone. 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 ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE NEIGHBORHOOD DEMOGRAPHICS
AREA ------------------------------------------ CATEGORY 1-Mi. RADIUS 3-Mi. RADIUS 5-Mi. RADIUS MSA - -------------------------------------------------------------------------------------- POPULATION TRENDS Current Population 6,828 35,076 71,257 1,275,686 5-Year Population 7,808 38,807 77,356 1,391,452 % Change CY-5Y 14.4% 10.6% 8.6% 9.1% Annual Change CY-5Y 2.9% 2.1% 1.7% 1.8% HOUSEHOLDS Current Households 3,604 15,284 29,882 499,284 5-Year Projected Households 4,237 17,214 33,018 550,820 % Change CY - 5Y 17.6% 12.6% 10.5% 10.3% Annual Change CY-5Y 3.5% 2.5% 2.1% 2.1% INCOME TRENDS Median Household Income $ 44,485 $ 47,447 $ 51,976 $ 45,328 Per Capita Income $ 27,824 $ 23,883 $ 24,245 $ 23,901 Average Household Income $ 55,361 $ 54,829 $ 57,734 $ 61,067
Source: Demographics Now The subject neighborhood's population is expected to show increases above that of the region. The immediate market offers inferior income levels as compared to the broader market. The following table illustrates the housing statistics in the subject's immediate area, as well as the MSA region. HOUSING TRENDS
AREA ------------------------------------------ CATEGORY 1-Mi. RADIUS 3-Mi. RADIUS 5-Mi. RADIUS MSA - -------------------------------------------------------------------------------- HOUSING TRENDS % of Households Renting 65.40% 41.82% 32.49% 31.23% 5-Year Projected % Renting 65.53% 41.00% 31.78% 30.53% % of Households Owning 27.13% 50.50% 61.09% 61.72% 5-Year Projected % Owning 27.66% 51.83% 62.19% 62.91%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Sawyer Brown Road South - Single family residence East - Cross Timbers Road West - Hicks Road CONCLUSIONS The subject is well located within the city of Hermitage. The neighborhood is characterized as being mostly urban 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 ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE MARKET ANALYSIS The subject property is located in the city of Hermitage in Davidson County. The overall pace of development in the subject's market is more or less decreasing. Based on our site inspection of the market area, there was no evidence of additional development for multifamily use. The following table illustrates historical vacancy rates for the subject's market. HISTORICAL VACANCY RATE
Period Region Submarket - -------------------------------------------------------------------------------- 1997 5.5% 5.0% 1998 6.7% 6.0% 1999 5.9% 7.0% 2000 5.9% 7.9% 2001 8.3% 8.6% 2002 8.0% 8.0%
Source: Greater Nashville Apartment Association Occupancy trends in the subject's market are stable. Historically speaking, the subject's submarket has equated the overall market. Occupancy in the subject's market area is expected to be around 94.0% in average. Any expected changes are caused by the short time fluctuations derived from the current economic situation affecting the local, regional and national markets. 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 - -------------------------------------------------------------------------------- 1996 $583 - $735 - 1997 $604 3.6% $760 3.4% 1998 $634 5.0% $769 1.2% 1999 $647 2.1% $784 2.0% 2000 $667 3.1% $796 1.5% 2001 $677 1.5% $814 2.3% 2002 $685 1.2% $820 0.7%
Source: Greater Nashville Apartment Association The following table illustrates a summary of the subject's competitive set. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject - ------------------------------------------------------------------------------------------------------------- R-1 Creekstone 316 93% 1986 Approx. 3.5 miles west of subject R-2 Spinnaker Cove 278 94% 1986 Approx. 0.2 miles northwest of subject R-3 Burning Tree 280 95% 1978 Approx. 0.8 miles north of subject R-4 Lincoya Bay 180 94% 1974 Approx. 2.9 miles southwest of subject R-5 Park at Hermitage 440 94% 1986 Approx. 0.2 miles north of subject ============================================================================================================= Subject Arbours of Hermitage 350 96% 1972 =============================================================================================================
Rental rates are expected to stabilize. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE PROPERTY DESCRIPTION SITE ANALYSIS Site Area 28.01 acres, or 1,220,116 square feet Shape Irregular Topography Slightly slope 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 47037C0308F, dated April 20, 2001 Flood Zone Zone X Zoning RM-15, 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 - ------------------------------------------------------------------------------ 128-00-0-099 $560,000 $4,446,920 $5,006,920 0.03840 $192,266 ==============================================================================
IMPROVEMENT ANALYSIS Year Built 1972 Number of Units 350 Net Rentable Area 386,100 Square Feet Construction: Foundation Concrete block wall 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, tennis court, gym room, meeting hall, laundry room, business office, boat storage, 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, microwave dishwasher, water heater, garbage disposal, and oven. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE Unit Mix: Unit Area Unit Type Number of Units (Sq. Ft.) - ------------------------------------------------ 1Br/1Ba -1A10 72 770 1Br/1.5Ba -1B15 38 750 2Br/1.5Ba - 2A15 80 1,110 2Br/2Ba - 2A20 48 1,270 2Br/2Ba -2B20 64 1,325 3Br/2Ba - 3A20 16 1,325 3Br/2.5Ba -3A25 32 1,450
Overall Condition Average Effective Age 20 years Economic Life 45 years Remaining Economic Life 25 years Deferred Maintenance None HIGHEST AND BEST USE ANALYSIS In accordance with the definition of highest and best use, an analysis of the site relating to its legal uses, physical possibilities, and financial feasibility is appropriate. The highest and best use as vacant is to hold for future multi-family development. The subject improvements were constructed in 1972 and consist of a 350-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 ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE 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 ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE 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 ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE 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 ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - ----------------------------------------------------------------------------------------------------------------------- Property Name Arbours of Hermitage Alta Lake Colonnade LOCATION: Address 6001 Old Hickory Road 3960 Bell Road 4100 Central Pike City, State Hermitage, Tennessee Hermitage, TN Nashville, TN County Davidson Davidson Davidson PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 386,100 360,144 259,776 Year Built 1972 2001 1985 Number of Units 350 366 352 Unit Mix: Type Total Type Total Type Total 1Br/1Ba -1A10 72 1Br/1Ba 189 1Br/1Ba 108 1Br/1.5Ba -1B15 38 2Br/2Ba 129 2Br/2Ba 156 2Br/1.5Ba - 2A15 80 3Br/2Ba 48 3Br/2Ba 24 2Br/2Ba - 2A20 48 2Br/2Ba -2B20 64 3Br/2Ba - 3A20 16 3Br/2.5Ba -3A25 32 Average Unit Size (SF) 1,103 984 738 Land Area (Acre) 28.0100 31.1500 13.4800 Density (Units/Acre) 12.5 11.7 26.1 Parking Ratio (Spaces/Unit) 2.20 2.50 2.20 Parking Type (Gr., Cov., etc.) Open Open, Caroport/Garage Open, Carport/Garage CONDITION: Good Good Good APPEAL: Average Good Good AMENITIES: Pool/Spa Yes/No Yes/No Yes/No Gym Room Yes Yes Yes Laundry Room Yes Yes No Secured Parking No Yes Yes Sport Courts Yes No No Washer/Dryer Connection Yes Yes Yes Storage (Boat) Yes Yes Yes OCCUPANCY: 96% 94% 95% TRANSACTION DATA: Sale Date April, 2002 January, 1999 Sale Price ($) $28,700,000 $17,420,000 Grantor Wood Partners Nashville 2 Central Pike Apts LP Grantee USB Realty Investors United Dominion Realty Trust Sale Documentation Deed -20020611-00771164 Deed-00011288-0000152 Verification Bair Carroll Brian Houchin Telephone Number 615,874,2400 615,391,2232 ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $5,214,312 $14,247 $14.48 $2,753,760 $7,823 $10.60 Vacancy/Credit Loss $ 365,002 $ 997 $ 1.01 $ 137,688 $ 391 $ 0.53 Effective Gross Income $4,849,310 $13,249 $13.46 $2,616,072 $7,432 $10.07 Operating Expenses $2,128,210 $ 5,815 $ 5.91 $1,067,200 $3,032 $ 4.11 Net Operating Income $2,721,100 $ 7,435 $ 7.56 $1,548,872 $4,400 $ 5.96 NOTES: Overall Superior Overall Superior PRICE PER UNIT $ 78,415 $49,489 PRICE PER SQUARE FOOT $ 79.69 $ 67.06 EXPENSE RATIO 43.9% 40.8% EGIM 5.92 6.66 OVERALL CAP RATE 9.48% 8.89% 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 Hermitage Gardens Berkley Ridge (Summittree) Waterford Landing Hermitage LOCATION: Address 4701 Old Hickory Blvd 308 Plus Park Blvd 5901 Old Hickory Blvd City, State Nashville, TN Nashville, TN Hermitae, TN County Davidson Davidson Davidson PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 66,868 227,408 200,008 Year Built 1962 1972 1998 Number of Units 73 244 184 Unit Mix: Type Total Type Total Type Total 1Br/1Ba 25 1Br/1Ba 90 1Br/1Ba 76 2Br/1Ba 48 2Br/2Ba 130 2Br/2Ba 82 3Br/2Ba 24 3Br/2Ba 26 Average Unit Size (SF) 916 932 1,087 Land Area (Acre) 3.0300 18.1100 14.9600 Density (Units/Acre) 24.1 13.5 12.3 Parking Ratio (Spaces/Unit) 2.00 2.80 2.00 Parking Type (Gr., Cov., etc.) Open Open Open CONDITION: Fair Average Average APPEAL: Fair Average Average AMENITIES: Pool/Spa Yes/No Yes/No Yes/No Gym Room No No No Laundry Room Yes Yes Yes Secured Parking No No Yes Sport Courts No No No Washer/Dryer Connection Yes No Yes Storage (Boat) No No Yes OCCUPANCY: 90% 90% 94% TRANSACTION DATA: Sale Date October, 2001 June, 2001 June, 2002 Sale Price ($) $1,300,000 $6,550,000 $10,200,000 Grantor N/A N/A N/A Grantee Hermitage Garden Apartments RCP Summitree LLC Waterford Landing-Hermitage LP LP Sale Documentation Deed-20011029-011773 Deed-20010619-0064950 Deed-20020626-0077077 Verification Bruce Graustein Ellen Parker Tabbetha Moller Telephone Number 615.883.6861 615.360.6004 615.884.9948 ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $ 311,111 $ 4,262 $4.65 $1,384,205 $5,673 $6.09 $1,941,769 $10,553 $9.71 Vacancy/Credit Loss $ 31,111 $ 426 $0.47 $ 138,421 $ 567 $0.61 $ 116,506 $ 633 $0.58 Effective Gross Income $ 280,000 $ 3,836 $4.19 $1,245,784 $5,106 $5.48 $1,825,263 $ 9,920 $9.13 Operating Expenses $ 152,650 $ 2,091 $2.28 $ 671,434 $2,752 $2.95 $ 830,863 $ 4,516 $4.15 Net Operating Income $ 127,350 $ 1,745 $1.90 $ 574,350 $2,354 $2.53 $ 994,400 $ 5,404 $4.97 NOTES: Overall Inferior Overall Slightly Inferior Overall Comparable PRICE PER UNIT $ 17,808 $26,844 $55,435 PRICE PER SQUARE FOOT $ 19.44 $ 28.80 $ 51.00 EXPENSE RATIO 54.5% 53.9% 45.5% EGIM 4.64 5.26 5.59 OVERALL CAP RATE 9.80% 8.77% 9.75% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA PRO FORMA
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $17,808 to $78,415 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 $36,507 to $47,049 per unit with a mean or average adjusted price of $43,574 per unit. The median adjusted price is $44,348 per unit. Based on the following analysis, we have concluded to a value of $44,000 per unit, which results in an "as is" value of $15,400,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - ----------------------------------------------------------------------------------------------------------------- Property Name Arbours of Hermitage Alta Lake Colonnade Address 6001 Old Hickory Road 3960 Bell Road 4100 Central Pike City Hermitage, Tennessee Hermitage, TN Nashville, TN Sale Date April, 2002 January, 1999 Sale Price ($) $28,700,000 $17,420,000 Net Rentable Area (SF) 386,100 360,144 259,776 Number of Units 350 366 352 Price Per Unit $78,415 $49,489 Year Built 1972 2001 1985 Land Area (Acre) 28.0100 31.1500 13.4800 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 04-2002 0% 01-1999 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $78,415 $49,489 Location Superior -10% Comparable 0% Number of Units 350 366 0% 352 0% Quality / Appeal Good Superior -15% Comparable 0% Age / Condition 1972 2001 / Good -15% 1985 / Good -10% Occupancy at Sale 96% 94% 0% 95% 0% Amenities Good Comparable 0% Comparable 0% Average Unit Size (SF) 1,103 984 0% 738 5% PHYSICAL ADJUSTMENT -40% -5% FINAL ADJUSTED VALUE ($/UNIT) $47,049 $47,014 COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 - ------------------------------------------------------------------------------------------------------------------------ Property Name Hermitage Gardens Berkley Ridge (Summittree) Waterford Landing Hermitage Address 4701 Old Hickory Blvd 308 Plus Park Blvd 5901 Old Hickory Blvd City Nashville, TN Nashville, TN Hermitae, TN Sale Date October, 2001 June, 2001 June, 2002 Sale Price ($) $1,300,000 $6,550,000 $10,200,000 Net Rentable Area (SF) 66,868 227,408 200,008 Number of Units 73 244 184 Price Per Unit $17,808 $26,844 $55,435 Year Built 1962 1972 1998 Land Area (Acre) 3.0300 18.1100 14.9600 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) 10-2001 0% 06-2001 0% 06-2002 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $17,808 $26,844 $55,435 Location Comparable 0% Inferior 35% Superior -5% Number of Units 73 -5% 244 0% 184 -5% Quality / Appeal Inferior 40% Inferior 25% Comparable 0% Age / Condition 1962 / Fair 30% 1972 / Average 0% 1998 / Average -10% Occupancy at Sale 90% 0% 90% 0% 94% 0% Amenities Inferior 40% Comparable 0% Comparable 0% Average Unit Size (SF) 916 0% 932 0% 1,087 0% PHYSICAL ADJUSTMENT 105% 60% -20% FINAL ADJUSTED VALUE ($/UNIT) $36,507 $42,951 $44,348
SUMMARY VALUE RANGE (PER UNIT) $36,507 TO $47,049 MEAN (PER UNIT) $43,574 MEDIAN (PER UNIT) $44,348 VALUE CONCLUSION (PER UNIT) $44,000
VALUE INDICATED BY SALES COMPARISON APPROACH $15,400,000 ROUNDED $15,400,000
NET OPERATING INCOME (NOI) ANALYSIS We have also conducted a net operating income (NOI) comparison analysis. The NOI effectively takes into account the various physical, location, and operating aspects of the sale. When the subject's NOI is compared to the sale NOI, a percent adjustment can be arrived at. The following table illustrates this analysis. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 24 ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE 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-1 366 $28,700,000 9.48% $2,721,100 $1,461,724 0.562 $44,049 $ 78,415 $ 7,435 $ 4,176 I-2 352 $17,420,000 8.89% $1,548,872 $1,461,724 0.949 $46,971 $ 49,489 $ 4,400 $ 4,176 I-3 73 $ 1,300,000 9.80% $ 127,350 $1,461,724 2.394 $42,633 $ 17,808 $ 1,745 $ 4,176 I-4 244 $ 6,550,000 8.77% $ 574,350 $1,461,724 1.774 $47,628 $ 26,844 $ 2,354 $ 4,176 I-5 184 $10,200,000 9.75% $ 994,400 $1,461,724 0.773 $42,839 $ 55,435 $ 5,404 $ 4,176
PRICE/UNIT
Low High Average Median $42,463 $47,628 $44,824 $44,049
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT Estimated Price Per Unit $ 45,000 ----------- Number of Units 350 ----------- Value Based on NOI Analysis $15,750,000 Rounded $15,800,000
The adjusted sales indicate a range of value between $42,633 and $47,628 per unit, with an average of $44,824 per unit. Based on the subject's competitive position within the improved sales, a value of $45,000 per unit is estimated. This indicates an "as is" market value of $15,800,000 (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 ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE 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-1 366 $28,700,000 $4,849,310 $2,128,210 43.89% 5.92 $ 78,415 I-2 352 $17,420,000 $2,616,072 $1,067,200 40.79% 6.66 $ 49,489 I-3 73 $ 1,300,000 $ 280,000 $ 152,650 54.52% 4.64 44.31% $ 17,808 I-4 244 $ 6,550,000 $1,245,784 $ 671,434 53.90% 5.26 $ 26,844 I-5 184 $10,200,000 $1,825,263 $ 830,863 45.52% 5.59 $ 55,435
EGIM
Low High Average Median 4.64 6.66 5.61 5.59
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES Estimate EGIM 5.50 ----------- Subject EGI $ 2,782,078 ----------- Value Based on EGIM Analysis $15,301,429 Rounded $15,300,000 Value Per Unit $ 43,714
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 44.31% before reserves. The comparable sales indicate a range of expense ratios from 40.79% to 54.52%, while their EGIMs range from 4.64 to 6.66. Overall, we conclude to an EGIM of 5.50, which results in an "as is" value estimate in the EGIM Analysis of $15,300,000. 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 $15,400,000. Price Per Unit $15,400,000 NOI Per Unit $15,800,000 EGIM Analysis $15,300,000 Sales Comparison Conclusion $15,400,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE 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 ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE method is normally more appropriate for properties with relatively stable operating histories and expectations. A pro forma analysis for the first year of the investment is made to estimate a reasonable potential net operating income for the Subject Property. Such an analysis entails an estimate of the gross income the property should command in the marketplace. From this total gross income must be deducted an allowance for vacancy/collection loss and operating expenses as dictated by general market conditions and the overall character of the subject's tenancy and leased income to arrive at a projected estimate of net operating income. Conversion of the net operating income to an indication of value is accomplished by the process of capitalization, as derived primarily from market data. MARKET RENT ANALYSIS In order to determine a market rental rate for the subject, a survey of competing apartment communities was performed. This survey was displayed previously in the market analysis section of the report. Detailed information pertaining to each of the comparable rental communities, along with photographs, is presented in the Addenda of this report. The following charts display the subject's current asking and actual rent rates as well as a comparison with the previous referenced comparable rental properties. SUMMARY OF ACTUAL AVERAGE RENTS
Average Unit Area ---------------- Unit Type (Sq. Ft.) Per Unit Per SF % Occupied - -------------------------------------------------------- 1Br/1Ba -1A10 770 $529 $0.69 97.2% 1Br/1.5Ba -1B15 750 $523 $0.70 94.7% 2Br/1.5Ba - 2A15 1110 $599 $0.54 93.8% 2Br/2Ba - 2A20 1270 $653 $0.51 91.7% 2Br/2Ba -2B20 1325 $682 $0.51 100.0% 3Br/2Ba - 3A20 1325 $719 $0.54 100.0% 3Br/2.5Ba -3A25 1450 $749 $0.52 96.9%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE RENT ANALYSIS
COMPARABLE RENTS ------------------------------------------------------------ R-1 R-2 R-3 R-4 R-5 ------------------------------------------------------------ Spinnaker Burning Lincoya Park at Creekstone Cove Tree Bay Hermitage ------------------------------------------------------------ SUBJECT SUBJECT COMPARISON TO SUBJECT SUBJECT UNIT ACTUAL ASKING ------------------------------------------------------------ DESCRIPTION TYPE RENT RENT Slightly Inferior Similar Inferior Inferior Similar - --------------------------------------------------------------------------------------------------------------------------- Monthly Rent 1Br/1Ba -1A10 $ 529 $ 518 Unit Area (SF) 770 770 Monthly Rent Per Sq. Ft. $ 0.69 $ 0.67 Monthly Rent 1Br/1.5Ba -1B15 $ 523 $ 524 $ 767 $ 515 Unit Area (SF) 750 750 832 750 Monthly Rent Per Sq. Ft. $ 0.70 $ 0.70 $ 0.92 $ 0.69 Monthly Rent 2Br/1.5Ba - $ 599 $ 591 $ 600 $ 613 $ 543 $ 619 Unit Area (SF) 2A15 1,110 1,110 600 1,000 775 684 Monthly Rent Per Sq. Ft. $ 0.54 $ 0.53 $1.00 $ 0.61 $ 0.70 $ 0.90 Monthly Rent 2Br/2Ba - 2A20 $ 653 $ 621 $ 626 Unit Area (SF) 1,270 1,270 1,080 Monthly Rent Per Sq. Ft. $ 0.51 $ 0.49 $ 0.58 Monthly Rent 2Br/2Ba -2B20 $ 682 $ 667 $ 789 Unit Area (SF) 1,325 1,325 1,101 Monthly Rent Per Sq. Ft. $ 0.51 $ 0.50 $ 0.72 Monthly Rent 3Br/2Ba - 3A20 $ 719 $ 716 Unit Area (SF) 1,325 1,325 Monthly Rent Per Sq. Ft. $ 0.54 $ 0.54 Monthly Rent 3Br/2.5Ba -3A25 $ 749 $ 743 $ 989 $ 909 $ 739 $ 775 $ 743 Unit Area (SF) 1,450 1,450 989 1,289 1,258 1,421 1,093 Monthly Rent Per Sq. Ft. $ 0.52 $ 0.51 $1.00 $ 0.71 $ 0.59 $ 0.55 $ 0.68 DESCRIPTION MIN MAX MEDIAN AVERAGE - ----------------------------------------------------------------------- Monthly Rent Unit Area (SF) Monthly Rent Per Sq. Ft. Monthly Rent $ 515 $ 767 $ 641 $ 641 Unit Area (SF) 750 832 791 791 Monthly Rent Per Sq. Ft. $ 0.69 $ 0.92 $ 0.80 $ 0.80 Monthly Rent $ 543 $ 619 $ 607 $ 594 Unit Area (SF) 600 1,000 730 765 Monthly Rent Per Sq. Ft. $ 0.61 $ 1.00 $ 0.80 $ 0.80 Monthly Rent $ 626 $ 626 $ 626 $ 626 Unit Area (SF) 1,080 1,080 1,080 1,080 Monthly Rent Per Sq. Ft. $ 0.58 $ 0.58 $ 0.58 $ 0.58 Monthly Rent $ 789 $ 789 $ 789 $ 789 Unit Area (SF) 1,101 1,101 1,101 1,101 Monthly Rent Per Sq. Ft. $ 0.72 $ 0.72 $ 0.72 $ 0.72 Monthly Rent Unit Area (SF) Monthly Rent Per Sq. Ft. Monthly Rent $ 739 $ 989 $ 775 $ 831 Unit Area (SF) 989 1,421 1,258 1,210 Monthly Rent Per Sq. Ft. $ 0.55 $ 1.00 $ 0.68 $ 0.70
CONCLUDED MARKET RENTAL RATES AND TERMS Based on this analysis above, the subject's concluded market rental rates and gross rental income is calculated as follows: GROSS RENTAL INCOME PROJECTION
Market Rent Unit Area ---------------- Monthly Annual Unit Type Number of Units (Sq. Ft.) Per Unit Per SF Income Income - ------------------------------------------------------------------------------------- 1Br/1Ba -1A10 72 770 $530 $0.69 $ 38,160 $ 457,920 1Br/1.5Ba -1B15 38 750 $530 $0.71 $ 20,140 $ 241,680 2Br/1.5Ba - 2A15 80 1,110 $600 $0.54 $ 48,000 $ 576,000 2Br/2Ba - 2A20 48 1,270 $675 $0.53 $ 32,400 $ 388,800 2Br/2Ba -2B20 64 1,325 $700 $0.53 $ 44,800 $ 537,600 3Br/2Ba - 3A20 16 1,325 $720 $0.54 $ 11,520 $ 138,240 3Br/2.5Ba -3A25 32 1,450 $750 $0.52 $ 24,000 $ 288,000 --------------------------- Total $219,020 $2,628,240 ===========================
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 29 ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE 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 ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE 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 $2,699,302 $ 7,712 $2,781,179 $ 7,946 $2,631,742 $ 7,519 Vacancy $ 161,318 $ 461 $ 227,936 $ 651 $ 166,210 $ 475 Credit Loss/Concessions $ 50,350 $ 144 $ 99,752 $ 285 $ 23,073 $ 66 --------------------------------------------------------------------------- Subtotal $ 211,668 $ 605 $ 327,688 $ 936 $ 189,283 $ 541 Laundry Income $ 3,984 $ 11 $ 13,964 $ 40 $ 9,523 $ 27 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 289,333 $ 827 $ 190,933 $ 546 $ 225,614 $ 645 --------------------------------------------------------------------------- Subtotal Other Income $ 293,317 $ 838 $ 204,897 $ 585 $ 235,137 $ 672 --------------------------------------------------------------------------- Effective Gross Income $2,780,951 $ 7,946 $2,658,388 $ 7,595 $2,677,596 $ 7,650 Operating Expenses Taxes $ 149,160 $ 426 $ 171,432 $ 490 $ 192,266 $ 549 Insurance $ 38,187 $ 109 $ 46,973 $ 134 $ 60,879 $ 174 Utilities $ 265,606 $ 759 $ 211,443 $ 604 $ 202,997 $ 580 Repair & Maintenance $ 146,555 $ 419 $ 135,197 $ 386 $ 111,903 $ 320 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 86,482 $ 247 $ 78,937 $ 226 $ 67,603 $ 193 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 32,718 $ 93 $ 33,275 $ 95 $ 21,577 $ 62 General Administrative $ 282,313 $ 807 $ 345,246 $ 986 $ 304,185 $ 869 Management $ 135,900 $ 388 $ 142,217 $ 406 $ 134,402 $ 384 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 --------------------------------------------------------------------------- Total Operating Expenses $1,136,921 $ 3,248 $1,164,720 $ 3,328 $1,095,812 $ 3,131 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 --------------------------------------------------------------------------- Net Income $1,644,030 $ 4,697 $1,493,668 $ 4,268 $1,581,784 $ 4,519 --------------------------------------------------------------------------- FISCAL YEAR 2003 ANNUALIZED 2003 ------------------------------------------------- MANAGEMENT BUDGET PROJECTION AAA PROJECTION ------------------------------------------------------------------------------------ DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT % - ---------------------------------------------------------------------------------------------------------------- Revenues Rental Income $2,553,258 $ 7,295 $2,553,780 $ 7,297 $2,628,240 $ 7,509 100.0% Vacancy $ 116,940 $ 334 $ 153,816 $ 439 $ 105,130 $ 300 4.0% Credit Loss/Concessions $ 7,400 $ 21 $ 92,268 $ 264 $ 26,282 $ 75 1.0% ----------------------------------------------------------------------------------- Subtotal $ 124,340 $ 355 $ 246,084 $ 703 $ 131,412 $ 375 5.0% Laundry Income $ 9,500 $ 27 $ 22,608 $ 65 $ 14,000 $ 40 0.5% Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 243,292 $ 695 $ 268,212 $ 766 $ 271,250 $ 775 10.3% ----------------------------------------------------------------------------------- Subtotal Other Income $ 252,792 $ 722 $ 290,820 $ 831 $ 285,250 $ 815 10.9% ----------------------------------------------------------------------------------- Effective Gross Income $2,681,710 $ 7,662 $2,598,516 $ 7,424 $2,782,078 $ 7,949 100.0% Operating Expenses Taxes $ 198,034 $ 566 $ 198,032 $ 566 $ 210,000 $ 600 7.5% Insurance $ 69,513 $ 199 $ 89,860 $ 257 $ 78,750 $ 225 2.8% Utilities $ 279,255 $ 798 $ 294,636 $ 842 $ 245,000 $ 700 8.8% Repair & Maintenance $ 119,362 $ 341 $ 111,208 $ 318 $ 113,750 $ 325 4.1% Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Landscaping $ 67,442 $ 193 $ 69,184 $ 198 $ 70,000 $ 200 2.5% Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Marketing & Leasing $ 26,204 $ 75 $ 19,924 $ 57 $ 26,250 $ 75 0.9% General Administrative $ 290,832 $ 831 $ 369,136 $ 1,055 $ 350,000 $ 1,000 12.6% Management $ 132,341 $ 378 $ 127,364 $ 364 $ 139,104 $ 397 5.0% Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% ----------------------------------------------------------------------------------- Total Operating Expenses $1,182,983 $ 3,380 $1,279,344 $ 3,655 $1,232,854 $ 3,522 44.3% Reserves $ 0 $ 0 $ 0 $ 0 $ 87,500 $ 250 7.1% ----------------------------------------------------------------------------------- Net Income $1,498,727 $ 4,282 $1,319,172 $ 3,769 $1,461,724 $ 4,176 52.5% -----------------------------------------------------------------------------------
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 5% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 31 ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE 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 ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR - ------------------------------------------------------------------------------- I-1 Apr-02 94% $78,415 9.48% I-2 Jan-99 95% $49,489 8.89% I-3 Oct-01 90% $17,808 9.80% I-4 Jun-01 90% $26,844 8.77% I-5 Jun-02 94% $55,435 9.75% High 9.80% Low 8.77% Average 9.34%
Based on this information, we have concluded the subject's overall capitalization rate should be 9.75%. The terminal capitalization rate is applied to the net operating income estimated for the year following the end of the holding period. Based on the concluded overall capitalization rate, the age of the property and the surveyed information, we have concluded the subject's terminal capitalization rate to be 10.75%. 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 12.50%. HOLDING PERIOD The survey of investors indicates that most investors are completing either 10-year cash flows or extending the analysis to the end of the lease if it is more than 10-years. A 10-year period has been used in the analysis of the subject with the eleventh year stabilized NOI used to determine the reversion. SELLING COSTS Sales of similar size properties are typically accomplished with the aid of a broker and will also incur legal and other transaction related cost. Based on our survey of brokers and a review of institutional investor projections, an allowance of 2.00% of the sale amount is applied. DISCOUNTED CASH FLOW CONCLUSION Discounting the annual cash flows and the equity reversion at the selected rate of 12.50% indicates a value of $15,100,000. In this instance, the reversion figure contributes AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 33 ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE approximately 37% 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 ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE DISCOUNTED CASH FLOW ANALYSIS ARBOURS OF HERMITAGE
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 FISCAL YEAR 1 2 3 4 5 6 - ------------------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $2,628,240 $2,707,087 $2,788,300 $2,871,949 $2,958,107 $3,046,850 Vacancy $ 105,130 $ 108,283 $ 111,532 $ 114,878 $ 118,324 $ 121,874 Credit Loss $ 26,282 $ 27,071 $ 27,883 $ 28,719 $ 29,581 $ 30,469 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------------------------- Subtotal $ 131,412 $ 135,354 $ 139,415 $ 143,597 $ 147,905 $ 152,343 Laundry Income $ 14,000 $ 14,420 $ 14,853 $ 15,298 $ 15,757 $ 16,230 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 271,250 $ 279,388 $ 287,769 $ 296,402 $ 305,294 $ 314,453 -------------------------------------------------------------------------------- Subtotal Other Income $ 285,250 $ 293,808 $ 302,622 $ 311,700 $ 321,051 $ 330,683 -------------------------------------------------------------------------------- EFFECTIVE GROSS INCOME $2,782,078 $2,865,540 $2,951,507 $3,040,052 $3,131,253 $3,225,191 OPERATING EXPENSES: Taxes $ 210,000 $ 216,300 $ 222,789 $ 229,473 $ 236,357 $ 243,448 Insurance $ 78,750 $ 81,113 $ 83,546 $ 86,052 $ 88,634 $ 91,293 Utilities $ 245,000 $ 252,350 $ 259,921 $ 267,718 $ 275,750 $ 284,022 Repair & Maintenance $ 113,750 $ 117,163 $ 120,677 $ 124,298 $ 128,027 $ 131,867 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 70,000 $ 72,100 $ 74,263 $ 76,491 $ 78,786 $ 81,149 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 26,250 $ 27,038 $ 27,849 $ 28,684 $ 29,545 $ 30,431 General Administrative $ 350,000 $ 360,500 $ 371,315 $ 382,454 $ 393,928 $ 405,746 Management $ 139,104 $ 143,277 $ 147,575 $ 152,003 $ 156,563 $ 161,260 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $1,232,854 $1,269,840 $1,307,935 $1,347,173 $1,387,588 $1,429,216 Reserves $ 87,500 $ 90,125 $ 92,829 $ 95,614 $ 98,482 $ 101,436 -------------------------------------------------------------------------------- NET OPERATING INCOME $1,461,724 $1,505,576 $1,550,743 $1,597,265 $1,645,183 $1,694,539 ========================================================================================================================= Operating Expense Ratio (% of EGI) 44.3% 44.3% 44.3% 44.3% 44.3% 44.3% Operating Expense Per Unit $ 3,522 $ 3,628 $ 3,737 $ 3,849 $ 3,965 $ 4,083 YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 7 8 9 10 11 - ----------------------------------------------------------------------------------------------------------- REVENUE Base Rent $3,138,256 $3,232,404 $3,329,376 $3,429,257 $3,532,135 Vacancy $ 125,530 $ 129,296 $ 133,175 $ 137,170 $ 141,285 Credit Loss $ 31,383 $ 32,324 $ 33,294 $ 34,293 $ 35,321 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------ Subtotal $ 156,913 $ 161,620 $ 166,469 $ 171,463 $ 176,607 Laundry Income $ 16,717 $ 17,218 $ 17,735 $ 18,267 $ 18,815 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 323,887 $ 333,603 $ 343,611 $ 353,920 $ 364,537 ------------------------------------------------------------------ Subtotal Other Income $ 340,603 $ 350,822 $ 361,346 $ 372,187 $ 383,352 ------------------------------------------------------------------ EFFECTIVE GROSS INCOME $3,321,947 $3,421,605 $3,524,253 $3,629,981 $3,738,880 OPERATING EXPENSES: Taxes $ 250,751 $ 258,274 $ 266,022 $ 274,002 $ 282,222 Insurance $ 94,032 $ 96,853 $ 99,758 $ 102,751 $ 105,833 Utilities $ 292,543 $ 301,319 $ 310,359 $ 319,669 $ 329,260 Repair & Maintenance $ 135,823 $ 139,898 $ 144,095 $ 148,418 $ 152,870 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 83,584 $ 86,091 $ 88,674 $ 91,334 $ 94,074 Security $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 31,344 $ 32,284 $ 33,253 $ 34,250 $ 35,278 General Administrative $ 417,918 $ 430,456 $ 443,370 $ 456,671 $ 470,371 Management $ 166,097 $ 171,080 $ 176,213 $ 181,499 $ 186,944 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------ TOTAL OPERATING EXPENSES $1,472,092 $1,516,255 $1,561,742 $1,608,595 $1,656,853 Reserves $ 104,480 $ 107,614 $ 110,842 $ 114,168 $ 117,593 ------------------------------------------------------------------ NET OPERATING INCOME $1,745,375 $1,797,736 $1,851,668 $1,907,218 $1,964,435 =========================================================================================================== Operating Expense Ratio (% of EGI) 44.3% 44.3% 44.3% 44.3% 44.3% Operating Expense Per Unit $ 4,206 $ 4,332 $ 4,462 $ 4,596 $ 4,734
Gross Residual Sale Deferred Price $18,273,814 Maintenance $ 0 Estimated Stabilized NOI $1,461,724 Sales Expense Rate 2.00% Less: Sales Expense $ 365,476 Add: Excess Land $ 0 ----------- Months to Stabilized 1 Discount Rate 12.50% Net Residual Sale Price $17,908,337 Other Adjustments $ 0 ----------- Stabilized Occupancy 96.0% Terminal Cap Rate 10.75% PV of Reversion $ 5,514,803 Value Indicated Add: NPV of NOI $ 9,556,503 By "DCF" $15,071,306 ----------- PV Total $15,071,306 Rounded $15,100,000
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE ---------------------------------------------------------------- TOTAL VALUE 12.00% 12.25% 12.50% 12.75% 13.00% - ------------------------------------------------------------------------------------------- TERMINAL 10.25% $15,825,653 $15,580,384 $15,340,321 $15,105,335 $14,875,301 CAP RATE 10.50% $15,681,671 $15,439,576 $15,202,611 $14,970,648 $14,743,565 10.75% $15,544,385 $15,305,318 $15,071,306 $14,842,226 $14,617,956 11.00% $15,413,339 $15,177,162 $14,945,970 $14,719,641 $14,498,056 11.25% $15,288,118 $15,054,701 $14,826,204 $14,602,504 $14,383,485
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 35 ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE INCOME LOSS DURING LEASE-UP The subject is currently near or at 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 9.75% percent is applicable to the subject. The results of our direct capitalization analysis are as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 36 ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE ARBOURS OF HERMITAGE
TOTAL PER Sq. Ft. PER UNIT % OF EGI - ----------------------------------------------------------------------------------------------------- REVENUE Base Rent $ 2,628,240 $ 6.81 $ 7,509 Less: Vacancy & Collection Loss 5.00% $ 131,412 $ 0.34 $ 375 Plus: Other Income Laundry Income $ 14,000 $ 0.04 $ 40 0.50% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 271,250 $ 0.70 $ 775 9.75% ------------------------------------------------ Subtotal Other Income $ 285,250 $ 0.74 $ 815 10.25% EFFECTIVE GROSS INCOME $ 2,782,078 $ 7.21 $ 7,949 OPERATING EXPENSES: Taxes $ 210,000 $ 0.54 $ 600 7.55% Insurance $ 78,750 $ 0.20 $ 225 2.83% Utilities $ 245,000 $ 0.63 $ 700 8.81% Repair & Maintenance $ 113,750 $ 0.29 $ 325 4.09% Cleaning $ 0 $ 0.00 $ 0 0.00% Landscaping $ 70,000 $ 0.18 $ 200 2.52% Security $ 0 $ 0.00 $ 0 0.00% Marketing & Leasing $ 26,250 $ 0.07 $ 75 0.94% General Administrative $ 350,000 $ 0.91 $ 1,000 12.58% Management 5.00% $ 139,104 $ 0.36 $ 397 5.00% Miscellaneous $ 0 $ 0.00 $ 0 0.00% TOTAL OPERATING EXPENSES $ 1,232,854 $ 3.19 $ 3,522 44.31% Reserves $ 87,500 $ 0.23 $ 250 3.15% ------------------------------------------------ NET OPERATING INCOME $ 1,461,724 $ 3.79 $ 4,176 52.54% =================================================================================================== "GOING IN" CAPITALIZATION RATE 9.75% VALUE INDICATION $14,992,042 $ 38.83 $ 42,834 "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $14,992,042 ROUNDED $15,000,000 $ 38.85 $ 42,857 ===================================================================================================
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 37 ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF - ------------------------------------------------------------------------ 9.00% $16,241,379 $16,200,000 $46,286 $41.96 9.25% $15,802,423 $15,800,000 $45,143 $40.92 9.50% $15,386,569 $15,400,000 $44,000 $39.89 9.75% $14,992,042 $15,000,000 $42,857 $38.85 10.00% $14,617,241 $14,600,000 $41,714 $37.81 10.25% $14,260,723 $14,300,000 $40,857 $37.04 10.50% $13,921,182 $13,900,000 $39,714 $36.00
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $15,000,000. 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 $15,100,000 Direct Capitalization Method $15,000,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $15,000,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 38 ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE 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 $15,400,000 Income Approach $15,000,000 Reconciled Value $15,000,000
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 5, 2003 the market value of the fee simple estate in the property is: $15,000,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE SUBJECT PHOTOGRAPHS [UNIT TYPE FACADE PICTURE] [UNIT TYPE PICTURE] [BEDROOM PICTURE] [BEDROOM PICTURE] [LIVING ROOM AREA PICTURE] [LIVING ROOM AREA PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE SUBJECT PHOTOGRAPHS [POOL PICTURE] [LAUNDRY ROOM PICTURE] [SITE IMPROVEMENTS PICTURE] [MAIN ENTRANCE PICTURE] [OLD HICKORY BLVD-SOUTH PICTURE] [OLD HICKORY BLVD-NORTH PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 ALTA LAKE COLONNADE HERMITAGE GARDENS 3960 Bell Road 4100 Central Pike 4701 Old Hickory Blvd Hermitage, TN Nashville, TN Nashville, TN [PICTURE] [PICTURE] [PICTURE] COMPARABLE I-4 COMPARABLE I-5 BERKLEY RIDGE (SUMMITTREE) WATERFORD LANDING HERMITAGE 308 Plus Park Blvd 5901 Old Hickory Blvd Nashville, TN Hermitae, TN [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 - ---------------------------------------------------------------------------------------------------------------------------------- Property Name Arbours of Hermitage Creekstone Management Company AIMCO Michelson Organization LOCATION: Address 6001 Old Hickory Road 266 Stewarts Ferry Pike City, State Hermitage, Tennessee Nashville, TN County Davidson Davidosn Proximity to Subject Approx. 3.5 miles west of subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 386,100 257,856 Year Built 1972 1986 Effective Age 20 8 Building Structure Type Brick & wood siding walls; asphalt shingle roof Brick & wood siding walls; asphalt shingle roof Parking Type (Gr., Cov., etc.) Open Open, Covered Number of Units 350 316 Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo. 1 1Br/1Ba-1A10 770 72 $529 3 1Br/1Ba 600 140 $600 2 1Br/1.5Ba -1B15 750 38 $523 7 2 Br/2Ba 989 176 $989 3 2Br/1.5Ba - 2A15 1,110 80 $599 4 2Br/2Ba - 2A20 1,270 48 $653 5 2Br/2Ba-2B20 1,325 64 $682 6 3Br/2Ba - 3A20 1,325 16 $719 7 3Br/2.5Ba -3A25 1,450 32 $749 Average Unit Size (SF) 1,103 817 Unit Breakdown: Efficiency 0% 2-Bedroom 54% Efficiency 0% 2-Bedroom 56% 1-Bedroom 31% 3-Bedroom 15% 1-Bedroom 44% 3-Bedroom 0% CONDITION: Good Average APPEAL: Average Average AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X W/D Connection Balcony X W/D Connection X Fireplace Other X Fireplace Other X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash X Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball X Meeting Hall Sand Volley Ball X Meeting Hall X Tennis Court Secured Parking Tennis Court X 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 Boat Storage X Gym Room Boat Storage OCCUPANCY: 96% 93% LEASING DATA: Available Leasing Terms 6 to 12 months 6 to 12 months Concessions 1 to 2 months off on selected units Up to $100 off per month if in by Apr 2003 Pet Deposit $300/$20Mnth $200 Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas X Water Trash X Water Trash Confirmation Ruth Ann Frewin/Property Manager DeDe Stampley/Property Manager Telephone Number 615,889,6001 615,889,6191 NOTES: None COMPARISON TO SUBJECT: Slightly Inferior COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 - ---------------------------------------------------------------------------------------------------------------------------------- Property Name Spinnaker Cove Burning Tree Management Company Equity Residential Alco LOCATION: Address 100 Arbor Lake Blvd 345 Burning Tree City, State Hermitage, TN Hermitage, TN County Davidson Davidson Proximity to Subject Approx. 0.2 miles northwest of subject Approx. 0.8 miles north of subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 266,889 265,440 Year Built 1986 1978 Effective Age 17 15 Building Structure Type Brick & wood siding walls; asphalt shingle roof Brick & wood siding walls; asphalt shingle roof Parking Type (Gr., Cov., etc.) Open Open Number of Units 278 280 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 2 1Br/1Ba 832 176 $767 2 1Br/1Ba 750 110 $515 5 2Br/2Ba 1,101 58 $789 3 2Br/2Ba 1,000 120 $613 7 3Br/2Ba 1,289 44 $909 7 3Br/2Ba 1,258 50 $739 Average Unit Size (SF) 960 948 Unit Breakdown: Efficiency 0% 2-Bedroom 21% Efficiency 0% 2-Bedroom 42% 1-Bedroom 63% 3-Bedroom 16% 1-Bedroom 39% 3-Bedroom 19% CONDITION: Average Fair APPEAL: Average Average AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling Balcony X W/D Connection Balcony X W/D Connection X Fireplace X Other Fireplace X Other X Cable TV Ready Boat Storage X Cable TV Ready Playground 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 Theater Room Volleyball Court Theater Room 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 X Jogging Track X Business Office X Gym Room Boat Storage X Gym Room Boat Storage OCCUPANCY: 94% 95% LEASING DATA: Available Leasing Terms 6 to 12 month 6 to 12 months Concessions Up to $150 off per month on selected units 1 month free on 2Br Pet Deposit $300 $300 Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas X Water Trash X Water Trash Confirmation Elaine Yates/Property Manager Dixie Knight/Property Manager Telephone Number 615,889,7117 615,883,5884 NOTES: None None COMPARISON TO SUBJECT: Similar Inferior COMPARABLE COMPARABLE DESCRIPTION R - 4 R - 5 - ----------------------------------------------------------------------------------------------------------------------------------- Property Name Lincoya Bay Park at Hermitage Management Company Tri-City Rentals Mid-America LOCATION: Address 3000 Lincoya Bay Drive 5900 Old Hickory Blvd City, State Nashville, TN Hermitage, TN County Davidson Davidson Proximity to Subject Approx. 2.9 miles southwest of subject Approx. 0.2 miles north of subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 197,820 392,480 Year Built 1974 1986 Effective Age 17 17 Building Structure Type Brick & wood siding walls; asphalt shingle roof Brick & wood siding walls; asphalt shingle roof Parking Type (Gr., Cov., etc.) Open, Carport/Garage Open Number of Units 180 440 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 3 1Br/1Ba 775 38 $543 3 1Br/1Ba 684 216 $619 4 2Br/2Ba 1,080 98 $626 7 2Br/2Ba 1,093 224 $743 7 3Br/2.5Ba 1,421 44 $775 Average Unit Size (SF) 1,099 892 Unit Breakdown: Efficiency 0% 2-Bedroom 54% Efficiency 0% 2-Bedroom 51% 1-Bedroom 21% 3-Bedroom 25% 1-Bedroom 49% 3-Bedroom 0% CONDITION: Average Average APPEAL: Average Average AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling Balcony X W/D Connection Balcony X W/D Connection X Fireplace X Other Fireplace X Other X Cable TV Ready Storage X Cable TV Ready Storage & Playground Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball X Meeting Hall Sand Volley Ball X Meeting Hall 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 Gym Room Boat Storage X Gym Room Boat Storage OCCUPANCY: 94% 94% LEASING DATA: Available Leasing Terms 6 to 12 month 6 to 12 months Concessions $100 off first month $100 off first month Pet Deposit $250 to $300/$20 mnth $250 to $300/$45 mnth Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas X Water Trash X Water Trash Confirmation Freddie Adams/Property Manager Kim Banks/Property Manager Telephone Number 615,889,7922 615,883,0209 NOTES: None None COMPARISON TO SUBJECT: Inferior Similar
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 CREEKSTONE SPINNAKER COVE BURNING TREE 266 Stewarts Ferry Pike 100 Arbor Lake Blvd 345 Burning Tree Nashville, TN Hermitage, TN Hermitage, TN [PICTURE] [PICTURE] [PICTURE] COMPARABLE R-4 COMPARABLE R-5 LINCOYA BAY PARK AT HERMITAGE 3000 Lincoya Bay Drive 5900 Old Hickory Blvd Nashville, TN Hermitage, TN [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE 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 ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE 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 ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE 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 ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE 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. Daniel Salcedo 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 Tennessee Temporary Practice Permit #00053573 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE 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 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE STATE CERTIFICATIONS State of Arizona, 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 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. ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. ARBOURS OF HERMITAGE, HERMITAGE, TENNESSEE 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 d07256a1exv99wxcyx3y.txt APPRAISAL OF BRIAR BAY RACQUET CLUB BRIAR BAY RACQUET CLUB 13100 SW 92 AVE. MIAMI, FLORIDA MARKET VALUE - FEE SIMPLE ESTATE AS OF MAY 20, 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, 14(th) 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: BRIAR BAY RACQUET CLUB 13100 SW 92 AVE. MIAMI, DADE 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 194 units with a total of 175,835 square feet of rentable area. The improvements were built in 1974. The improvements are situated on 6.49 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 BRIAR BAY RACQUET CLUB, MIAMI, 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 20, 2003 is: ($12,500,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. -s- Alice MacQueen July 14, 2003 Alice MacQueen #053272 Vice President, Real Estate Group Florida Certified General Real Estate Appraiser #RZ0002202 Assisted By: John S. Trabold, MAI AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 BRIAR BAY RACQUET CLUB, MIAMI, 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.................................................... 37
ADDENDA Exhibit A - Photographs of Subject Property Exhibit B - Summary of Rent Comparables and Photograph of Comparables Exhibit C - Assumptions and Limiting Conditions Exhibit D - Certificate of Appraiser Exhibit E - Qualifications General Service Conditions AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 4 BRIAR BAY RACQUET CLUB, MIAMI, FLORIDA EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Briar Bay Racquet Club LOCATION: 13100 SW 92 Ave. Miami, 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 20, 2003 DATE OF REPORT: July 14, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 6.49 acres, or 282,704 square feet Assessor Parcel No.: 30-5016-050-0020 Floodplain: Community Panel No. 12025C0260J (March 2, 1994) Flood Zone AE, an area inside the floodplain. Zoning: RU-4M (Modified Apartment House District) BUILDING: No. of Units: 194 Units Total NRA: 175,835 Square Feet Average Unit Size: 906 Square Feet Apartment Density: 29.9 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 - ------------------------------------------------------------------------------------------- 1Br/1Ba - 1A10 750 $745 $0.99 $ 23,840 $ 286,080 1Br/1Ba - 1B10 785 $750 $0.96 $ 45,000 $ 540,000 2 Br/1 Ba - 2A10 970 $865 $0.89 $ 19,895 $ 238,740 2 Br/1 Ba - 2B10 975 $870 $0.89 $ 13,050 $ 156,600 2Br/2Ba - 2A20 1,000 $950 $0.95 $ 24,700 $ 296,400 2Br/2Ba - 2B20 1,100 $945 $0.86 $ 35,910 $ 430,920 -------- ---------- Total $162,395 $1,948,740 -------- ----------
OCCUPANCY: 94% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 25 Years AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 BRIAR BAY RACQUET CLUB, MIAMI, FLORIDA REMAINING ECONOMIC LIFE: 20 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] INTERIOR - VIEW OF CLUBHOUSE EXTERIOR - POOL AREA AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 BRIAR BAY RACQUET CLUB, MIAMI, 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 BRIAR BAY RACQUET CLUB, MIAMI, FLORIDA PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION Amount $/Unit --------------------- ------ ------ Potential Rental Income $1,948,740 $10,045 Effective Gross Income $1,928,641 $9,941 Operating Expenses $811,322 $4,182 42.1% of EGI Net Operating Income: $1,068,819 $5,509 Capitalization Rate 9.00% DIRECT CAPITALIZATION VALUE $11,900,000 * $61,340 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 9% Stabilized Vacancy & Collection Loss: 8% Lease-up / Stabilization Period N/A 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 $12,500,000 * $64,433 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $12,500,000 $64,433 / UNIT
SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $50,298 to $65,942 Range of Sales $/Unit (Adjusted) $60,860 to $76,163 VALUE INDICATION - PRICE PER UNIT $12,600,000 * $64,948 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 5.13 to 8.56 Selected EGIM for Subject 6.50 Subject's Projected EGI $1,928,641 EGIM ANALYSIS CONCLUSION $12,500,000 * $64,433 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $12,600,000 * $64,948 / UNIT RECONCILED SALES COMPARISON VALUE $12,600,000 $64,948 / 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 BRIAR BAY RACQUET CLUB, MIAMI, FLORIDA PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $12,600,000 NOI Per Unit $12,600,000 EGIM Multiplier $12,500,000 INDICATED VALUE BY SALES COMPARISON $12,600,000 $64,948 / UNIT INCOME APPROACH: Direct Capitalization Method: $11,900,000 Discounted Cash Flow Method: $12,500,000 INDICATED VALUE BY THE INCOME APPROACH $12,500,000 $64,433 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $12,500,000 $64,433 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 BRIAR BAY RACQUET CLUB, MIAMI, FLORIDA INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 13100 SW 92 Ave., Miami, Dade County, Florida. Miami identifies it as 30-5016-050-0020. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by John S. Trabold, MAI on May 20, 2003. Alice MacQueen has not made a personal inspection of the subject property. John S. Trabold, MAI assisted Alice MacQueen with the research, valuation analysis and writing the report. Alice MacQueen and John S. Trabold, MAI 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 20, 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 defined in The Dictionary of Real Estate Appraisal, 3rd ed. (Chicago: Appraisal Institute, AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 10 BRIAR BAY RACQUET CLUB, MIAMI, FLORIDA 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 CCP 4. 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. According to public records, this property was acquired in 1982 at a cost of $7,450,000. AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 11 BRIAR BAY RACQUET CLUB, MIAMI, 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 Miami, 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 - US 1 West - SW 95 Avenue South - SW 144 Street North - SW 128 Street MAJOR EMPLOYERS Major employers in the subject's area include Dade County Public Schools, Metropolitan Dade County, State of Florida, Winn-Dixie Stores, Florida Power & Light Co., Burdines Department Stores, K-Mart, and Publix Super Markets. 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 BRIAR BAY RACQUET CLUB, MIAMI, FLORIDA
NEIGHBORHOOD DEMOGRAPHICS - ------------------------------------------------------------------------------------------------------- AREA -------------------------------------------------- CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA - ------------------------------------------------------------------------------------------------------- POPULATION TRENDS Current Population 10,615 105,296 270,413 2,297,162 5-Year Population 10,872 107,521 280,767 2,441,631 % Change CY-5Y 2.4% 2.1% 3.8% 6.3% Annual Change CY-5Y 0.5% 0.4% 0.8% 1.3% HOUSEHOLDS Current Households 4,053 35,821 92,780 785,413 5-Year Projected Households 4,168 36,301 95,299 822,309 % Change CY - 5Y 2.8% 1.3% 2.7% 4.7% Annual Change CY-5Y 0.6% 0.3% 0.5% 0.9% INCOME TRENDS Median Household Income $ 69,296 $ 66,227 $ 56,401 $ 33,054 Per Capita Income $ 34,299 $ 31,295 $ 27,366 $ 18,389 Average Household Income $ 94,678 $ 91,781 $ 79,745 $ 53,787
Source: Demographics Now The subject neighborhood's population is expected to show increases below 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 27.43% 22.20% 25.62% 37.56% 5-Year Projected % Renting 29.46% 22.33% 25.10% 36.46% % of Households Owning 67.68% 72.71% 68.67% 52.69% 5-Year Projected % Owning 65.84% 72.66% 69.33% 54.16%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 BRIAR BAY RACQUET CLUB, MIAMI, FLORIDA SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Briarwoods Condominiums South - Single-family residences East - Single-family residences West - Single-family residences, Briar Bay Golf Course CONCLUSIONS The subject is well located within the city of Miami. 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 BRIAR BAY RACQUET CLUB, MIAMI, FLORIDA MARKET ANALYSIS The subject property is located in the city of Miami in Dade County. The overall pace of development in the subject's market is more or less stable. Due to a scarcity of land parcels within close proximity to the subject property, there has been no new development in the area over the past several years. The following table illustrates historical vacancy rates for the subject's market.
HISTORICAL VACANCY RATE - ------------------------------------------------------------------- Period Region Submarket - ------------------------------------------------------------------- 4Q01 N/A 1.9% 1Q02 N/A 1.3% 2Q02 N/A 1.6% 3Q02 N/A 2.5% 4Q02 N/A 3.1% 1Q03 6.6% 4.3%
Source: REIS Occupancy trends in the subject's market are decreasing. Historically speaking, the subject's submarket has outperformed the overall market. Although the Kendall West market is outperforming the Miami market, it has been suffering from a gradually increasing vacancy rate. No new construction and the overall desirability of this submarket should insulate the market from any further precipitous declines in vacancy. Market rents in the subject's market have been following a stable trend. The following table illustrates historical rental rates for the subject's market.
HISTORICAL AVERAGE RENT - ------------------------------------------------------------------------------------- Period Region % Change Submarket % Change - ------------------------------------------------------------------------------------- 4Q01 N/A - $819 - 1Q02 N/A N/A $822 0.4% 2Q02 N/A N/A $833 1.3% 3Q02 N/A N/A $821 -1.4% 4Q02 N/A N/A $822 0.1% 1Q03 N/A N/A $828 0.7%
Source: REIS The following table illustrates a summary of the subject's competitive set. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 BRIAR BAY RACQUET CLUB, MIAMI, FLORIDA
COMPETITIVE PROPERTIES - -------------------------------------------------------------------------------------------------------------- No. Property Name Units Ocpy. Year Built Proximity to subject - -------------------------------------------------------------------------------------------------------------- R-1 Briarwood 628 97% 1972 1-mile south of the subject R-2 Continental Gardens 208 95% 1971 2-miles northeast of subject R-3 Nob Hill 314 85% 1969 3-miles northwest of subject Subject Briar Bay Racquet Club 194 94% 1974
Rates have only increased from $819 to $828 during this time period. This is directly a function of the decreasing occupancy levels. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 BRIAR BAY RACQUET CLUB, MIAMI, FLORIDA PROPERTY DESCRIPTION SITE ANALYSIS Site Area 6.49 acres, or 282,704 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 12025C0260J, dated March 2, 1994 Flood Zone Zone AE Zoning RU-4M, 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 - -------------------------------------------------------------------------------------------------------------- 30-5016-050- 0020 $1,060,140 $6,505,860 $7,566,000 0.02186 $165,397
IMPROVEMENT ANALYSIS Year Built 1974 Number of Units 194 Net Rentable Area 175,835 Square Feet Construction: Foundation Reinforced concrete slab Frame Reinforced Concrete Exterior Walls Concrete Roof Built-up asphalt with or without gravel over a reinforced concrete beams structure Project Amenities Amenities at the subject include a swimming pool, tennis court, meeting hall, laundry room, business office, and parking area. Unit Amenities Individual unit amenities include a garage, balcony, fireplace, cable TV connection, vaulted ceiling, and washer dryer connection. Appliances available in each unit include AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 BRIAR BAY RACQUET CLUB, MIAMI, FLORIDA a refrigerator, stove, dishwasher, garbage disposal, washer/dryer, and oven. Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) - --------------------------------------------------------- 1Br/1Ba - 1A10 32 750 1Br/1Ba - 1B10 60 785 2 Br/1 Ba - 2A10 23 970 2 Br/1 Ba - 2B10 15 975 2Br/2Ba - 2A20 26 1,000 2Br/2Ba - 2B20 38 1,100
Overall Condition Average Effective Age 25 years Economic Life 45 years Remaining Economic Life 20 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 194-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 BRIAR BAY RACQUET CLUB, MIAMI, 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 BRIAR BAY RACQUET CLUB, MIAMI, 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 BRIAR BAY RACQUET CLUB, MIAMI, 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 BRIAR BAY RACQUET CLUB, MIAMI, FLORIDA SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - ------------------------------------------------------------------------------------------------------------------ Property Name Briar Bay Racquet Club Park Place Apartments Meadows at Kendall Lakes LOCATION: Address 13100 SW 92 Ave. 10755 SW 108 Ave. 13781 SW 66 St. City, State Miami, Florida Miami, Florida Miami, Florida County Dade Dade Dade PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 175,835 101,423 166,439 Year Built 1974 1986 1973 Number of Units 194 96 168 Unit Mix: Type Total Type Total Type Total 1Br/1Ba - 1A10 32 1Br/1Ba 6 1Br/1Ba 87 1Br/1Ba - 1B10 60 2Br/2Ba 90 2Br/2Ba 74 2 Br/1 Ba - 2A10 23 3Br/2Ba 7 2 Br/1 Ba - 2B10 15 2Br/2Ba - 2A20 26 2Br/2Ba - 2B20 38 Average Unit Size (SF) 906 1,056 991 Land Area (Acre) 6.4900 3.7900 7.3410 Density (Units/Acre) 29.9 25.3 22.9 Parking Ratio (Spaces/Unit) 1.80 1.67 0.60 Parking Type (Gr., Cov., etc.) Open Open Open CONDITION: Very Good Good Good APPEAL: Very Good Good Good AMENITIES: Pool/Spa Yes/No Yes/No Yes/No Gym Room No No No Laundry Room Yes Yes No Secured Parking No No No Sport Courts Yes No No Washer/Dryer Connection No Yes Yes OCCUPANCY: 94% 95% 100% TRANSACTION DATA: Sale Date April, 2001 November, 2000 Sale Price ($) $5,300,000 $8,450,000 Grantor Prado Apartments, Ltd. Meadows at Kendall Lakes Grantee Park Place Apartments Meadows Investment Holding Sale Documentation 19594-4151 19369-2942 Verification Confidential Confidential Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $910,440 $9,484 $8.98 $1,648,200 $9,811 $9.90 Vacancy/Credit Loss $ 45,522 $ 474 $0.45 $ 0 $ 0 $0.00 Effective Gross Income $864,918 $9,010 $8.53 $1,648,200 $9,811 $9.90 Operating Expenses $288,000 $3,000 $2.84 $ 537,600 $3,200 $3.23 Net Operating Income $576,918 $6,010 $5.69 $1,110,600 $6,611 $6.67 NOTES: None None PRICE PER UNIT $55,208 $50,298 PRICE PER SQUARE FOOT $ 52.26 $ 50.77 EXPENSE RATIO 33.3% 32.6% EGIM 6.13 5.13 OVERALL CAP RATE 10.89% 13.14% Cap Rate based on Pro Forma or ACTUAL ACTUAL Actual Income? COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 - --------------------------------------------------------------------------------------------------------------------- Property Name Club Kendall Wellington Manor Berkley Square LOCATION: Address 9950 Kendall Drive 10805 SW 88 St. 10900 SW 104 St. City, State Miami, Florida Miami, Florida Miami, Florida County Dade Dade Dade PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 173,690 187,714 75,061 Year Built 1968 1969 1973 Number of Units 176 207 79 Unit Mix: Type Total Type Total Type Total 1Br/1Ba 70 1Br/1Ba N/A 1Br/1Ba 39 2Br/2Ba 106 2Br/2Ba N/A 2Br/2Ba 40 3Br/2Ba N/A Average Unit Size (SF) 987 907 950 Land Area (Acre) 7.0000 8.3600 24.1500 Density (Units/Acre) 25.1 24.8 3.3 Parking Ratio (Spaces/Unit) 2.03 N/A 2.21 Parking Type (Gr., Cov., etc.) Open Open Open CONDITION: Good Good Good APPEAL: Good Good Good AMENITIES: Pool/Spa Yes/No Yes/No Yes/No Gym Room No No No Laundry Room Yes Yes Yes Secured Parking No No No Sport Courts No No No Washer/Dryer Connection No No No OCCUPANCY: 95% 96% 95% TRANSACTION DATA: Sale Date March, 2002 September, 2002 June, 2001 Sale Price ($) $10,150,000 $13,650,000 $4,375,000 Grantor Club Kendall Avignon Realty, inc. Berkeley Square, inc. Grantee BF at Club Kendall Blumenthal Properties Brekley Holdings, LLC Sale Documentation 20270-2750 20669-4255 19724-4937 Verification Confidential Confidential Confidential Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $1,474,320 $8,377 $8.49 $1,680,000 $8,116 $8.95 $747,600 $9,463 $9.96 Vacancy/Credit Loss $ 73,716 $ 419 $0.42 $ 85,000 $ 411 $0.45 $ 37,380 $ 473 $0.50 Effective Gross Income $1,400,604 $7,958 $8.06 $1,595,000 $7,705 $8.50 $710,220 $8,990 $9.46 Operating Expenses $ 535,212 $3,041 $3.08 $ 495,000 $2,391 $2.64 $229,100 $2,900 $3.05 Net Operating Income $ 865,392 $4,917 $4.98 $1,100,000 $5,314 $5.86 $481,120 $6,090 $6.41 NOTES: None None None PRICE PER UNIT $57,670 $65,942 $55,380 PRICE PER SQUARE FOOT $ 58.44 $ 72.72 $ 58.29 EXPENSE RATIO 38.2% 31.0% 32.3% EGIM 7.25 8.56 6.16 OVERALL CAP RATE 8.53% 8.06% 11.00% Cap Rate based on Pro Forma or PRO FORMA PRO FORMA PRO FORMA Actual Income?
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 BRIAR BAY RACQUET CLUB, MIAMI, FLORIDA IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $50,298 to $65,942 per unit. Adjustments have been made to the sales to reflect differences in location, age/condition and quality/appeal. Generally speaking, larger properties typically have a lower price per unit when compared to smaller properties, all else being equal. Similarly, those projects with a higher average unit size will generally have a higher price per unit. After appropriate adjustments are made, the improved sales demonstrate an adjusted range for the subject from $60,860 to $76,163 per unit with a mean or average adjusted price of $65,693 per unit. The median adjusted price is $63,964 per unit. Based on the following analysis, we have concluded to a value of $65,000 per unit, which results in an "as is" value of $12,600,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 BRIAR BAY RACQUET CLUB, MIAMI, FLORIDA SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - -------------------------------------------------------------------------------------------------------------- Property Name Briar Bay Racquet Club Park Place Apartments Meadows at Kendall Lakes Address 13100 SW 92 Ave. 10755 SW 108 Ave. 13781 SW 66 St. City Miami, Florida Miami, Florida Miami, Florida Sale Date April, 2001 November, 2000 Sale Price ($) $5,300,000 $8,450,000 Net Rentable Area (SF) 175,835 101,423 166,439 Number of Units 194 96 168 Price Per Unit $55,208 $50,298 Year Built 1974 1986 1973 Land Area (Acre) 6.4900 3.7900 7.3410 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) April, 2001 5% November, 2000 10% VALUE AFTER TRANS. ADJUST. ($/UNIT) $57,969 $55,327 Location Comparable 0% Comparable 0% Number of Units 194 96 0% 168 0% Quality / Appeal Good Inferior 10% Inferior 10% Age / Condition 1974 1986 / Good 0% 1973 / Good 0% Occupancy at Sale 94% 95% 0% 100% 0% Amenities Good Comparable 0% Comparable 0% Average Unit Size (SF) 906 1,056 -5% 991 0% PHYSICAL ADJUSTMENT 5% 10% FINAL ADJUSTED VALUE ($/UNIT) $60,867 $60,860 COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 - -------------------------------------------------------------------------------------------------------------------- Property Name Club Kendall Wellington Manor Berkley Square Address 9950 Kendall Drive 10805 SW 88 St. 10900 SW 104 St. City Miami, Florida Miami, Florida Miami, Florida Sale Date March, 2002 September, 2002 June, 2001 Sale Price ($) $10,150,000 $13,650,000 $4,375,000 Net Rentable Area (SF) 173,690 187,714 75,061 Number of Units 176 207 79 Price Per Unit $57,670 $ 65,942 $ 55,380 Year Built 1968 1969 1973 Land Area (Acre) 7.0000 8.3600 24.1500 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) March, 2002 5% September, 2002 5% June, 2001 5% VALUE AFTER TRANS. ADJUST. ($/UNIT) $60,554 $69,239 $58,149 Location Comparable 0% Comparable 0% Comparable 0% Number of Units 176 0% 207 0% 79 0% Quality / Appeal Inferior 10% Inferior 10% Inferior 10% Age / Condition 1968 / Good 0% 1969 / Good 0% 1973 / Good 0% Occupancy at Sale 95% 0% 96% 0% 95% 0% Amenities Comparable 0% Comparable 0% Comparable 0% Average Unit Size (SF) 987 0% 907 0% 950 0% PHYSICAL ADJUSTMENT 10% 10% 10% FINAL ADJUSTED VALUE ($/UNIT) $66,609 $76,163 $63,964
SUMMARY VALUE RANGE (PER UNIT) $60,860 TO $76,163 MEAN (PER UNIT) $65,693 MEDIAN (PER UNIT) $63,964 VALUE CONCLUSION (PER UNIT) $65,000
VALUE INDICATED BY SALES COMPARISON APPROACH $12,610,000 ROUNDED $12,600,000
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 BRIAR BAY RACQUET CLUB, MIAMI, 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 96 $ 5,300,000 10.89% $ 576,918 $1,068,819 0.917 $50,613 $ 55,208 $ 6,010 $ 5,509 I-2 168 $ 8,450,000 13.14% $1,110,600 $1,068,819 0.833 $41,918 $ 50,298 $ 6,611 $ 5,509 I-3 176 $10,150,000 8.53% $ 865,392 $1,068,819 1.120 $64,618 $ 57,670 $ 4,917 $ 5,509 I-4 207 $13,650,000 8.06% $1,100,000 $1,068,819 1.037 $68,366 $ 65,942 $ 5,314 $ 5,509 I-5 79 $ 4,375,000 11.00% $ 481,120 $1,068,819 0.905 $50,099 $ 55,380 $ 6,090 $ 5,509
PRICE/UNIT
Low High Average Median $41,918 $68,366 $55,123 $50,613
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT Estimated Price Per Unit $ 65,000 ----------- Number of Units 194 Value Based on NOI Analysis $12,610,000 Rounded $12,600,000
The adjusted sales indicate a range of value between $41,918 and $68,366 per unit, with an average of $55,123 per unit. Based on the subject's competitive position within the improved sales, a value of $65,000 per unit is estimated. This indicates an "as is" market value of $12,600,000 (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 BRIAR BAY RACQUET CLUB, MIAMI, 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 96 $ 5,300,000 $ 864,918 $ 288,000 33.30% 6.13 $ 55,208 I-2 168 $ 8,450,000 $ 1,648,200 $ 537,600 32.62% 5.13 $ 50,298 I-3 176 $10,150,000 $ 1,400,604 $ 535,212 38.21% 7.25 42.07% $ 57,670 I-4 207 $13,650,000 $ 1,595,000 $ 495,000 31.03% 8.56 $ 65,942 I-5 79 $ 4,375,000 $ 710,220 $ 229,100 32.26% 6.16 $ 55,380
EGIM
Low High Average Median 5.13 8.56 6.64 6.16
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES Estimate EGIM 6.50 ----------- Subject EGI $ 1,928,641 ----------- Value Based on EGIM Analysis $12,536,165 Rounded $12,500,000 Value Per Unit $ 64,433
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 42.07% before reserves. The comparable sales indicate a range of expense ratios from 31.03% to 38.21%, while their EGIMs range from 5.13 to 8.56. Overall, we conclude to an EGIM of 6.50, which results in an "as is" value estimate in the EGIM Analysis of $12,500,000. 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 $12,600,000. Price Per Unit $12,600,000 NOI Per Unit $12,600,000 EGIM Analysis $12,500,000 Sales Comparison Conclusion $12,600,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 BRIAR BAY RACQUET CLUB, MIAMI, 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 BRIAR BAY RACQUET CLUB, MIAMI, 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 - --------------------------------------------------------------------------- 1Br/1Ba - 1A10 750 $739 $0.99 93.8% 1Br/1Ba - 1B10 785 $742 $0.95 91.7% 2 Br/1 Ba - 2A10 970 $864 $0.89 100.0% 2 Br/1 Ba - 2B10 975 $861 $0.88 96.0% 2Br/2Ba - 2A20 1000 $916 $0.92 93.3% 2Br/2Ba - 2B20 1100 $936 $0.85 94.9%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 BRIAR BAY RACQUET CLUB, MIAMI, FLORIDA RENT ANALYSIS
COMPARABLE RENTS ---------------------------------------------------------- R-1 R-2 R-3 R-4 R-5 ---------------------------------------------------------- Continental Briarwood Gardens Nob Hill 0 0 ---------------------------------------------------------- COMPARISON TO SUBJECT SUBJECT SUBJECT ---------------------------------------------------------- SUBJECT UNIT ACTUAL ASKING Slightly DESCRIPTION TYPE RENT RENT Slightly Inferior Slightly Inferior Superior 0 0 - ----------------------------------------------------------------------------------------------------------------------------- Monthly Rent 1Br/1Ba - 1A10 $ 739 $ 759 $ 797 Unit Area (SF) 750 750 ` 744 Monthly Rent Per Sq. Ft. $ 0.99 $ 1.01 $ 1.07 Monthly Rent 1Br/1Ba - 1B10 $ 742 $ 769 $ 734 $ 710 Unit Area (SF) 785 785 800 855 Monthly Rent Per Sq. Ft. $ 0.95 $ 0.98 $ 0.92 $ 0.83 Monthly Rent 2 Br/1 Ba - 2A10 $ 864 $ 869 $ 874 $ 880 Unit Area (SF) 970 970 900 860 Monthly Rent Per Sq. Ft. $ 0.89 $ 0.90 $ 0.97 $ 1.02 Monthly Rent 2 Br/1 Ba - 2B10 $ 861 $ 879 $ 830 Unit Area (SF) 975 975 1,015 Monthly Rent Per Sq. Ft. $ 0.88 $ 0.90 $ 0.82 Monthly Rent 2Br/2Ba - 2A20 $ 916 $ 939 $ 904 $ 935 Unit Area (SF) 1,000 1,000 1,000 997 Monthly Rent Per Sq. Ft. $ 0.92 $ 0.94 $ 0.90 $ 0.94 Monthly Rent 2Br/2Ba - 2B20 $ 936 $ 949 $1,000 $1,085 Unit Area (SF) 1,100 1,100 1,208 1,104 Monthly Rent Per Sq. Ft. $ 0.85 $ 0.86 $ 0.83 $ 0.98 DESCRIPTION MIN MAX MEDIAN AVERAGE - ----------------------------------------------------------------- Monthly Rent $ 797 $ 797 $ 797 $ 797 Unit Area (SF) 744 744 744 744 Monthly Rent Per Sq. Ft. $ 1.07 $ 1.07 $ 1.07 $ 1.07 Monthly Rent $ 710 $ 734 $ 722 $ 722 Unit Area (SF) 800 855 828 828 Monthly Rent Per Sq. Ft. $ 0.83 $ 0.92 $ 0.87 $ 0.87 Monthly Rent $ 874 $ 880 $ 877 $ 877 Unit Area (SF) 860 900 880 880 Monthly Rent Per Sq. Ft. $ 0.97 $ 1.02 $ 1.00 $ 1.00 Monthly Rent $ 830 $ 830 $ 830 $ 830 Unit Area (SF) 1,015 1,015 1,015 1,015 Monthly Rent Per Sq. Ft. $ 0.82 $ 0.82 $ 0.82 $ 0.82 Monthly Rent $ 904 $ 935 $ 920 $ 920 Unit Area (SF) 997 1,000 999 999 Monthly Rent Per Sq. Ft. $ 0.90 $ 0.94 $ 0.92 $ 0.92 Monthly Rent $1,000 $1,085 $1,043 $1,043 Unit Area (SF) 1,104 1,208 1,156 1,156 Monthly Rent Per Sq. Ft. $ 0.83 $ 0.98 $ 0.91 $ 0.91
CONCLUDED MARKET RENTAL RATES AND TERMS Based on this analysis above, the subject's concluded market rental rates and gross rental income is calculated as follows: GROSS RENTAL INCOME PROJECTION
Market Rent Unit Area ---------------- Monthly Annual Unit Type Number of Units (Sq. Ft.) Per Unit Per SF Income Income - --------------------------------------------------------------------------------------------------- 1Br/1Ba - 1A10 32 750 $745 $0.99 $ 23,840 $ 286,080 1Br/1Ba - 1B10 60 785 $750 $0.96 $ 45,000 $ 540,000 2 Br/1 Ba - 2A10 23 970 $865 $0.89 $ 19,895 $ 238,740 2 Br/1 Ba - 2B10 15 975 $870 $0.89 $ 13,050 $ 156,600 2Br/2Ba - 2A20 26 1,000 $950 $0.95 $ 24,700 $ 296,400 2Br/2Ba - 2B20 38 1,100 $945 $0.86 $ 35,910 $ 430,920 -------- ---------- Total $162,395 $1,948,740 -------- ----------
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 BRIAR BAY RACQUET CLUB, MIAMI, FLORIDA SUMMARY OF HISTORICAL INCOME & EXPENSES
FISCAL YEAR 2000 FISCAL YEAR 2001 FISCAL YEAR 2002 FISCAL YEAR 2003 ---------------------- ---------------------- ---------------------- ----------------------- ACTUAL ACTUAL ACTUAL MANAGEMENT BUDGET ---------------------- ---------------------- ---------------------- ----------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT - --------------------------- ------------------------------------------------------------------------------------------------- Revenues Rental Income $1,788,210 $ 9,218 $1,901,700 $ 9,803 $1,921,479 $ 9,905 $1,947,000 $ 10,036 Vacancy $ 61,307 $ 316 $ 72,984 $ 376 $ 111,208 $ 573 $ 81,000 $ 418 Credit Loss/Concessions $ 41,163 $ 212 $ 52,786 $ 272 $ 53,518 $ 276 $ 63,192 $ 326 ---------- ---------- ---------- ---------- ---------- --------- ---------- ---------- Subtotal $ 102,470 $ 528 $ 125,770 $ 648 $ 164,726 $ 849 $ 144,192 $ 743 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 112,758 $ 581 $ 96,268 $ 496 $ 140,682 $ 725 $ 135,000 $ 696 ---------- ---------- ---------- ---------- ---------- --------- ---------- ---------- Subtotal Other Income $ 112,758 $ 581 $ 96,268 $ 496 $ 140,682 $ 725 $ 135,000 $ 696 ---------- ---------- ---------- ---------- ---------- --------- ---------- ---------- Effective Gross Income $1,798,498 $ 9,271 $1,872,198 $ 9,651 $1,897,435 $ 9,781 $1,937,808 $ 9,989 Operating Expenses Taxes $ 168,538 $ 869 $ 166,446 $ 858 $ 163,805 $ 844 $ 184,825 $ 953 Insurance $ 31,262 $ 161 $ 64,163 $ 331 $ 63,619 $ 328 $ 55,498 $ 286 Utilities $ 132,622 $ 684 $ 92,852 $ 479 $ 106,481 $ 549 $ 117,180 $ 604 Repair & Maintenance $ 116,922 $ 603 $ 143,901 $ 742 $ 128,221 $ 661 $ 130,800 $ 674 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 $ 48,642 $ 251 $ 23,376 $ 120 $ 23,038 $ 119 $ 21,000 $ 108 General Administrative $ 191,206 $ 986 $ 192,455 $ 992 $ 174,710 $ 901 $ 172,296 $ 888 Management $ 90,687 $ 467 $ 100,812 $ 520 $ 96,349 $ 497 $ 114,822 $ 592 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- --------- ---------- ---------- Total Operating Expenses $ 779,879 $ 4,020 $ 784,005 $ 4,041 $ 756,223 $ 3,898 $ 796,421 $ 4,105 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- --------- ---------- ---------- Net Income $1,018,619 $ 5,251 $1,088,193 $ 5,609 $1,141,212 $ 5,883 $1,141,387 $ 5,883 ANNUALIZED 2003 ----------------------- PROJECTION AAA PROJECTION ----------------------- ----------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT % - -------------------------- ----------------------- ----------------------------- Revenues Rental Income $1,886,640 $ 9,725 $1,948,740 $ 10,045 100.0% Vacancy $ 198,192 $ 1,022 $ 97,437 $ 502 5.0% Credit Loss/Concessions $ 98,236 $ 506 $ 58,462 $ 301 3.0% ---------- ---------- ---------- ---------- ----- Subtotal $ 296,428 $ 1,528 $ 155,899 $ 804 8.0% Laundry Income $ 0 $ 0 $ 0 $ 0 0.0% Garage Revenue $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 139,792 $ 721 $ 135,800 $ 700 7.0% ---------- ---------- ---------- ---------- ----- Subtotal Other Income $ 139,792 $ 721 $ 135,800 $ 700 7.0% ---------- ---------- ---------- ---------- ----- Effective Gross Income $1,730,004 $ 8,918 $1,928,641 $ 9,941 100.0% Operating Expenses Taxes $ 180,932 $ 933 $ 194,000 $ 1,000 10.1% Insurance $ 59,612 $ 307 $ 65,960 $ 340 3.4% Utilities $ 77,704 $ 401 $ 111,550 $ 575 5.8% Repair & Maintenance $ 141,636 $ 730 $ 135,800 $ 700 7.0% Cleaning $ 0 $ 0 $ 0 $ 0 0.0% Landscaping $ 0 $ 0 $ 0 $ 0 0.0% Security $ 0 $ 0 $ 0 $ 0 0.0% Marketing & Leasing $ 39,372 $ 203 $ 23,280 $ 120 1.2% General Administrative $ 171,664 $ 885 $ 184,300 $ 950 9.6% Management $ 89,032 $ 459 $ 96,432 $ 497 5.0% Miscellaneous $ 0 $ 0 $ 0 $ 0 0.0% ---------- ---------- ---------- ---------- ----- Total Operating Expenses $ 759,952 $ 3,917 $ 811,322 $ 4,182 42.1% Reserves $ 0 $ 0 $ 48,500 $ 250 6.0% ---------- ---------- ---------- ---------- ----- Net Income $ 970,052 $ 5,000 $1,068,819 $ 5,509 55.4%
REVENUES AND EXPENSES The subject's revenue and expense projections are displayed on the previous chart. Rental income is based on the market analysis previously discussed. Other income consists of forfeited deposits, laundry income, late rent payments, month to month fees, pet fees, vending machine revenue, etc. We forecasted the property's annual operating expenses after reviewing its historical performance at the subject property. We analyzed each item of expense and attempted to forecast amounts a typical informed investor would consider reasonable. VACANCY AND COLLECTION LOSS An investor is primarily interested in the annual revenue an income property is likely to produce over a specified period of time, rather than the income it could produce if it were always 100% occupied and all tenants were paying their rent in full and on time. An investor normally expects some income loss as tenants vacate, fail to pay rent, or pay their rent late. We have projected a stabilized vacancy and collection loss rate of 8% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30 BRIAR BAY RACQUET CLUB, MIAMI, 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 31 BRIAR BAY RACQUET CLUB, MIAMI, FLORIDA SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR - ------------------------------------------------------------------ I-1 April, 2001 95% $55,208 10.89% I-2 November, 2000 100% $50,298 13.14% I-3 March, 2002 95% $57,670 8.53% I-4 September, 2002 96% $65,942 8.06% I-5 June, 2001 95% $55,380 11.00% High 13.14% Low 8.06% Average 10.32%
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 $12,500,000. In this instance, the reversion figure contributes AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32 BRIAR BAY RACQUET CLUB, MIAMI, FLORIDA approximately 40% of the total value. Investors surveyed for this assignment indicated they would prefer to have the cash flow contribute anywhere from 50% to 60%. Overall, the blend seems reasonable. The cash flow and pricing matrix are located on the following pages. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 33 BRIAR BAY RACQUET CLUB, MIAMI, FLORIDA DISCOUNTED CASH FLOW ANALYSIS BRIAR BAY RACQUET CLUB
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 APR-2010 FISCAL YEAR 1 2 3 4 5 6 7 - ---------------------------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $1,948,740 $2,007,202 $2,067,418 $2,129,441 $2,193,324 $2,259,124 $2,326,897 Vacancy $ 97,437 $ 100,360 $ 103,371 $ 106,472 $ 109,666 $ 112,956 $ 116,345 Credit Loss $ 58,462 $ 60,216 $ 62,023 $ 63,883 $ 65,800 $ 67,774 $ 69,807 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Subtotal $ 155,899 $ 160,576 $ 165,393 $ 170,355 $ 175,466 $ 180,730 $ 186,152 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 135,800 $ 139,874 $ 144,070 $ 148,392 $ 152,844 $ 157,429 $ 162,152 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Subtotal Other Income $ 135,800 $ 139,874 $ 144,070 $ 148,392 $ 152,844 $ 157,429 $ 162,152 ---------- ---------- ---------- ---------- ---------- ---------- ---------- EFFECTIVE GROSS INCOME $1,928,641 $1,986,500 $2,046,095 $2,107,478 $2,170,702 $2,235,823 $2,302,898 OPERATING EXPENSES: Taxes $ 194,000 $ 199,820 $ 205,815 $ 211,989 $ 218,349 $ 224,899 $ 231,646 Insurance $ 65,960 $ 67,939 $ 69,977 $ 72,076 $ 74,239 $ 76,466 $ 78,760 Utilities $ 111,550 $ 114,897 $ 118,343 $ 121,894 $ 125,551 $ 129,317 $ 133,197 Repair & Maintenance $ 135,800 $ 139,874 $ 144,070 $ 148,392 $ 152,844 $ 157,429 $ 162,152 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 23,280 $ 23,978 $ 24,698 $ 25,439 $ 26,202 $ 26,988 $ 27,798 General Administrative $ 184,300 $ 189,829 $ 195,524 $ 201,390 $ 207,431 $ 213,654 $ 220,064 Management $ 96,432 $ 99,325 $ 102,305 $ 105,374 $ 108,535 $ 111,791 $ 115,145 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- ---------- ---------- TOTAL OPERATING EXPENSES $ 811,322 $ 835,662 $ 860,732 $ 886,553 $ 913,150 $ 940,545 $ 968,761 Reserves $ 48,500 $ 49,955 $ 51,454 $ 52,997 $ 54,587 $ 56,225 $ 57,912 ---------- ---------- ---------- ---------- ---------- ---------- ---------- NET OPERATING INCOME $1,068,819 $1,100,883 $1,133,910 $1,167,927 $1,202,965 $1,239,054 $1,276,225 Operating Expense Ratio (% of EGI) 42.1% 42.1% 42.1% 42.1% 42.1% 42.1% 42.1% Operating Expense Per Unit $ 4,182 $ 4,308 $ 4,437 $ 4,570 $ 4,707 $ 4,848 $ 4,994 YEAR APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 8 9 10 11 - ----------------------------------------------------------------------------------------- REVENUE Base Rent $2,396,704 $2,468,606 $2,542,664 $2,618,944 Vacancy $ 119,835 $ 123,430 $ 127,133 $ 130,947 Credit Loss $ 71,901 $ 74,058 $ 76,280 $ 78,568 Concessions $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- Subtotal $ 191,736 $ 197,488 $ 203,413 $ 209,515 Laundry Income $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 167,017 $ 172,027 $ 177,188 $ 182,504 ---------- ---------- ---------- ---------- Subtotal Other Income $ 167,017 $ 172,027 $ 177,188 $ 182,504 ---------- ---------- ---------- ---------- EFFECTIVE GROSS INCOME $2,371,985 $2,443,144 $2,516,439 $2,591,932 OPERATING EXPENSES: Taxes $ 238,596 $ 245,753 $ 253,126 $ 260,720 Insurance $ 81,122 $ 83,556 $ 86,063 $ 88,645 Utilities $ 137,192 $ 141,308 $ 145,547 $ 149,914 Repair & Maintenance $ 167,017 $ 172,027 $ 177,188 $ 182,504 Cleaning $ 0 $ 0 $ 0 $ 0 Landscaping $ 0 $ 0 $ 0 $ 0 Security $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 28,631 $ 29,490 $ 30,375 $ 31,286 General Administrative $ 226,666 $ 233,466 $ 240,470 $ 247,684 Management $ 118,599 $ 122,157 $ 125,822 $ 129,597 Miscellaneous $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- TOTAL OPERATING EXPENSES $ 997,824 $1,027,758 $1,058,591 $1,090,349 Reserves $ 59,649 $ 61,438 $ 63,281 $ 65,180 ---------- ---------- ---------- ---------- NET OPERATING INCOME $1,314,512 $1,353,948 $1,394,566 $1,436,403 Operating Expense Ratio (% of EGI) 42.1% 42.1% 42.1% 42.1% Operating Expense Per Unit $ 5,143 $ 5,298 $ 5,457 $ 5,620
Estimated Stabilized NOI $1,068,819 Sales Expense Rate 2.00% Months to Stabilized 1 Discount Rate 11.00% Stabilized Occupancy 95.0% Terminal Cap Rate 10.00%
Gross Residual Sale Price $14,364,030 Deferred Maintenance $ 0 Less: Sales Expense $ 287,281 Add: Excess Land $ 0 ----------- Net Residual Sale Price $14,076,750 Other Adjustments $ 0 ----------- PV of Reversion $ 4,957,613 Value Indicated By "DCF" $12,450,108 Add: NPV of NOI $ 7,492,496 Rounded $12,500,000 ----------- PV Total $12,450,108
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE ------------------------------------------------------------------------------ TOTAL VALUE 10.50% 10.75% 11.00% 11.25% 11.50% - ----------------------------------------------------------------------------------------------------------------- 9.50% $13,132,860 $12,919,623 $12,711,035 $12,506,978 $12,307,339 9.75% $12,992,872 $12,782,763 $12,577,227 $12,376,146 $12,179,411 TERMINAL CAP RATE 10.00% $12,859,883 $12,652,746 $12,450,108 $12,251,856 $12,057,879 10.25% $12,733,381 $12,529,071 $12,329,191 $12,133,629 $11,942,276 10.50% $12,612,904 $12,411,286 $12,214,032 $12,021,031 $11,832,178
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 34 BRIAR BAY RACQUET CLUB, MIAMI, 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 9.00% percent is applicable to the subject. The results of our direct capitalization analysis are as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 35 BRIAR BAY RACQUET CLUB, MIAMI, FLORIDA BRIAR BAY RACQUET CLUB
TOTAL PER SQ. FT. PER UNIT %OF EGI - ------------------------------------------------------------------------------------------------------------ REVENUE Base Rent $ 1,948,740 $ 11.08 $ 10,045 Less: Vacancy & Collection Loss 8.00% $ 155,899 $ 0.89 $ 804 Plus: Other Income Laundry Income $ 0 $ 0.00 $ 0 0.00% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 135,800 $ 0.77 $ 700 7.04% --------------------------------------------- Subtotal Other Income $ 135,800 $ 0.77 $ 700 7.04% EFFECTIVE GROSS INCOME $ 1,928,641 $ 10.97 $ 9,941 OPERATING EXPENSES: Taxes $ 194,000 $ 1.10 $ 1,000 10.06% Insurance $ 65,960 $ 0.38 $ 340 3.42% Utilities $ 111,550 $ 0.63 $ 575 5.78% Repair & Maintenance $ 135,800 $ 0.77 $ 700 7.04% Cleaning $ 0 $ 0.00 $ 0 0.00% Landscaping $ 0 $ 0.00 $ 0 0.00% Security $ 0 $ 0.00 $ 0 0.00% Marketing & Leasing $ 23,280 $ 0.13 $ 120 1.21% General Administrative $ 184,300 $ 1.05 $ 950 9.56% Management 5.00% $ 96,432 $ 0.55 $ 497 5.00% Miscellaneous $ 0 $ 0.00 $ 0 0.00% TOTAL OPERATING EXPENSES $ 811,322 $ 4.61 $ 4,182 42.07% Reserves $ 48,500 $ 0.28 $ 250 2.51% --------------------------------------------- NET OPERATING INCOME $ 1,068,819 $ 6.08 $ 5,509 55.42% "GOING IN" CAPITALIZATION RATE 9.00% VALUE INDICATION $11,875,764 $ 67.54 $ 61,215 "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $11,875,764 ROUNDED $11,900,000 $ 67.68 $ 61,340
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 36 BRIAR BAY RACQUET CLUB, MIAMI, FLORIDA DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF - ----------------------------------------------------------------- 8.25% $12,955,379 $13,000,000 $67,010 $73.93 8.50% $12,574,338 $12,600,000 $64,948 $71.66 8.75% $12,215,072 $12,200,000 $62,887 $69.38 9.00% $11,875,764 $11,900,000 $61,340 $67.68 9.25% $11,554,797 $11,600,000 $59,794 $65.97 9.50% $11,250,724 $11,300,000 $58,247 $64.26 9.75% $10,962,244 $11,000,000 $56,701 $62.56
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $11,900,000. CORRELATION AND CONCLUSION BY THE INCOME APPROACH The two methods used to estimate the market value of the subject property by the income approach resulted in the following indications of value: Discounted Cash Flow Analysis $12,500,000 Direct Capitalization Method $11,900,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $12,500,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 37 BRIAR BAY RACQUET CLUB, MIAMI, 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 $ 12,600,000 Income Approach $ 12,500,000 Reconciled Value $ 12,500,000
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 20, 2003 the market value of the fee simple estate in the property is: $12,500,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA BRIAR BAY RACQUET CLUB, MIAMI, FLORIDA ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A BRIAR BAY RACQUET CLUB, MIAMI, FLORIDA EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A BRIAR BAY RACQUET CLUB, MIAMI, FLORIDA SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] INTERIOR - VIEW OF CLUBHOUSE EXTERIOR - POOL AREA [PICTURE] [PICTURE] INTERIOR - BEDROOM AREA INTERIOR - APARTMENT UNIT [PICTURE] [PICTURE] EXTERIOR - COURTYARD AREA EXTERIOR - VIEW OF PARKING AREA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A BRIAR BAY RACQUET CLUB, MIAMI, FLORIDA SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - VIEW OF BUILDING EXTERIOR - VIEW OF BUILDING [PICTURE] [PICTURE] EXTERIOR - VIEW OF BUILDING EXTERIOR - VIEW OF BUILDING [PICTURE] [PICTURE] EXTERIOR - VIEW OF BUILDING EXTERIOR - VIEW OF BUILDING AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B BRIAR BAY RACQUET CLUB, MIAMI, FLORIDA EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B BRIAR BAY RACQUET CLUB, MIAMI, FLORIDA PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 PARK PLACE APARTMENTS MEADOWS AT KENDALL LAKES CLUB KENDALL 10755 SW 108 Ave. 13781 SW 66 St. 9950 Kendall Drive Miami, Florida Miami, Florida Miami, Florida [PICTURE] [PICTURE] [PICTURE] COMPARABLE I-4 COMPARABLE I-5 WELLINGTON MANOR BERKLEY SQUARE 10805 SW 88 St. 10900 SW 104 St. Miami, Florida Miami, Florida [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B BRIAR BAY RACQUET CLUB, MIAMI, FLORIDA SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 - ----------------------------------------------------------------------------------------------------------------------------- Property Name Briar Bay Racquet Club Briarwood Management Company AIMCO Briarwood LOCATION: Address 13100 SW 92 Ave. 13841 SW 90 Avenue City, State Miami, Florida Miami, Florida County Dade Dade Proximity to Subject 1-mile south of the subject PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 175,835 N/A Year Built 1974 1972 Effective Age 25 30 Building Structure Type Brick & wood siding walls; asphalt Masonry exterior walls, Two-story shingle roof Parking Type (Gr., Cov., etc.) Garage, Open Covered Open Number of Units 194 628 Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo. 1 1Br/1Ba - 1A10 750 32 $ 739 2 1BD/1BH 800 N/A $734 2 1Br/1Ba - 1B10 785 60 $ 742 3 2 BD/1BA 900 N/A $874 3 2 Br/1 Ba - 2A10 970 23 $ 864 5 2 BD/2 BA 1,000 N/A $904 4 2 Br/1 Ba - 2B10 975 15 $ 861 5 2Br/2Ba - 2A20 1,000 26 $ 916 6 2Br/2Ba - 2B20 1,100 38 $ 936 Average Unit Size (SF) 906 Unit Breakdown: Efficiency 0% 2-Bedroom 53% Efficiency N/A 2-Bedroom N/A 1-Bedroom 47% 3-Bedroom 0% 1-Bedroom N/A 3-Bedroom N/A CONDITION: Good Good APPEAL: Very Good Very Good AMENITIES: Unit Amenities X 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 Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment X Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball X Meeting Hall Sand Volley Ball X Meeting Hall X Tennis Court Secured Parking X Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track X Business Office Jogging Track X Business Office Gym Room X Gym Room OCCUPANCY: 94% 97% LEASING DATA: Available Leasing Terms 6 to 15 Months 6 to 15 Months Concessions 1 bedroom, 1 month free (when available) $599 move-in on 1-Bedroom units Pet Deposit 300 $300 (non-refundable) Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water Trash X Water Trash Confirmation May 20, 2003; Richard Marino (Property Manager) May 20, 2003; Bobby (Leasing agent) Telephone Number (305) 592-1408 (305) 251-1767 NOTES: None COMPARISON TO SUBJECT: Slightly Inferior COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 - -------------------------------------------------------------------------------------------------------------------------- Property Name Continental Gardens Nob Hill Management Company Presidential Property Services, Inc. GANNON LOCATION: Address 7941 SW 104 Street 9867 N. Kendall Drive City, State Miami, Florida Miami, Florida County Dade Dade Proximity to Subject 2-miles northeast of subject 3-miles northwest of subject PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 197,213 357,168 Year Built 1971 1969 Effective Age 30 30 Building Structure Type Masonry exterior walls, Two-story Masonry exterior walls, Two-story Parking Type (Gr., Cov., etc.) Open Open Number of Units 208 314 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 2 1BD/1BH 855 N/A $ 710 1 1BD/1BH - Type 1 732 60 $ 775 4 2 BD/1BA 1,015 N/A $ 830 1 1BD/1BH - Type 2 754 72 $ 815 6 2 BD/2 BA 1,130 N/A $ 935 3 2BD/1BH 860 48 $ 880 6 3 BD/2 BA 1,285 N/A $1,065 5 2BD/2BH 997 132 $ 935 6 3BD/2BH 1,104 48 $1,085 Average Unit Size (SF) 900 Unit Breakdown: Efficiency N/A 2-Bedroom N/A Efficiency 0% 2-Bedroom 50% 1-Bedroom N/A 3-Bedroom N/A 1-Bedroom 37% 3-Bedroom 13% CONDITION: Good Good APPEAL: Very Good Very Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X Balcony Fireplace 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 Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball Meeting Hall Sand Volley Ball X Meeting Hall Tennis Court Secured Parking X Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track X Business Office Jogging Track X Business Office X Gym Room X Gym Room OCCUPANCY: 95% 85% LEASING DATA: Available Leasing Terms 6 to 15 Months 6 to 15 Months Concessions 1 - 1 1/2 Months Free 1 - 1 1/2 Months Free Pet Deposit $300 - $500 400 Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas Water Trash X Water Trash Confirmation May 15, 2003; Barbara Herbst (Leasing 5/20/2003; Property Manager Agent) Telephone Number (888) 755-5367 (305) 274-6068 NOTES: $50 extra for a remodeled unit COMPARISON TO SUBJECT: Slightly Inferior Slightly Superior COMPARABLE COMPARABLE DESCRIPTION R - 4 R - 5 - --------------------------------------------------------------------------------------------------------------------------- Property Name Management Company LOCATION: Address City, State County Proximity to Subject PHYSICAL CHARATERISTICS: Net Rentable Area (SF) Year Built Effective Age Building Structure Type Parking Type (Gr., Cov., etc.) Number of Units Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. Average Unit Size (SF) Unit Breakdown: Efficiency 2-Bedroom Efficiency 2-Bedroom 1-Bedroom 3-Bedroom 1-Bedroom 3-Bedroom CONDITION: Poor Poor APPEAL: Good Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling Balcony Balcony Fireplace Fireplace Cable TV Ready Cable TV Ready Project Amenities Swimming Pool Swimming Pool Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall Tennis Court Secured Parking Tennis Court Secured Parking Racquet Ball Laundry Room Racquet Ball Laundry Room Jogging Track Business Office Jogging Track Business Office Gym Room Gym Room OCCUPANCY: LEASING DATA: Available Leasing Terms Concessions Pet Deposit Utilities Paid by Tenant: Electric Natural Gas Electric Natural Gas Water Trash Water Trash Confirmation Telephone Number NOTES: COMPARISON TO SUBJECT:
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B BRIAR BAY RACQUET CLUB, MIAMI, FLORIDA PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 BRIARWOOD CONTINENTAL GARDENS NOB HILL 13841 SW 90 Avenue 7941 SW 104 Street 9867 N. Kendall Drive Miami, Florida Miami, Florida Miami, Florida [PICTURE] [PICTURE] [PICTURE] N/A N/A AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C BRIAR BAY RACQUET CLUB, MIAMI, FLORIDA EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C BRIAR BAY RACQUET CLUB, MIAMI, 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 BRIAR BAY RACQUET CLUB, MIAMI, 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 BRIAR BAY RACQUET CLUB, MIAMI, 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 Appraisal Institute or the designations awarded by these organizations) 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 BRIAR BAY RACQUET CLUB, MIAMI, 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 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 Uniform Standards of Professional Appraisal Practice and the Principles of Appraisal Practice and Code of Ethics of the American Society of Appraisers. I personally did not inspect the subject property. John S. Trabold, MAI provided significant real property appraisal assistance in the preparation of this report. -s- Alice MacQueen -------------------- Alice MacQueen Vice President, Real Estate Group Florida Certified General Real Estate Appraiser #RZ0002202 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E BRIAR BAY RACQUET CLUB, MIAMI, FLORIDA EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E BRIAR BAY RACQUET CLUB, MIAMI, 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 BRIAR BAY RACQUET CLUB, MIAMI, 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. BRIAR BAY RACQUET CLUB, MIAMI, FLORIDA GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. BRIAR BAY RACQUET CLUB, MIAMI, 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)(4) 6 d07256a1exv99wxcyx4y.txt APPRAISAL OF CHIMNEY HILLS CHIMNEY HILL APARTMENTS LAND VALUE 2000-2855 WINDY HILL ROAD MARIETTA, GEORGIA MARKET VALUE - FEE SIMPLE ESTATE AS OF JUNE 23, 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] 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: CHIMNEY HILL APARTMENT LAND VALUE 2000-2855 WINDY HILL ROAD MARIETTA, COBB COUNTY, GEORGIA 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 26.301 acres of land, currently improved with a vacant apartment complex. It is our understanding that the property is contaminated with mold and scheduled to be razed. This appraisal assumes the land is vacant and available for development. 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 CHIMNEY HILL APARTMENTS LAND VALUE, MARIETTA, GEORGIA 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 June 23, 2003 is: ($2,900,000 ) It is assumed the property's improvements have been razed and the land is vacant and available. Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. /s/ Frank Fehribach July 18, 2003 Frank Fehribach, MAI #053272 Managing Principal, Real Estate Group State of Georgia Certified General Real Property Appraiser #218487 Investigation and Report By: Phillip McGinnis AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 CHIMNEY HILL APARTMENTS LAND VALUE, MARIETTA, GEORGIA TABLE OF CONTENTS Cover Letter of Transmittal Table of Contents APPRAISAL DATA Executive Summary..................................................... 4 Introduction.......................................................... 8 Area Analysis......................................................... 10 Market Analysis....................................................... 13 Site Analysis......................................................... 14 Improvement Analysis.................................................. 14 Highest and Best Use.................................................. 14 VALUATION Valuation Procedure................................................... 15 Sales Comparison Approach............................................. 17 Reconciliation and Conclusion......................................... 20
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 CHIMNEY HILL APARTMENTS LAND VALUE, MARIETTA, GEORGIA EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Chimney Hill Apartments - Land Only LOCATION: 2000-2855 Windy Hill Road Marietta, Georgia PURPOSE OF ASSIGNMENT: Court Settlement PREMISE OF VALUE: "As Is" Market Value of the Fee Simple Estate INTEREST APPRAISED: Fee simple estate DATE OF VALUE: June 23, 2003 DATE OF REPORT: July 18, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 26.301 acres, or 1,145,672 square feet Assessor Parcel No.: 17-0874-0-002-2 Floodplain: Community Panel No. 13005200075 F, (August 18, 1992) Flood Zone X, an area outside the floodplain. Zoning: RM-12 (Multi-family Residential District) SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] VIEW OF SUBJECT ACROSS WINDY HILL ROAD EXTERIOR LAND VIEW AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 CHIMNEY HILL APARTMENTS LAND VALUE, MARIETTA, GEORGIA AREA MAP [MAP] NEIGHBORHOOD MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 CHIMNEY HILL APARTMENTS LAND VALUE, MARIETTA, GEORGIA HIGHEST AND BEST USE: As Vacant: Multifamily development to the highest density possible, subject to feasibility As Improved: N/A METHOD OF VALUATION: In this instance, the Sales Comparison Approach to value was utilized. AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 7 CHIMNEY HILL APARTMENTS LAND VALUE, MARIETTA, GEORGIA PART TWO - ECONOMIC INDICATORS SALES COMPARISON APPROACH PRICE PER ACRE: Range of Sales $/Acre (Unadjusted) $98,560 to $140,271 Range of Sales $/Acre (Adjusted) $84,268 to $119,932 VALUE INDICATION - PRICE PER ACRE $2,900,000 $110,000 / ACRE It is assumed the property's improvements have been razed and the land is vacant and available. AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 8 CHIMNEY HILL APARTMENTS LAND VALUE, MARIETTA, GEORGIA INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 2000-2855 Windy Hill Road, Marietta, Cobb County, Georgia. Cobb County Tax Assessor identifies it as 17-0874-0-002-2. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Phillip McGinnis on June 23, 2003. Frank Fehribach, MAI has not made a personal inspection of the subject property. Both, Frank Fehribach, MAI and Phillip McGinnis 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 land sales of similar properties, analyzing them as to their comparability, and adjusting them accordingly. We completed the Sales Comparison Approach to value. From this approach 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 June 23, 2003. The date of the report is July 18, 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 request 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 Comparison Approach). A Fee Simple Estate is defined in The Dictionary of Real Estate Appraisal, 4th ed. (Chicago: Appraisal Institute, 2002), as: "Absolute ownership unencumbered by any other interest or estate, subject only AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 CHIMNEY HILL APARTMENTS LAND VALUE, MARIETTA, GEORGIA 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 Capital Properties IV as indicated by Warranty Deed filed September 23, 1991 in Deed Book 6279 Page 8. 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 10 CHIMNEY HILL APARTMENTS LAND VALUE, MARIETTA, GEORGIA 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 unincorporated Marietta, Cobb County, Georgia. Overall, the neighborhood is characterized as a suburban setting with the predominant land use being commercial in nature. The subject's neighborhood is generally defined by the following boundaries. NEIGHBORHOOD BOUNDARIES East - Powers Ferry Road West - Atlanta Road South - I-285 North - Delk Road MAJOR EMPLOYERS Major employers in the subject's area include Lockheed-Martin, Dobbins Air Reserve Base, IBM, Cobb County Government and the City of Marietta. The overall economic outlook for the area is considered favorable. AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 11 CHIMNEY HILL APARTMENTS LAND VALUE, MARIETTA, GEORGIA DEMOGRAPHICS We have reviewed demographic data within the neighborhood. The following table summarizes the key data points. NEIGHBORHOOD DEMOGRAPHICS
AREA ---------------------------------------------------- CATEGORY 1-MILE RADIUS 3-MILE RADIUS 5-MILE RADIUS -------- ------------- ------------- ------------- POPULATION TRENDS 1990 Census 12,725 66,251 165,066 2000 Census 16,751 77,249 194,896 2003 Estimate 17,978 81,435 205,144 2008 Projection 19,977 88,246 222,013 Growth 1990 - 2000 31.64% 16.60% 18.07% Growth 2000 - 2008 19.26% 14.24% 13.91% HOUSEHOLDS 1990 Census 6,373 31,475 72,321 2000 Census 7,653 34,507 82,432 2003 Estimate 8,147 36,132 86,459 2008 Projection 8,957 38,778 93,133 Growth 1990 - 2000 20.08% 9.63% 13.98% Growth 2000 - 2008 17.04% 12.38% 12.98% INCOME TRENDS 2000 Median Household Income $46,163 $47,419 $50,621 Per Capita Income $24,323 $28,117 $32,060 Average Household Income $52,669 $62,306 $74,888 Source: Claritas
The subject neighborhood's population is expected to show an approximate 15% increase in the next five years. The immediate market offers inferior income levels as compared to the broader market. AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 12 CHIMNEY HILL APARTMENTS LAND VALUE, MARIETTA, GEORGIA The following table illustrates the housing statistics in the subject's immediate area, as well as the MSA region. HOUSING TRENDS
AREA -------------------------------------------------------- CATEGORY 1-MILE RADIUS 3-MILE RADIUS 5-MILE RADIUS -------- ------------- ------------- ------------- HOUSING TRENDS Owner Occupied 2,102(27.47%) 11,861 (34.37%) 28,770 (47.03%) Renter Occupied 5,551(72.53%) 22,646 (65.63%) 43,662 (52.97%) Source: Claritas
SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Commercial/Industrial South - Commercial (Restaurant) East - Commercial (Hotel/Office) West - Commercial (Hotel/Gas Station) CONCLUSIONS The subject is well located just southeast of the city of Marietta, and north of the city of Atlanta. 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 13 CHIMNEY HILL APARTMENTS LAND VALUE, MARIETTA, GEORGIA MARKET ANALYSIS The subject property is located in an unincorporated area near Marietta in Cobb County. The overall pace of development in the subject's market is more or less stable. New construction in the immediate area is limited. Development is categorized as highway commercial due to the close proximity of the interchange with Windy Hill Road and Interstate 75. None of the apartment complexes in the area appear to be newer than 15 years old. There appears to have been no recent multiple-family residential construction in the subject neighborhood. There is little vacant land available for development in the immediate area. The surrounding neighborhood is primarily commercial in nature with adjoining land uses being a convenience/gas station and hotel to the west, industrial to the north, office and hotel to the east and restaurants located across Windy Hill Road to the south. Developments range in age from 5 to 30 years old, with most being in fair to good condition. The primary east/west corridor is Windy Hill Road with four westbound lanes, three eastbound lanes and a center turn lane in front of the subject's entrance. On the west side of I-75, the road narrows to a four lane road with a center turn lane. Leland Drive is a two lane dead-end road on the north side of Windy Hill Road. The intersection of Windy Hill Road and Leland Drive is controlled by a traffic light. Dense development along Windy Hill Road and close proximity to the I-75 interchange combine to form heavy traffic volumes during rush hour. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 14 CHIMNEY HILL APARTMENTS LAND VALUE, MARIETTA, GEORGIA PROPERTY DESCRIPTION SITE ANALYSIS Site Area 26.301 acres, or 1,145,672 square feet Shape Irregular Topography Rolling Utilities All necessary utilities are available to the site Soil Conditions Stable Easements Affecting Site None other than typical utility easements Overall Site Appeal Fair Flood Zone: Community Panel 1300520075 F, dated August 18, 1992 Flood Zone Zone X Zoning RM-12, multi-family residential district REAL ESTATE TAXES
ASSESSED VALUE - 2003 -------------------------------------------- TAX RATE / PROPERTY PARCEL NUMBER LAND BUILDING TOTAL MILL RATE TAXES ------------- ---- -------- ----- --------- ----- 17-0874-0-002-2 $4,529,720 $13,993,150 $18,522,870 0.02987 $221,311
IMPROVEMENT ANALYSIS For the purposes of this valuation the site is assumed to be vacant and available for development. Therefore, the improvements have not been considered. 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 for multifamily development to the highest density possible. The highest and best use as improved is for an apartment complex, subject to a feasibility analysis. AMERICAN APPRAISAL ASSOCIATES, INC. VALUATION PROCEDURE PAGE 15 CHIMNEY HILL APARTMENTS LAND VALUE, MARIETTA, GEORGIA 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 16 CHIMNEY HILL APARTMENTS LAND VALUE, MARIETTA, GEORGIA 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 only the Sales Comparison Approach to value. As a vacant parcel of land, the Cost Approach is not applicable and with no income producing property, the income approach is not applicable. Therefore, the Sales Comparison Approach is considered the only reliable approach as investors are buying similar vacant land parcels in the market. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 17 CHIMNEY HILL APARTMENTS LAND VALUE, MARIETTA, GEORGIA 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 standard unit of comparison for vacant land is the sales price per acre or price per square foot for smaller parcels. 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. Following the summary of sales is an adjustment grid that is used to arrive at a value. LAND SALES SUMMARY
SALE NUMBER SALE AAA ID LOCATION DATE PRICE LAND AREA UNIT PRICE ------ -------- ---- ----- --------- ---------- L-1 N. COBB PKWY. 01-NOV-00 $2,600,000 26.38 ACRES $ 98,560 /ACRE COBB COUNTY 1,149,113 SQ.FT. $ 2.26 /SQ.FT. KENNESAW GA L-2 1599 N. COBB PKWY. 01-FEB-01 $2,381,472 19.85 ACRES $119,973 /ACRE COBB COUNTY 864,666 SQ.FT. $ 2.75 /SQ.FT. KENNESAW GA L-3 7671 COVINGTON HWY. 01-JUN-01 $2,170,000 15.47 ACRES $140,271 /ACRE DEKALB COUNTY 673,873 SQ.FT. $ 3.22 /SQ.FT. LITHONIA GA SUBJECT 2855 WINDY HILL ROAD 26.30 ACRES COBB COUNTY 1,145,672 SQ.FT. MARIETTA GA
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 18 CHIMNEY HILL APARTMENTS LAND VALUE, MARIETTA, GEORGIA VACANT LAND SALES MAP [MAP] LAND SALES ANALYSIS The land sales indicate a sales price range from $98,560 to $140,271 per acre. Adjustments have been made to the sales to reflect differences in overall location, access, visibility, topography, shape, size, zoning and availability of utilities. Generally speaking, larger properties typically have a lower price per acre when compared to smaller properties, all else being equal. After appropriate adjustments are made, the land sales demonstrate an adjusted range from for the subject between $84,268 to $119,932 per acre with a mean or average adjusted price of $102,259 per acre. Based on the preceding analysis, we have concluded to a value of $110,000 per acre, which results in an "as is" value of $2,900,000 (rounded). Sales Comparison Conclusion $2,900,000 It is assumed the property's improvements have been razed and the land is vacant and available. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 19 CHIMNEY HILL APARTMENTS LAND VALUE, MARIETTA, GEORGIA LAND SALES ADJUSTMENT GRID CLIENT: AIMCO CONTRACT #: 053272 PROPERTY: CHIMNEY HILLS APARTMENTS (CLOSED) APP. DATE: 23-JUN-03
COMPARABLE SALES - -------------------------------------------------------------------------------------------------------------------------------- COMPARABLE NUMBER SUBJECT L-1 L-2 L-3 LOCATION 2855 Windy Hill Road N. Cobb Pkwy. 1599 N. Cobb Pkwy. 7671 Covington Hwy. Cobb County Cobb County Cobb County DeKalb County Marietta Kennesaw Kennesaw Lithonia GA GA GA GA SALE PRICE - $2,600,000 $2,381,472 $ 2,170,000 LAND AREA IN ACRES 26.30 26.38 19.85 15.47 SALE PRICE/ACRE - $ 98,560 $ 119,973 $ 140,271 PROPERTY RIGHTS CONVEYED $ 98,560 N/A $ 119,973 N/A $ 140,271 N/A Adjusted Price per Acre/Adjustment FINANCING TERMS Adjusted Price per Acre/Adjustment $ 98,560 N/A $ 119,973 N/A $ 140,271 N/A CONDITIONS OF SALE Adjusted Price per Acre/Adjustment $ 98,560 N/A $ 119,973 N/A $ 140,271 N/A MARKET CONDITIONS Nov-00 Feb-01 Jun-01 Adjustment -10.0% -10.0% -10.0% --------- -------- ---------- Adjusted Price per Acre $ 88,704 $ 107,976 $ 126,244 LOCATIONAL & PHYSICAL CHARACTERISTICS OVERALL LOCATION Good Comparable 0% Comparable 0% Inferior 5% ACCESS Good Superior -5% Superior -5% Superior -5% TOPOGRAPHY Rolling Comparable 0% Comparable 0% Comparable 0% SHAPE Irregular Comparable 0% Comparable 0% Comparable 0% SIZE (ACRES) 26.30 Comparable 0% Comparable 0% Superior -5% ZONING RM-12 Comparable 0% Comparable 0% Comparable 0% UTILITIES All Comparable 0% Comparable 0% Comparable 0% ADJ. SALES PRICE PER ACRE $ 84,268 $ 102,577 $ 119,932
Range of Adjusted Sale Price $ 84,268 to $ 119,932 CONCLUDED VALUE PER ACRE $ 110,000 CONCLUDED VALUE Rounded $ 2,900,000
AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 20 CHIMNEY HILL APARTMENTS LAND VALUE, MARIETTA, GEORGIA RECONCILIATION AND CONCLUSION This appraisal was made to express an opinion as of the Market Value of the fee simple estate in the 26.301 acres of land, located at 2000-2855 Windy Hill, Marietta, Cobb County, Georgia. AS IS MARKET VALUE OF THE FEE SIMPLE ESTATE Cost Approach Not Utilized Sales Comparison Approach $2,900,000 Income Approach Not Utilized Reconciled Value $2,900,000
FINAL VALUE - FEE SIMPLE ESTATE Based on the investigation and premise outlined, it is our opinion that as of June 23, 2003 the market value of the fee simple estate in the property is: $2,900,000 It is assumed the property's improvements have been razed and the land is vacant and available. AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA CHIMNEY HILL APARTMENTS LAND VALUE, MARIETTA, GEORGIA ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A CHIMNEY HILL APARTMENTS LAND VALUE, MARIETTA, GEORGIA EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A CHIMNEY HILL APARTMENTS LAND VALUE, MARIETTA, GEORGIA SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] VIEW OF SUBJECT ACROSS WINDY HILL ROAD EXTERIOR LAND VIEW [PICTURE] [PICTURE] EXTERIOR VIEW OF REAR ENTRANCE EXTERIOR VIEW OF CONDEMNED BUILDING AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B CHIMNEY HILL APARTMENTS LAND VALUE, MARIETTA, GEORGIA EXHIBIT B ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B CHIMNEY HILL APARTMENTS LAND VALUE, MARIETTA, GEORGIA 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 B CHIMNEY HILL APARTMENTS LAND VALUE, MARIETTA, GEORGIA 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 B CHIMNEY HILL APARTMENTS LAND VALUE, MARIETTA, GEORGIA 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 CHIMNEY HILL APARTMENTS LAND VALUE, MARIETTA, GEORGIA EXHIBIT D CERTIFICATE OF APPRAISER (1 PAGE) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D CHIMNEY HILL APARTMENTS LAND VALUE, MARIETTA, GEORGIA 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. Phillip McGinnis provided significant real property 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 STATE OF GEORGIA CERTIFIED GENERAL REAL PROPERTY APPRAISER #218487 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E CHIMNEY HILL APARTMENTS LAND VALUE, MARIETTA, GEORGIA EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E CHIMNEY HILL APARTMENTS LAND VALUE, MARIETTA, GEORGIA 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 CHIMNEY HILL APARTMENTS LAND VALUE, MARIETTA, GEORGIA 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. CHIMNEY HILL APARTMENTS LAND VALUE, MARIETTA, GEORGIA GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. CHIMNEY HILL APARTMENTS LAND VALUE, MARIETTA, GEORGIA 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 d07256a1exv99wxcyx5y.txt APPRAISAL OF CITADEL CITADEL 9455 VISCOUNT BLVD EL PASO, TEXAS MARKET VALUE - FEE SIMPLE ESTATE AS OF MAY 11, 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 10, 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: CITADEL 9455 VISCOUNT BLVD EL PASO, EL PASO 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 261 units with a total of 263,888 square feet of rentable area. The improvements were built in 1973. The improvements are situated on 11.383 acres. Overall, the improvements are in average condition. As of the date of this appraisal, the subject property is 92% 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 CITADEL, EL PASO, 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 11, 2003 is: ($8,000,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. -s- Frank Fehribach -------------------------- July 10, 2003 Frank Fehribach, MAI #053272 Managing Principal, Real Estate Group Texas State Certified General Real Estate Appraiser #TX-1323954-G Report By: Daniel Salcedo Texas State Certified General Real Estate Appraiser #TX-1331768-G AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 CITADEL, EL PASO, TEXAS TABLE OF CONTENTS Cover Letter of Transmittal Table of Contents APPRAISAL DATA Executive Summary ........................................................ 4 Introduction ............................................................. 9 Area Analysis ............................................................ 11 Market Analysis .......................................................... 14 Site Analysis ............................................................ 16 Improvement Analysis ..................................................... 16 Highest and Best Use ..................................................... 17 VALUATION Valuation Procedure ...................................................... 18 Sales Comparison Approach ................................................ 20 Income Capitalization Approach ........................................... 26 Reconciliation and Conclusion ............................................ 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 CITADEL, EL PASO, TEXAS EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Citadel LOCATION: 9455 Viscount Blvd El Paso, 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 11, 2003 DATE OF REPORT: July 10, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 11.383 acres, or 495,843 square feet Assessor Parcel No.: F175-999-0010-4900 Floodplain: Community Panel No. 4802140041B (October 15, 1982) Flood Zone C, an area outside the floodplain. Zoning: A-O (Medium to High Density Apartment District) BUILDING: No. of Units: 261 Units Total NRA: 263,888 Square Feet Average Unit Size: 1,011 Square Feet Apartment Density: 22.9 units per acre Year Built: 1973 UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
Market Rent Square ---------------- Monthly Annual Unit Type Feet Per Unit Per SF Income Income - ------------------------------------------------------------------ 1Br/1Ba - EA10 430 $ 400 $0.93 $ 800 $ 9,600 1Br/1Ba - 1A10 600 $ 460 $0.77 $ 5,520 $ 66,240 1Br/1Ba - 1B10 650 $ 460 $0.71 $ 9,200 $ 110,400 1Br/1Ba - 1C15 750 $ 480 $0.64 $ 28,800 $ 345,600 2Br/1 Ba - 2A10 888 $ 620 $0.70 $ 620 $ 7,440 2Br/1.5Ba - 2A15 1,140 $ 615 $0.54 $ 20,910 $ 250,920 -------------------- Total $148,850 $1,786,200 ====================
OCCUPANCY: 92% ECONOMIC LIFE: 45 YEARS AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 CITADEL, EL PASO, TEXAS EFFECTIVE AGE: 25 Years REMAINING ECONOMIC LIFE: 20 Years PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] UNIT TYPE FACADE UNIT TYPE AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 CITADEL, EL PASO, 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 CITADEL, EL PASO, TEXAS PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION AMOUNT $/UNIT - ------------------------------------------------------------------------------------------- Potential Rental Income $1,786,200 $6,844 Effective Gross Income $1,743,789 $6,681 Operating Expenses $923,694 $3,539 53.0% of EGI Net Operating Income: $754,845 $2,892 Capitalization Rate 9.75% DIRECT CAPITALIZATION VALUE $7,700,000 * $29,502 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 7% Stabilized Vacancy & Collection Loss: 8% Lease-up / Stabilization Period N/A Terminal Capitalization Rate 10.75% Discount Rate 12.00% Selling Costs 2.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $8,000,000 * $30,651 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $8,000,000 $30,651 / UNIT SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $22,837 to $36,222 Range of Sales $/Unit (Adjusted) $27,404 to $33,244 VALUE INDICATION - PRICE PER UNIT $7,800,000 * $29,885 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 4.33 to 6.84 Selected EGIM for Subject 4.50 Subject's Projected EGI $1,743,789 EGIM ANALYSIS CONCLUSION $7,800,000 * $29,885 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $7,800,000 * $29,885 / UNIT RECONCILED SALES COMPARISON VALUE $7,800,000 $29,885 / 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 CITADEL, EL PASO, TEXAS PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $7,800,000 NOI Per Unit $7,800,000 EGIM Multiplier $7,800,000 INDICATED VALUE BY SALES COMPARISON $7,800,000 $29,885 / UNIT INCOME APPROACH: Direct Capitalization Method: $7,700,000 Discounted Cash Flow Method: $8,000,000 INDICATED VALUE BY THE INCOME APPROACH $8,000,000 $30,651 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $8,000,000 $30,651 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 CITADEL, EL PASO, TEXAS INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 9455 Viscount Blvd, El Paso, EL Paso County, Texas. El Paso identifies it as F175-999-0010-4900. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Daniel Salcedo on May 11, 2003. Frank Fehribach, MAI has not made a personal inspection of the subject property. Daniel Salcedo performed the research, valuation analysis and wrote the report. Frank Fehribach, MAI reviewed the report and concurs with the value. Frank Fehribach, MAI and Daniel Salcedo 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 11, 2003. The date of the report is July 10, 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 CITADEL, EL PASO, 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 CCP 4. 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 CITADEL, EL PASO, 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 El Paso, Texas. Overall, the neighborhood is characterized as an urban setting with the predominant land use being residential. The subject's neighborhood is generally defined by the following boundaries. NEIGHBORHOOD BOUNDARIES East - Ranch 2316 West - Hawkins Ave South - I-10 North - Hawkins Ave/Cosmos Street MAJOR EMPLOYERS Major employers in the subject's area include Fort Hood Military Base. 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 CITADEL, EL PASO, TEXAS NEIGHBORHOOD DEMOGRAPHICS
AREA ---------------------------------------- CATEGORY 1-Mi. RADIUS 3-Mi. RADIUS 5-Mi. RADIUS MSA - -------------------------------------------------------------------------------- POPULATION TRENDS Current Population 16,655 117,781 245,969 694,549 5-Year Population 16,744 113,601 249,701 734,415 % Change CY-5Y 0.5% -3.5% 1.5% 5.7% Annual Change CY-5Y 0.1% -0.7% 0.3% 1.1% HOUSEHOLDS Current Households 6,360 39,763 77,527 215,986 5-Year Projected Households 6,624 39,533 80,308 231,616 % Change CY - 5Y 4.2% -0.6% 3.6% 7.2% Annual Change CY-5Y 0.8% -0.1% 0.7% 1.4% INCOME TRENDS Median Household Income $ 30,502 $ 28,733 $ 30,351 $ 29,212 Per Capita Income $ 17,080 $ 13,972 $ 13,568 $ 13,716 Average Household Income $ 44,664 $ 41,388 $ 43,073 $ 44,105
Source: Demographics Now The subject neighborhood's population is expected to show increases below 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 49.16% 39.67% 35.17% 34.03% 5-Year Projected % Renting 52.03% 39.73% 34.38% 32.34% % of Households Owning 47.07% 56.02% 60.96% 61.63% 5-Year Projected % Owning 44.36% 55.91% 61.82% 63.53%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 CITADEL, EL PASO, TEXAS SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Viscount Blvd/residential/multifamily uses South - Office business strip East - Viscount Blvd/residential/multifamily uses West - Vacant Land (El Paso Electric Power Station) CONCLUSIONS The subject is well located within the city of El Paso. The neighborhood is characterized as being mostly urban 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 CITADEL, EL PASO, TEXAS MARKET ANALYSIS The subject property is located in the city of El Paso in EL Paso County. The overall pace of development in the subject's market is more or less stable. Based on our site inspection of the market area, there was no evidence of any new development for multifamily use. The following table illustrates historical vacancy rates for the subject's market HISTORICAL VACANCY RATE
Period Region Submarket - ------------------------- 1Q-01 8.0% 8.0% 2Q-01 8.7% 8.7% 3Q-01 9.0% 9.0% 4Q-01 9.8% 9.8% 1Q-02 7.8% 7.8% 2Q-02 8.5% 8.5% 3Q-02 6.8% 6.8% 4Q-02 8.5% 8.5% 1Q-03 8.0% 8.0%
Source: El Paso Apartment Association Occupancy trends in the subject's market are stable. Historically speaking, the subject's submarket has equated the overall market. Occupancy in the subject's market area is expected to remain around 92.0% on average. Any expected changes are caused by the short time fluctuations derived from military household demand. Overall, occupancy in the market area is considered stable. Market rents in the subject's market have been following a stable trend. The following table illustrates historical rental rates for the subject's market. HISTORICAL AVERAGE RENT
Period Region % Change Submarket % Change - --------------------------------------------- 1Q-01 $497 - $497 - 2Q-01 $504 1.4% $504 1.4% 3Q-01 $500 -0.8% $500 -0.8% 4Q-01 $501 0.2% $501 0.2% 1Q-02 $501 0.0% $501 0.0% 2Q-02 $505 0.8% $501 0.0% 3Q-02 $512 1.4% $505 0.8% 4Q-02 $512 0.0% $512 1.4% 1Q-03 $506 -1.2% $506 -1.2%
Source: El Paso Apartment Association AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 CITADEL, EL PASO, TEXAS 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-l La Plaza 129 92% 1969 one mile southeast of the subject R-2 Shadow Ridge 352 93% 1985 less than 0.20 miles southeast of the subject R-3 Spring Park 180 92% 1995 Approx. 0.50 miles southeast of the subject R-4 Silverado 248 96% 1973 Approx. 0.40 miles northwest of the subject R-5 Celina 289 94% 1974 Approx. 0.60 miles northwest of subject Subject Citadel 261 92% 1973
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 CITADEL, EL PASO, TEXAS PROPERTY DESCRIPTION SITE ANALYSIS Site Area 11.383 acres, or 495,843 square feet Shape Irregular Topography Moderate slope 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 4802140041B, dated October 15, 1982 Flood Zone Zone C Zoning A-O, 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 - -------------------------------------------------------------------------------- F175-999-0010-4900 $743,764 $5,332,236 $6,076,000 0.03005 $182,576
IMPROVEMENT ANALYSIS Year Built 1973 Number of Units 261 Net Rentable Area 263,888 Square Feet Construction: Foundation Concrete block wall 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, gym room, barbeque equipment, meeting hall, laundry room, and parking area. Unit Amenities Individual unit amenities include a garage, balcony, fireplace, cable TV connection, and washer dryer connection. Appliances available in each unit include a refrigerator, stove, dishwasher, water heater,garbage AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 CITADEL, EL PASO, TEXAS disposal, and oven. Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) - ----------------------------------------------- 1Br/1Ba - EA10 2 430 1Br/1Ba - 1A10 12 600 1Br/1Ba - 1B10 20 650 1 Br/1Ba - 1C15 60 750 2Br/1Ba - 2A10 1 888 2Br/1.5Ba - 2A15 34 1,140
Overall Condition Average Effective Age 25 years Economic Life 45 years Remaining Economic Life 20 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 1973 and consist of a 261-unit multifamily project. The highest and best use as improved is for a continued multifamily use. Overall, the highest and best use of the subject property is the continued use of the existing apartment project. AMERICAN APPRAISAL ASSOCIATES, INC. VALUATION PROCEDURE PAGE 18 CITADEL, EL PASO, 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 CITADEL, EL PASO, 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 CITADEL, EL PASO, 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 CITADEL, EL PASO, TEXAS SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - ------------------------------------------------------------------------------------------------------------------ Property Name Citadel La Plaza Shadow Ridge LOCATION: Address 9455 Viscount Blvd 9578 Sims Drive 9375 Viscount Blvd City, State El Paso, Texas El Paso,TX El Paso, TX County EL Paso El Paso El Paso PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 263,888 128,669 263,296 Year Built 1973 1969 1985 Number of Units 261 129 352 Unit Mix: Type Total Type Total Type Total 1Br/1Ba - EA10 2 1Br/1Ba 29 1Br/1Ba 80 1Br/1Ba -1A10 12 2Br/1Ba 50 2Br/1Ba 100 1Br/1Ba - 1B10 20 2Br/1.5Ba 35 2Br/1.5Ba 60 1 Br/1Ba-1C15 60 2Br/2Ba 15 2Br/2Ba 60 2 Br/1 Ba -2A10 1 3Br/2Ba 52 2Br/1.5Ba-2A15 34 2 Br/1.75Ba -2A20 8 2 Ba/2.5 Ba- 2A25 6 2Ba/1Ba -2B10 96 2Br/1.5Ba-2B15 12 3Br/2.5Br-3A25 8 4Br/2.5Ba-4A25 2 Average Unit Size (SF) 1,011 997 748 Land Area (Acre) 11.3830 8.7670 7.9526 Density (Units/Acre) 22.9 14.7 44.3 Parking Ratio (Spaces/Unit) 2.20 2.00 2.00 Parking Type (Gr., Cov., etc.) Open/ Garage Open Open CONDITION: Good Average Good APPEAL: Good Fair Good AMENITIES: Pool/Spa Yes/No Yes/No Yes/No Gym Room Yes Yes Yes Laundry Room Yes Yes No Secured Parking No Yes Yes Sport Courts Yes Yes Yes Washer/Dryer Connection Yes No Yes OCCUPANCY: 92% 92% 93% TRANSACTION DATA: Sale Date July, 2000 November, 1999 Sale Price ($) $4,150,000 $12,750,000 Grantor Dain Texas Partners N/A Grantee American Opportunity for Case & Associates Properties Housing-La Palza, LLC Sale Documentation Deed- Vol 1402/Page 134 Deed- Vol 1817/Page 1645 Verification Confidential Confidential Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $869,225 $6,738 $6.76 $2,003,382 $5,691 $7.61 Vacancy/Credit Loss $ 69,538 $ 539 $0.54 $ 140,236 $ 398 $0.53 Effective Gross Income $799,687 $6,199 $6.22 $1,863,146 $5,293 $7.08 Operating Expenses $339,867 $2,635 $2.64 $ 707,995 $2,011 $2.69 Net Operating Income $459,820 $3,564 $3.57 $1,155,151 $3,282 $4.39 NOTES: None None PRICE PER UNIT $32,171 $36,222 PRICE PER SQUARE FOOT $ 32.25 $ 48.42 EXPENSE RATIO 42.5% 38.0% EGIM 5.19 6.84 OVERALL CAP RATE 11.08% 9.06% 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 Spring Park Sand Pebble Celina LOCATION: Address 9535 Acer Avenue 11280 Pebble Hills Drive 8500 Viscount Blvd City, State El Paso, TX El Paso, TX El Paso, TX County El Paso El Paso El Paso PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 139,224 165,504 248,005 Year Built 1995 1983 1974 Number of Units 180 208 289 Unit Mix: Type Total Type Total Type Total 1Br/1Ba 60 1Br/1Ba 100 1Br/1Ba 119 2Br/1Ba 80 2Br/1Ba 88 2Br/1Ba 120 3Br/2Ba 40 3Br/2Ba 20 3Br/2Ba 50 Average Unit Size (SF) 773 796 858 Land Area (Acre) 9.8900 9.0460 11.6000 Density (Units/Acre) 18.2 23.0 24.9 Parking Ratio (Spaces/Unit) 2.20 2.01 2.09 Parking Type (Gr., Cov., etc.) Open Open Open CONDITION: Good Average Average APPEAL: Good Fair Fair AMENITIES: Pool/Spa Yes/Yes Yes/No Yes/No Gym Room Yes No Yes Laundry Room Yes Yes Yes Secured Parking Yes No No Sport Courts Yes No No Washer/Dryer Connection Yes No Yes OCCUPANCY: 92% 90% 92% TRANSACTION DATA: Sale Date March, 2002 November, 2002 January, 2001 Sale Price ($) $6,450,000 $4,750,000 $9,150,000 Grantor Property Trust of America Southwest Partners Westex Associates Grantee Wolf CE & I AIMCO/Sand Pebble LP American Opportunity Sale Documentation Deed- Vol 3140/Page 204 Deed-Vol. 3273/Page 1048 Deed- Vol 3916/Page 1278 Verification Confidential Confidential Confidential Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $1,128,869 $6,271 $8.11 $1,217,949 $5,856 $7.36 $1,566,398 $5,420 $6.32 Vacancy/Credit Loss $ 90,310 $ 502 $0.65 $ 121,795 $ 586 $0.74 $ 93,983 $ 325 $0.38 Effective Gross Income $1,038,559 $5,770 $7.46 $1,096,154 $5,270 $6.62 $1,472,415 $5,095 $5.94 Operating Expenses $ 425,809 $2,366 $3.06 $ 526,154 $2,530 $3.18 $ 575,715 $1,992 $2.32 Net Operating Income $ 612,750 $3,404 $4.40 $ 570,000 $2,740 $3.44 $ 896,700 $3,103 $3.62 NOTES: None None None PRICE PER UNIT $35,833 $22,837 $31,661 PRICE PER SQUARE FOOT $ 46.33 $ 28.70 $ 36.89 EXPENSE RATIO 41.0% 48.0% 39.1% EGIM 6.21 4.33 6.21 OVERALL CAP RATE 9.50% 12.00% 9.80% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA PRO FORMA
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 CITADEL, EL PASO, TEXAS IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $22,837 to $36,222 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 $27,404 to $33,244 per unit with a mean or average adjusted price of $30,455 per unit. The median adjusted price is $30,788 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 $7,800,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 CITADEL, EL PASO, TEXAS SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - ---------------------------------------------------------------------------------------------------------- Property Name Citadel La Plaza Shadow Ridge Address 9455 Viscount Blvd 9578 Sims Drive 9375 Viscount Blvd City El Paso, Texas El Paso,TX El Paso, TX Sale Date July, 2000 November, 1999 Sale Price ($) $4,150,000 $12,750,000 Net Rentable Area (SF) 263,888 128,669 263,296 Number of Units 261 129 352 Price Per Unit $32,171 $36,222 Year Built 1973 1969 1985 Land Area (Acre) 11.3830 8.7670 7.9526 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 07-2000 0% 11-1999 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $32,171 $36,222 Location Comparable 0% Comparable 0% Number of Units 261 129 0% 352 0% Quality / Appeal Good Superior -5% Superior -5% Age / Condition 1973 1969 / Average 10% 1985 / Good -5% Occupancy at Sale 92% 92% 0% 93% 0% Amenities Good Comparable 0% Comparable 0% Average Unit Size (SF) 1,011 997 -5% 748 -5% PHYSICAL ADJUSTMENT 0% -15% FINAL ADJUSTED VALUE ($/UNIT) $32,171 $30,788 COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 - ---------------------------------------------------------------------------------------------------------------- Property Name Spring Park Sand Pebble Celina Address 9535 Acer Avenue 11280 Pebble Hills Drive 8500 Viscount Blvd City El Paso, TX El Paso, TX El Paso, TX Sale Date March, 2002 November, 2002 January, 2001 Sale Price ($) $6,450,000 $4,750,000 $9,150,000 Net Rentable Area (SF) 139,224 165,504 248,005 Number of Units 180 208 289 Price Per Unit $35,833 $22,837 $31,661 Year Built 1995 1983 1974 Land Area (Acre) 9.8900 9.0460 11.6000 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) 03-2002 0% 11-2002 0% 01-2001 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $35,833 $22,837 $31,661 Location Comparable 0% Inferior 10% Comparable 0% Number of Units 180 0% 208 0% 289 0% Quality / Appeal Superior -5% Inferior 20% Inferior 5% Age / Condition 1995 / Good -10% 1983 / Average -5% 1974 / Average 5% Occupancy at Sale 92% 0% 90% 0% 92% 0% Amenities Comparable 0% Comparable 0% Comparable 0% Average Unit Size (SF) 773 -5% 796 -5% 858 -5% PHYSICAL ADJUSTMENT -20% 20% 5% FINAL ADJUSTED VALUE ($/UNIT) $28,667 $27,404 $33,244
SUMMARY VALUE RANGE (PER UNIT) $27,404 TO $ 33,244 MEAN (PER UNIT) $30,455 MEDIAN (PER UNIT) $30,788 VALUE CONCLUSION (PER UNIT) $30,000
VALUE INDICATED BY SALES COMPARISON APPROACH $7,830,000 ROUNDED $7,800,000
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 CITADEL, EL PASO, 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-1 129 $ 4,150,000 11.08% $ 459,820 $754,845 0.811 $26,102 $ 32,171 $ 3,564 $ 2,892 I-2 352 $12,750,000 9.06% $1,155,151 $754,845 0.881 $31,922 $ 36,222 $ 3,282 $ 2,892 I-3 180 $ 6,450,000 9.50% $ 612,750 $754,845 0.850 $30,443 $ 35,833 $ 3,404 $ 2,892 I-4 208 $ 4,750,000 12.00% $ 570,000 $754,845 1.055 $24,101 $ 22,837 $ 2,740 $ 2,892 I-5 289 $ 9,150,000 9.80% $ 896,700 $754,845 0.932 $29,511 $ 31,661 $ 3,103 $ 2,892
PRICE/UNIT
Low High Average Median $24,101 $31,922 $28,416 $29,511
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT Estimated Price Per Unit $ 30,000 Number of Units 261 ---------- Value Based on NOI Analysis $7,830,000 Rounded $7,800,000
The adjusted sales indicate a range of value between $24,101 and $31,922 per unit, with an average of $28,416 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 $7,800,000 (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 CITADEL, EL PASO, TEXAS EFFECTIVE GROSS INCOME MULTIPLIER COMPARISON
SALE PRICE COMPARABLE NO. OF ---------- EFFECTIVE OPERATING SUBJECT NO. UNITS PRICE/UNIT GROSS INCOME EXPENSE OER PROJECTED OER EGIM - ------------------------------------------------------------------------------------- I-1 129 $ 4,150,000 $ 799,687 $339,867 42.50% 5.19 $ 32,171 I-2 352 $12,750,000 $1,863,146 $707,995 38.00% 6.84 $ 36,222 I-3 180 $ 6,450,000 $1,038,559 $425,809 41.00% 6.21 $ 35,833 52.97% I-4 208 $ 4,750,000 $1,096,154 $526,154 48.00% 4.33 $ 22,837 I-5 289 $ 9,150,000 $1,472,415 $575,715 39.10% 6.21 $ 31,661
EGIM
Low High Average Median 4.33 6.84 5.76 6.21
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES Estimate EGIM 4.50 Subject EGI $1,743,789 ---------- Value Based on EGIM Analysis $7,847,051 Rounded $7,800,000 Value Per Unit $ 29,885
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 52.97% before reserves. The comparable sales indicate a range of expense ratios from 38.00% to 48.00%, while their EGIMs range from 4.33 to 6.84. Overall, we conclude to an EGIM of 4.50, which results in an "as is" value estimate in the EGIM Analysis of $7,800,000. 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 $7,800,000. Price Per Unit $7,800,000 NOI Per Unit $7,800,000 EGIM Analysis $7,800,000 Sales Comparison Conclusion $7,800,000 AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 CITADEL, EL PASO, TEXAS INCOME CAPITALIZATION APPROACH The income capitalization approach is based on the premise that value is created by the expectation of future benefits. We estimated the present value of those benefits to derive an indication of the amount that a prudent, informed purchaser-investor would pay for the right to receive them as of the date of value. This approach requires an estimate of the NOI of a property. The estimated NOI is then converted to a value indication by use of either the direct capitalization or the discounted cash flow analysis (yield capitalization). Direct capitalization uses a single year's stabilized NOI as a basis for a value indication by dividing the income by a capitalization rate. The rate chosen accounts for a recapture of the investment by the investor and should reflect all factors that influence the value of the property, such as tenant quality, property condition, neighborhood change, market trends, interest rates, and inflation. The rate may be extracted from local market transactions or, when transaction evidence is lacking, obtained from trade sources. A discounted cash flow analysis focuses on the operating cash flows expected from the property and the proceeds of a hypothetical sale at the end of a holding period (the reversion). The cash flows and reversion are discounted to their present values using a market-derived discount rate and are added together to obtain a value indication. Because benefits to be received in the future are worth less than the same benefits received in the present, this method weights income in the early years more heavily than the income and the sale proceeds to be received later. The strength of the discounted cash flow method is its ability to recognize variations in projected net income, such as those caused by inflation, stepped leases, neighborhood change, or tenant turnover. Its weakness is that it requires many judgments regarding the actions of likely buyers and sellers of the property in the future. In some situations, both methods yield a similar result. The discounted cash flow method is typically more appropriate for the analysis of investment properties with multiple or long-term leases, particularly leases with cancellation clauses or renewal options. It is especially useful for multi-tenant properties in volatile markets. The direct capitalization AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 27 CITADEL, EL PASO, TEXAS method is normally more appropriate for properties with relatively stable operating histories and expectations. A pro forma analysis for the first year of the investment is made to estimate a reasonable potential net operating income for the Subject Property. Such an analysis entails an estimate of the gross income the property should command in the marketplace. From this total gross income must be deducted an allowance for vacancy/collection loss and operating expenses as dictated by general market conditions and the overall character of the subject's tenancy and leased income to arrive at a projected estimate of net operating income. Conversion of the net operating income to an indication of value is accomplished by the process of capitalization, as derived primarily from market data. MARKET RENT ANALYSIS In order to determine a market rental rate for the subject, a survey of competing apartment communities was performed. This survey was displayed previously in the market analysis section of the report. Detailed information pertaining to each of the comparable rental communities, along with photographs, is presented in the Addenda of this report. The following charts display the subject's current asking and actual rent rates as well as a comparison with the previous referenced comparable rental properties. SUMMARY OF ACTUAL AVERAGE RENTS
Average Unit Area ----------------- Unit Type (Sq. Ft.) Per Unit Per SF % Occupied - --------------- --------- ----------------- ---------- 1Br/1Ba - EA10 430 $399 $0.93 100.0% 1Br/1Ba -1A10 600 $459 $0.77 91.7% 1Br/1Ba - 1B10 650 $459 $0.71 95.0% 1 Br/1Ba-1C15 750 $479 $0.64 91.7% 2 Br/1 Ba -2A10 888 $619 $0.70 100.0% 2Br/1.5Ba-2A15 1140 $614 $0.54 88.2%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 CITADEL, EL PASO, TEXAS RENT ANALYSIS
COMPARABLE RENTS ---------------------------------------------- R-1 R-2 R-3 R-4 R-5 ---------------------------------------------- Shadow La Plaza Ridge Spring Park Silverado Celina ---------------------------------------------- COMPARISON TO SUBJECT SUBJECT SUBJECT ---------------------------------------------- SUBJECT UNIT ACTUAL ASKING Slightly Slightly DESCRIPTION TYPE RENT RENT Superior Similar Superior Superior Similar MIN MAX MEDIAN AVERAGE ----------- -------------- ------- ------- -------- ------- -------- -------- ------- ------ ------ ------ ------- Monthly Rent 1BR/1BA - EA10 $ 399 $ 354 $ 389 $ 389 $ 389 $ 389 $ 389 Unit Area (SF) 430 430 494 494 494 494 494 Monthly Rent Per Sq. Ft. $ 0.93 $ 0.82 $ 0.79 $ 0.79 $ 0.79 $ 0.79 $ 0.79 Monthly Rent 1BR/1BA -1A10 $ 459 $ 431 $ 470 $ 515 $ 409 $ 409 $ 515 $ 470 $ 465 Unit Area (SF) 600 600 536 610 525 525 610 536 557 Monthly Rent Per Sq. Ft. $ 0.77 $ 0.72 $ 0.88 $ 0.84 $ 0.78 $ 0.78 $ 0.88 $ 0.84 $ 0.83 Monthly Rent 1BR/1BA - 1B10 $ 459 $ 442 $ 459 $ 520 $ 459 $ 520 $ 490 $ 490 Unit Area (SF) 650 650 684 644 644 684 664 664 Monthly Rent Per Sq. Ft. $ 0.71 $ 0.68 $ 0.67 $ 0.81 $ 0.67 $ 0.81 $ 0.74 $ 0.74 Monthly Rent 1 BR/1BA-1C15 $ 479 $ 461 $ 510 $ 469 $ 469 $ 510 $ 490 $ 490 Unit Area (SF) 750 750 707 754 707 754 731 731 Monthly Rent Per Sq. Ft. $ 0.64 $ 0.61 $ 0.72 $ 0.62 $ 0.62 $ 0.72 $ 0.67 $ 0.67 Monthly Rent 2 BR/1 BA -2A10 $ 619 $ 619 $ 670 $ 450 $ 650 $ 519 $ 450 $ 670 $ 585 $ 572 Unit Area (SF) 888 888 986 895 850 878 850 986 887 902 Monthly Rent Per Sq. Ft. $ 0.70 $ 0.70 $ 0.68 $ 0.50 $ 0.76 $ 0.59 $ 0.50 $ 0.76 $ 0.64 $ 0.63 Monthly Rent 2BR/1.5BA-2A15 $ 614 $ 606 $ 670 $ 640 $ 549 $ 770 $ 549 $ 770 $ 655 $ 657 Unit Area (SF) 1,140 1,140 1,150 950 979 1,058 950 1,150 1,019 1,034 Monthly Rent Per Sq. Ft. $ 0.54 $ 0.53 $ 0.58 $ 0.67 $ 0.56 $ 0.73 $ 0.56 $ 0.73 $ 0.63 $ 0.64 Monthly Rent 2 BR/1.75BA - $ 609 $ 625 $ 640 $ 639 $ 890 $ 639 $ 890 $ 640 $ 723 Unit Area (SF) 2A20 1,180 1,180 958 1,200 1,190 958 1,200 1,190 1,116 Monthly Rent Per Sq. Ft. $ 0.52 $ 0.53 $ 0.67 $ 0.53 $ 0.75 $ 0.53 $ 0.75 $ 0.67 $ 0.65 Monthly Rent 2 BA/2.5 BA- $ 689 $ 627 $ 620 $ 620 $ 620 $ 620 $ 620 Unit Area (SF) 2A25 1,350 1,350 1,375 1,375 1,375 1,375 1,375 Monthly Rent Per Sq. Ft. $ 0.51 $ 0.46 $ 0.45 $ 0.45 $ 0.45 $ 0.45 $ 0.45 Monthly Rent 2BA/1BA -2B10 $ 595 $ 562 $ 790 $ 790 $ 790 $ 790 $ 790 Unit Area (SF) 1,140 1,140 1,100 1,100 1,100 1,100 1,100 Monthly Rent Per Sq. Ft. $ 0.52 $ 0.49 $ 0.72 $ 0.72 $ 0.72 $ 0.72 $ 0.72 Monthly Rent 2BR/1.5BA-2B15 $ 659 $ 670 $ 569 $ 569 $ 569 $ 569 $ 569 Unit Area (SF) 1,200 1,200 1,028 1,028 1,028 1,028 1,028 Monthly Rent Per Sq. Ft. $ 0.55 $ 0.56 $ 0.55 $ 0.55 $ 0.55 $ 0.55 $ 0.55 Monthly Rent 3BR/2.5BR-3A25 $ 829 $ 790 $ 775 $ 649 $ 649 $ 775 $ 712 $ 712 Unit Area (SF) 1,640 1,640 1,036 1,350 1,036 1,350 1,193 1,193 Monthly Rent Per Sq. Ft. $ 0.51 $ 0.48 $ 0.75 $ 0.48 $ 0.48 $ 0.75 $ 0.61 $ 0.61 Monthly Rent 4BR/2.5BA-4A25 $ 909 $ 878 Unit Area (SF) 1,840 1,840 Monthly Rent Per Sq. Ft. $ 0.49 $ 0.48
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: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 29 CITADEL, EL PASO, TEXAS GROSS RENTAL INCOME PROJECTION
Market Rent Unit Area ---------------- Monthly Annual Unit Type Number of Units (Sq. Ft.) Per Unit Per SF Income Income - ----------------------------------------------------------------------------------- 1Br/1Ba - EA10 2 430 $400 $0.93 $ 800 $ 9,600 1Br/1Ba -1A10 12 600 $460 $0.77 $ 5,520 $ 66,240 1Br/1Ba - 1B10 20 650 $460 $0.71 $ 9,200 $ 110,400 1 Br/1Ba-1C15 60 750 $480 $0.64 $ 28,800 $ 345,600 2 Br/1 Ba -2A10 1 888 $620 $0.70 $ 620 $ 7,440 2Br/1.5Ba-2A15 34 1,140 $615 $0.54 $ 20,910 $ 250,920 ---------------------------- Total $148,850 $1,786,200
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 30 CITADEL, EL PASO, 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 $1,810,725 $ 6,938 $1,807,172 $ 6,924 $1,731,820 $ 6,635 $1,760,000 $ 6,743 Vacancy $ 159,904 $ 613 $ 137,006 $ 525 $ 107,812 $ 413 $ 96,000 $ 368 Credit Loss/Concessions $ 107,753 $ 413 $ 90,007 $ 345 $ 15,168 $ 58 $ 21,600 $ 83 --------------------------------------------------------------------------------------------- Subtotal $ 267,657 $ 1,026 $ 227,013 $ 870 $ 122,980 $ 471 $ 117,600 $ 451 Laundry Income $ 17,108 $ 66 $ 12,075 $ 46 $ 32,642 $ 125 $ 16,272 $ 62 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 23,921 $ 92 $ 32,768 $ 126 $ 71,354 $ 273 $ 71,520 $ 274 --------------------------------------------------------------------------------------------- Subtotal Other Income $ 41,029 $ 157 $ 44,843 $ 172 $ 103,996 $ 398 $ 87,792 $ 336 --------------------------------------------------------------------------------------------- Effective Gross Income $1,584,097 $ 6,069 $1,625,002 $ 6,226 $1,712,836 $ 6,563 $1,730,192 $ 6,629 Operating Expenses Taxes $ 136,491 $ 523 $ 205,130 $ 786 $ 208,186 $ 798 $ 185,609 $ 711 Insurance $ 17,349 $ 66 $ 42,338 $ 162 $ 60,141 $ 230 $ 68,118 $ 261 Utilities $ 137,831 $ 528 $ 153,913 $ 590 $ 151,309 $ 580 $ 152,300 $ 584 Repair & Maintenance $ 75,760 $ 290 $ 80,568 $ 309 $ 102,566 $ 393 $ 104,316 $ 400 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 50,539 $ 194 $ 50,930 $ 195 $ 65,344 $ 250 $ 65,316 $ 250 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 26,065 $ 100 $ 18,969 $ 73 $ 26,462 $ 101 $ 24,444 $ 94 General Administrative $ 226,450 $ 868 $ 238,540 $ 914 $ 185,374 $ 710 $ 197,409 $ 756 Management $ 85,357 $ 327 $ 87,653 $ 336 $ 83,723 $ 321 $ 85,523 $ 328 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 --------------------------------------------------------------------------------------------- Total Operating Expenses $ 755,842 $ 2,896 $ 878,041 $ 3,364 $ 883,105 $ 3,384 $ 883,035 $ 3,383 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 --------------------------------------------------------------------------------------------- Net Income $ 828,255 $ 3,173 $ 746,961 $ 2,862 $ 829,731 $ 3,179 $ 847,157 $ 3,246 ANNUALIZED 2003 ------------------------------------------------------ PROJECTION AAA PROJECTION ------------------------------------------------------ DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT % - ---------------------------------------------------------------------------------- Revenues Rental Income $1,716,356 $ 6,576 $1,786,200 $ 6,844 100.0% Vacancy $ 138,928 $ 532 $ 107,172 $ 411 6.0% Credit Loss/Concessions $ 8,340 $ 32 $ 35,724 $ 137 2.0% ----------------------------------------------------- Subtotal $ 147,268 $ 564 $ 142,896 $ 547 8.0% Laundry Income $ 28,516 $ 109 $ 28,710 $ 110 1.6% Garage Revenue $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 86,732 $ 332 $ 71,775 $ 275 4.0% ----------------------------------------------------- Subtotal Other Income $ 115,248 $ 442 $ 100,485 $ 385 5.6% ----------------------------------------------------- Effective Gross Income $1,684,336 $ 6,453 $1,743,789 $ 6,681 100.0% Operating Expenses Taxes $ 185,604 $ 711 $ 187,920 $ 720 10.8% Insurance $ 68,040 $ 261 $ 67,860 $ 260 3.9% Utilities $ 173,900 $ 666 $ 176,175 $ 675 10.1% Repair & Maintenance $ 91,680 $ 351 $ 104,400 $ 400 6.0% Cleaning $ 0 $ 0 $ 0 $ 0 0.0% Landscaping $ 80,136 $ 307 $ 78,300 $ 300 4.5% Security $ 0 $ 0 $ 0 $ 0 0.0% Marketing & Leasing $ 26,772 $ 103 $ 26,100 $ 100 1.5% General Administrative $ 216,428 $ 829 $ 195,750 $ 750 11.2% Management $ 82,696 $ 317 $ 87,189 $ 334 5.0% Miscellaneous $ 0 $ 0 $ 0 $ 0 0.0% ----------------------------------------------------- Total Operating Expenses $ 925,256 $ 3,545 $ 923,694 $ 3,539 53.0% Reserves $ 0 $ 0 $ 65,250 $ 250 7.1% ----------------------------------------------------- Net Income $ 759,080 $ 2,908 $ 754,845 $ 2,892 43.3%
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 8% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 31 CITADEL, EL PASO, TEXAS RESERVES FOR REPLACEMENT "Reserves for replacements" is a contingency account allocated to the expenses of the property to provide for replacement of short-lived items and for unforeseen necessary capital expenditures. We have utilized the Korpacz Real Estate Investor Survey of the national apartment market, which reports a range of replacement reserves between $150 and $400 per unit. For purposes of this analysis, we have included an allowance of $250 per unit for reserves for replacement. CAPITAL EXPENDITURES Capital expenditures represent expenses for immediate repair or replacement of items that have average to long lives. Based on our inspection of the property as well as discussions with property management personnel, there are no major items remaining in need of repair or replacement that would require an expense beyond our reserves for replacement. Therefore an allowance of $250 per unit should be satisfactory in our reserves for replacement to cover future capital expenditures. DISCOUNTED CASH FLOW ANALYSIS As the subject is a multi-tenant income property, the Discounted Cash Flow Method is considered appropriate. This method is especially meaningful in that it isolates the timing of the annual cash flows and discounts them, along with the expected equity reversion, to a present value. The present value of the cash flow is added to the present value of the reversion, resulting in a total property value. INVESTMENT CRITERIA Appropriate investment criteria will be derived for the subject based upon analysis of comparable sales and a survey of real estate investors. The following table summarizes the findings of Korpacz National Investor Survey for the most recent period. KORPACZ NATIONAL INVESTOR SURVEY 1ST QUARTER 2003 NATIONAL APARTMENT MARKET
CAPITALIZATION RATES ---------------------------- GOING-IN TERMINAL ---------------------------- LOW HIGH LOW HIGH - ------------------------------------- RANGE 6.00% 10.00% 7.00% 10.00% AVERAGE 8.14% 8.47%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32 CITADEL, EL PASO, TEXAS SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR - ------------------------------------------------ I-1 Jul-00 92% $32,171 11.08% I-2 Nov-99 93% $36,222 9.06% I-3 Mar-02 92% $35,833 9.50% I-4 Nov-02 90% $22,837 12.00% I-5 Jan-01 92% $31,661 9.80% High 12.00% Low 9.06% Average 10.29%
Based on this information, we have concluded the subject's overall capitalization rate should be 9.75%. The terminal capitalization rate is applied to the net operating income estimated for the year following the end of the holding period. Based on the concluded overall capitalization rate, the age of the property and the surveyed information, we have concluded the subject's terminal capitalization rate to be 10.75%. 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 $8,000,000. In this instance, the reversion figure contributes AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 33 CITADEL, EL PASO, TEXAS approximately 37% 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 CITADEL, EL PASO, TEXAS DISCOUNTED CASH FLOW ANALYSIS CITADEL
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 FISCAL YEAR 1 2 3 4 5 6 - ----------------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $1,786,200 $1,839,786 $1,894,980 $1,951,829 $2,010,384 $2,070,695 Vacancy $ 119,903 $ 110,387 $ 113,699 $ 117,110 $ 120,623 $ 124,242 Credit Loss $ 35,724 $ 36,796 $ 37,900 $ 39,037 $ 40,208 $ 41,414 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------------------------- Subtotal $ 155,627 $ 147,183 $ 151,598 $ 156,146 $ 160,831 $ 165,656 Laundry Income $ 28,710 $ 29,571 $ 30,458 $ 31,372 $ 32,313 $ 33,283 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 71,775 $ 73,928 $ 76,146 $ 78,430 $ 80,783 $ 83,207 -------------------------------------------------------------------------------- Subtotal Other Income $ 100,485 $ 103,500 $ 106,605 $ 109,803 $ 113,097 $ 116,490 -------------------------------------------------------------------------------- EFFECTIVE GROSS INCOME $1,731,058 $1,796,103 $1,849,986 $1,905,485 $1,962,650 $2,021,529 OPERATING EXPENSES: Taxes $ 187,920 $ 193,558 $ 199,364 $ 205,345 $ 211,506 $ 217,851 Insurance $ 67,860 $ 69,896 $ 71,993 $ 74,152 $ 76,377 $ 78,668 Utilities $ 176,175 $ 181,460 $ 186,904 $ 192,511 $ 198,287 $ 204,235 Repair & Maintenance $ 104,400 $ 107,532 $ 110,758 $ 114,081 $ 117,503 $ 121,028 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 78,300 $ 80,649 $ 83,068 $ 85,561 $ 88,127 $ 90,771 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 26,100 $ 26,883 $ 27,689 $ 28,520 $ 29,376 $ 30,257 General Administrative $ 195,750 $ 201,623 $ 207,671 $ 213,901 $ 220,318 $ 226,928 Management $ 86,553 $ 89,805 $ 92,499 $ 95,274 $ 98,132 $ 101,076 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $ 923,058 $ 951,405 $ 979,947 $1,009,346 $1,039,626 $1,070,815 Reserves $ 65,250 $ 67,208 $ 69,224 $ 71,300 $ 73,439 $ 75,643 -------------------------------------------------------------------------------- NET OPERATING INCOME $ 742,750 $ 777,490 $ 800,815 $ 824,839 $ 849,584 $ 875,072 Operating Expense Ratio (% of EGI) 53.3% 53.0% 53.0% 53.0% 53.0% 53.0% Operating Expense Per Unit $ 3,537 $ 3,645 $ 3,755 $ 3,867 $ 3,983 $ 4,103
YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 7 8 9 10 11 - --------------------------------------------------------------------------------------------------------- REVENUE Base Rent $2,132,816 $2,196,801 $2,262,705 $2,330,586 $2,400,503 Vacancy $ 127,969 $ 131,808 $ 135,762 $ 139,835 $ 144,030 Credit Loss $ 42,656 $ 43,936 $ 45,254 $ 46,612 $ 48,010 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------ Subtotal $ 170,625 $ 175,744 $ 181,016 $ 186,447 $ 192,040 Laundry Income $ 34,281 $ 35,310 $ 36,369 $ 37,460 $ 38,584 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 85,703 $ 88,274 $ 90,922 $ 93,650 $ 96,460 ------------------------------------------------------------------ Subtotal Other Income $ 119,984 $ 123,584 $ 127,291 $ 131,110 $ 135,043 ------------------------------------------------------------------ EFFECTIVE GROSS INCOME $2,082,175 $2,144,641 $2,208,980 $2,275,249 $2,343,507 OPERATING EXPENSES: Taxes $ 224,386 $ 231,118 $ 238,051 $ 245,193 $ 252,549 Insurance $ 81,028 $ 83,459 $ 85,963 $ 88,542 $ 91,198 Utilities $ 210,362 $ 216,673 $ 223,173 $ 229,868 $ 236,764 Repair & Maintenance $ 124,659 $ 128,399 $ 132,251 $ 136,218 $ 140,305 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 93,494 $ 96,299 $ 99,188 $ 102,164 $ 105,229 Security $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 31,165 $ 32,100 $ 33,063 $ 34,055 $ 35,076 General Administrative $ 233,736 $ 240,748 $ 247,970 $ 255,409 $ 263,072 Management $ 104,109 $ 107,232 $ 110,449 $ 113,762 $ 117,175 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------ TOTAL OPERATING EXPENSES $1,102,939 $1,136,028 $1,170,108 $1,205,212 $1,241,368 Reserves $ 77,912 $ 80,249 $ 82,657 $ 85,136 $ 87,691 ------------------------------------------------------------------ NET OPERATING INCOME $ 901,324 $ 928,364 $ 956,214 $ 984,901 $1,014,448 Operating Expense Ratio (% of EGI) 53.0% 53.0% 53.0% 53.0% 53.0% Operating Expense Per Unit $ 4,226 $ 4,353 $ 4,483 $ 4,618 $ 4,756
Estimated Stabilized NOI $754,845 Sales Expense Rate 2.00% Months to Stabilized 0 Discount Rate 12.00% Stabilized Occupancy 94.0% Terminal Cap Rate 10.75%
Gross Residual Sale Price $9,436,725 Deferred Maintenance $ 0 Less: Sales Expense $ 188,735 Add: Excess Land $ 0 ---------- Net Residual Sale Price $9,247,991 Other Adjustments $ 0 ---------- PV of Reversion $2,977,605 Value Indicated By "DCF" $8,016,430 Add: NPV of NOI $5,038,825 Rounded $8,000,000 ---------- PV Total $8,016,430
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE ---------------------------------------------------------- TOTAL VALUE 11.50% 11.75% 12.00% 12.25% 12.50% - ------------------------------------------------------------------------------------- 10.25% $8,423,288 $8,291,071 $8,161,679 $8,035,045 $7,911,098 10.50% $8,345,532 $8,215,037 $8,087,326 $7,962,331 $7,839,984 TERMINAL CAP RATE 10.75% $8,271,393 $8,142,539 $8,016,430 $7,892,999 $7,772,177 11.00% $8,200,623 $8,073,337 $7,948,758 $7,826,818 $7,707,453 11.25% $8,132,999 $8,007,211 $7,884,092 $7,763,579 $7,645,605
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 35 CITADEL, EL PASO, 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 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 9.75% percent is applicable to the subject. The results of our direct capitalization analysis are as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 36 CITADEL, EL PASO, TEXAS CITADEL
TOTAL PER SQ. FT. PER UNIT %OF EGI - -------------------------------------------------------------------------------------------- REVENUE Base Rent $1,786,200 $ 6.77 $ 6,844 Less: Vacancy & Collection Loss 8.00% $ 142,896 $ 0.54 $ 547 Plus: Other Income Laundry Income $ 28,710 $ 0.11 $ 110 1.65% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 71,775 $ 0.27 $ 275 4.12% ------------------------------------------- Subtotal Other Income $ 100,485 $ 0.38 $ 385 5.76% EFFECTIVE GROSS INCOME $1,743,789 $ 6.61 $ 6,681 OPERATING EXPENSES: Taxes $ 187,920 $ 0.71 $ 720 10.78% Insurance $ 67,860 $ 0.26 $ 260 3.89% Utilities $ 176,175 $ 0.67 $ 675 10.10% Repair & Maintenance $ 104,400 $ 0.40 $ 400 5.99% Cleaning $ 0 $ 0.00 $ 0 0.00% Landscaping $ 78,300 $ 0.30 $ 300 4.49% Security $ 0 $ 0.00 $ 0 0.00% Marketing & Leasing $ 26,100 $ 0.10 $ 100 1.50% General Administrative $ 195,750 $ 0.74 $ 750 11.23% Management 5.00% $ 87,189 $ 0.33 $ 334 5.00% Miscellaneous $ 0 $ 0.00 $ 0 0.00% TOTAL OPERATING EXPENSES $ 923,694 $ 3.50 $ 3,539 52.97% Reserves $ 65,250 $ 0.25 $ 250 3.74% ------------------------------------------- NET OPERATING INCOME $ 754,845 $ 2.86 $ 2,892 43.29% "GOING IN" CAPITALIZATION RATE 9.75% VALUE INDICATION $7,741,995 $ 29.34 $ 29,663 "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $7,741,995 ROUNDED $7,700,000 $ 29.18 $ 29,502
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 37 CITADEL, EL PASO, TEXAS
DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE CAP RATE VALUE ROUNDED $/UNIT $/SF - ---------------------------------------------------- 9.00% $8,387,162 $8,400,000 $32,184 $31.83 9.25% $8,160,482 $8,200,000 $31,418 $31.07 9.50% $7,945,732 $7,900,000 $30,268 $29.94 9.75% $7,741,995 $7,700,000 $29,502 $29.18 10.00% $7,548,446 $7,500,000 $28,736 $28.42 10.25% $7,364,337 $7,400,000 $28,352 $28.04 10.50% $7,188,996 $7,200,000 $27,586 $27.28
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $7,700,000. 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 $8,000,000 Direct Capitalization Method $7,700,000 Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $8,000,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 38 CITADEL, EL PASO, 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 $7,800,000 Income Approach $8,000,000 Reconciled Value $8,000,000
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 11, 2003 the market value of the fee simple estate in the property is: $8,000,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA CITADEL, EL PASO, TEXAS ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A CITADEL, EL PASO, TEXAS EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A CITADEL, EL PASO, TEXAS SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] UNIT TYPE FACADE UNIT TYPE [PICTURE] [PICTURE] BEDROOM BEDROOM [PICTURE] [PICTURE] KITCHEN AREA LIVING ROOM AREA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A CITADEL, EL PASO, TEXAS SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] POOL LANDSCAPING [PICTURE] [PICTURE] LAUNDRY ROOM PARKING [PICTURE] [PICTURE] VISCOUNT BLVD - NORTH VISCOUNT BLVD -SOUTH AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B CITADEL, EL PASO, TEXAS EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B CITADEL, EL PASO, TEXAS PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 LA PLAZA SHADOW RIDGE SPRING PARK 9578 Sims Drive 9375 Viscount Blvd 9535 Acer Avenue El Paso, TX El Paso, TX El Paso, TX [PICTURE] [PICTURE] [PICTURE] COMPARABLE I-4 COMPARABLE I-5 SAND PEBBLE CELINA 11280 Pebble Hills Drive 8500 Viscount Blvd El Paso, TX El Paso, TX [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B CITADEL, EL PASO, TEXAS SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 - ----------------------------------------------------------------------------------------------------------------------------------- Property Name Citadel La Plaza Management Company AIMCO The Lynd Company LOCATION: Address 9455 Viscount Blvd 9578 Sims Drive City, State El Paso, Texas El Paso, TX County EL Paso El Paso Proximity to Subject one mile southeast of the subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 263,888 128,669 Year Built 1973 1969 Effective Age 25 20 Building Structure Type Brick & wood siding walls; asphalt shingle roof Brick & wood siding walls; asphalt shingle roof Parking Type (Gr., Cov., etc.) Open/Garage Open, Covered Number of Units 261 129 Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo. 1 1Br/1Ba - EA10 430 2 $399 4 1Br/1Ba 707 29 $510 2 1Br/1Ba-1A10 600 12 $459 5 2 Br/1Ba 986 50 $670 3 1Br/1Ba - 1B10 650 20 $459 6 2 Br/1.5 Ba 1,150 35 $670 4 1Br/1Ba-1C15 750 60 $479 8 2 Br/2Ba 1,375 15 $620 5 2Br/1 Ba -2A10 888 1 $619 6 2Br/1.5Ba-2A15 1,140 34 $614 7 2Br/1.75Ba -2A20 1,180 8 $609 8 2Ba/2.5 Ba- 2A25 1,350 6 $689 9 2Ba/1Ba -2B10 1,140 96 $595 10 2Br/1.5Ba-2B15 1,200 12 $659 11 3Br/2.5Br-3A25 1,640 8 $829 12 4Br/2.5Ba-4A25 1,840 2 $909 Average Unit Size (SF) 1,011 1,013 Unit Breakdown: Efficiency 0% 2-Bedroom 60% Efficiency 0% 2-Bedroom 78% 1-Bedroom 36% 3-Bedroom 3% 1-Bedroom 22% 3-Bedroom 0% CONDITION: Good Slightly Superior APPEAL: Average Slightly Superior AMENITIES: Unit Amenities X Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony W/D Connection Balcony W/D Connection X Fireplace Other X Fireplace Other X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court X BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball X Meeting Hall Sand Volley Ball X Meeting Hall 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: 92% 92% LEASING DATA: Available Leasing Terms 12 months 12 months Concessions 1 month 1 month Pet Deposit $150 $150 Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas X Water X Trash Water Trash Confirmation Mary Myers/Property Manager Aeriel Romero/Assistant Manager Telephone Number 915.591.3396 915.598.5477 NOTES: None COMPARISON TO SUBJECT: Slightly Superior COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 - ----------------------------------------------------------------------------------------------------------------------------------- Property Name Shadow Ridge Spring Park Management Company Case & Associates BH Management Services LOCATION: Address 9375 Viscount Blvd 9535 Acer Avenue City, State El Paso, TX El Paso, TX County El Paso EL Paso Proximity to Subject less than 0.20 miles southeast of the subject Approx. 0.50 miles southeast of the subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 263,296 139,224 Year Built 1985 1995 Effective Age 18 8 Building Structure Type Brick & wood siding walls; asphalt shingle roof Brick & wood siding walls; asphalt shingle roof Parking Type (Gr., Cov., etc.)Open Open Number of Units 352 180 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 2 1Br/1Ba 536 80 $470 2 1Br/1Ba 610 60 $515 5 2Br/1/Ba 895 100 $450 5 2Br/1Ba 850 80 $650 6 2 Br/1.5Ba 950 60 $640 11 3Br/2Ba 1,036 40 $775 7 2Br/2Ba 958 60 $640 9 3Br/2Ba 1,100 52 $790 Average Unit Size (SF) 864 811 Unit Breakdown: Efficiency 0% 2-Bedroom 63% Efficiency 0% 2-Bedroom 44% 1-Bedroom 23% 3-Bedroom 14% 1-Bedroom 33% 3-Bedroom 23% CONDITION: Good Good APPEAL: Average Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling Balcony X W/D Connection X Balcony X W/D Connection X Fireplace Other X Fireplace Other X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash X 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 X Meeting Hall X Sand Volley Ball X Meeting Hall Tennis Court Secured Parking Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track Business Office Jogging Track X Business Office X Gym Room X Gym Room OCCUPANCY: 93% 92% LEASING DATA: Available Leasing Terms 12 months 12 months Concessions 1 month 1 month Pet Deposit $150 $150 Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas Water Trash X Water Trash Confirmation Sergio Valdez/Assistant Manager Lilia Anaya/Property Manager Telephone Number 915.593.5250 915.594.7411 NOTES: None None COMPARISON TO SUBJECT: Similar Slightly Superior COMPARABLE COMPARABLE DESCRIPTION R - 4 R - 5 - ----------------------------------------------------------------------------------------------------------------------------------- Property Name Silverado Celina Management Company AIMCO The Lynd Company LOCATION: Address 9300 Viscount Blvd 8500 Viscount Blvd City, State El Paso, TX El Paso, TX County EL Paso El Paso Proximity to Subject Approx. 0.40 miles northwest of the subject Approx. 0.60 miles northwest of subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 175,670 248,005 Year Built 1973 1974 Effective Age 15 18 Building Structure Type Brick & wood siding walls; asphalt shingle roof Brick & wood siding walls; asphalt shingle roof Parking Type (Gr., Cov., etc.) Open/Covered Open Number of Units 248 289 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1Br/1Ba 494 20 $389 3 1Br/1Ba 644 119 $520 2 1Br/1Ba 525 60 $409 6 2Br/2Ba 1,058 120 $770 4 1Br/1Ba 754 36 $469 7 3Br/2Ba 1,190 50 $890 3 1Br/1Ba 684 40 $459 5 1Br/1.5Ba 878 8 $519 6 2Br/1Ba 979 34 $549 7 2Br/1.5Ba 1,200 12 $639 10 2Br/2Ba 1,028 32 $569 11 3Br/2Ba 1,350 6 $649 Average Unit Size (SF) 773 910 Unit Breakdown: Efficiency 0% 2-Bedroom 60% Efficiency 0% 2-Bedroom 42% 1-Bedroom 36% 3-Bedroom 4% 1-Bedroom 41% 3-Bedroom 17% CONDITION: Good Good APPEAL: Average Average AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony W/D Connection X Balcony X W/D Connection X Fireplace Other X Fireplace Other X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court X BBQ Equipment Basketball Court X BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball Meeting Hall Sand Volley Ball X Meeting Hall 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: 96% 94% LEASING DATA: Available Leasing Terms 12 months 12 months Concessions 1 month 1 month Pet Deposit $150 150 Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas X Water Trash X Water Trash Confirmation Elda Caro/Property Manager Denisse Valdez/Assiatant Manager Telephone Number 915.591.3396 915.779.3741 NOTES: None None COMPARISON TO SUBJECT: Superior Similar
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B CITADEL, EL PASO, TEXAS PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 LA PLAZA SHADOW RIDGE SPRING PARK 9578 Sims Drive 9375 Viscount Blvd 9535 Acer Avenue El Paso, TX El Paso, TX El Paso, TX [PICTURE] [PICTURE] [PICTURE] COMPARABLE R-4 COMPARABLE R-5 SILVERADO CELINA 9300 Viscount Blvd 8500 Viscount Blvd El Paso, TX El Paso, TX [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C CITADEL, EL PASO, TEXAS EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C CITADEL, EL PASO, 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 CITADEL, EL PASO, 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 CITADEL, EL PASO, 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 CITADEL, EL PASO, 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. Daniel Salcedo provided significant real property appraisal assistance in the preparation of this report. I am currently in compliance with the Appraisal Institute's continuing education requirements. -s- Frank Fehribach ------------------------ Frank Fehribach, MAI Managing Principal, Real Estate Group Texas State Certified General Real Estate Appraiser #TX-1323954-G AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E CITADEL, EL PASO, TEXAS EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E CITADEL, EL PASO, 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 CITADEL, EL PASO, TEXAS PROFESSIONAL Appraisal Institute, MAI Designated Member AFFILIATIONS Candidate Member of the CCIM Institute pursuing Certified Commercial Investment Member (CCIM) designation PUBLICATIONS "An Analysis of the Determinants of Industrial Property Valuation," Co-authored with Dr. Ronald C. Rutherford and Dr. Mark Eakin, The Journal of Real Estate Research, Vol. 8, No. 3, Summer 1993, p. 365. AMERICAN APPRAISAL ASSOCIATES, INC. CITADEL, EL PASO, TEXAS GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. CITADEL, EL PASO, 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. EX-99.(C)(6) 8 d07256a1exv99wxcyx6y.txt APPRAISAL OF CITADEL VILLAGE CITADEL VILLAGE 913 N. CHELTON RD. COLORADO SPRINGS, COLORADO MARKET VALUE - FEE SIMPLE ESTATE AS OF MAY 15, 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: CITADEL VILLAGE 913 N. CHELTON RD. COLORADO SPRINGS, EL PASO 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 122 units with a total of 110,125 square feet of rentable area. The improvements were built in 1974. The improvements are situated on 9.28 acres. Overall, the improvements are in average condition. As of the date of this appraisal, the subject property is 62% 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 CITADEL VILLAGE, COLORADO SPRINGS, 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 15, 2003 is: ($5,500,000) 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 CITADEL VILLAGE, COLORADO SPRINGS, 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 CITADEL VILLAGE, COLORADO SPRINGS, COLORADO EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Citadel Village LOCATION: 913 N. Chelton Rd. Colorado Springs, 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 15, 2003 DATE OF REPORT: June 28, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 9.28 acres, or 404,237 square feet Assessor Parcel No.: 7412200058 Floodplain: Community Panel No. 08041C0732F (March 17, 1997) Flood Zone X, an area outside the floodplain. Zoning: PUD (Planned Unit Development) BUILDING: No. of Units: 122 Units Total NRA: 110,125 Square Feet Average Unit Size: 903 Square Feet Apartment Density: 13.1 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 - ----------------------- ------ -------- ------ -------- ---------- 1Br/1Ba - Jr. 1 Bedroom 520 $ 500 $ 0.96 $ 4,500 $ 54,000 1Br/1Ba 675 $ 600 $ 0.89 $ 30,600 $ 367,200 2Br/1Ba 860 $ 720 $ 0.84 $ 23,040 $ 276,480 3Br/2 1/2Ba - Townhouse 1,450 $1,020 $ 0.70 $ 18,360 $ 220,320 3Br/2 1/2Ba - Sp. 1,450 $1,030 $ 0.71 $ 12,360 $ 148,320 Total $ 88,860 $1,066,320
OCCUPANCY: 62% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 23 Years REMAINING ECONOMIC LIFE: 22 Years AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 CITADEL VILLAGE, COLORADO SPRINGS, COLORADO SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - APARTMENT BUILDING EXTERIOR - OFFICE & LANDSCAPE AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 CITADEL VILLAGE, COLORADO SPRINGS, 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 CITADEL VILLAGE, COLORADO SPRINGS, COLORADO PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
Amount $/Unit ------ ------ DIRECT CAPITALIZATION Potential Rental Income $1,066,320 $8,740 Effective Gross Income $982,757 $8,055 Operating Expenses $428,558 $3,513 43.6% of EGI Net Operating Income: $529,799 $4,343 Capitalization Rate 8.75% DIRECT CAPITALIZATION VALUE $5,600,000 * $45,902 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 17% Stabilized Vacancy & Collection Loss: 13.5% Lease-up / Stabilization Period 20 months Terminal Capitalization Rate 9.25% Discount Rate 11.25% Selling Costs 2.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $5,300,000 * $43,443 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $5,400,000 $44,262 / UNIT SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $38,889 to $85,514 Range of Sales $/Unit (Adjusted) $46,375 to $51,667 VALUE INDICATION - PRICE PER UNIT $5,600,000 * $45,902 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 6.23 to 8.50 Selected EGIM for Subject 6.30 Subject's Projected EGI $982,757 EGIM ANALYSIS CONCLUSION $5,700,000 * $46,721 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $5,800,000 * $47,541 / UNIT RECONCILED SALES COMPARISON VALUE $5,700,000 $46,721 / 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 CITADEL VILLAGE, COLORADO SPRINGS, COLORADO PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $5,600,000 NOI Per Unit $5,800,000 EGIM Multiplier $5,700,000 INDICATED VALUE BY SALES COMPARISON $5,700,000 $46,721 / UNIT INCOME APPROACH: Direct Capitalization Method: $5,600,000 Discounted Cash Flow Method: $5,300,000 INDICATED VALUE BY THE INCOME APPROACH $5,400,000 $44,262 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $5,500,000 $45,082 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 CITADEL VILLAGE, COLORADO SPRINGS, COLORADO INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 913 N. Chelton Rd., Colorado Springs, El Paso County, Colorado. Colorado Springs identifies it as 7412200058. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by James Newell on May 15, 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 15, 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 CITADEL VILLAGE, COLORADO SPRINGS, 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 CCP/IV Associates, Ltd.. To the best of our knowledge, no transfers of ownership or offers to purchase the subject are known to have occurred during the past three years. AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 11 CITADEL VILLAGE, COLORADO SPRINGS, 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 Colorado Springs, 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 - Academy Boulevard West - North Circle Drive South - East Platte Ave North - Palmer Park Boulevard MAJOR EMPLOYERS Major employers in the subject's area include Agilent Technologies, WorldCom, and the United States Air Force. 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 CITADEL VILLAGE, COLORADO SPRINGS, COLORADO NEIGHBORHOOD DEMOGRAPHICS
AREA ---------------------------------------- CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA - --------------------------- ------------ ------------ ------------ -------- POPULATION TRENDS Current Population 16,103 117,646 258,206 538,844 5-Year Population 16,564 122,848 273,246 595,713 % Change CY-5Y 2.9% 4.4% 5.8% 10.6% Annual Change CY-5Y 0.6% 0.9% 1.2% 2.1% HOUSEHOLDS Current Households 6,894 48,797 103,391 201,086 5-Year Projected Households 7,127 51,223 110,061 223,226 % Change CY - 5Y 3.4% 5.0% 6.5% 11.0% Annual Change CY-5Y 0.7% 1.0% 1.3% 2.2% INCOME TRENDS Median Household Income $ 27,748 $ 33,960 $ 37,185 $ 50,108 Per Capita Income $ 16,410 $ 18,644 $ 19,447 $ 22,841 Average Household Income $ 38,301 $ 45,068 $ 48,769 $ 61,206
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 52.18% 42.31% 38.63% 31.26% 5-Year Projected % Renting 52.19% 41.44% 37.09% 29.31% % of Households Owning 35.34% 46.42% 50.90% 59.98% 5-Year Projected % Owning 35.79% 47.64% 52.85% 62.54%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 CITADEL VILLAGE, COLORADO SPRINGS, COLORADO SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Single-family residential South - Citadel shopping mall East - Vacant large retail store West - Single-family residential CONCLUSIONS The subject is well located within the city of Colorado Springs. 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 CITADEL VILLAGE, COLORADO SPRINGS, COLORADO MARKET ANALYSIS The subject property is located in the city of Colorado Springs in El Paso County. The overall pace of development in the subject's market is more or less decreasing. Over the last several years there has been ongoing construction in northern Colorado Springs. The Austin Bluffs Apartment project, located on Whetstone Drive, is currently under construction and about 65% complete. The following table illustrates historical vacancy rates for the subject's market. HISTORICAL VACANCY RATE
Period Region Submarket - ------ ------ --------- 1999 5.1% 5.4% 2000 3.1% 2.8% 2001 8.9% 4.7% 2002 8.2% 8.2%
{Source: Hendricks & Partners Apartment Update: Rocky Mountain Region} Occupancy trends in the subject's market are decreasing. Historically speaking, the subject's submarket has equated the overall market. Due to the large number of military personnel recently deployed, the Colorado Springs apartment market has suffered over the last several months. The local market, especially in the south end of town, will grow with the return of the personnel. 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 $ 693 - $ 637 - 2002 $ 642 -7.4% $ 559 -12.2%
The following table illustrates a summary of the subject's competitive set. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 CITADEL VILLAGE, COLORADO SPRINGS, COLORADO COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject - ------- ---------------------------- ----- ----- ---------- ------------------------------------ R-1 Dove Tree N/A 88% 1980 Approx. 1 mile southeast of subject R-2 Tanager Meadows N/A 79% 1980 Approx. 2 1/2 miles south of subject R-3 Parkside 268 90% 1984 1 mile southwest of subject R-4 The Willows at Printers Park 220 87% 2000 2 miles east of subject R-5 Courtyard Estates 176 88% 1975 Approx. 1 mile southeast of subject Subject Citadel Village 122 62% 1974
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 CITADEL VILLAGE, COLORADO SPRINGS, COLORADO PROPERTY DESCRIPTION SITE ANALYSIS Site Area 9.28 acres, or 404,237 square feet Shape Irregular Topography Rolling 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 08041C0732F, dated March 17, 1997 Flood Zone Zone X Zoning PUD, 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 - ------------- ------- -------- --------- --------- -------- 7412200058 $80,440 $245,910 $ 326,350 $ 0.0654 $ 21,342
IMPROVEMENT ANALYSIS Year Built 1974 Number of Units 122 Net Rentable Area 110,125 Square Feet Construction: Foundation Reinforced concrete slab Frame Heavy or light wood Exterior Walls Stucco wall Roof Composition shingle over a wood truss structure Project Amenities Amenities at the subject include a swimming pool, sand volleyball, gym room, inline skating area, 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, microwave dishwasher, water heater, garbage disposal, and oven. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 CITADEL VILLAGE, COLORADO SPRINGS, COLORADO Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) - ----------------------- --------------- --------- 1Br/1Ba - Jr. 1 Bedroom 9 520 1Br/1Ba 51 675 2Br/1Ba 32 860 3Br/2 1/2Ba - Townhouse 18 1,450 3Br/2 1/2Ba - Sp. 12 1,450
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 1974 and consist of a 122-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 CITADEL VILLAGE, COLORADO SPRINGS, 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 CITADEL VILLAGE, COLORADO SPRINGS, 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 CITADEL VILLAGE, COLORADO SPRINGS, 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 CITADEL VILLAGE, COLORADO SPRINGS, COLORADO SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - -------------------------------- ------------------------------- --------------------------- -------------------------------- Property Name Citadel Village Cedar Crest Colony Hills LOCATION: Address 913 N. Chelton Rd. 2010 Carmel Drive 3950 Patrick Drive City, State Colorado Springs,Colorado Colorado Springs, Colorado Colorado Springs, Colorado County El Paso County El Paso County El Paso County PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 110,125 61,104 216,000 Year Built 1974 1968 1985 Number of Units 122 78 216 Unit Mix: Type Total Type Total Type Total 1Br/1Ba - Jr. 1 Bedroom 9 1Br/1Ba 18 2Br/1Ba 216 1Br/1Ba 51 2Br/1Ba 60 2Br/1Ba 32 3Br/2 1/2Ba - Townhouse 18 3Br/2 1/2Ba - Sp.Town 12 Average Unit Size (SF) 903 783 1,000 Land Area (Acre) 9.2800 1.6000 6.6700 Density (Units/Acre) 13.1 48.8 32.4 Parking Ratio (Spaces/Unit) 2.05 1.05 1.62 Parking Type (Gr., Cov., etc.) Open Open Some covered CONDITION: 0 Fair Good APPEAL: 0 Fair Good AMENITIES: Pool/Spa Yes/No Yes/Yes Gym Room Yes No Laundry Room Yes No Secured Parking No No Sport Courts No No OCCUPANCY: 62% 95% 93% TRANSACTION DATA: Sale Date January, 2003 July, 2001 Sale Price ($) $3,220,000 $10,500,000 Grantor Cedar Creek Investments, LLC Bigelow Colorado II, LLC Grantee Stanley & Robin Douglas Colony Hills Colorado Springs Apts, LLC Sale Documentation 11028 101636 Verification Buyer's Broker Christina Soliz (Broker) Telephone Number 303-607-9001 602-912-1700 ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $536,160 $6,874 $8.77 $1,811,808 $8,388 $8.39 Vacancy/Credit Loss $ 26,808 $ 344 $0.44 $ 126,827 $ 587 $0.59 Effective Gross Income $509,352 $6,530 $8.34 $1,684,981 $7,801 $7.80 Operating Expenses $203,741 $2,612 $3.33 $ 815,269 $3,774 $3.77 Net Operating Income $305,611 $3,918 $5.00 $ 815,712 $3,776 $3.78 NOTES: PRICE PER UNIT $41,282 $48,611 PRICE PER SQUARE FOOT $ 52.70 $ 48.61 EXPENSE RATIO 40.0% 48.4% EGIM 6.32 6.23 OVERALL CAP RATE 9.49% 7.77% 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 Park Meadows Cheyenne Creek Dakota LOCATION: Address 970 Mount Werner Circle 115 W Cheyenne Road 1224 Delaware Drive City, State Colorado Springs, Colorado Colorado Springs, Colorado Colorado Springs, Colorado County El Paso County El Paso County El Paso County PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 47,179 107,261 37,332 Year Built 1984 1985 1969 Number of Units 60 107 54 Unit Mix: Type Total Type Total Type Total 2Br/1Ba 60 1Bd Den/1Ba 34 1Br/1Ba 36 2Bd/2Ba 73 2Br/1Ba 18 Average Unit Size (SF) 786 1,002 691 Land Area (Acre) 4.0200 4.4010 2.2100 Density (Units/Acre) 14.9 24.3 24.4 Parking Ratio (Spaces/Unit) 2.00 1.75 1.50 Parking Type (Gr., Cov., etc.) Open 107 covered Open CONDITION: Average Very Good Fair APPEAL: Average Very Good Fair AMENITIES: Pool/Spa Gym Room Laundry Room Secured Parking Sport Courts OCCUPANCY: 90% 94% 85% TRANSACTION DATA: Sale Date April, 2002 June, 2002 September, 2002 Sale Price ($) $3,100,000 $9,150,000 $2,100,000 Grantor Park Meadows Apartments, 115 West Cheyenne Road, LLC Raymond Maier LLC Grantee Park Meadows Affordable BP Cheyenne Creek Apts, LLC Two South Mosier, LLC Housing, LLC Sale Documentation 55416 2100444 163709 Verification Buyer CoStar Realty Information Public Records Telephone Number 719-447-9300 800-204-5960 ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $405,000 $ 6,750 $8.58 $1,239,540 $11,584 $11.56 $345,960 $ 6,407 $9.27 Vacancy/Credit Loss $40,500 $ 675 $0.86 $ 74,372 $ 695 $ 0.69 $ 51,894 $ 961 $1.39 Effective Gross Income $364,500 $ 6,075 $7.73 $1,165,168 $10,889 $10.86 $294,066 $ 5,446 $7.88 Operating Expenses $135,011 $ 2,250 $2.86 $ 407,809 $ 3,811 $ 3.80 $117,626 $ 2,178 $3.15 Net Operating Income $229,489 $ 3,825 $4.86 $ 757,359 $ 7,078 $ 7.06 $176,440 $ 3,267 $4.73 NOTES: PRICE PER UNIT $51,667 $85,514 $38,889 PRICE PER SQUARE FOOT $ 65.71 $ 85.31 $ 56.25 EXPENSE RATIO 37.0% 35.0% 40.0% EGIM 8.50 7.85 7.14 OVERALL CAP RATE 7.40% 8.28% 8.40% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA PRO FORMA
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 CITADEL VILLAGE, COLORADO SPRINGS, COLORADO IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $38,889 to $85,514 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 $46,375 to $51,667 per unit with a mean or average adjusted price of $49,446 per unit. The median adjusted price is $50,556 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 $5,600,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 CITADEL VILLAGE, COLORADO SPRINGS, COLORADO SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - ----------------------------------- -------------------------- ---------------------------- -------------------------- Property Name Citadel Village Cedar Crest Colony Hills Address 913 N. Chelton Rd. 2010 Carmel Drive 3950 Patrick Drive City Colorado Springs, Colorado Colorado Springs, Colorado Colorado Springs, Colorado Sale Date January, 2003 July, 2001 Sale Price ($) $3,220,000 $10,500,000 Net Rentable Area (SF) 110,125 61,104 216,000 Number of Units 122 78 216 Price Per Unit $41,282 $48,611 Year Built 1974 1968 1985 Land Area (Acre) 9.2800 1.6000 6.6700 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 01-2003 0% 07-2001 6% VALUE AFTER TRANS. ADJUST. ($/UNIT) $41,282 $51,528 Location Inferior 5% Inferior 5% Number of Units 122 78 0% 216 0% Quality / Appeal Good Inferior 5% Superior -10% Age / Condition 1974 1968 / Fair 5% 1985 / Good -5% Occupancy at Sale 62% 95% 0% 93% 0% Amenities Good Inferior 10% Comparable 0% Average Unit Size (SF) 903 783 0% 1,000 0% PHYSICAL ADJUSTMENT 25% -10% FINAL ADJUSTED VALUE ($/UNIT) $51,603 $46,375 COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 - ----------------------------------- -------------------------- -------------------------- -------------------------- Property Name Park Meadows Cheyenne Creek Dakota Address 970 Mount Werner Circle 115 W Cheyenne Road 1224 Delaware Drive City Colorado Springs, Colorado Colorado Springs, Colorado Colorado Springs, Colorado Sale Date April, 2002 June, 2002 September, 2002 Sale Price ($) $3,100,000 $9,150,000 $2,100,000 Net Rentable Area (SF) 47,179 107,261 37,332 Number of Units 60 107 54 Price Per Unit $51,667 $85,514 $38,889 Year Built 1984 1985 1969 Land Area (Acre) 4.0200 4.4010 2.2100 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) 04-2002 0% 06-2002 0% 09-2002 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $51,667 $85,514 $38,889 Location Comparable 0% Superior -10% Comparable 0% Number of Units 60 5% 107 0% 54 5% Quality / Appeal Superior -10% Superior -20% Comparable 0% Age / Condition 1984 / Average 0% 1985 / Very Good -10% 1969 / Fair 10% Occupancy at Sale 90% 0% 94% 0% 85% 0% Amenities Inferior 5% Comparable 0% Inferior 10% Average Unit Size (SF) 786 0% 1,002 -5% 691 5% PHYSICAL ADJUSTMENT 0% -45% 30% FINAL ADJUSTED VALUE ($/UNIT) $51,667 $47,033 $50,556
SUMMARY VALUE RANGE (PER UNIT) $46,375 TO $ 51,667 MEAN (PER UNIT) $49,446 MEDIAN (PER UNIT) $50,556 VALUE CONCLUSION (PER UNIT) $50,000
VALUE OF IMPROVEMENT & MAIN SITE $6,100,000 LESS: LEASE-UP COST -$ 205,000 PV OF CONCESSIONS -$ 253,000 VALUE INDICATED BY SALES COMPARISON APPROACH $5,642,000 ROUNDED $5,600,000
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 CITADEL VILLAGE, COLORADO SPRINGS, 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 78 $ 3,220,000 9.49% $ 305,611 $ 529,799 1.108 $ 45,755 $ 41,282 $ 3,918 $ 4,343 I-2 216 $10,500,000 7.77% $ 815,712 $ 529,799 1.150 $ 55,899 $ 48,611 $ 3,776 $ 4,343 I-3 60 $ 3,100,000 7.40% $ 229,489 $ 529,799 1.135 $ 58,661 $ 51,667 $ 3,825 $ 4,343 I-4 107 $ 9,150,000 8.28% $ 757,359 $ 529,799 0.614 $ 52,465 $ 85,514 $ 7,078 $ 4,343 I-5 54 $ 2,100,000 8.40% $ 176,440 $ 529,799 1.329 $ 51,686 $ 38,889 $ 3,267 $ 4,343
PRICE/UNIT
Low High Average Median $45,755 $58,661 $52,893 $52,465
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT Estimated Price Per Unit $ 51,500 Number of Units 122 Value $6,283,000 Less: Lease-Up Cost -$ 205,000 PV of Concessions -$ 253,000 ----------- Value Based on NOI Analysis $5,825,000 Rounded $5,800,000
The adjusted sales indicate a range of value between $45,755 and $58,661 per unit, with an average of $52,893 per unit. Based on the subject's competitive position within the improved sales, a value of $51,500 per unit is estimated. This indicates an "as is" market value of $5,800,000 (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 CITADEL VILLAGE, COLORADO SPRINGS, 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 78 $ 3,220,000 $ 509,352 $ 203,741 40.00% 6.32 $ 41,282 I-2 216 $10,500,000 $1,684,981 $ 815,269 48.38% 6.23 $ 48,611 I-3 60 $ 3,100,000 $ 364,500 $ 135,011 37.04% 8.50 $ 51,667 43.61% I-4 107 $ 9,150,000 $1,165,168 $ 407,809 35.00% 7.85 $ 85,514 I-5 54 $ 2,100,000 $ 294,066 $ 117,626 40.00% 7.14 $ 38,889
EGIM
Low High Average Median - --- ---- ------- ------ 6.23 8.50 7.21 7.14
VALUE ANALYSIS BASED ON EGIM's OF COMPARABLE SALES Estimate EGIM 6.30 Subject EGI $ 982,757 Value $6,191,368 Less: Lease-Up Cost -$ 205,000 PV of Concessions -$ 253,000 ----------- Value Based on EGIM Analysis $5,733,368 Rounded $5,700,000 Value Per Unit $ 46,721
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 43.61% before reserves. The comparable sales indicate a range of expense ratios from 35.00% to 48.38%, while their EGIMs range from 6.23 to 8.50. Overall, we conclude to an EGIM of 6.30, which results in an "as is" value estimate in the EGIM Analysis of $5,700,000. SALES COMPARISON CONCLUSION The three valuation methods in the Sales Comparison Approach are shown below. The overall value via the Sales Comparison Approach is estimated at $5,700,000. Price Per Unit $5,600,000 NOI Per Unit $5,800,000 EGIM Analysis $5,700,000 Sales Comparison Conclusion $5,700,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 CITADEL VILLAGE, COLORADO SPRINGS, 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 CITADEL VILLAGE, COLORADO SPRINGS, 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 - ----------------------- --------- -------- ------ --------- 1Br/1Ba - Jr. 1 Bedroom 520 $ 520 $ 1.00 77.8% 1Br/1Ba 675 $ 602 $ 0.89 60.8% 2Br/1Ba 860 $ 740 $ 0.86 65.6% 3Br/2 1/2Ba - Townhouse 1450 $1,049 $ 0.72 56.7% 3Br/2 1/2Ba - Sp. 1450 $1,049 $ 0.72 56.7%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 CITADEL VILLAGE, COLORADO SPRINGS, COLORADO RENT ANALYSIS
COMPARABLE RENTS ----------------------------------------------------------- R-1 R-2 R-3 R-4 R-5 ------- ------- ------- ------------- ----------------- The Willows at Tanager Printers Courtyard Dove Tree Meadows Parkside Park Estates ----------------- ------- ------------- ----------------- SUBJECT SUBJECT COMPARISON TO SUBJECT SUBJECT UNIT ACTUAL ASKING ----------------------------------------------------------- DESCRIPTION TYPE RENT RENT Similar Similar Similar Very Superior Slightly Inferior - ----------------------- ----------------- ------- ------- ------- ------- ------- ------------- ----------------- Monthly Rent 1Br/1Ba - Jr. 1 $ 520 $ 499 $ 525 $ 525 $ 710 $ 480 Unit Area (SF) BEDROOM 520 520 540 520 637 500 Monthly Rent Per Sq. Ft. $ 1.00 $ 0.96 $ 0.97 $ 1.01 $ 1.11 $ 0.96 Monthly Rent 1Br/1Ba $ 602 $ 599 $ 600 $ 600 $ 650 $ 765 Unit Area (SF) 675 675 720 700 650 726 Monthly Rent Per Sq. Ft. $ 0.89 $ 0.89 $ 0.83 $ 0.86 $ 1.00 $ 1.05 Monthly Rent 2Br/1Ba $ 740 $ 745 $ 720 $ 720 $ 778 $ 935 $ 605 Unit Area (SF) 860 860 970 965 850 987 750 Monthly Rent Per Sq. Ft. $ 0.86 $ 0.87 $ 0.74 $ 0.75 $ 0.91 $ 0.95 $ 0.81 Monthly Rent 3Br/2 1/2Ba - $1,049 $1,069 Unit Area (SF) TOWNHOUSE 1,450 1,450 Monthly Rent Per Sq. Ft. $ 0.72 $ 0.74 Monthly Rent 3Br/2 1/2Ba - Sp. $1,049 $1,099 $1,300 Unit Area (SF) TOWNHOUSE 1,450 1,450 1,288 Monthly Rent Per Sq. Ft. $ 0.72 $ 0.76 $ 1.01 DESCRIPTION MIN MAX MEDIAN AVERAGE - ----------------------- ------ ------ ------ ------- Monthly Rent $ 480 $ 710 $ 525 $ 560 Unit Area (SF) 500 637 530 549 Monthly Rent Per Sq. Ft. $ 0.96 $ 1.11 $ 0.99 $ 1.01 Monthly Rent $ 600 $ 765 $ 625 $ 654 Unit Area (SF) 650 726 710 699 Monthly Rent Per Sq. Ft. $ 0.83 $ 1.05 $ 0.93 $ 0.94 Monthly Rent $ 605 $ 935 $ 720 $ 752 Unit Area (SF) 750 987 965 904 Monthly Rent Per Sq. Ft. $ 0.74 $ 0.95 $ 0.81 $ 0.83 Monthly Rent Unit Area (SF) Monthly Rent Per Sq. Ft. Monthly Rent $1,300 $1,300 $1,300 $ 1,300 Unit Area (SF) 1,288 1,288 1,288 1,288 Monthly Rent Per Sq. Ft. $ 1.01 $ 1.01 $ 1.01 $ 1.01
CONCLUDED MARKET RENTAL RATES AND TERMS Based on this analysis above, the subject's concluded market rental rates and gross rental income is calculated as follows: GROSS RENTAL INCOME PROJECTION
Market Rent Unit Area ---------------- Monthly Annual Unit Type Number of Units (Sq. Ft.) Per Unit Per SF Income Income - ----------------------- --------------- --------- -------- ------ -------- ---------- 1Br/1Ba - Jr. 1 Bedroom 9 520 $ 500 $ 0.96 $ 4,500 $ 54,000 1Br/1Ba 51 675 $ 600 $ 0.89 $ 30,600 $ 367,200 2Br/1Ba 32 860 $ 720 $ 0.84 $ 23,040 $ 276,480 3Br/2 1/2Ba - Townhouse 18 1,450 $ 1,020 $ 0.70 $ 18,360 $ 220,320 3Br/2 1/2Ba - Sp. 12 1,450 $ 1,030 $ 0.71 $ 12,360 $ 148,320 -------- ---------- Total $ 88,860 $1,066,320
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 CITADEL VILLAGE, COLORADO SPRINGS, 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 $ 1,112,536 $ 9,119 $ 1,168,388 $ 9,577 $ 1,140,538 $ 9,349 Vacancy $ 44,366 $ 364 $ 60,325 $ 494 $ 159,114 $ 1,304 Credit Loss/Concessions $ 8,708 $ 71 $ 27,115 $ 222 $ 38,604 $ 316 ---------------------------------------------------------------------------------- Subtotal $ 53,074 $ 435 $ 87,440 $ 717 $ 197,718 $ 1,621 Laundry Income $ 8,717 $ 71 $ 10,745 $ 88 $ 5,999 $ 49 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 40,746 $ 334 $ 59,107 $ 484 $ 21,157 $ 173 ---------------------------------------------------------------------------------- Subtotal Other Income $ 49,463 $ 405 $ 69,852 $ 573 $ 27,156 $ 223 ---------------------------------------------------------------------------------- Effective Gross Income $ 1,108,925 $ 9,090 $ 1,150,800 $ 9,433 $ 969,976 $ 7,951 Operating Expenses Taxes $ 25,318 $ 208 $ 27,429 $ 225 $ 19,143 $ 157 Insurance $ 10,869 $ 89 $ 15,654 $ 128 $ 16,725 $ 137 Utilities $ 75,234 $ 617 $ 86,184 $ 706 $ 83,187 $ 682 Repair & Maintenance $ 27,367 $ 224 $ 26,546 $ 218 $ 29,288 $ 240 Cleaning $ 8,808 $ 72 $ 8,635 $ 71 $ 30,085 $ 247 Landscaping $ 13,512 $ 111 $ 18,477 $ 151 $ 25,860 $ 212 Security $ 3,609 $ 30 $ 2,275 $ 19 $ 1,026 $ 8 Marketing & Leasing $ 40,061 $ 328 $ 45,057 $ 369 $ 37,050 $ 304 General Administrative $ 190,389 $ 1,561 $ 181,256 $ 1,486 $ 111,395 $ 913 Management $ 56,397 $ 462 $ 70,123 $ 575 $ 47,075 $ 386 Miscellaneous ($ 3,035) -$ 25 $ 1,339 $ 11 $ 1,773 $ 15 ----------------------------------------------------------------------------------- Total Operating Expenses $ 448,529 $ 3,676 $ 482,975 $ 3,959 $ 402,607 $ 3,300 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------------------------------------------------------------------------------- Net Income $ 660,396 $ 5,413 $ 667,825 $ 5,474 $ 567,369 $ 4,651 FISCAL YEAR 2003 ANNUALIZED 2003 ------------------------- -------------------------- MANAGEMENT BUDGET PROJECTION AAA PROJECTION ------------------------- -------------------------- --------------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT % - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----- Revenues Rental Income $ 1,107,000 $ 9,074 $ 1,078,752 $ 8,842 $ 1,066,320 $ 8,740 100.0% Vacancy $ 185,550 $ 1,521 $ 432,796 $ 3,548 $ 122,627 $ 1,005 11.5% Credit Loss/Concessions $ 0 $ 0 $ 22,304 $ 183 $ 21,326 $ 175 2.0% ------------------------------------------------------------------------------------------- Subtotal $ 185,550 $ 1,521 $ 455,100 $ 3,730 $ 143,953 $ 1,180 13.5% Laundry Income $ 12,974 $ 106 $ 5,700 $ 47 $ 11,590 $ 95 1.1% Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 52,496 $ 430 ($ 9,740) -$ 80 $ 48,800 $ 400 4.6% ------------------------------------------------------------------------------------------- Subtotal Other Income $ 65,470 $ 537 ($ 4,040) -$ 33 $ 60,390 $ 495 5.7% ------------------------------------------------------------------------------------------- Effective Gross Income $ 986,920 $ 8,090 $ 619,612 $ 5,079 $ 982,757 $ 8,055 100.0% Operating Expenses Taxes $ 23,525 $ 193 $ 25,888 $ 212 $ 23,790 $ 195 2.4% Insurance $ 18,698 $ 153 $ 17,976 $ 147 $ 18,300 $ 150 1.9% Utilities $ 81,332 $ 667 $ 63,960 $ 524 $ 81,740 $ 670 8.3% Repair & Maintenance $ 38,706 $ 317 $ 90,088 $ 738 $ 35,380 $ 290 3.6% Cleaning $ 0 $ 0 $ 35,052 $ 287 $ 30,500 $ 250 3.1% Landscaping $ 27,170 $ 223 $ 8,912 $ 73 $ 27,450 $ 225 2.8% Security $ 0 $ 0 $ 588 $ 5 $ 1,220 $ 10 0.1% Marketing & Leasing $ 29,440 $ 241 $ 32,488 $ 266 $ 37,210 $ 305 3.8% General Administrative $ 119,941 $ 983 $ 150,760 $ 1,236 $ 122,000 $ 1,000 12.4% Management $ 56,476 $ 463 $ 32,060 $ 263 $ 49,138 $ 403 5.0% Miscellaneous $ 0 $ 0 $ 13,716 $ 112 $ 1,830 $ 15 0.2% ------------------------------------------------------------------------------------------- Total Operating Expenses $ 395,288 $ 3,240 $ 471,488 $ 3,865 $ 428,558 $ 3,513 43.6% Reserves $ 0 $ 0 $ 0 $ 0 $ 24,400 $ 200 5.7% ------------------------------------------------------------------------------------------- Net Income $ 591,632 $ 4,849 $ 148,124 $ 1,214 $ 529,799 $ 4,343 53.9%
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 13.5% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30 CITADEL VILLAGE, COLORADO SPRINGS, 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 CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
SUMMARY OF OVERALL CAPITALIZATION RATES - ---------------------------------------------- COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR - --------- --------- ------ ---------- ----- I-1 Jan-03 95% $ 41,282 9.49% I-2 Jul-01 93% $ 48,611 7.77% I-3 Apr-02 90% $ 51,667 7.40% I-4 Jun-02 94% $ 85,514 8.28% I-5 Sep-02 85% $ 38,889 8.40% High 9.49% Low 7.40% Average 8.27%
Based on this information, we have concluded the subject's overall capitalization rate should be 8.75%. The terminal capitalization rate is applied to the net operating income estimated for the year following the end of the holding period. Based on the concluded overall capitalization rate, the age of the property and the surveyed information, we have concluded the subject's terminal capitalization rate to be 9.25%. Finally, the subject's discount rate or yield rate is estimated based on the previous investor survey and an examination of returns available on alternative investments in the market. Based on this analysis, the subject's discount rate is estimated to be 11.25%. 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 11.25% indicates a value of $5,300,000. In this instance, the reversion figure contributes AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32 CITADEL VILLAGE, COLORADO SPRINGS, COLORADO approximately 45% 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 CITADEL VILLAGE, COLORADO SPRINGS, COLORADO DISCOUNTED CASH FLOW ANALYSIS
CITADEL VILLAGE - ----------------------------------------------------------------------------------------------------------------------- YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 FISCAL YEAR 1 2 3 4 5 6 - ------------------------------------ ---------- ---------- ---------- ---------- ---------- ---------- REVENUE Base Rent $1,066,320 $1,066,320 $1,076,983 $1,109,293 $1,142,571 $1,176,849 Vacancy $ 325,136 $ 164,525 $ 123,853 $ 127,569 $ 131,396 $ 135,338 Credit Loss $ 21,326 $ 21,326 $ 21,540 $ 22,186 $ 22,851 $ 23,537 Concessions $ 175,680 $ 117,120 $ 0 $ 0 $ 0 $ 0 Subtotal $ 522,143 $ 302,972 $ 145,393 $ 149,755 $ 154,247 $ 158,875 Laundry Income $ 11,590 $ 11,590 $ 11,706 $ 12,057 $ 12,419 $ 12,791 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 48,800 $ 48,800 $ 49,288 $ 50,767 $ 52,290 $ 53,858 Subtotal Other Income $ 60,390 $ 60,390 $ 60,994 $ 62,824 $ 64,708 $ 66,650 EFFECTIVE GROSS INCOME $ 604,567 $ 823,738 $ 992,584 $1,022,362 $1,053,033 $1,084,624 OPERATING EXPENSES: Taxes $ 23,790 $ 24,504 $ 25,239 $ 25,996 $ 26,776 $ 27,579 Insurance $ 18,300 $ 18,849 $ 19,414 $ 19,997 $ 20,597 $ 21,215 Utilities $ 81,740 $ 84,192 $ 86,718 $ 89,320 $ 91,999 $ 94,759 Repair & Maintenance $ 35,380 $ 36,441 $ 37,535 $ 38,661 $ 39,821 $ 41,015 Cleaning $ 30,500 $ 31,415 $ 32,357 $ 33,328 $ 34,328 $ 35,358 Landscaping $ 27,450 $ 28,274 $ 29,122 $ 29,995 $ 30,895 $ 31,822 Security $ 1,220 $ 1,257 $ 1,294 $ 1,333 $ 1,373 $ 1,414 Marketing & Leasing $ 37,210 $ 38,326 $ 39,476 $ 40,660 $ 41,880 $ 43,137 General Administrative $ 122,000 $ 125,660 $ 129,430 $ 133,313 $ 137,312 $ 141,431 Management $ 30,228 $ 41,187 $ 49,629 $ 51,118 $ 52,652 $ 54,231 Miscellaneous $ 1,830 $ 1,885 $ 1,941 $ 2,000 $ 2,060 $ 2,121 TOTAL OPERATING EXPENSES $ 409,648 $ 431,990 $ 452,156 $ 465,721 $ 479,692 $ 494,083 Reserves $ 24,400 $ 25,132 $ 25,886 $ 26,663 $ 27,462 $ 28,286 NET OPERATING INCOME $ 170,519 $ 366,617 $ 514,543 $ 529,979 $ 545,878 $ 562,254 Operating Expense Ratio (% of EGI) 67.8% 52.4% 45.6% 45.6% 45.6% 45.6% Operating Expense Per Unit $ 3,358 $ 3,541 $ 3,706 $ 3,817 $ 3,932 $ 4,050
CITADEL VILLAGE - --------------------------------------------------------------------------------------------------------- YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 7 8 9 10 11 - ------------------------------------ ---------- ---------- ---------- ---------- ---------- REVENUE Base Rent $1,212,154 $1,248,519 $1,285,974 $1,324,553 $1,364,290 Vacancy $ 139,398 $ 143,580 $ 147,887 $ 152,324 $ 156,893 Credit Loss $ 24,243 $ 24,970 $ 25,719 $ 26,491 $ 27,286 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 Subtotal $ 163,641 $ 168,550 $ 173,607 $ 178,815 $ 184,179 Laundry Income $ 13,175 $ 13,570 $ 13,977 $ 14,397 $ 14,829 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 55,474 $ 57,138 $ 58,852 $ 60,618 $ 62,437 Subtotal Other Income $ 68,649 $ 70,709 $ 72,830 $ 75,015 $ 77,265 EFFECTIVE GROSS INCOME $1,117,162 $1,150,677 $1,185,198 $1,220,754 $1,257,376 OPERATING EXPENSES: Taxes $ 28,407 $ 29,259 $ 30,136 $ 31,041 $ 31,972 Insurance $ 21,851 $ 22,507 $ 23,182 $ 23,877 $ 24,594 Utilities $ 97,602 $ 100,530 $ 103,546 $ 106,652 $ 109,852 Repair & Maintenance $ 42,246 $ 43,513 $ 44,818 $ 46,163 $ 47,548 Cleaning $ 36,419 $ 37,511 $ 38,636 $ 39,796 $ 40,989 Landscaping $ 32,777 $ 33,760 $ 34,773 $ 35,816 $ 36,891 Security $ 1,457 $ 1,500 $ 1,545 $ 1,592 $ 1,640 Marketing & Leasing $ 44,431 $ 45,764 $ 47,137 $ 48,551 $ 50,007 General Administrative $ 145,674 $ 150,045 $ 154,546 $ 159,182 $ 163,958 Management $ 55,858 $ 57,534 $ 59,260 $ 61,038 $ 62,869 Miscellaneous $ 2,185 $ 2,251 $ 2,318 $ 2,388 $ 2,459 TOTAL OPERATING EXPENSES $ 508,905 $ 524,173 $ 539,898 $ 556,095 $ 572,778 Reserves $ 29,135 $ 30,009 $ 30,909 $ 31,836 $ 32,792 NET OPERATING INCOME $ 579,122 $ 596,496 $ 614,391 $ 632,822 $ 651,807 Operating Expense Ratio (% of EGI) 45.6% 45.6% 45.6% 45.6% 45.6% Operating Expense Per Unit $ 4,171 $ 4,296 $ 4,425 $ 4,558 $ 4,695
Estimated Stabilized NOI $529,799 Sales Expense Rate 2.00% Months to Stabilized 20 Discount Rate 11.25% Stabilized Occupancy 88.5% Terminal Cap Rate 9.25%
Gross Residual Sale Price $ 7,046,563 Deferred Maintenance $ 0 Less: Sales Expense $ 140,931 Add: Excess Land $ 0 ----------- Net Residual Sale Price $ 6,905,632 Other Adjustments $ 0 ---------- PV of Reversion $ 2,377,953 Value Indicated By "DCF" $5,347,864 Add: NPV of NOI $ 2,969,911 Rounded $5,300,000 ----------- PV Total $ 5,347,864
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE -------------------------------------------------------------- TOTAL VALUE 10.75% 11.00% 11.25% 11.50% 11.75% - ----------------- ---- ---------- ---------- ---------- ---------- ---------- 8.75% $5,677,891 $5,579,737 $5,483,747 $5,389,865 $5,298,038 9.00% $5,604,845 $5,508,320 $5,413,918 $5,321,586 $5,231,272 TERMINAL CAP RATE 9.25% $5,535,748 $5,440,763 $5,347,864 $5,256,998 $5,168,114 9.50% $5,470,287 $5,376,761 $5,285,286 $5,195,809 $5,108,280 9.75% $5,408,183 $5,316,042 $5,225,917 $5,137,758 $5,051,515
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 34 CITADEL VILLAGE, COLORADO SPRINGS, COLORADO INCOME LOSS DURING LEASE-UP The subject is currently 62% occupied, below our stabilized occupancy projection. We have estimated a 20-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 $205,000 as shown in the following table.
DESCRIPTION YEAR 1 YEAR 2 - ------------------------------- -------- -------- "As Is" Net Operating Income $170,519 $366,617 Stabilized Net Operating Income $362,903 $406,420 -------- -------- Difference $192,384 $ 39,804 PV of Income Loss During Lease-Up $205,090 Rounded $205,000 --------
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 $253,000 (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 CITADEL VILLAGE, COLORADO SPRINGS, COLORADO After considering the market transactions and the investor surveys, we previously conclude that an overall rate of 8.75% percent is applicable to the subject. The results of our direct capitalization analysis are as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 36 CITADEL VILLAGE, COLORADO SPRINGS, COLORADO CITADEL VILLAGE
TOTAL PER SQ. FT. PER UNIT %OF EGI ----------- ---------- -------- ------- REVENUE Base Rent $ 1,066,320 $ 9.68 $ 8,740 Less: Vacancy & Collection Loss 13.50% $ 143,953 $ 1.31 $ 1,180 Plus: Other Income Laundry Income $ 11,590 $ 0.11 $ 95 1.18% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 48,800 $ 0.44 $ 400 4.97% Subtotal Other Income $ 60,390 $ 0.55 $ 495 6.14% EFFECTIVE GROSS INCOME $ 982,757 $ 8.92 $ 8,055 OPERATING EXPENSES: Taxes $ 23,790 $ 0.22 $ 195 2.42% Insurance $ 18,300 $ 0.17 $ 150 1.86% Utilities $ 81,740 $ 0.74 $ 670 8.32% Repair & Maintenance $ 35,380 $ 0.32 $ 290 3.60% Cleaning $ 30,500 $ 0.28 $ 250 3.10% Landscaping $ 27,450 $ 0.25 $ 225 2.79% Security $ 1,220 $ 0.01 $ 10 0.12% Marketing & Leasing $ 37,210 $ 0.34 $ 305 3.79% General Administrative $ 122,000 $ 1.11 $ 1,000 12.41% Management 5.00% $ 49,138 $ 0.45 $ 403 5.00% Miscellaneous $ 1,830 $ 0.02 $ 15 0.19% TOTAL OPERATING EXPENSES $ 428,558 $ 3.89 $ 3,513 43.61% Reserves $ 24,400 $ 0.22 $ 200 2.48% NET OPERATING INCOME $ 529,799 $ 4.81 $ 4,343 53.91% "GOING IN" CAPITALIZATION RATE 8.75% VALUE INDICATION $ 6,054,845 $ 54.98 $ 49,630 LESS: LEASE-UP COST ($ 205,000) PV OF CONCESSIONS ($ 253,000) "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $ 5,596,845 ROUNDED $ 5,600,000 $ 50.85 $ 45,902
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 37 CITADEL VILLAGE, COLORADO SPRINGS, COLORADO DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF - -------- ---------- ---------- ------- ------ 8.00% $6,164,487 $6,200,000 $50,820 $56.30 8.25% $5,963,806 $6,000,000 $49,180 $54.48 8.50% $5,774,929 $5,800,000 $47,541 $52.67 8.75% $5,596,845 $5,600,000 $45,902 $50.85 9.00% $5,428,655 $5,400,000 $44,262 $49.04 9.25% $5,269,556 $5,300,000 $43,443 $48.13 9.50% $5,118,831 $5,100,000 $41,803 $46.31
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $5,600,000. 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 $5,300,000 Direct Capitalization Method $5,600,000 Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $5,400,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 38 CITADEL VILLAGE, COLORADO SPRINGS, 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 $ 5,700,000 Income Approach $ 5,400,000 Reconciled Value $ 5,500,000
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 15, 2003 the market value of the fee simple estate in the property is: $5,500,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA CITADEL VILLAGE, COLORADO SPRINGS, COLORADO ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A CITADEL VILLAGE, COLORADO SPRINGS, COLORADO EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A CITADEL VILLAGE, COLORADO SPRINGS, COLORADO SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - APARTMENT BUILDING EXTERIOR - OFFICE & LANDSCAPE [PICTURE] [PICTURE] INTERIOR - GYM ROOM INTERIOR - APARTMENT UNIT [PICTURE] [PICTURE] INTERIOR - APARTMENT UNIT INTERIOR - APARTMENT UNIT AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A CITADEL VILLAGE, COLORADO SPRINGS, COLORADO SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - POOL AREA EXTERIOR - PAVED INLINE SKATING AREA [PICTURE] [PICTURE] EXTERIOR - APARTMENT BUILDING EXTERIOR - PLAYGROUND AREA [PICTURE] [PICTURE] INTERIOR - TYPICAL LAUNDRY ROOM EXTERIOR - LANDSCAPING PICTURE AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B CITADEL VILLAGE, COLORADO SPRINGS, COLORADO EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B CITADEL VILLAGE, COLORADO SPRINGS, COLORADO PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 CEDAR CREST COLONY HILLS 2010 Carmel Drive 3950 Patrick Drive Colorado Springs, Colorado Colorado Springs, Colorado COMPARABLE I-3 COMPARABLE I-4 PARK MEADOWS CHEYENNE CREEK 970 Mount Werner Circle 115 W Cheyenne Road Colorado Springs, Colorado Colorado Springs, Colorado COMPARABLE I-5 DAKOTA 1224 Delaware Drive Colorado Springs, Colorado AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B CITADEL VILLAGE, COLORADO SPRINGS, COLORADO SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 - ------------------------------------- ------------------------------------------ ------------------------------------------ Property Name Citadel Village Dove Tree Management Company AIMCO Sevo Miller LOCATION: Address 913 N. Chelton Rd. 255 Lionstone Drive City, State Colorado Springs, Colorado Colorado Springs, Colorado County El Paso County El Paso County Proximity to Subject Approx. 1 mile southeast of subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 110,125 Year Built 1974 1980 Effective Age 23 20 Building Structure Type Parking Type (Gr., Cov., etc.) Open Open Number of Units 122 N/A Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1Br/1Ba - Jr. 1 Bd 520 9 $ 520 1 1Bd/1Ba 540 $525 2 1Br/1Ba 675 51 $ 602 2 1Bd/1Ba 720 $600 3 2Br/1Ba 860 32 $ 740 3 2Bd/2Ba 970 $720 4 3Br/2 1/2Ba - TH 1,450 18 $1,049 5 3Br/2 1/2Ba - Sp. 1,450 12 $1,049 Average Unit Size (SF) 903 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 X 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 Business Office Jogging Track Business Office X Gym Room X Gym Room X Inline skating area Inline skating area OCCUPANCY: 62% 88% LEASING DATA: Available Leasing Terms 6-12 month lease 6-12 month leases Concessions 1 month free and $50-120 off each month $1 move-in, $100 off each month Pet Deposit $150 per pet $400 for dog and $10/month rent Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water X Trash Water Trash Confirmation Leasing Agent Telephone Number 719-574-1672 NOTES: COMPARISON TO SUBJECT: Similar COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 - ------------------------------------- ------------------------------------------ ------------------------------------------- Property Name Tanager Meadows Parkside Management Company Sevo Miller Sares-Regis Group LOCATION: Address 1432 Sandalwood Drive 2505 East Pikes Peak Avenue City, State Colorado Springs, Colorado Colorado Springs, Colorado County El Paso County El Paso County Proximity to Subject Approx. 2 1/2 miles south of subject 1 mile southwest of subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) Year Built 1980 1984 Effective Age 20 15 Building Structure Type Parking Type (Gr., Cov., etc.) Open Covered and Open Number of Units N/A 268 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1Bd/1Ba 520 $525 2 1Br/1Ba 650 $650 2 1Bd/1Ba 700 $600 3 2Br/1Ba 800 $760 3 2Bd/2Ba 965 $720 3 2Br/2Ba 900 $795 Average Unit Size (SF) Unit Breakdown: Efficiency 2-Bedroom Efficiency 2-Bedroom 1-Bedroom 3-Bedroom 1-Bedroom 3-Bedroom CONDITION: Good Very Good APPEAL: Good Very 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 X Spa/Jacuzzi Car Wash X Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment X Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball Meeting Hall X Sand Volley Ball Meeting Hall 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 Inline skating area Inline skating area OCCUPANCY: 79% 90% LEASING DATA: Available Leasing Terms 6-12 month leases 6-12 month leases Concessions $50 off/mo. With 6 mo., $100 off w/ 12 mo. $100-200 off each month with 12 month lease Pet Deposit $400 for dog and $10/month rent $200 for 1 pet, $300 for 2 pets Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas Water Trash X Water X Trash Confirmation Leasing Agent Leasing agent Telephone Number 719-570-7117 719-632-2505 NOTES: Management pays for cable TV All units have W/D hookups 1 covered parking per unit COMPARISON TO SUBJECT: Similar Similar COMPARABLE COMPARABLE DESCRIPTION R - 4 R - 5 - ------------------------------------- --------------------------------------------- -------------------------------------------- Property Name The Willows at Printers Park Courtyard Estates Management Company LOCATION: Address 2205 Willow Tree Grove 4370 East Pikes Peak Avenue City, State Colorado Springs, Colorado Colorado Springs, Colorado County El Paso County El Paso County Proximity to Subject 2 miles east of subject Approx. 1 mile southeast of subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) Year Built 2000 1975 Effective Age 2 25 Building Structure Type Parking Type (Gr., Cov., etc.) Garage and Open Open Number of Units 220 176 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1Bd/1Ba 637 $ 710 1 1Bd/1Ba 500 $480 2 1Bd/1Ba 726 $ 765 3 2Bd/1Ba 750 $605 3 2Bd/1Ba 932 $ 885 3 2Bd/2Ba 1,042 $ 985 5 3Bd/2Ba 1,288 $1,300 Average Unit Size (SF) 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 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 X BBQ Equipment Basketball Court BBQ Equipment Volleyball Court X Theater Room Volleyball Court Theater Room Sand Volley Ball X Meeting Hall Sand Volley Ball Meeting Hall Tennis Court Secured Parking Tennis Court Secured Parking Racquet Ball Laundry Room Racquet Ball X Laundry Room Jogging Track X Business Office Jogging Track Business Office X Gym Room Gym Room Inline skating area Inline skating area OCCUPANCY: 87% 88% LEASING DATA: Available Leasing Terms 6-12 month leases 6-12 month leases Concessions 2 mo. free w/13 mo. lease,3 free w/15 mo. Lease $1 deposit, 1 month free,$25-50 off each mo. Pet Deposit $250 none required 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 719-578-8333 719-597-4949 NOTES: All units have full-size W/D $40 per month for garage COMPARISON TO SUBJECT: Very Superior Slightly Inferior
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B CITADEL VILLAGE, COLORADO SPRINGS, COLORADO PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 DOVE TREE TANAGER MEADOWS 255 Lionstone Drive 1432 Sandalwood Drive Colorado Springs, Colorado Colorado Springs, Colorado [PICTURE] [PICTURE] COMPARABLE R-3 COMPARABLE R-4 PARKSIDE THE WILLOWS AT PRINTERS PARK 2505 East Pikes Peak Avenue 2205 Willow Tree Grove Colorado Springs, Colorado Colorado Springs, Colorado [PICTURE] [PICTURE] COMPARABLE R-5 COURTYARD ESTATES 4370 East Pikes Peak Avenue Colorado Springs, Colorado [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C CITADEL VILLAGE, COLORADO SPRINGS, COLORADO EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C CITADEL VILLAGE, COLORADO SPRINGS, 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 CITADEL VILLAGE, COLORADO SPRINGS, 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 CITADEL VILLAGE, COLORADO SPRINGS, 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 CITADEL VILLAGE, COLORADO SPRINGS, 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 CITADEL VILLAGE, COLORADO SPRINGS, COLORADO EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E CITADEL VILLAGE, COLORADO SPRINGS, 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 AFFILIATIONS Appraisal Institute, MAI Designated Member AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E CITADEL VILLAGE, COLORADO SPRINGS, 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. CITADEL VILLAGE, COLORADO SPRINGS, COLORADO GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. CITADEL VILLAGE, COLORADO SPRINGS, 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)(7) 9 d07256a1exv99wxcyx7y.txt APPRAISAL OF FOOTHILL PLACE FOOTHILL PLACE 2260 SOUTH FOOTHILL DRIVE SALT LAKE CITY, UTAH MARKET VALUE - FEE SIMPLE ESTATE AS OF MAY 2, 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 10, 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: FOOTHILL PLACE 2260 SOUTH FOOTHILL DRIVE SALT LAKE CITY, SALT LAKE COUNTY, UTAH 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 450 units with a total of 415,254 square feet of rentable area. The improvements were built in 1973. The improvements are situated on 18.93 acres. Overall, the improvements are in average 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 FOOTHILL PLACE, SALT LAKE CITY, UTAH 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 2, 2003 is: ($21,500,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. -s- Jude Flynn -------------------- July 10, 2003 Jude Flynn, MAI, SRA #053272 Managing Principal, Real Estate Group Utah Temporary Practice Permit #CG021105 Report By: Jude T. Flynn, MAI, SRA AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 FOOTHILL PLACE, SALT LAKE CITY, UTAH 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 FOOTHILL PLACE, SALT LAKE CITY, UTAH EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Foothill Place LOCATION: 2260 South Foothill Drive Salt Lake City, Utah 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 2, 2003 DATE OF REPORT: July 10, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 18.93 acres, or 824,591 square feet Assessor Parcel No.: 16-23-101-004 Floodplain: Community Panel No. 49990106-0001D (September 30, 1994) Flood Zone X, an area outside the floodplain. Zoning: RMF-35 (Medium to High Density Multi-Family Development) BUILDING: No. of Units: 450 Units Total NRA: 415,254 Square Feet Average Unit Size: 923 Square Feet Apartment Density: 23.8 units per acre Year Built: 1973 UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
MARKET RENT ------------------ UNIT TYPE NUMBER OF UNITS SQUARE FEET PER UNIT PER SF MONTHLY INCOME ANNUAL INCOME - -------------- --------------- ----------- -------- ------ -------------- ------------- 1Br/1Ba - A1 73 695 $ 550 $ 0.79 $ 40,150 $ 481,800 2Br/1Ba - A2 143 775 $ 600 $ 0.77 $ 85,800 $ 1,029,600 2Br/1Ba - A3 84 991 $ 705 $ 0.71 $ 59,220 $ 710,640 2Br/1.5Ba - A4 68 1,150 $ 725 $ 0.63 $ 49,300 $ 591,600 2Br/2Ba - A5 82 1,125 $ 710 $ 0.63 $ 58,220 $ 698,640 ------------------------------- Totals $ 292,690 $ 3,512,280 ===============================
OCCUPANCY: 82% ECONOMIC LIFE: 45 Years AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 FOOTHILL PLACE, SALT LAKE CITY, UTAH EFFECTIVE AGE: 18 Years REMAINING ECONOMIC LIFE: 27 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] PARKING AREA EXTERIOR - REAR VIEW AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 FOOTHILL PLACE, SALT LAKE CITY, UTAH 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 FOOTHILL PLACE, SALT LAKE CITY, UTAH PART TWO - ECONOMIC INDICATORS
Amount $/Unit ------------------ -------------- INCOME CAPITALIZATION APPROACH DIRECT CAPITALIZATION Potential Rental Income $3,512,280 $7,805 Effective Gross Income $3,428,306 $7,618 Operating Expenses $1,306,599 $2,904 38.1% of EGI Net Operating Income: $1,964,207 $4,365 Capitalization Rate 9.00% DIRECT CAPITALIZATION VALUE $21,300,000 * $47,333 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 16% Stabilized Vacancy & Collection Loss: 12% Lease-up / Stabilization Period 12 months Terminal Capitalization Rate 9.75% Discount Rate 11.50% Selling Costs 2.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $21,800,000 * $48,444 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $21,500,000 $47,778 / UNIT SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $47,533 to $77,703 Range of Sales $/Unit (Adjusted) $45,156 to $47,783 VALUE INDICATION - PRICE PER UNIT $20,600,000 * $45,778 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 6.36 to 8.13 Selected EGIM for Subject 6.50 Subject's Projected EGI $3,428,306 EGIM ANALYSIS CONCLUSION $21,700,000 * $48,222 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $21,000,000 * $46,667 / UNIT RECONCILED SALES COMPARISON VALUE $21,000,000 $46,667 / 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 FOOTHILL PLACE, SALT LAKE CITY, UTAH PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $20,600,000 NOI Per Unit $21,000,000 EGIM Multiplier $21,700,000 INDICATED VALUE BY SALES COMPARISON $21,000,000 $46,667 / UNIT INCOME APPROACH: Direct Capitalization Method: $21,300,000 Discounted Cash Flow Method: $21,800,000 INDICATED VALUE BY THE INCOME APPROACH $21,500,000 $47,778 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $21,500,000 $47,778 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 FOOTHILL PLACE, SALT LAKE CITY, UTAH INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 2260 South Foothill Drive, Salt Lake City, Salt Lake County, Utah. Salt Lake City identifies it as 16-23-101-004. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Jude T. Flynn, MAI, SRA on May 2, 2003. Jude T. Flynn, MAI, SRA performed the research, valuation analysis and wrote the report. Jude T. Flynn, MAI, SRA 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 2, 2003. The date of the report is July 10, 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 FOOTHILL PLACE, SALT LAKE CITY, UTAH "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 CCP - 4. 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 FOOTHILL PLACE, SALT LAKE CITY, UTAH 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 Salt Lake City, Utah. Overall, the neighborhood is characterized as a suburban setting with the predominant land use being various. The subject's neighborhood is generally defined by the following boundaries. NEIGHBORHOOD BOUNDARIES East - Wasatch Mountains West - Route 181 South - Interstate 80 North - East 2100 Street MAJOR EMPLOYERS Major employers in the subject's area include the State of Utah, Intermountain Health Care, University of Utah, Brigham Young University, Hill Air Force Base, Wal-Mart Stores, Convergys, Utah State University, Smith's Food King, U.S. Postal Service and Novus (Discover Card). 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 FOOTHILL PLACE, SALT LAKE CITY, UTAH NEIGHBORHOOD DEMOGRAPHICS
AREA -------------------------------------------- CATEGORY 1-Mi. RADIUS 3-Mi. RADIUS 5-Mi. RADIUS MSA - --------------------------- ------------ ------------ ------------ --------- POPULATION TRENDS Current Population 9,478 88,038 217,526 1,380,958 5-Year Population 9,705 88,713 223,109 1,503,822 % Change CY-5Y 2.4% 0.8% 2.6% 8.9% Annual Change CY-5Y 0.5% 0.2% 0.5% 1.8% HOUSEHOLDS Current Households 3,661 34,432 88,976 447,829 5-Year Projected Households 3,735 34,967 91,436 488,239 % Change CY - 5Y 2.0% 1.6% 2.8% 9.0% Annual Change CY-5Y 0.4% 0.3% 0.6% 1.8% INCOME TRENDS Median Household Income $ 68,321 $ 58,590 $ 39,499 $ 55,128 Per Capita Income $ 34,265 $ 27,992 $ 24,951 $ 20,663 Average Household Income $ 87,195 $ 71,672 $ 61,023 $ 63,717
Source: Demographics Now The subject neighborhood's population is expected to show increases below 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 28.87% 28.19% 40.49% 26.58% 5-Year Projected % Renting 27.82% 27.35% 38.87% 25.40% % of Households Owning 66.22% 66.91% 51.60% 68.01% 5-Year Projected % Owning 67.30% 67.80% 53.40% 69.56%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 FOOTHILL PLACE, SALT LAKE CITY, UTAH SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Residential South - Commercial East - Commercial West - Commercial CONCLUSIONS The subject is well located within the city of Salt Lake City. 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 FOOTHILL PLACE, SALT LAKE CITY, UTAH MARKET ANALYSIS The subject property is located in the city of Salt Lake City in Salt Lake County. The overall pace of development in the subject's market is more or less stable. Overall, new development of apartment units subsided after the 2002 Winter Olympics. There are an estimated 106,000 apartment units total. There is currently 765 units scheduled to be completed by September, 2003. The bulk of new construction is on the West side of the city. The following table illustrates historical vacancy rates for the subject's market. HISTORICAL VACANCY RATE
Period Region Submarket - ------ ------ --------- 1993 2.8% N/A 1994 3.1% N/A 1995 3.5% N/A 1996 4.3% N/A 1997 5.3% 4.8% 1998 6.8% 6.6% 1999 7.7% 8.2% 2000 6.3% 5.9% 2001 7.1% 7.1% 2002 10.9% 10.3%
Source: Equimark Properties - January 2003 Market Surve Occupancy trends in the subject's market are decreasing. Historically speaking, the subject's submarket has equated the overall market. Market rents in the subject's market have been following a decreasing trend. The following table illustrates historical rental rates for the subject's market. HISTORICAL AVERAGE RENT
Period Region % Change Submarket % Change - ------ ------ -------- --------- -------- 4Q01 $ 649 - $ 613 - 2Q02 $ 649 0.0% $ 605 -1.3% 4Q02 $ 649 0.0% $ 599 -1.0%
Source: Equimark Properties - January 2003 Market Survey The following table illustrates a summary of the subject's competitive set. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 FOOTHILL PLACE, SALT LAKE CITY, UTAH COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject - ------- ------------------- ----- ----- ----------- ------------------------- R-1 The Palladio 245 97% 1996 & 1997 4-mile from the subject R-2 The Covey 75 96% 1909 4-mile from the subject R-3 Santa Fe 492 93% 15 6-mile from the subject R-4 Irving School House 232 93% 100 1.5-mile from the subject R-5 Pinnacle Highland 522 90% 8 2-mile from the subject Subject Foothill Place 450 82% 1973
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 FOOTHILL PLACE, SALT LAKE CITY, UTAH PROPERTY DESCRIPTION SITE ANALYSIS Site Area 18.93 acres, or 824,591 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 49990106-0001D, dated September 30, 1994 Flood Zone Zone X Zoning RMF-35, 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 - ------------- ----------- ------------ ------------ --------- --------- 16-23-101-004 $4,617,700 $16,483,600 $21,101,300 0.01483 $303,093 (2001)
IMPROVEMENT ANALYSIS Year Built 1973 Number of Units 450 Net Rentable Area 415,254 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, volleyball court, sand volleyball, gym room, laundry room, and parking area. Unit Amenities Individual unit amenities include a garage, 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 FOOTHILL PLACE, SALT LAKE CITY, UTAH Unit Mix:
Number of Unit Area Unit Type Units (Sq. Ft.) - -------------- --------- --------- 1Br/1Ba - A1 73 695 2Br/1Ba - A2 143 775 2Br/1Ba - A3 84 991 2Br/1.5Ba - A4 68 1,150 2Br/2Ba - A5 82 1,125
Overall Condition Average 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 1973 and consist of a 450-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 FOOTHILL PLACE, SALT LAKE CITY, UTAH 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 FOOTHILL PLACE, SALT LAKE CITY, UTAH 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 FOOTHILL PLACE, SALT LAKE CITY, UTAH 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 FOOTHILL PLACE, SALT LAKE CITY, UTAH SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - ----------------------------------------------------------------------------------------------------------------------------- Property Name Foothill Place Brighton Place Mountain Shadows LOCATION: Address 2260 South Foothill Drive 6900 South 135 West 3825 South 700 West City, State Salt Lake City, Utah Midlvale, Utah Salt Lake City, Utah County Salt Lake County Salt Lake County Salt Lake County PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 415,254 305,232 213,930 Year Built 1973 1982 1985 Number of Units 450 336 262 Unit Mix: Type Total Type Total Type Total 1Br/1Ba - A1 73 1BR/1BA 132 1BR/1BA 80 2Br/1Ba - A2 143 2BR/1BA 156 2BR/1BA 132 2Br/1Ba - A3 84 3BR/2BA 48 3BR/2BA 50 2Br/1.5Ba - A4 68 2Br/2Ba - A5 82 Average Unit Size (SF) 923 908 817 Land Area (Acre) 18.9300 21.6600 12.3000 Density (Units/Acre) 23.8 15.5 21.3 Parking Ratio (Spaces/Unit) 2.00 1.49 1.50 Parking Type (Gr., Cov., etc.) Garage, Open Covered Covered, Open Covered, Open CONDITION: Average Average Average APPEAL: Average Average Average AMENITIES: Pool/Spa Yes/Yes Yes/No Yes/No Gym Room Yes Yes Yes Laundry Room Yes No No Secured Parking No No No Sport Courts No Yes Yes OCCUPANCY: 82% 90% 92% TRANSACTION DATA: Sale Date April, 2001 July, 2001 Sale Price ($) $16,900,000 $12,500,000 Grantor Archstone C.A. Archstone C.A. Grantee Wasatach Management CDS Investments SLC Sale Documentation N/A N/A Verification David Anderson, App. David Anderson, App. Telephone Number 801-281-4600 801-281-4600 ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF - --------------------------------------------------------------------------------------------------------------------------- Potential Gross Income $2,805,545 $8,350 $9.19 $2,108,876 $8,049 $9.86 Vacancy/Credit Loss $ 202,781 $ 604 $0.66 $ 142,380 $ 543 $0.67 -------------------------------------------------------- Effective Gross Income $2,602,764 $7,746 $8.53 $1,966,496 $7,506 $9.19 Operating Expenses $1,076,004 $3,202 $3.53 $ 824,951 $3,149 $3.86 -------------------------------------------------------- Net Operating Income $1,526,760 $4,544 $5.00 $1,141,545 $4,357 $5.34 - --------------------------------------------------------------------------------------------------------------------------- NOTES: PRICE PER UNIT $50,298 $47,710 PRICE PER SQUARE FOOT $ 55.37 $ 58.43 EXPENSE RATIO 41.3% 42.0% EGIM 6.49 6.36 OVERALL CAP RATE 9.03% 9.13% Cap Rate based on Pro Forma or Actual Income? COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 - ----------------------------------------------------------------------------------------------------------------------------- Property Name Riverbend Raintree Apartments Alpine Meadows LOCATION: Address 845 West River Hollow Road 870 North 900 West 845 East 9000 South City, State Salt Lake City, Utah Salt Lake City, Utah Sandy, Utah County Salt Lake County Salt Lake County Salt Lake County PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 143,000 110,740 205,638 Year Built 1985 1984 1996 Number of Units 156 152 222 Unit Mix: Type Total Type Total Type Total 1BR/1BA 156 1BR/1BA 152 1BR/1BA 112 2BR/1BA 44 2BR/1BA 44 2BR/1BA 32 2BR/2BA 56 3BR/2 BA 22 Average Unit Size (SF) 917 729 926 Land Area (Acre) 8.4300 7.6200 14.4900 Density (Units/Acre) 18.5 19.9 15.3 Parking Ratio (Spaces/Unit) 1.50 1.50 1.50 Parking Type (Gr., Cov., etc.) Covered, Open Covered, Open Garage, Open CONDITION: Average Average Excellent APPEAL: Average Average Excellent AMENITIES: Pool/Spa Yes/No Yes/No Yes/No Gym Room Yes Yes Yes Laundry Room No No No Secured Parking No No Yes Sport Courts Yes Yes Yes OCCUPANCY: 87% 89% 93% TRANSACTION DATA: Sale Date December, 2001 December, 2001 April, 2002 Sale Price ($) $9,800,000 $7,225,000 $17,250,000 Grantor Archstone Smith Operating Archstone Smith Operating Aquiport Alpine Meadows, Inc. Trust Trust Grantee Revierbend Matrix LLC Raintree Infinity LLC SSR Realty Advisors Sale Documentation N/A N/A N/A Verification David Anderson, App. David Anderson, App. David Anderson, App. Telephone Number 801-281-4600 801-281-4600 801-281-4600 ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF - ----------------------------------------------------------------------------------------------------------------------------- Potential Gross Income $ 0 $ 0 $0.00 $ 0 $ 0 $0.00 $2,122,787 $9,562 $10.32 Vacancy/Credit Loss $ 0 $ 0 $0.00 $ 0 $ 0 $0.00 $ 0 $ 0 $ 0.00 ------------------------------------------------------------------------------------------ Effective Gross Income $ 0 $ 0 $0.00 $ 0 $ 0 $0.00 $2,122,787 $9,562 $10.32 Operating Expenses $ 0 $ 0 $0.00 $ 0 $ 0 $0.00 $ 756,720 $3,409 $ 3.68 ------------------------------------------------------------------------------------------ Net Operating Income $891,800 $5,717 $6.24 $625,000 $4,112 $5.64 $1,366,067 $6,153 $ 6.64 - ----------------------------------------------------------------------------------------------------------------------------- NOTES: PRICE PER UNIT $62,821 $47,533 $77,703 PRICE PER SQUARE FOOT $68.53 $65.24 $83.89 EXPENSE RATIO N/A N/A 35.6% EGIM N/A N/A 8.13 OVERALL CAP RATE 9.10% 8.65% 7.92% Cap Rate based on Pro Forma or Actual Income?
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 FOOTHILL PLACE, SALT LAKE CITY, UTAH IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $47,533 to $77,703 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 $45,156 to $47,783 per unit with a mean or average adjusted price of $46,400 per unit. The median adjusted price is $46,622 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 $20,600,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 FOOTHILL PLACE, SALT LAKE CITY, UTAH SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - ----------------------------------------------------------------------------------------------------------------------------- Property Name Foothill Place Brighton Place Mountain Shadows Address 2260 South Foothill Drive 6900 South 135 West 3825 South 700 West City Salt Lake City, Utah Midlvale, Utah Salt Lake City, Utah Sale Date April, 2001 July, 2001 Sale Price ($) $16,900,000 $12,500,000 Net Rentable Area (SF) 415,254 305,232 213,930 Number of Units 450 336 262 Price Per Unit $50,298 $47,710 Year Built 1973 1982 1985 Land Area (Acre) 18.9300 21.6600 12.3000 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 04-2001 0% July, 2001 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $50,298 $47,710 Location Comparable 0% Comparable 0% Number of Units 450 336 0% 262 0% Quality / Appeal Average Comparable 0% Comparable 0% Age / Condition 1973 1982 / Average 0% 1985 / Average 0% Occupancy at Sale 82% 90% -5% 92% -5% Amenities Good Comparable 0% Comparable 0% Average Unit Size (SF) 923 908 0% 817 0% PHYSICAL ADJUSTMENT -5% -5% FINAL ADJUSTED VALUE ($/UNIT) $47,783 $45,324 COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 - ----------------------------------------------------------------------------------------------------------------------------- Property Name Riverbend Raintree Apartments Alpine Meadows Address 845 West River Hollow Road 870 North 900 West 845 East 9000 South City Salt Lake City, Utah Salt Lake City, Utah Sandy, Utah Sale Date December, 2001 December, 2001 April, 2002 Sale Price ($) $9,800,000 $7,225,000 $17,250,000 Net Rentable Area (SF) 143,000 110,740 205,638 Number of Units 156 152 222 Price Per Unit $62,821 $47,533 $77,703 Year Built 1985 1984 1996 Land Area (Acre) 8.4300 7.6200 14.4900 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) 12-2001 0% 12-2001 0% 04-2002 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $62,821 $47,533 $77,703 Location Comparable 0% Comparable 0% Comparable 0% Number of Units 156 -5% 152 -5% 222 5% Quality / Appeal Superior -20% Comparable 0% Superior -10% Age / Condition 1985 / Average 0% 1984 / Average 0% 1996 / Excellent -20% Occupancy at Sale 87% 0% 89% 0% 93% -5% Amenities Comparable 0% Comparable 0% Superior -10% Average Unit Size (SF) 917 0% 729 0% 926 0% PHYSICAL ADJUSTMENT -25% -5% -40% FINAL ADJUSTED VALUE ($/UNIT) $47,115 $45,156 $46,622
SUMMARY VALUE RANGE (PER UNIT) $45,156 TO $47,783 MEAN (PER UNIT) $46,400 MEDIAN (PER UNIT) $46,622 VALUE CONCLUSION (PER UNIT) $47,000
VALUE OF IMPROVEMENT & MAIN SITE $21,150,000 LESS: LEASE-UP COST -$ 175,000 PV OF CONCESSIONS -$ 391,000 VALUE INDICATED BY SALES COMPARISON APPROACH $20,584,000 ROUNDED $20,600,000
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 FOOTHILL PLACE, SALT LAKE CITY, UTAH 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-1 336 $16,900,000 9.03% $1,526,760 $1,964,207 0.961 $48,316 $ 50,298 $ 4,544 $ 4,365 I-2 262 $12,500,000 9.13% $1,141,545 $1,964,207 1.002 $47,796 $ 47,710 $ 4,357 $ 4,365 I-3 156 $ 9,800,000 9.10% $ 891,800 $1,964,207 0.764 $47,966 $ 62,821 $ 5,717 $ 4,365 I-4 152 $ 7,225,000 8.65% $ 625,000 $1,964,207 1.062 $50,458 $ 47,533 $ 4,112 $ 4,365 I-5 222 $17,250,000 7.92% $1,366,067 $1,964,207 0.709 $55,118 $ 77,703 $ 6,153 $ 4,365
PRICE/UNIT
Low High Average Median $47,796 $55,118 $49,931 $48,316
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT Estimated Price Per Unit $ 48,000 Number of Units 450 Value $21,600,000 Less: Lease-Up Cost -$ 175,000 PV of Concessions -$ 391,000 ------------ Value Based on NOI Analysis $21,034,000 Rounded $21,000,000
The adjusted sales indicate a range of value between $47,796 and $55,118 per unit, with an average of $49,931 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 $21,000,000 (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 FOOTHILL PLACE, SALT LAKE CITY, UTAH 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-1 336 $16,900,000 $ 2,602,764 $1,076,004 41.34% 6.49 $ 50,298 I-2 262 $12,500,000 $ 1,966,496 $ 824,951 41.95% 6.36 $ 47,710 I-3 156 $ 9,800,000 38.11% $ 62,821 I-4 152 $ 7,225,000 $ 47,533 I-5 222 $17,250,000 $ 2,122,787 $ 756,720 35.65% 8.13 $ 77,703
EGIM
Low High Average Median - ---- ---- ------- ------ 6.36 8.13 6.99 6.49
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES Estimate EGIM 6.50 Subject EGI $ 3,428,306 Value $22,283,992 Less: Lease-Up Cost -$ 175,000 PV of Concessions -$ 391,000 ------------ Value Based on EGIM Analysis $21,717,992 Rounded $21,700,000 Value Per Unit $ 48,222
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 38.11% before reserves. The comparable sales indicate a range of expense ratios from 35.65% to 41.95%, while their EGIMs range from 6.36 to 8.13. Overall, we conclude to an EGIM of 6.50, which results in an "as is" value estimate in the EGIM Analysis of $21,700,000. SALES COMPARISON CONCLUSION The three valuation methods in the Sales Comparison Approach are shown below. The overall value via the Sales Comparison Approach is estimated at $21,000,000. Price Per Unit $20,600,000 NOI Per Unit $21,000,000 EGIM Analysis $21,700,000 Sales Comparison Conclusion $21,000,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 FOOTHILL PLACE, SALT LAKE CITY, UTAH 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 FOOTHILL PLACE, SALT LAKE CITY, UTAH method is normally more appropriate for properties with relatively stable operating histories and expectations. A pro forma analysis for the first year of the investment is made to estimate a reasonable potential net operating income for the Subject Property. Such an analysis entails an estimate of the gross income the property should command in the marketplace. From this total gross income must be deducted an allowance for vacancy/collection loss and operating expenses as dictated by general market conditions and the overall character of the subject's tenancy and leased income to arrive at a projected estimate of net operating income. Conversion of the net operating income to an indication of value is accomplished by the process of capitalization, as derived primarily from market data. MARKET RENT ANALYSIS In order to determine a market rental rate for the subject, a survey of competing apartment communities was performed. This survey was displayed previously in the market analysis section of the report. Detailed information pertaining to each of the comparable rental communities, along with photographs, is presented in the Addenda of this report. The following charts display the subject's current asking and actual rent rates as well as a comparison with the previous referenced comparable rental properties. SUMMARY OF ACTUAL AVERAGE RENTS
Average Unit Area ----------------------- Unit Type (Sq. Ft.) Per Unit Per SF %Occupied - ----------------------------------------------------------------- 1Br/1Ba - A1 695 $ 525 $ 0.76 86.3% 2Br/1Ba - A2 775 $ 546 $ 0.70 74.8% 2Br/1Ba - A3 991 $ 636 $ 0.64 82.1% 2Br/1.5Ba - A4 1150 $ 692 $ 0.60 88.2% 2Br/2Ba - A5 1125 $ 709 $ 0.63 87.8%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 FOOTHILL PLACE, SALT LAKE CITY, UTAH RENT ANALYSIS
COMPARABLE RENTS ------------------------------------------------------- R-1 R-2 R-3 R-4 R-5 ------------------------------------------------------- Irving The School Pinnacle Palladio The Covey Santa Fe House Highland ------------------------------------------------------- COMPARISON TO SUBJECT SUBJECT SUBJECT ------------------------------------------------------- SUBJECT UNIT ACTUAL ASKING Slightly Slightly Slightly DESCRIPTION TYPE RENT RENT Superior Inferior Superior Superior Superior - ------------------------------------------------------------------------------------------------------------------------- Monthly Rent 1Br/1Ba - A1 $ 525 $ 560 $ 750 $ 470 $ 598 $ 699 $ 753 Unit Area (SF) 695 695 730 409 700 709 745 Monthly Rent Per Sq. Ft. $ 0.76 $ 0.81 $ 1.03 $1.15 $ 0.85 $ 0.99 $ 1.01 Monthly Rent 2Br/1Ba - A2 $ 546 $ 625 $ 685 $ 836 Unit Area (SF) 775 775 900 820 Monthly Rent Per Sq. Ft. $ 0.70 $ 0.81 $ 0.76 $ 1.02 Monthly Rent 2Br/1Ba - A3 $ 636 $ 725 $ 950 $ 705 $ 959 $ 825 Unit Area (SF) 991 991 1,038 900 1,014 1,075 Monthly Rent Per Sq. Ft. $ 0.64 $ 0.73 $ 0.92 $ 0.78 $ 0.95 $ 0.77 Monthly Rent 2Br/1.5Ba - A4 $ 692 $ 750 $1,095 Unit Area (SF) 1,150 1,150 1,124 Monthly Rent Per Sq. Ft. $ 0.60 $ 0.65 $ 0.97 Monthly Rent 2Br/2Ba - A5 $ 709 $ 725 $1,069 $1,200 Unit Area (SF) 1,125 1,125 1,156 1,318 Monthly Rent Per Sq. Ft. $ 0.63 $ 0.64 $ 0.92 $0.91 DESCRIPTION MIN MAX MEDIAN AVERAGE - ---------------------------------------------------------------- Monthly Rent $ 470 $ 753 $ 699 $ 654 Unit Area (SF) 409 745 709 658 Monthly Rent Per Sq. Ft. $ 0.85 $ 1.15 $ 1.01 $ 1.01 Monthly Rent $ 685 $ 836 $ 760 $ 760 Unit Area (SF) 820 900 860 860 Monthly Rent Per Sq. Ft. $ 0.76 $ 1.02 $ 0.89 $ 0.89 Monthly Rent $ 705 $ 959 $ 888 $ 860 Unit Area (SF) 900 1,075 1,026 1,007 Monthly Rent Per Sq. Ft. $ 0.77 $ 0.95 $ 0.85 $ 0.85 Monthly Rent $1,095 $1,095 $1,095 $1,095 Unit Area (SF) 1,124 1,124 1,124 1,124 Monthly Rent Per Sq. Ft. $ 0.97 $ 0.97 $ 0.97 $ 0.97 Monthly Rent $1,069 $1,200 $1,135 $1,135 Unit Area (SF) 1,156 1,318 1,237 1,237 Monthly Rent Per Sq. Ft. $ 0.91 $ 0.92 $ 0.92 $ 0.92
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 Number of Unit Area ---------------------- Monthly Annual Unit Type Units (Sq. Ft.) Per Unit Per SF Income Income - ---------------------------------------------------------------------------------------------------------------- 1Br/1Ba - A1 73 695 $550 $0.79 $ 40,150 $ 481,800 2Br/1Ba - A2 143 775 $600 $0.77 $ 85,800 $1,029,600 2Br/1Ba - A3 84 991 $705 $0.71 $ 59,220 $ 710,640 2Br/1.5Ba - A4 68 1,150 $725 $0.63 $ 49,300 $ 591,600 2Br/2Ba - A5 82 1,125 $710 $0.63 $ 58,220 $ 698,640 ------------------------ Total $292,690 $3,512,280 ========================
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 FOOTHILL PLACE, SALT LAKE CITY, UTAH 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 $3,625,779 $ 8,057 $3,731,115 $ 8,291 $3,780,121 $ 8,400 $3,723,330 $ 8,274 Vacancy $ 140,898 $ 313 $ 170,497 $ 379 $ 462,280 $ 1,027 $ 440,780 $ 980 Credit Loss/Concessions $ 130,687 $ 290 $ 100,728 $ 224 $ 130,980 $ 291 $ 172,344 $ 383 ----------------------------------------------------------------------------------------------------- Subtotal $ 271,585 $ 604 $ 271,225 $ 603 $ 593,260 $ 1,318 $ 613,124 $ 1,362 Laundry Income $ 52,073 $ 116 $ 40,862 $ 91 $ 53,370 $ 119 $ 68,548 $ 152 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 137,862 $ 306 $ 227,672 $ 506 $ 295,658 $ 657 $ 257,764 $ 573 ----------------------------------------------------------------------------------------------------- Subtotal Other Income $ 189,935 $ 422 $ 268,534 $ 597 $ 349,028 $ 776 $ 326,312 $ 725 ----------------------------------------------------------------------------------------------------- Effective Gross Income $3,544,129 $ 7,876 $3,728,424 $ 8,285 $3,535,889 $ 7,858 $3,436,518 $ 7,637 Operating Expenses Taxes $ 191,081 $ 425 $ 161,543 $ 359 $ 176,457 $ 392 $ 261,529 $ 581 Insurance $ 42,061 $ 93 $ 59,197 $ 132 $ 62,922 $ 140 $ 69,947 $ 155 Utilities $ 202,498 $ 450 $ 265,580 $ 590 $ 263,695 $ 586 $ 244,800 $ 544 Repair & Maintenance $ 72,268 $ 161 $ 89,262 $ 198 $ 61,749 $ 137 $ 122,850 $ 273 Cleaning $ 85,288 $ 190 $ 79,138 $ 176 $ 96,992 $ 216 $ 85,600 $ 190 Landscaping $ 20,908 $ 46 $ 27,690 $ 62 $ 27,345 $ 61 $ 0 $ 0 Security $ 24,757 $ 55 $ 21,633 $ 48 $ 10,517 $ 23 $ 0 $ 0 Marketing & Leasing $ 92,813 $ 206 $ 61,105 $ 136 $ 52,100 $ 116 $ 51,900 $ 115 General Administrative $ 371,096 $ 825 $ 469,465 $ 1,043 $ 350,529 $ 779 $ 373,731 $ 831 Management $ 181,405 $ 403 $ 197,955 $ 440 $ 178,585 $ 397 $ 188,106 $ 418 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ----------------------------------------------------------------------------------------------------- Total Operating Expenses $1,284,175 $ 2,854 $1,432,568 $ 3,183 $1,280,891 $ 2,846 $1,398,463 $ 3,108 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ----------------------------------------------------------------------------------------------------- Net Income $2,259,954 $ 5,022 $2,295,856 $ 5,102 $2,254,998 $ 5,011 $2,038,055 $ 4,529 ANNUALIZED 2003 ----------------------- PROJECTION AAA PROJECTION ------------------------------------------------------------ DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT % - --------------------------------------------------------------------------------------- Revenues Rental Income $3,633,708 $ 8,075 $3,512,280 $ 7,805 100.0% Vacancy $ 599,304 $ 1,332 $ 245,860 $ 546 7.0% Credit Loss/Concessions $ 122,556 $ 272 $ 175,614 $ 390 5.0% ----------------------------------------------------------- Subtotal $ 721,860 $ 1,604 $ 421,474 $ 937 12.0% Laundry Income $ 49,464 $ 110 $ 67,500 $ 150 1.9% Garage Revenue $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 257,004 $ 571 $ 270,000 $ 600 7.7% ----------------------------------------------------------- Subtotal Other Income $ 306,468 $ 681 $ 337,500 $ 750 9.6% ----------------------------------------------------------- Effective Gross Income $3,218,316 $ 7,152 $3,428,306 $ 7,618 100.0% Operating Expenses Taxes $ 254,716 $ 566 $ 258,750 $ 575 7.5% Insurance $ 68,320 $ 152 $ 67,500 $ 150 2.0% Utilities $ 257,536 $ 572 $ 247,500 $ 550 7.2% Repair & Maintenance $ 47,512 $ 106 $ 90,000 $ 200 2.6% Cleaning $ 109,372 $ 243 $ 90,000 $ 200 2.6% Landscaping $ 5,800 $ 13 $ 0 $ 0 0.0% Security $ 0 $ 0 $ 0 $ 0 0.0% Marketing & Leasing $ 62,692 $ 139 $ 67,500 $ 150 2.0% General Administrative $ 398,796 $ 886 $ 382,500 $ 850 11.2% Management $ 168,848 $ 375 $ 102,849 $ 229 3.0% Miscellaneous $ 0 $ 0 $ 0 $ 0 0.0% ----------------------------------------------------------- Total Operating Expenses $1,373,592 $ 3,052 $1,306,599 $ 2,904 38.1% Reserves $ 0 $ 0 $ 157,500 $ 350 12.1% ----------------------------------------------------------- Net Income $1,844,724 $ 4,099 $1,964,207 $ 4,365 57.3%
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 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 FOOTHILL PLACE, SALT LAKE CITY, UTAH 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 no major items remaining in need of repair or replacement that would require an expense beyond our reserves for replacement. Therefore an allowance of $350 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 FOOTHILL PLACE, SALT LAKE CITY, UTAH SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR - -------------------------------------------------------------------------------- I-1 Apr-01 90% $50,298 9.03% I-2 July, 2001 92% $47,710 9.13% I-3 Dec-01 87% $62,821 9.10% I-4 Dec-01 89% $47,533 8.65% I-5 Apr-02 93% $77,703 7.92% ---------------------- High 9.13% ---------------------- Low 7.92% ---------------------- Average 8.77%
Based on this information, we have concluded the subject's overall capitalization rate should be 9.00%. The terminal capitalization rate is applied to the net operating income estimated for the year following the end of the holding period. Based on the concluded overall capitalization rate, the age of the property and the surveyed information, we have concluded the subject's terminal capitalization rate to be 9.75%. Finally, the subject's discount rate or yield rate is estimated based on the previous investor survey and an examination of returns available on alternative investments in the market. Based on this analysis, the subject's discount rate is estimated to be 11.50%. HOLDING PERIOD The survey of investors indicates that most investors are completing either 10-year cash flows or extending the analysis to the end of the lease if it is more than 10-years. A 10-year period has been used in the analysis of the subject with the eleventh year stabilized NOI used to determine the reversion. SELLING COSTS Sales of similar size properties are typically accomplished with the aid of a broker and will also incur legal and other transaction related cost. Based on our survey of brokers and a review of institutional investor projections, an allowance of 2.00% of the sale amount is applied. DISCOUNTED CASH FLOW CONCLUSION Discounting the annual cash flows and the equity reversion at the selected rate of 11.50% indicates a value of $21,800,000. In this instance, the reversion figure contributes AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32 FOOTHILL PLACE, SALT LAKE CITY, UTAH 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 CAPITALIZATION APPROACH PAGE 33 FOOTHILL PLACE, SALT LAKE CITY, UTAH DISCOUNTED CASH FLOW ANALYSIS FOOTHILL PLACE
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 FISCAL YEAR 1 2 3 4 5 6 - ----------------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $3,512,280 $3,617,648 $3,726,178 $3,837,963 $3,953,102 $4,071,695 Vacancy $ 447,104 $ 253,235 $ 260,832 $ 268,657 $ 276,717 $ 285,019 Credit Loss $ 175,614 $ 180,882 $ 186,309 $ 191,898 $ 197,655 $ 203,585 Concessions $ 245,860 $ 144,706 $ 74,524 $ 0 $ 0 $ 0 -------------------------------------------------------------------------------- Subtotal $ 868,578 $ 578,824 $ 521,665 $ 460,556 $ 474,372 $ 488,603 Laundry Income $ 67,500 $ 69,525 $ 71,611 $ 73,759 $ 75,972 $ 78,251 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 270,000 $ 278,100 $ 286,443 $ 295,036 $ 303,887 $ 313,004 -------------------------------------------------------------------------------- Subtotal Other Income $ 337,500 $ 347,625 $ 358,054 $ 368,795 $ 379,859 $ 391,255 -------------------------------------------------------------------------------- EFFECTIVE GROSS INCOME $2,981,202 $3,386,450 $3,562,567 $3,746,203 $3,858,589 $3,974,347 OPERATING EXPENSES: Taxes $ 258,750 $ 266,513 $ 274,508 $ 282,743 $ 291,225 $ 299,962 Insurance $ 67,500 $ 69,525 $ 71,611 $ 73,759 $ 75,972 $ 78,251 Utilities $ 247,500 $ 254,925 $ 262,573 $ 270,450 $ 278,563 $ 286,920 Repair & Maintenance $ 90,000 $ 92,700 $ 95,481 $ 98,345 $ 101,296 $ 104,335 Cleaning $ 90,000 $ 92,700 $ 95,481 $ 98,345 $ 101,296 $ 104,335 Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 67,500 $ 69,525 $ 71,611 $ 73,759 $ 75,972 $ 78,251 General Administrative $ 382,500 $ 393,975 $ 405,794 $ 417,968 $ 430,507 $ 443,422 Management $ 89,436 $ 101,593 $ 106,877 $ 112,386 $ 115,758 $ 119,230 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $1,293,186 $1,341,456 $1,383,935 $1,427,756 $1,470,589 $1,514,707 Reserves $ 157,500 $ 162,225 $ 167,092 $ 172,105 $ 177,268 $ 182,586 -------------------------------------------------------------------------------- NET OPERATING INCOME $1,530,516 $1,882,769 $2,011,540 $2,146,342 $2,210,733 $2,277,054 Operating Expense Ratio (% of EGI) 43.4% 39.6% 38.8% 38.1% 38.1% 38.1% Operating Expense Per Unit $ 2,874 $ 2,981 $ 3,075 $ 3,173 $ 3,268 $ 3,366 YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 7 8 9 10 11 - --------------------------------------------------------------------------------------------------------- REVENUE Base Rent $4,193,846 $4,319,661 $4,449,251 $4,582,729 $4,720,211 Vacancy $ 293,569 $ 302,376 $ 311,448 $ 320,791 $ 330,415 Credit Loss $ 209,692 $ 215,983 $ 222,463 $ 229,136 $ 236,011 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------ Subtotal $ 503,262 $ 518,359 $ 533,910 $ 549,927 $ 566,425 Laundry Income $ 80,599 $ 83,016 $ 85,507 $ 88,072 $ 90,714 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 322,394 $ 332,066 $ 342,028 $ 352,289 $ 362,857 ------------------------------------------------------------------ Subtotal Other Income $ 402,993 $ 415,082 $ 427,535 $ 440,361 $ 453,572 ------------------------------------------------------------------ EFFECTIVE GROSS INCOME $4,093,577 $4,216,384 $4,342,876 $4,473,162 $4,607,357 OPERATING EXPENSES: Taxes $ 308,961 $ 318,230 $ 327,777 $ 337,610 $ 347,738 Insurance $ 80,599 $ 83,016 $ 85,507 $ 88,072 $ 90,714 Utilities $ 295,528 $ 304,394 $ 313,526 $ 322,931 $ 332,619 Repair & Maintenance $ 107,465 $ 110,689 $ 114,009 $ 117,430 $ 120,952 Cleaning $ 107,465 $ 110,689 $ 114,009 $ 117,430 $ 120,952 Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 Security $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 80,599 $ 83,016 $ 85,507 $ 88,072 $ 90,714 General Administrative $ 456,725 $ 470,427 $ 484,540 $ 499,076 $ 514,048 Management $ 122,807 $ 126,492 $ 130,286 $ 134,195 $ 138,221 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------ TOTAL OPERATING EXPENSES $1,560,148 $1,606,952 $1,655,161 $1,704,816 $1,755,960 Reserves $ 188,063 $ 193,705 $ 199,516 $ 205,502 $ 211,667 ------------------------------------------------------------------ NET OPERATING INCOME $2,345,366 $2,415,727 $2,488,199 $2,562,845 $2,639,730 Operating Expense Ratio (% of EGI) 38.1% 38.1% 38.1% 38.1% 38.1% Operating Expense Per Unit $ 3,467 $ 3,571 $ 3,678 $ 3,788 $ 3,902
Estimated Stabilized NOI $1,964,207 Sales Expense Rate 2.00% Months to Stabilized 12 Discount Rate 11.50% Stabilized Occupancy 93.0% Terminal Cap Rate 9.75%
Gross Residual Sale Price $27,074,156 Deferred Maintenance $ 0 Less: Sales Expense $ 541,483 Add: Excess Land $ 0 ----------- Other Adjustments $ 0 Net Residual Sale Price $26,532,673 ----------- PV of Reversion $ 8,933,720 Value Indicated By "DCF" $21,828,535 Add: NPV of NOI $12,894,815 Rounded $21,800,000 ----------- PV Total $21,828,535
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE ----------------------------------------------------------------------------------- TOTAL VALUE 11.00% 11.25% 11.50% 11.75% 12.00% - ------------------------------------------------------------------------------------------------------------------------ TERMINAL CAP RATE 9.25% $23,061,238 $22,682,214 $22,311,438 $21,948,704 $21,593,810 9.50% $22,802,041 $22,428,783 $22,063,633 $21,706,386 $21,356,847 9.75% $22,556,136 $22,188,348 $21,828,535 $21,476,495 $21,132,036 10.00% $22,322,526 $21,959,935 $21,605,192 $21,258,099 $20,918,466 10.25% $22,100,311 $21,742,664 $21,392,743 $21,050,356 $20,715,313
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 34 FOOTHILL PLACE, SALT LAKE CITY, UTAH INCOME LOSS DURING LEASE-UP The subject is currently 82% occupied, below our stabilized occupancy projection. We have estimated a 12-month lease-up period. An adjustment must be made to bring the subject to a stabilized operating level. To account for this income loss during lease-up, we have compared the current DCF analysis to an "as stabilized" DCF analysis assuming the subject's occupancy were stabilized. The difference in net operating income during the lease-up period is discounted to a present value figure of $175,000 as shown in the following table.
DESCRIPTION YEAR 1 - ------------------------------------------------------- "As Is" Net Operating Income $1,530,516 Stabilized Net Operating Income $1,725,723 ---------- Difference $ 195,208 PV of Income Loss During Lease-Up $ 175,074 ---------- Rounded $ 175,000 ----------
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 $391,000 (rounded). This amount has been deducted from the Direct Capitalization analysis, as well as the Sales Comparison Approach value. DIRECT CAPITALIZATION METHOD After having projected the income and expenses for the property, the next step in the valuation process is to capitalize the net income into an estimate of value. The selected overall capitalization rate ("OAR") covers both return on and return of capital. It is the overall rate of return an investor expects. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 35 FOOTHILL PLACE, SALT LAKE CITY, UTAH After considering the market transactions and the investor surveys, we previously conclude that an overall rate of 9.00% percent is applicable to the subject. The results of our direct capitalization analysis are as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 36 FOOTHILL PLACE, SALT LAKE CITY, UTAH FOOTHILL PLACE
TOTAL PER SQ. FT. PER UNIT %OF EGI - --------------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $ 3,512,280 $ 8.46 $ 7,805 Less: Vacancy & Collection Loss 12.00% $ 421,474 $ 1.01 $ 937 Plus: Other Income Laundry Income $ 67,500 $ 0.16 $ 150 1.97% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 270,000 $ 0.65 $ 600 7.88% ------------------------------------------------------------ Subtotal Other Income $ 337,500 $ 0.81 $ 750 9.84% EFFECTIVE GROSS INCOME $ 3,428,306 $ 8.26 $ 7,618 OPERATING EXPENSES: Taxes $ 258,750 $ 0.62 $ 575 7.55% Insurance $ 67,500 $ 0.16 $ 150 1.97% Utilities $ 247,500 $ 0.60 $ 550 7.22% Repair & Maintenance $ 90,000 $ 0.22 $ 200 2.63% Cleaning $ 90,000 $ 0.22 $ 200 2.63% Landscaping $ 0 $ 0.00 $ 0 0.00% Security $ 0 $ 0.00 $ 0 0.00% Marketing & Leasing $ 67,500 $ 0.16 $ 150 1.97% General Administrative $ 382,500 $ 0.92 $ 850 11.16% Management 3.00% $ 102,849 $ 0.25 $ 229 3.00% Miscellaneous $ 0 $ 0.00 $ 0 0.00% TOTAL OPERATING EXPENSES $ 1,306,599 $ 3.15 $ 2,904 38.11% Reserves $ 157,500 $ 0.38 $ 350 4.59% ------------------------------------------------------------ NET OPERATING INCOME $ 1,964,207 $ 4.73 $ 4,365 57.29% "GOING IN" CAPITALIZATION RATE 9.00% VALUE INDICATION $ 21,824,525 $ 52.56 $ 48,499 LESS: LEASE-UP COST ($ 175,000) PV OF CONCESSIONS ($ 391,000) "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $ 21,258,525 ROUNDED $ 21,300,000 $ 51.29 $ 47,333
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 37 FOOTHILL PLACE, SALT LAKE CITY, UTAH DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF - -------------------------------------------------------------------- 8.25% $23,242,572 $23,200,000 $ 51,556 $ 55.87 8.50% $22,542,320 $22,500,000 $ 50,000 $ 54.18 8.75% $21,882,082 $21,900,000 $ 48,667 $ 52.74 9.00% $21,258,525 $21,300,000 $ 47,333 $ 51.29 9.25% $20,668,673 $20,700,000 $ 46,000 $ 49.85 9.50% $20,109,865 $20,100,000 $ 44,667 $ 48.40 9.75% $19,579,715 $19,600,000 $ 43,556 $ 47.20
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $21,300,000. 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 $21,800,000 Direct Capitalization Method $21,300,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $21,500,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 38 FOOTHILL PLACE, SALT LAKE CITY, UTAH 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 $21,000,000 Income Approach $21,500,000 Reconciled Value $21,500,000
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 2, 2003 the market value of the fee simple estate in the property is: $21,500,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA FOOTHILL PLACE, SALT LAKE CITY, UTAH ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A FOOTHILL PLACE, SALT LAKE CITY, UTAH EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A FOOTHILL PLACE, SALT LAKE CITY, UTAH SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] PARKING AREA EXTERIOR - REAR VIEW [PICTURE] [PICTURE] TYPICAL EXTERIOR EXTERIOR - VIEW LOOKING WEST [PICTURE] [PICTURE] EXTERIOR - LOOKING SOUTHEAST ACROSS A PARKING LOT TYPICAL BATHROOM AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A FOOTHILL PLACE, SALT LAKE CITY, UTAH SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] INTERIOR - KITCHEN INTERIOR - TYPICAL LIVING ROOM AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B FOOTHILL PLACE, SALT LAKE CITY, UTAH EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B FOOTHILL PLACE, SALT LAKE CITY, UTAH PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 BRIGHTON PLACE MOUNTAIN SHADOWS RIVERBEND 6900 South 135 West 3825 South 700 West 845 West River Hollow Road Midlvale, Utah Salt Lake City, Utah Salt Lake City, Utah [PICTURE] [PICTURE] [PICTURE] COMPARABLE I-4 COMPARABLE I-5 RAINTREE APARTMENTS ALPINE MEADOWS 870 North 900 West 845 East 9000 South Salt Lake City, Utah Sandy, Utah [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B FOOTHILL PLACE, SALT LAKE CITY, UTAH SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 - ---------------------------------------------------------------------------------------------------------------------------------- Property Name Foothill Place The Palladio Management Company Aimco Wasatch Property Management LOCATION: Address 2260 South Foothill Drive 360 South 200 West City, State Salt Lake City, Utah Salt Lake City, Utah County Salt Lake County Salt Lake County Proximity to Subject 4-mile from the subject PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 415,254 112,000 Year Built 1973 1996 & 1997 Effective Age 18 5 Building Structure Type Wood Frame Class C Parking Type (Gr., Cov., etc.) Open , Covered Open , Covered Number of Units 450 245 Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo. 1 1Br/1Ba - A1 695 73 $525 1 1/Br/1Ba 730 152 $750 2 2Br/1Ba - A2 775 143 $546 3 2Br/2Ba 1,038 93 $950 3 2Br/1Ba - A3 991 84 $636 4 2Br/1.5Ba - A4 1,150 68 $692 5 2Br/2Ba - A5 1,125 82 $709 Average Unit Size (SF) 923 847 Unit Breakdown: Efficiency 2-Bedroom Efficiency 2-Bedroom 38% 1-Bedroom 3-Bedroom 1-Bedroom 62% 3-Bedroom CONDITION: Average Excellent APPEAL: Average Very Good AMENITIES: Unit Amenities X Attach. Garage Vaulted Ceiling Attach. Garage X Vaulted Ceiling X Balcony X Balcony X 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 X Volleyball Court Theater Room Volleyball Court Theater Room X Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall Tennis Court Secured Parking X Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball Laundry Room Jogging Track Business Office Jogging Track Business Office X Gym Room X Gym Room OCCUPANCY: 82% 97% LEASING DATA: Available Leasing Terms 12 mos 12 mos Concessions No No Pet Deposit No No Utilities Paid by Tenant: X Electric Natural Gas X Electric X Natural Gas X Water Trash X Water Trash Confirmation Inspection Emily Clark Telephone Number 801-320-4400 NOTES: COMPARISON TO SUBJECT: Superior COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 - ----------------------------------------------------------------------------------------------------------------------------------- Property Name The Covey Santa Fe Management Company Private Real Estate Management Associates LOCATION: Address 239 East South Temple 1550 East Fort Union Boulevard City, State Salt Lake City, Utah Salt Lake City, Utah County Salt Lake County Salt Lake County Proximity to Subject 4-mile from the subject 6-mile from the subject PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 430,000 Year Built 1909 15 Effective Age 20 10 Building Structure Type Class C Class C Parking Type (Gr., Cov., etc.) Open, Covered Open, Covered Number of Units 75 492 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1Br/1Ba 300 $425 1 1Br/1Ba 700 123 $595 1 1Br/1Ba 325 $440 1 1Br/1Ba 700 123 $600 1 1Br/1Ba 505 $505 2 2Br/1Ba 900 123 $685 1 1Br/1Ba 505 $510 3 2Br/2Ba 900 123 $705 Average Unit Size (SF) 800 Unit Breakdown: Efficiency 100% 2-Bedroom Efficiency 2-Bedroom 50% 1-Bedroom 3-Bedroom 1-Bedroom 50% 3-Bedroom CONDITION: Good Good APPEAL: Fair Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage X Vaulted Ceiling X Balcony X Balcony X Fireplace X Fireplace Cable TV Ready X Cable TV Ready Project Amenities Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash X Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment X Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball Meeting Hall X Sand Volley Ball Meeting Hall Tennis Court Secured Parking X Tennis Court Secured Parking Racquet Ball Laundry Room Racquet Ball Laundry Room Jogging Track Business Office Jogging Track Business Office X Gym Room X Gym Room OCCUPANCY: 96% 93% LEASING DATA: Available Leasing Terms 12 mos 12 mos Concessions No Yes - One month on 13 month lease Pet Deposit No No Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas Water Trash X Water Trash Confirmation Micahel Caraasco Josh Anderson Telephone Number 801-355-5021 877-457-8250 NOTES: COMPARISON TO SUBJECT: Slightly Inferior Slightly Superior COMPARABLE COMPARABLE DESCRIPTION R - 4 R - 5 - ----------------------------------------------------------------------------------------------------------------------------------- Property Name Irving School House Pinnacle Highland Management Company Metric Management Alliance Company LOCATION: Address 1155 East 2100 South 7673 South Highland Dr City, State Salt Lake City, Utah Salt Lake City, Utah County Salt Lake County Salt Lake County Proximity to Subject 1.5-mile from the subject 2-mile from the subject PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 215,000 560,000 Year Built 100 8 Effective Age 10 8 Building Structure Type Class C Class C Parking Type (Gr., Cov., etc.) Open, Covered Open, Covered Number of Units 232 522 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1Br/1Ba 709 96 $ 699 1 1Br/1Ba 718 120 $ 705 2 1Br/1Ba 789 48 $ 799 1 1Br/1Ba 771 120 $ 800 2 1Br/1Ba 883 24 $ 909 3 2Br/2Ba 1,075 110 $ 825 3 2Br/2Ba 1,014 48 $ 959 4 2Br/2Ba 1,124 110 $1,095 5 2Br/2Ba 1,156 16 $1,069 5 3Br/2Ba 1,318 62 $1,200 Average Unit Size (SF) 837 962 Unit Breakdown: Efficiency 2-Bedroom Efficiency 2-Bedroom 42% 1-Bedroom 3-Bedroom 1-Bedroom 46% 3-Bedroom 12% CONDITION: Very Good Very Good APPEAL: Very Good Very Good AMENITIES: Unit Amenities Attach. Garage X Vaulted Ceiling X Attach. Garage X Vaulted Ceiling X Balcony X 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 X Spa/Jacuzzi Car Wash X Basketball Court BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball X Meeting Hall Sand Volley Ball Meeting Hall Tennis Court Secured Parking Tennis Court Secured Parking X Racquet Ball X Laundry Room Racquet Ball Laundry Room Jogging Track Business Office Jogging Track Business Office X Gym Room X Gym Room OCCUPANCY: 93% 90% LEASING DATA: Available Leasing Terms 12 mos 12 mos Concessions Yes - 1 mo free rent Yes - 1 mo free rent Pet Deposit No No Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water X Trash X Water Trash Confirmation Michelle Riggs Andy Clark Telephone Number 801-493-2000 877-269-4692 NOTES: COMPARISON TO SUBJECT: Slightly Superior Superior
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B FOOTHILL PLACE, SALT LAKE CITY, UTAH PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 THE PALLADIO THE COVEY SANTA FE 360 South 200 West 239 East South Temple 1550 East Fort Union Boulevard Salt Lake City, Utah Salt Lake City, Utah Salt Lake City, Utah [PICTURE] [PICTURE] [PICTURE] COMPARABLE R-4 COMPARABLE R-5 IRVING SCHOOL HOUSE PINNACLE HIGHLAND 1155 East 2100 South 7673 South Highland Dr Salt Lake City, Utah Salt Lake City, Utah [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C FOOTHILL PLACE, SALT LAKE CITY, UTAH EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C FOOTHILL PLACE, SALT LAKE CITY, UTAH 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 FOOTHILL PLACE, SALT LAKE CITY, UTAH 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 FOOTHILL PLACE, SALT LAKE CITY, UTAH 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 FOOTHILL PLACE, SALT LAKE CITY, UTAH 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 inspected the subject property. No one 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- JUDE FLYNN ---------------------------- Jude Flynn, MAI, SRA Managing Principal, Real Estate Group Utah Temporary Practice Permit #CG021105 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E FOOTHILL PLACE, SALT LAKE CITY, UTAH EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E FOOTHILL PLACE, SALT LAKE CITY, UTAH JUDE T. FLYNN, MAI, SRA PRINCIPAL, REAL ESTATE ADVISORY GROUP POSITION Jude T. Flynn is a Principal for the Boston Real Estate Advisory Group of American Appraisal Associates, Inc. ("AAA"). EXPERIENCE Valuation Mr. Flynn has completed appraisals of commercial and residential real estate. He has also generated discounted cash flow and sensitivity analyses for investment-grade real estate, securitization, and pension funds/insurance industries. Analyses Mr. Flynn has performed involve various types of investment-grade real estate throughout the continental United States including apartments, cooperatives, hotels, industrial and research and development parks, office buildings, regional shopping centers, and undeveloped acreage. Additionally, Mr. Flynn has experience in valuation for acquisitions, ad valorem, arbitration, asset management, cost segregation, development, dispositions, due diligence, lease analysis, and portfolio analysis. Business Mr. Flynn first joined AAA in 1998 and was promoted to his current position in 2001. Prior to joining AAA, he was a manager at Deloitte & Touche, LLP, and an appraisal director at Marshall and Stevens, Inc. EDUCATION Saint Anselm College Bachelor of Arts - History AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E FOOTHILL PLACE, SALT LAKE CITY, UTAH STATE CERTIFICATIONS State of Maine, Certified General Real Property Appraiser, #CG953 Commonwealth of Massachusetts, Certified General Real Estate Appraiser, #926 State of Rhode Island, Certified General Real Estate Appraiser, #A00829G PROFESSIONAL Appraisal Institute, MAI Designated Member and Senior AFFILIATIONS Residential Appraiser VALUATION AND Mr. Flynn completes several courses annually as part of the SPECIAL COURSES continuing education requirements of the Appraisal Institute. In addition, he attends real estate and financial industry-related conferences and seminars. PUBLICATIONS "Considering Business Enterprise Value," New England Real Estate Journal, 2000 AMERICAN APPRAISAL ASSOCIATES, INC. FOOTHILL PLACE, SALT LAKE CITY, UTAH GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. FOOTHILL PLACE, SALT LAKE CITY, UTAH 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)(8) 10 d07256a1exv99wxcyx8y.txt APPRAISAL OF KNOLLWOOD KNOLLWOOD 865 BELLEVUE ROAD NASHVILLE, TENNESSEE MARKET VALUE - FEE SIMPLE ESTATE AS OF MAY 7, 2003 PREPARED FOR: APARTMENT INVESTMENT AND MANAGEMENT COMPANY (AIMCO) C/O LINER YANKELEVITZ SUNSHINE & REGENSTREIF LLP & LIEFF CABRASER HEIMANN & BERNSTEIN ON BEHALF OF NUANES, ET. AL. [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LETTERHEAD] JUNE 30, 2003 Apartment Investment and Management Company ("AIMCO") c/o Mr. Steven A. Velkei, Esq. Liner Yankelevitz Sunshine & Regenstreif LLP 1100 Glendon Avenue, 14th Floor Los Angeles, California 90024-3503 Nuanes, et al.( "Plaintiffs ") c/o Ms. Joy Kruse Lieff Cabraser Heimann & Bernstein Embarcadero Center West 275 Battery Street, 30th Floor San Francisco, California 94111 RE: KNOLLWOOD 865 BELLEVUE ROAD NASHVILLE, DAVIDSON COUNTY, TENNESSEE 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 326 units with a total of 358,280 square feet of rentable area. The improvements were built in 1972. The improvements are situated on 30.75 acres. Overall, the improvements are in average condition. As of the date of this appraisal, the subject property is 97% 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 KNOLLWOOD, NASHVILLE, TENNESSEE The opinions expressed in this appraisal cover letter can only be completely understood by reading the narrative report, addenda, and other data, which is attached. The appraisal is subject to the attached general assumptions and limiting conditions and general service conditions. As a result of our investigation, it is our opinion that the fee simple market value of the subject, effective May 7, 2003 is: ($14,800,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. -s- Frank Fehribach ----------------------- June 30, 2003 Frank Fehribach, MAI #053272 Managing Principal, Real Estate Group Tennessee Temporary Practice Permit #00053573 Report By: Daniel Salcedo Tennessee Temporary Practice Permit #00053558 AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 KNOLLWOOD, NASHVILLE, TENNESSEE 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 KNOLLWOOD, NASHVILLE, TENNESSEE EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Knollwood LOCATION: 865 Bellevue Road Nashville, Tennessee INTENDED USE OF ASSIGNMENT: Court Settlement PURPOSE OF APPRAISAL: "As Is" Market Value of the Fee Simple Estate INTEREST APPRAISED: Fee simple estate DATE OF VALUE: May 7, 2003 DATE OF REPORT: June 30, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 30.75 acres, or 1,339,470 square feet Assessor Parcel No.: 142-000-030 Floodplain: Community Panel No. 47037C0304F (April 20, 2001) Flood Zone X, an area outside the floodplain. Zoning: RM-9 (Low to Medium Density Apartment District) BUILDING: No. of Units: 326 Units Total NRA: 358,280 Square Feet Average Unit Size: 1,099 Square Feet Apartment Density: 10.6 units per acre Year Built: 1972 UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
Market Rent Square ----------------------- Monthly Annual Unit Type Feet Per Unit Per SF Income Income - ------------------------------------------------------------------------------------------ 1Br/1Ba -1A10 655 $ 520 $ 0.79 $ 18,720 $ 224,640 1Br/1Ba -1B10 706 $ 570 $ 0.81 $ 22,800 $ 273,600 1Br/1.5Ba - 2A15 1,064 $ 600 $ 0.56 $ 43,200 $ 518,400 2Br/2Ba - 2A20 1,095 $ 610 $ 0.56 $ 29,280 $ 351,360 2Br/1.5Ba -2B15 1,310 $ 770 $ 0.59 $ 46,200 $ 554,400 2Br/2Ba - 2B20 1,120 $ 660 $ 0.59 $ 15,840 $ 190,080 3Br/2.5Ba - 3A25 1,496 $ 760 $ 0.51 $ 13,680 $ 164,160 3Br/2.5Ba - 3B25 1,603 $ 790 $ 0.49 $ 22,120 $ 265,440 ------------------------- Total $ 211,840 $2,542,080
OCCUPANCY: 97% AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 KNOLLWOOD, NASHVILLE, TENNESSEE ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 25 Years REMAINING ECONOMIC LIFE: 20 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] UNIT TYPE FACADE UNIT TYPE AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 KNOLLWOOD, NASHVILLE, TENNESSEE 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 KNOLLWOOD, NASHVILLE, TENNESSEE PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
Amount $/Unit ------ ------ DIRECT CAPITALIZATION Potential Rental Income $ 2,542,080 $ 7,798 Effective Gross Income $ 2,556,474 $ 7,842 Operating Expenses $ 1,163,526 $ 3,569 45.5% of EGI Net Operating Income: $ 1,311,449 $ 4,023 Capitalization Rate 9.00% DIRECT CAPITALIZATION VALUE $14,600,000 * $44,785 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 8% Stabilized Vacancy & Collection Loss: 7% Lease-up / Stabilization Period N/A Terminal Capitalization Rate 10.00% Discount Rate 11.50% Selling Costs 2.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $14,800,000 * $45,399 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $14,800,000 $45,399 / UNIT SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $41,538 to $71,552 Range of Sales $/Unit (Adjusted) $41,538 to $47,564 VALUE INDICATION - PRICE PER UNIT $14,700,000 * $45,092 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 5.76 to 6.85 Selected EGIM for Subject 5.75 Subject's Projected EGI $2,556,474 EGIM ANALYSIS CONCLUSION $14,700,000 * $45,092 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $14,700,000 * $45,092 / UNIT RECONCILED SALES COMPARISON VALUE $14,700,000 $45,092 / 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 KNOLLWOOD, NASHVILLE, TENNESSEE PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $14,700,000 NOI Per Unit $14,700,000 EGIM Multiplier $14,700,000 INDICATED VALUE BY SALES COMPARISON $14,700,000 $45,092 / UNIT INCOME APPROACH: Direct Capitalization Method: $14,600,000 Discounted Cash Flow Method: $14,800,000 INDICATED VALUE BY THE INCOME APPROACH $14,800,000 $45,399 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $14,800,000 $45,399 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 KNOLLWOOD, NASHVILLE, TENNESSEE INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 865 Bellevue Road, Nashville, Davidson County, Tennessee. Nashville identifies it as 142-000-030. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Daniel Salcedo on May 7, 2003. Frank Fehribach, MAI has not made a personal inspection of the subject property. Daniel Salcedo performed the research, valuation analysis and wrote the report. Frank Fehribach, MAI reviewed the report and concurs with the value. Frank Fehribach, MAI and Daniel Salcedo have extensive experience in appraising similar properties and meet the USPAP competency provision. The scope of this investigation comprises the inspection of the property and the collection, verification, and analysis of general and specific data pertinent to the subject property. We have researched current improved sales and leases of similar properties, analyzing them as to their comparability, and adjusting them accordingly. We completed the Sales Comparison and Income Capitalization Approaches to value. From these approaches to value, a concluded overall value was made. DATE OF VALUE AND REPORT This appraisal was made to express the opinion of value as of May 7, 2003. The date of the report is June 30, 2003. PURPOSE AND USE OF APPRAISAL The purpose of the appraisal is to estimate the market value of the fee simple interest in the subject property. It is understood that the appraisal is intended to assist the clients in litigation settlement proceedings. The appraisal was not based on a requested minimum valuation, a specific valuation, or the approval of a loan. PROPERTY RIGHTS APPRAISED We have appraised the Fee Simple Estate in the subject property (as applied in the Sales & Income Approaches), subject to the existing short-term leases. A Fee Simple Estate is AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 10 KNOLLWOOD, NASHVILLE, TENNESSEE 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 CCP 4. 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 KNOLLWOOD, NASHVILLE, TENNESSEE 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 Nashville, Tennessee. 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 - Old Hickory Road West - I-40 South - Harding Road North - SR-70 MAJOR EMPLOYERS Major employers in the subject's area include ComPlus, Concentra, Saturn Corporation, Gaylord Entertainment, Nissan Motor Manufacturing Corporation, Kroger Company, Reemay Inc., United Parcel Service, First American National Bank, Shoney's Inc., Bell South, Inter-City Pro-Corporation, NationsBank, and Bridgestone/Firestone. 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 KNOLLWOOD, NASHVILLE, TENNESSEE NEIGHBORHOOD DEMOGRAPHICS
AREA ---------------------------------------- CATEGORY 1-Mi. RADIUS 3-Mi. RADIUS 5-Mi. RADIUS MSA - ---------------------------------------------------------------------------------- POPULATION TRENDS Current Population 12,085 36,342 52,469 1,275,686 5-Year Population 13,003 40,528 57,470 1,391,452 % Change CY-5Y 7.6% 11.5% 9.5% 9.1% Annual Change CY-5Y 1.5% 2.3% 1.9% 1.8% HOUSEHOLDS Current Households 5,738 16,120 22,453 499,284 5-Year Projected Households 6,308 18,194 24,906 550,820 % Change CY - 5Y 9.9% 12.9% 10.9% 10.3% Annual Change CY-5Y 2.0% 2.6% 2.2% 2.1% INCOME TRENDS Median Household Income $ 60,529 $ 67,116 $ 72,338 $ 45,328 Per Capita Income $ 31,326 $ 34,591 $ 37,616 $ 23,901 Average Household Income $ 67,050 $ 77,426 $ 87,800 $ 61,067
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 28.48% 33.39% 27.74% 31.23% 5-Year Projected % Renting 27.87% 33.01% 27.67% 30.53% % of Households Owning 65.55% 60.64% 66.66% 61.72% 5-Year Projected % Owning 66.54% 61.52% 67.17% 62.91%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 KNOLLWOOD, NASHVILLE, TENNESSEE SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Residential South - Residential East - Multifamily West - Office/Retail CONCLUSIONS The subject is well located within the city of Nashville. 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 KNOLLWOOD, NASHVILLE, TENNESSEE MARKET ANALYSIS The subject property is located in the city of Nashville in Davidson County. The overall pace of development in the subject's market is more or less decreasing. Based on our site inspection of the market area, there was no evidence of additional development for multifamily use. The following table illustrates historical vacancy rates for the subject's market. HISTORICAL VACANCY RATE
Period Region Submarket - ---------------------------------- 1997 5.5% 5.0% 1998 6.7% 6.0% 1999 5.9% 7.0% 2000 5.9% 7.9% 2001 7.3% 8.6% 2002 8.0% 8.0%
Source: Greater Nashville Apartment Association Occupancy trends in the subject's market are stable. Historically speaking, the subject's submarket has equated the overall market. Occupancy in the subject's market area is expected to be around 94.0%. Any expected changes are caused by the short time fluctuations derived from the current economic situation affecting the local, regional and national markets. 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 - -------------------------------------------------------- 1996 $583 - $735 - 1997 $604 3.6% $760 3.4% 1998 $634 5.0% $769 1.2% 1999 $647 2.1% $784 2.0% 2000 $667 3.1% $796 1.5% 2001 $677 1.5% $814 2.3% 2002 $685 1.2% $820 0.7%
Source: Greater Nashville Apartment Association The following table illustrates a summary of the subject's competitive set. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 KNOLLWOOD, NASHVILLE, TENNESSEE COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject - ---------------------------------------------------------------------------------------------------------------------- R-1 Legacy Hill 206 94% 1977 Approx. 2.9 miles east of subject R-2 Iroquois 376 90% 1967 Approx. 1.2 miles east of subject R-3 Archstone at Bellevue 225 96% 1986 Approx. 2.3 miles northeast of subject R-4 Creekwood 200 97% 1971 Approx. 1.7 miles west of subject R-5 Post Ridge 150 98% 1972 Approx.1.8 miles northeast of subject Subject Knollwood 326 97% 1972
Rental rates are expected to stabilize. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 KNOLLWOOD, NASHVILLE, TENNESSEE PROPERTY DESCRIPTION SITE ANALYSIS Site Area 30.75 acres, or 1,339,470 square feet Shape Irregular Topography Slightly slope 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 47037C0304F, dated April 20, 2001 Flood Zone Zone X Zoning RM-9, 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 - ---------------------------------------------------------------------------------------- 142-000-030 $782,400 $4,579,800 $5,362,200 0.03840 $205,908
IMPROVEMENT ANALYSIS Year Built 1972 Number of Units 326 Net Rentable Area 358,280 Square Feet Construction: Foundation Concrete block wall 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, tennis court, gym room, barbeque equipment, meeting hall, laundry room, and secured parking. 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, microwave dishwasher, water heater, garbage disposal, washer/dryer, and oven. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 KNOLLWOOD, NASHVILLE, TENNESSEE Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) - ----------------------------------------------- 1Br/1Ba -1A10 36 655 1Br/1Ba -1B10 40 706 1Br/1.5Ba - 2A15 72 1,064 2Br/2Ba - 2A20 48 1,095 2Br/1.5Ba -2B15 60 1,310 2Br/2Ba - 2B20 24 1,120 3Br/2.5Ba - 3A25 18 1,496 3Br/2.5Ba - 3B25 28 1,603
Overall Condition Average Effective Age 25 years Economic Life 45 years Remaining Economic Life 20 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 1972 and consist of a 326-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 KNOLLWOOD, NASHVILLE, TENNESSEE 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 KNOLLWOOD, NASHVILLE, TENNESSEE 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 KNOLLWOOD, NASHVILLE, TENNESSEE 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 KNOLLWOOD, NASHVILLE, TENNESSEE SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - --------------------------------------------------------------------------------------------------------------------------------- Property Name Knollwood Dunhill Village Belle Valley LOCATION: Address 865 Bellevue Road 512 Old Hickory Blvd 100 Belle Valley Drive City, State Nashville, Tennessee Nashville, TN Nashville, TN County Davidson Davidson Davidson PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 358,280 337,908 287,040 Year Built 1972 1998 1985 Number of Units 326 348 260 Unit Mix: Type Total Type Total Type Total 1Br/1Ba -1A10 36 1Br/1Ba 168 1Br/1Ba 60 1Br/1Ba -1B10 40 2Br/1Ba 128 2Br/2Ba 160 1Br/1.5Ba - 2A15 72 3Br/2Ba 52 3Br/2.5Ba 40 2Br/2Ba - 2A20 48 2Br/1.5Ba -2B15 60 2Br/2Ba - 2B20 24 3Br/2.5Ba - 3A25 18 3Br/2.5Ba - 3B25 28 Average Unit Size (SF) 1,099 971 1,104 Land Area (Acre) 30.7500 36.1100 51.9100 Density (Units/Acre) 10.6 9.6 5.0 Parking Ratio (Spaces/Unit) 2.40 2.40 2.20 Parking Type (Gr., Cov., etc.) Open Open, Carport/Garage Open CONDITION: Good Good Good APPEAL: Average Good Good AMENITIES: Pool/Spa Yes/No Yes/No Yes/No Gym Room Yes Yes Yes Laundry Room Yes Yes No Secured Parking Yes No Yes Sport Courts Yes No Yes Washer/Dryer Connection Yes Yes Yes Storage No No No OCCUPANCY: 97% 93% 92% TRANSACTION DATA: Sale Date September, 2002 November, 2002 Sale Price ($) $24,900,000 $10,800,000 Grantor N/A N/A Grantee Dunhill Owners LLC Belle Valley Ltd Sale Documentation Deed-20020905-0107891 Dee- 00006430-0000732 Verification Dawn Edmonson Margaret Woody Telephone Number 615.352.1977 615.356.5000 ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $4,650,255 $13,363 $13.76 $1,712,758 $6,588 $5.97 Vacancy/Credit Loss $ 325,518 $ 935 $ 0.96 $ 137,021 $ 527 $0.48 Effective Gross Income $4,324,737 $12,427 $12.80 $1,575,737 $6,061 $5.49 Operating Expenses $1,946,637 $ 5,594 $ 5.76 $ 679,537 $2,614 $2.37 Net Operating Income $2,378,100 $ 6,834 $ 7.04 $ 896,200 $3,447 $3.12 NOTES: Overall superior to subject Overall slightly superior to subject PRICE PER UNIT $71,552 $41,538 PRICE PER SQUARE FOOT $ 73.69 $ 37.63 EXPENSE RATIO 45.0% 43.1% EGIM 5.76 6.85 OVERALL CAP RATE 9.55% 8.30% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 - -------------------------------------------------------------------------------------------------------- Property Name The Lexington at Bellevue Wyndchase Bellevue LOCATION: Address 510 Old Hickory Blvd 7221 SR-70 South City, State Nashville, TN Nashville, TN County Davidson Davidson PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 260,000 229,320 Year Built 1996 1999 Number of Units 250 234 Unit Mix: Type Total Type Total 1Br/1Ba 120 1Br/1Ba 114 2Br/1Ba 92 2Br/2Ba 96 3Br/2.5Ba 38 3Br/2.5Ba 24 Average Unit Size (SF) 1,040 980 Land Area (Acre) 21.7900 10.7700 Density (Units/Acre) 11.5 21.7 Parking Ratio (Spaces/Unit) 2.20 2.50 Parking Type (Gr., Cov., etc.) Open, Carport/Garage Open, Carport/Garage CONDITION: Good Average APPEAL: Good Good AMENITIES: Pool/Spa Yes/No Yes/No Gym Room Yes Yes Laundry Room Yes Yes Secured Parking Yes No Sport Courts No No Washer/Dryer Connection Yes No Storage No Yes OCCUPANCY: 93% 93% TRANSACTION DATA: Sale Date December, 2002 October, 2001 Sale Price ($) $16,975,000 $15,900,000 Grantor N/A N/A Grantee Lexington Owners LLC Wyndchase Lake Gibson Parke Sale Documentation Deed- 20021220-0157848 Deed-20011005-0108456 Verification Faye Shaw Amy Prater Telephone Number 615.352.5700 615.646.7575 ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $2,737,903 $10,952 $10.53 $2,523,809 $10,786 $11.01 Vacancy/Credit Loss $ 191,653 $ 767 $ 0.74 $ 176,666 $ 755 $ 0.77 Effective Gross Income $2,546,250 $10,185 $ 9.79 $2,347,143 $10,031 $10.24 Operating Expenses $1,081,000 $ 4,324 $ 4.16 $ 926,943 $ 3,961 $ 4.04 Net Operating Income $1,465,250 $ 5,861 $ 5.64 $1,420,200 $ 6,069 $ 6.19 NOTES: Overall, superior to subject Overall, superior to subject PRICE PER UNIT $67,900 $67,949 PRICE PER SQUARE FOOT $ 65.29 $ 69.34 EXPENSE RATIO 42.5% 39.5% EGIM 6.67 6.77 OVERALL CAP RATE 8.63% 8.93% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 KNOLLWOOD, NASHVILLE, TENNESSEE IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $41,538 to $71,552 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 $41,538 to $47,564 per unit with a mean or average adjusted price of $44,937 per unit. The median adjusted price is $45,322 per unit. Based on the following analysis, we have concluded to a value of $45,000 per unit, which results in an "as is" value of $14,700,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 KNOLLWOOD, NASHVILLE, TENNESSEE SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - --------------------------------------------------------------------------------------------------------------------------------- Property Name Knollwood Dunhill Village Belle Valley Address 865 Bellevue Road 512 Old Hickory Blvd 100 Belle Valley Drive City Nashville, Tennessee Nashville, TN Nashville, TN Sale Date September, 2002 November, 2002 Sale Price ($) $24,900,000 $10,800,000 Net Rentable Area (SF) 358,280 337,908 287,040 Number of Units 326 348 260 Price Per Unit $71,552 $41,538 Year Built 1972 1998 1985 Land Area (Acre) 30.7500 36.1100 51.9100 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 09-2002 0% 11-2002 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $71,552 $41,538 Location Comparable 0% Comparable 0% Number of Units 326 348 0% 260 0% Quality / Appeal Good Superior -15% Comparable 0% Age / Condition 1972 1998 / Good -20% 1985 / Good 0% Occupancy at Sale 97% 93% 0% 92% 0% Amenities Good Superior -5% Comparable 0% Average Unit Size (SF) 1,099 971 5% 1,104 0% PHYSICAL ADJUSTMENT -35% 0% FINAL ADJUSTED VALUE ($/UNIT) $46,509 $41,538 COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 - -------------------------------------------------------------------------------------------------- Property Name The Lexington at Bellevue Wyndchase Bellevue Address 510 Old Hickory Blvd 7221 SR-70 South City Nashville, TN Nashville, TN Sale Date December, 2002 October, 2001 Sale Price ($) $16,975,000 $15,900,000 Net Rentable Area (SF) 260,000 229,320 Number of Units 250 234 Price Per Unit $67,900 $67,949 Year Built 1996 1999 Land Area (Acre) 21.7900 10.7700 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 12-2002 0% 10-2001 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $67,900 $67,949 Location Comparable 0% Comparable 0% Number of Units 250 0% 234 0% Quality / Appeal Superior -10% Superior -15% Age / Condition 1996 / Good -25% 1999 / Average -20% Occupancy at Sale 93% 0% 93% 0% Amenities Comparable 0% Comparable 0% Average Unit Size (SF) 1,040 0% 980 5% PHYSICAL ADJUSTMENT -35% -30% FINAL ADJUSTED VALUE ($/UNIT) $44,135 $47,564
SUMMARY VALUE RANGE (PER UNIT) $41,538 TO $47,564 MEAN (PER UNIT) $44,937 MEDIAN (PER UNIT) $45,322 VALUE CONCLUSION (PER UNIT) $45,000
VALUE INDICATED BY SALES COMPARISON APPROACH $14,670,000 ROUNDED $14,700,000
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 KNOLLWOOD, NASHVILLE, TENNESSEE 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-1 348 $24,900,000 9.55% $ 2,378,100 $ 1,311,449 0.589 $ 42,121 $ 71,552 $ 6,834 $ 4,023 I-2 260 $10,800,000 8.30% $ 896,200 $ 1,311,449 1.167 $ 48,479 $ 41,538 $ 3,447 $ 4,023 I-3 250 $16,975,000 8.63% $ 1,465,250 $ 1,311,449 0.686 $ 46,605 $ 67,900 $ 5,861 $ 4,023 I-4 234 $15,900,000 8.93% $ 1,420,200 $ 1,311,449 0.663 $ 45,038 $ 67,949 $ 6,069 $ 4,023
PRICE/UNIT
Low High Average Median $42,121 $48,479 $45,561 $45,822
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT Estimated Price Per Unit $ 45,000 ----------- Number of Units 326 ----------- Value Based on NOI Analysis $14,670,000 Rounded $14,700,000
The adjusted sales indicate a range of value between $42,121 and $48,479 per unit, with an average of $45,561 per unit. Based on the subject's competitive position within the improved sales, a value of $45,000 per unit is estimated. This indicates an "as is" market value of $14,700,000 (rounded after necessary adjustment, if any) for the NOI Per Unit Analysis. EFFECTIVE GROSS INCOME MULTIPLIER (EGIM) ANALYSIS The effective gross income multiplier (EGIM) is derived by dividing the sales price by the total effective gross income. The following table illustrates the EGIMs for the comparable improved sales. 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-1 348 $24,900,000 $ 4,324,737 $ 1,946,637 45.01% 5.76 $ 71,552 I-2 260 $10,800,000 $ 1,575,737 $ 679,537 43.13% 6.85 $ 41,538 45.51% I-3 250 $16,975,000 $ 2,546,250 $ 1,081,000 42.45% 6.67 $ 67,900 I-4 234 $15,900,000 $ 2,347,143 $ 926,943 39.49% 6.77 $ 67,949
EGIM
Low High Average Median 5.76 6.85 6.51 6.72
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES Estimate EGIM 5.75 ----------- Subject EGI $ 2,556,474 ----------- Value Based on EGIM Analysis $14,699,728 Rounded $14,700,000 Value Per Unit $ 45,092
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 25 KNOLLWOOD, NASHVILLE, TENNESSEE 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 45.51% before reserves. The comparable sales indicate a range of expense ratios from 39.49% to 45.01%, while their EGIMs range from 5.76 to 6.85. Overall, we conclude to an EGIM of 5.75, which results in an "as is" value estimate in the EGIM Analysis of $14,700,000. SALES COMPARISON CONCLUSION The three valuation methods in the Sales Comparison Approach are shown below. The overall value via the Sales Comparison Approach is estimated at $14,700,000. Price Per Unit $14,700,000 NOI Per Unit $14,700,000 EGIM Analysis $14,700,000 Sales Comparison Conclusion $14,700,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 KNOLLWOOD, NASHVILLE, TENNESSEE 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 KNOLLWOOD, NASHVILLE, TENNESSEE method is normally more appropriate for properties with relatively stable operating histories and expectations. A pro forma analysis for the first year of the investment is made to estimate a reasonable potential net operating income for the Subject Property. Such an analysis entails an estimate of the gross income the property should command in the marketplace. From this total gross income must be deducted an allowance for vacancy/collection loss and operating expenses as dictated by general market conditions and the overall character of the subject's tenancy and leased income to arrive at a projected estimate of net operating income. Conversion of the net operating income to an indication of value is accomplished by the process of capitalization, as derived primarily from market data. MARKET RENT ANALYSIS In order to determine a market rental rate for the subject, a survey of competing apartment communities was performed. This survey was displayed previously in the market analysis section of the report. Detailed information pertaining to each of the comparable rental communities, along with photographs, is presented in the Addenda of this report. The following charts display the subject's current asking and actual rent rates as well as a comparison with the previous referenced comparable rental properties. SUMMARY OF ACTUAL AVERAGE RENTS
Average Unit Area ------------------- Unit Type (Sq. Ft.) Per Unit Per SF %Occupied - ----------------------------------------------------------- 1Br/1Ba -1A10 655 $539 $ 0.82 97.2% 1Br/1Ba -1B10 706 $584 $ 0.83 100.0% 1Br/1.5Ba - 2A15 1064 $666 $ 0.63 98.6% 2Br/2Ba - 2A20 1095 $679 $ 0.62 95.8% 2Br/1.5Ba -2B15 1310 $667 $ 0.51 96.7% 2Br/2Ba - 2B20 1120 $699 $ 0.62 95.8% 3Br/2.5Ba - 3A25 1496 $877 $ 0.59 100.0% 3Br/2.5Ba - 3B25 1603 $930 $ 0.58 92.9%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 KNOLLWOOD, NASHVILLE, TENNESSEE RENT ANALYSIS
COMPARABLE RENTS -------------------------------------------------------------- R-1 R-2 R-3 R-4 R-5 -------------------------------------------------------------- Archstone Legacy Hill Iroquois at Bellevue Creekwood Post Ridge -------------------------------------------------------------- SUBJECT SUBJECT COMPARISON TO SUBJECT SUBJECT UNIT ACTUAL ASKING -------------------------------------------------------------- DESCRIPTION TYPE RENT RENT Similar Inferior Superior Similar Inferior - ----------------------------------------------------------------------------------------------------------------------------------- Monthly Rent 1Br/1Ba -1A10 $ 539 $ 517 Unit Area (SF) 655 655 Monthly Rent Per Sq. Ft. $ 0.82 $ 0.79 Monthly Rent 1Br/1Ba -1B10 $ 584 $ 566 $ 587 $ 568 $ 570 Unit Area (SF) 706 706 761 820 744 Monthly Rent Per Sq. Ft. $ 0.83 $ 0.80 $ 0.77 $ 0.69 $ 0.77 Monthly Rent 1Br/1.5Ba - $ 666 $ 598 Unit Area (SF) 2A15 1,064 1,064 Monthly Rent Per Sq. Ft. $ 0.63 $ 0.56 Monthly Rent 2Br/2Ba - 2A20 $ 679 $ 607 Unit Area (SF) 1,095 1,095 Monthly Rent Per Sq. Ft. $ 0.62 $ 0.55 Monthly Rent 2Br/1.5Ba -2B15 $ 667 $ 769 Unit Area (SF) 1,310 1,310 Monthly Rent Per Sq. Ft. $ 0.51 $ 0.59 Monthly Rent 2Br/2Ba - 2B20 $ 699 $ 655 $ 693 $ 699 $ 689 $ 697 $ 726 Unit Area (SF) 1,120 1,120 1,030 1,257 800 1,211 1,437 Monthly Rent Per Sq. Ft. $ 0.62 $ 0.58 $ 0.67 $ 0.56 $ 0.86 $ 0.58 $ 0.51 Monthly Rent 3Br/2.5Ba - $ 877 $ 762 $ 780 $ 811 $ 879 $ 885 $ 749 Unit Area (SF) 3A25 1,496 1,496 1,269 1,519 1,223 1,620 1,280 Monthly Rent Per Sq. Ft. $ 0.59 $ 0.51 $ 0.61 $ 0.53 $ 0.72 $ 0.55 $ 0.59 Monthly Rent 3Br/2.5Ba - 3B25 $ 930 $ 789 $ 1,077 $ 852 Unit Area (SF) 1,603 1,603 1,697 1,664 Monthly Rent Per Sq. Ft. $ 0.58 $ 0.49 $ 0.63 $ 0.51 DESCRIPTION MIN MAX MEDIAN AVERAGE - -------------------------------------------------------------------------- Monthly Rent Unit Area (SF) Monthly Rent Per Sq. Ft. Monthly Rent $ 568 $ 587 $ 570 $ 575 Unit Area (SF) 744 820 761 775 Monthly Rent Per Sq. Ft. $ 0.69 $ 0.77 $ 0.77 $0.74 Monthly Rent Unit Area (SF) Monthly Rent Per Sq. Ft. Monthly Rent Unit Area (SF) Monthly Rent Per Sq. Ft. Monthly Rent Unit Area (SF) Monthly Rent Per Sq. Ft. Monthly Rent $ 689 $726 $ 697 $ 701 Unit Area (SF) 800 1,437 1,211 1,147 Monthly Rent Per Sq. Ft. $ 0.51 $ 0.86 $ 0.58 $0.63 Monthly Rent $ 749 $ 885 $ 811 $ 821 Unit Area (SF) 1,223 1,620 1,280 1,382 Monthly Rent Per Sq. Ft. $ 0.53 $ 0.72 $ 0.59 $0.60 Monthly Rent $ 852 $1,077 $ 964 $ 964 Unit Area (SF) 1,664 1,697 1,681 1,681 Monthly Rent Per Sq. Ft. $ 0.51 $ 0.63 $ 0.57 $0.57
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
Unit Area Market Rent Monthly Annual ----------------------- Unit Type Number of Units (Sq. Ft.) Per Unit Per SF Income Income - -------------------------------------------------------------------------------------------------------- 1Br/1Ba -1A10 36 655 $ 520 $ 0.79 $ 18,720 $ 224,640 1Br/1Ba -1B10 40 706 $ 570 $ 0.81 $ 22,800 $ 273,600 1Br/1.5Ba - 2A15 72 1,064 $ 600 $ 0.56 $ 43,200 $ 518,400 2Br/2Ba - 2A20 48 1,095 $ 610 $ 0.56 $ 29,280 $ 351,360 2Br/1.5Ba -2B15 60 1,310 $ 770 $ 0.59 $ 46,200 $ 554,400 2Br/2Ba - 2B20 24 1,120 $ 660 $ 0.59 $ 15,840 $ 190,080 3Br/2.5Ba - 3A25 18 1,496 $ 760 $ 0.51 $ 13,680 $ 164,160 3Br/2.5Ba - 3B25 28 1,603 $ 790 $ 0.49 $ 22,120 $ 265,440 ------------------------------------- Total $ 211,840 $2,542,080
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 29 KNOLLWOOD, NASHVILLE, TENNESSEE 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 KNOLLWOOD, NASHVILLE, TENNESSEE 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 $2,680,271 $ 8,222 $2,760,647 $ 8,468 $2,628,963 $ 8,064 Vacancy $ 167,273 $ 513 $ 206,191 $ 632 $ 170,432 $ 523 Credit Loss/Concessions $ 49,927 $ 153 $ 135,251 $ 415 $ 32,793 $ 101 ---------- ---------- ---------- ---------- ---------- ---------- Subtotal $ 217,200 $ 666 $ 341,442 $ 1,047 $ 203,225 $ 623 Laundry Income $ 15,646 $ 48 $ 16,053 $ 49 $ 8,679 $ 27 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 73,305 $ 225 $ 74,297 $ 228 $ 175,938 $ 540 ---------- ---------- ---------- ---------- ---------- ---------- Subtotal Other Income $ 88,951 $ 273 $ 90,350 $ 277 $ 184,617 $ 566 ---------- ---------- ---------- ---------- ---------- ---------- Effective Gross Income $2,552,022 $ 7,828 $2,509,555 $ 7,698 $2,610,355 $ 8,007 Operating Expenses Taxes $ 162,720 $ 499 $ 178,043 $ 546 $ 205,908 $ 632 Insurance $ 42,483 $ 130 $ 43,493 $ 133 $ 52,104 $ 160 Utilities $ 174,010 $ 534 $ 156,832 $ 481 $ 158,183 $ 485 Repair & Maintenance $ 95,999 $ 294 $ 98,505 $ 302 $ 82,952 $ 254 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 72,939 $ 224 $ 69,438 $ 213 $ 70,883 $ 217 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 36,520 $ 112 $ 41,307 $ 127 $ 19,219 $ 59 General Administrative $ 308,335 $ 946 $ 309,467 $ 949 $ 318,152 $ 976 Management $ 128,377 $ 394 $ 134,969 $ 414 $ 131,569 $ 404 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- ---------- Total Operating Expenses $1,021,383 $ 3,133 $1,032,054 $ 3,166 $1,038,970 $ 3,187 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- ---------- Net Income $1,530,639 $ 4,695 $1,477,501 $ 4,532 $1,571,385 $ 4,820 FISCAL YEAR 2003 ANNUALIZED 2003 -------------------------------------------------------- MANAGEMENT BUDGET PROJECTION AAA PROJECTION -------------------------------------------------------------------------------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT % - ------------------------------------------------------------------------------------------------------------------------------- Revenues Rental Income $2,603,121 $ 7,985 $2,551,500 $ 7,827 $2,542,080 $ 7,798 100.0% Vacancy $ 98,465 $ 302 $ 107,344 $ 329 $ 127,104 $ 390 5.0% Credit Loss/Concessions $ 14,025 $ 43 $ 66,016 $ 203 $ 50,842 $ 156 2.0% ---------- ---------- ---------- ---------- ---------- ---------- ----- Subtotal $ 112,490 $ 345 $ 173,360 $ 532 $ 177,946 $ 546 7.0% Laundry Income $ 12,984 $ 40 $ 10,100 $ 31 $ 13,040 $ 40 0.5% Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 167,507 $ 514 $ 188,436 $ 578 $ 179,300 $ 550 7.1% ---------- ---------- ---------- ---------- ---------- ---------- ----- Subtotal Other Income $ 180,491 $ 554 $ 198,536 $ 609 $ 192,340 $ 590 7.6% ---------- ---------- ---------- ---------- ---------- ---------- ----- Effective Gross Income $2,671,122 $ 8,194 $2,576,676 $ 7,904 $2,556,474 $ 7,842 100.0% Operating Expenses Taxes $ 205,908 $ 632 $ 205,908 $ 632 $ 206,032 $ 632 8.1% Insurance $ 56,823 $ 174 $ 58,208 $ 179 $ 58,680 $ 180 2.3% Utilities $ 187,306 $ 575 $ 175,532 $ 538 $ 176,040 $ 540 6.9% Repair & Maintenance $ 110,725 $ 340 $ 206,748 $ 634 $ 130,400 $ 400 5.1% Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Landscaping $ 72,024 $ 221 $ 76,960 $ 236 $ 73,350 $ 225 2.9% Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Marketing & Leasing $ 25,505 $ 78 $ 40,144 $ 123 $ 32,600 $ 100 1.3% General Administrative $ 333,576 $ 1,023 $ 379,152 $ 1,163 $ 358,600 $ 1,100 14.0% Management $ 131,000 $ 402 $ 122,044 $ 374 $ 127,824 $ 392 5.0% Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% ---------- ---------- ---------- ---------- ---------- ---------- ----- Total Operating Expenses $1,122,867 $ 3,444 $1,264,696 $ 3,879 $1,163,526 $ 3,569 45.5% Reserves $ 0 $ 0 $ 0 $ 0 $ 81,500 $ 250 7.0% ---------- ---------- ---------- ---------- ---------- ---------- ----- Net Income $1,548,255 $ 4,749 $1,311,980 $ 4,024 $1,311,449 $ 4,023 51.3%
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 7% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 31 KNOLLWOOD, NASHVILLE, TENNESSEE 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 KNOLLWOOD, NASHVILLE, TENNESSEE SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR - ----------------------------------------------------------------- I-1 Sep-02 93% $71,552 9.55% I-2 Nov-02 92% $41,538 8.30% I-3 Dec-02 93% $67,900 8.63% I-4 Oct-01 93% $67,949 8.93% I-5 Jan-00 0% N/A High 9.55% Low 8.30% Average 8.85%
Based on this information, we have concluded the subject's overall capitalization rate should be 9.00%. The terminal capitalization rate is applied to the net operating income estimated for the year following the end of the holding period. Based on the concluded overall capitalization rate, the age of the property and the surveyed information, we have concluded the subject's terminal capitalization rate to be 10.00%. Finally, the subject's discount rate or yield rate is estimated based on the previous investor survey and an examination of returns available on alternative investments in the market. Based on this analysis, the subject's discount rate is estimated to be 11.50%. HOLDING PERIOD The survey of investors indicates that most investors are completing either 10-year cash flows or extending the analysis to the end of the lease if it is more than 10-years. A 10-year period has been used in the analysis of the subject with the eleventh year stabilized NOI used to determine the reversion. SELLING COSTS Sales of similar size properties are typically accomplished with the aid of a broker and will also incur legal and other transaction related cost. Based on our survey of brokers and a review of institutional investor projections, an allowance of 2.00% of the sale amount is applied. DISCOUNTED CASH FLOW CONCLUSION Discounting the annual cash flows and the equity reversion at the selected rate of 11.50% indicates a value of $14,800,000. In this instance, the reversion figure contributes AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 33 KNOLLWOOD, NASHVILLE, TENNESSEE 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 CAPITALIZATION APPROACH PAGE 34 KNOLLWOOD, NASHVILLE, TENNESSEE DISCOUNTED CASH FLOW ANALYSIS KNOLLWOOD
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 FISCAL YEAR 1 2 3 4 5 6 - --------------------------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $2,542,080 $2,618,342 $2,696,893 $2,777,799 $2,861,133 $2,946,967 Vacancy $ 127,104 $ 130,917 $ 134,845 $ 138,890 $ 143,057 $ 147,348 Credit Loss $ 50,842 $ 52,367 $ 53,938 $ 55,556 $ 57,223 $ 58,939 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- ---------- Subtotal $ 177,946 $ 183,284 $ 188,782 $ 194,446 $ 200,279 $ 206,288 Laundry Income $ 13,040 $ 13,431 $ 13,834 $ 14,249 $ 14,677 $ 15,117 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 179,300 $ 184,679 $ 190,219 $ 195,926 $ 201,804 $ 207,858 ---------- ---------- ---------- ---------- ---------- ---------- Subtotal Other Income $ 192,340 $ 198,110 $ 204,054 $ 210,175 $ 216,480 $ 222,975 ---------- ---------- ---------- ---------- ---------- ---------- EFFECTIVE GROSS INCOME $2,556,474 $2,633,169 $2,712,164 $2,793,529 $2,877,334 $2,963,654 OPERATING EXPENSES: Taxes $ 206,032 $ 212,213 $ 218,579 $ 225,137 $ 231,891 $ 238,848 Insurance $ 58,680 $ 60,440 $ 62,254 $ 64,121 $ 66,045 $ 68,026 Utilities $ 176,040 $ 181,321 $ 186,761 $ 192,364 $ 198,135 $ 204,079 Repair & Maintenance $ 130,400 $ 134,312 $ 138,341 $ 142,492 $ 146,766 $ 151,169 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 73,350 $ 75,551 $ 77,817 $ 80,152 $ 82,556 $ 85,033 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 32,600 $ 33,578 $ 34,585 $ 35,623 $ 36,692 $ 37,792 General Administrative $ 358,600 $ 369,358 $ 380,439 $ 391,852 $ 403,607 $ 415,716 Management $ 127,824 $ 131,658 $ 135,608 $ 139,676 $ 143,867 $ 148,183 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- ---------- TOTAL OPERATING EXPENSES $1,163,526 $1,198,431 $1,234,384 $1,271,416 $1,309,558 $1,348,845 Reserves $ 81,500 $ 83,945 $ 86,463 $ 89,057 $ 91,729 $ 94,481 ---------- ---------- ---------- ---------- ---------- ---------- NET OPERATING INCOME $1,311,449 $1,350,792 $1,391,316 $1,433,055 $1,476,047 $1,520,328 Operating Expense Ratio (% of EGI) 45.5% 45.5% 45.5% 45.5% 45.5% 45.5% Operating Expense Per Unit $ 3,569 $ 3,676 $ 3,786 $ 3,900 $ 4,017 $ 4,138 YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 7 8 9 10 11 - ----------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $3,035,376 $3,126,438 $3,220,231 $3,316,838 $3,416,343 Vacancy $ 151,769 $ 156,322 $ 161,012 $ 165,842 $ 170,817 Credit Loss $ 60,708 $ 62,529 $ 64,405 $ 66,337 $ 68,327 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- Subtotal $ 212,476 $ 218,851 $ 225,416 $ 232,179 $ 239,144 Laundry Income $ 15,570 $ 16,038 $ 16,519 $ 17,014 $ 17,525 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 214,094 $ 220,516 $ 227,132 $ 233,946 $ 240,964 ---------- ---------- ---------- ---------- ---------- Subtotal Other Income $ 229,664 $ 236,554 $ 243,651 $ 250,960 $ 258,489 ---------- ---------- ---------- ---------- ---------- EFFECTIVE GROSS INCOME $3,052,564 $3,144,141 $3,238,465 $3,335,619 $3,435,688 OPERATING EXPENSES: Taxes $ 246,013 $ 253,393 $ 260,995 $ 268,825 $ 276,890 Insurance $ 70,067 $ 72,169 $ 74,334 $ 76,564 $ 78,861 Utilities $ 210,201 $ 216,507 $ 223,002 $ 229,692 $ 236,583 Repair & Maintenance $ 155,704 $ 160,376 $ 165,187 $ 170,142 $ 175,247 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 87,584 $ 90,211 $ 92,918 $ 95,705 $ 98,576 Security $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 38,926 $ 40,094 $ 41,297 $ 42,536 $ 43,812 General Administrative $ 428,187 $ 441,033 $ 454,264 $ 467,892 $ 481,928 Management $ 152,628 $ 157,207 $ 161,923 $ 166,781 $ 171,784 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- TOTAL OPERATING EXPENSES $1,389,311 $1,430,990 $1,473,920 $1,518,137 $1,563,681 Reserves $ 97,315 $ 100,235 $ 103,242 $ 106,339 $ 109,529 ---------- ---------- ---------- ---------- ---------- NET OPERATING INCOME $1,565,938 $1,612,916 $1,661,304 $1,711,143 $1,762,477 Operating Expense Ratio (% of EGI) 45.5% 45.5% 45.5% 45.5% 45.5% Operating Expense Per Unit $ 4,262 $ 4,390 $ 4,521 $ 4,657 $ 4,797
Estimated Stabilized NOI $1,311,449 Sales Expense Rate 2.00% Months to Stabilized 12 Discount Rate 11.50% Stabilized Occupancy 95.0% Terminal Cap Rate 10.00%
Gross Residual Sale Price $17,624,774 Deferred Maintenance $ 0 Less: Sales Expense $ 352,495 Add: Excess Land $ 0 ----------- Net Residual Sale Price $17,272,278 Other Adjustments $ 0 ----------- PV of Reversion $ 5,815,686 Value Indicated By "DCF" $14,795,109 Add: NPV of NOI $ 8,979,423 Rounded $14,800,000 ----------- PV Total $14,795,109
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE TOTAL VALUE 11.00% 11.25% 11.50% 11.75% 12.00% - ------------------------------------------------------------------------------------------------------------- TERMINAL CAP RATE 9.50% $15,596,536 $15,346,157 $15,101,198 $14,861,523 $14,627,001 9.75% $15,432,352 $15,185,625 $14,944,229 $14,708,031 $14,476,900 10.00% $15,276,377 $15,033,120 $14,795,109 $14,562,213 $14,334,305 10.25% $15,128,010 $14,888,054 $14,653,263 $14,423,509 $14,198,666 10.50% $14,986,709 $14,749,896 $14,518,172 $14,291,409 $14,069,486
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 35 KNOLLWOOD, NASHVILLE, TENNESSEE 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 9.00% percent is applicable to the subject. The results of our direct capitalization analysis are as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 36 KNOLLWOOD, NASHVILLE, TENNESSEE KNOLLWOOD
TOTAL PER SQ. FT. PER UNIT %OF EGI - ----------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $ 2,542,080 $ 7.10 $ 7,798 Less: Vacancy & Collection Loss 7.00% $ 177,946 $ 0.50 $ 546 Plus: Other Income Laundry Income $ 13,040 $ 0.04 $ 40 0.51% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 179,300 $ 0.50 $ 550 7.01% ----------- -------------- ----------- ----- Subtotal Other Income $ 192,340 $ 0.54 $ 590 7.52% EFFECTIVE GROSS INCOME $ 2,556,474 $ 7.14 $ 7,842 OPERATING EXPENSES: Taxes $ 206,032 $ 0.58 $ 632 8.06% Insurance $ 58,680 $ 0.16 $ 180 2.30% Utilities $ 176,040 $ 0.49 $ 540 6.89% Repair & Maintenance $ 130,400 $ 0.36 $ 400 5.10% Cleaning $ 0 $ 0.00 $ 0 0.00% Landscaping $ 73,350 $ 0.20 $ 225 2.87% Security $ 0 $ 0.00 $ 0 0.00% Marketing & Leasing $ 32,600 $ 0.09 $ 100 1.28% General Administrative $ 358,600 $ 1.00 $ 1,100 14.03% Management 5.00% $ 127,824 $ 0.36 $ 392 5.00% Miscellaneous $ 0 $ 0.00 $ 0 0.00% TOTAL OPERATING EXPENSES $ 1,163,526 $ 3.25 $ 3,569 45.51% Reserves $ 81,500 $ 0.23 $ 250 3.19% ----------- -------------- ----------- ----- NET OPERATING INCOME $ 1,311,449 $ 3.66 $ 4,023 51.30% "GOING IN" CAPITALIZATION RATE 9.00% VALUE INDICATION $14,571,652 $ 40.67 $ 44,698 "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $14,571,652 ROUNDED $14,600,000 $ 40.75 $ 44,785
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 37 KNOLLWOOD, NASHVILLE, TENNESSEE DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF - --------------------------------------------------------------------- 8.25% $15,896,348 $15,900,000 $ 48,773 $ 44.38 8.50% $15,428,808 $15,400,000 $ 47,239 $ 42.98 8.75% $14,987,985 $15,000,000 $ 46,012 $ 41.87 9.00% $14,571,652 $14,600,000 $ 44,785 $ 40.75 9.25% $14,177,824 $14,200,000 $ 43,558 $ 39.63 9.50% $13,804,723 $13,800,000 $ 42,331 $ 38.52 9.75% $13,450,756 $13,500,000 $ 41,411 $ 37.68
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 $14,800,000 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 $14,800,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 38 KNOLLWOOD, NASHVILLE, TENNESSEE RECONCILIATION AND CONCLUSION This appraisal was made to express an opinion as of the Market Value of the fee simple estate in the property. AS IS MARKET VALUE OF THE FEE SIMPLE ESTATE Cost Approach Not Utilized Sales Comparison Approach $14,700,000 Income Approach $14,800,000 Reconciled Value $14,800,000
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 7, 2003 the market value of the fee simple estate in the property is: $14,800,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA KNOLLWOOD, NASHVILLE, TENNESSEE ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A KNOLLWOOD, NASHVILLE, TENNESSEE EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A KNOLLWOOD, NASHVILLE, TENNESSEE SUBJECT PHOTOGRAPHS [UNIT TYPE FACADE PICTURE] [UNIT TYPE PICTURE] [BEDROOM PICTURE] [BEDROOM PICTURE] [KITCHEN AREA PICTURE] [LIVING ROOM AREA PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A KNOLLWOOD, NASHVILLE, TENNESSEE SUBJECT PHOTOGRAPHS [DRIVEWAY PICTURE] [LANDSCAPING PICTURE] [MAIN DRIVE WAY PICTURE] [MAIN ENTRANCE PICTURE] [BELLEVUE ROAD - NORTH PICTURE] [BELLEVUE ROAD -SOUTH PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B KNOLLWOOD, NASHVILLE, TENNESSEE EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B KNOLLWOOD, NASHVILLE, TENNESSEE PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 DUNHILL VILLAGE BELLE VALLEY THE LEXINGTON AT BELLEVUE 512 Old Hickory Blvd 100 Belle Valley Drive 510 Old Hickory Blvd Nashville, TN Nashville, TN Nashville, TN [PICTURE] [PICTURE] [PICTURE] COMPARABLE I-4 N/A WYNDCHASE BELLEVUE 7221 SR-70 South Nashville, TN [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B KNOLLWOOD, NASHVILLE, TENNESSEE SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 - -------------------------------------------------------------------------------------------------------------------------------- Property Name Knollwood Legacy Hill Management Company AIMCO United Dominion Realty LOCATION: Address 865 Bellevue Road 501 Shadowood Drive City, State Nashville, Tennessee Nashville, TN County Davidson Davidosn Proximity to Subject Approx. 2.9 miles east of subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 358,280 209,090 Year Built 1972 1977 Effective Age 25 10 Building Structure Type Brick & wood siding walls; asphalt Brick & wood siding walls; asphalt shingle roof shingle roof Parking Type (Gr., Cov., etc.) Open Open Number of Units 326 206 Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo. 1 1Br/1Ba-1A10 655 36 $539 2 1Br/1Ba 761 56 $587 2 1Br/1Ba-1B10 706 40 $584 6 2 Br/2Ba 1,030 100 $693 3 1Br/1.5Ba - 2A15 1,064 72 $666 7 3 Br/2.5 Ba 1,269 50 $780 4 2Br/2Ba - 2A20 1,095 48 $679 5 2Br/1.5Ba -2B15 1,310 60 $667 6 2Br/2Ba - 2B20 1,120 24 $699 7 3Br/2.5Ba - 3A25 1,496 18 $877 8 3Br/2.5Ba - 3B25 1,603 28 $930 Average Unit Size (SF) 1,099 1,015 Unit Breakdown: Efficiency 0% 2-Bedroom 40% Efficiency 0% 2-Bedroom 49% 1-Bedroom 45% 3-Bedroom 15% 1-Bedroom 27% 3-Bedroom 24% CONDITION: Good Good APPEAL: Average Average AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony Balcony X Fireplace X Fireplace X X Cable TV Ready X Cable TV Ready Playground Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court X BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball X Meeting Hall Sand Volley Ball X Meeting Hall X Tennis Court X Secured Parking 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 Gym Room OCCUPANCY: 97% 94% LEASING DATA: Available Leasing Terms 6 to 13 months 8 to 12 months Concessions 1/2 month off selected units $100 off first month's rent Pet Deposit $300/$20Mnth 300/$18 Mnth Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas X Water Trash X Water Trash Confirmation Sara Poole/Property Manager Sharon Gossard/Property Manager Telephone Number 615,646,0533 615.352.6444 NOTES: Renovated in 1997 COMPARISON TO SUBJECT: Similar COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 - ----------------------------------------------------------------------------------------------------------------------------- Property Name Iroquois Archstone at Bellevue Management Company Edwin B. Raskin Archstone Communities LOCATION: Address 111 Old Hickory Road 1000 Amberwood Circle City, State Nashville, TN Nashville, TN County Davidson Davidson Proximity to Subject Approx. 1.2 miles east of subject Approx. 2.3 miles northeast of subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 463,984 291,600 Year Built 1967 1986 Effective Age 36 5 Building Structure Type Brick & wood siding walls; asphalt Brick & wood siding walls; asphalt shingle roof shingle roof Parking Type (Gr., Cov., etc.) Open Open Open Number of Units 376 225 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 2 1Br/1Ba 820 80 $568 6 1Br/1Ba 800 15 $ 689 6 2Br/2Ba 1,257 196 $699 7 2Br/1Ba 1,223 162 $ 879 7 3 Br/2.5Ba 1,519 100 $811 8 3Br/2.5Ba 1,697 48 $1,077 Average Unit Size (SF) 1,234 1,296 Unit Breakdown: Efficiency 0% 2-Bedroom 52% Efficiency 0% 2-Bedroom 72% 1-Bedroom 21% 3-Bedroom 27% 1-Bedroom 7% 3-Bedroom 21% CONDITION: Average Good APPEAL: Fair Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling Balcony X X Balcony X X Fireplace X Fireplace X X Cable TV Ready X Cable TV Ready Storage Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash X Basketball Court BBQ Equipment X Basketball Court X BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball X Meeting Hall Sand Volley Ball X Meeting Hall X Tennis Court Secured Parking X Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track Business Office Jogging Track Business Office X Gym Room X Gym Room OCCUPANCY: 90% 96% LEASING DATA: Available Leasing Terms 12 months 2 to 12 months Concessions $100 to $150 off selected units Discounting continuously on selected units Pet Deposit $250/$10 Months $200/$10 Months Utilities Paid by Tenant: X Electric Natural Gas X Electric X Natural Gas Water Trash X Water Trash Confirmation Lida Hunt/Property Manager Margaret Woody/Property Manager Telephone Number 615.662.0667 615.662.1600 NOTES: None Renovated in 1999 COMPARISON TO SUBJECT: Inferior Superior COMPARABLE COMPARABLE DESCRIPTION R - 4 R - 5 - ---------------------------------------------------------------------------------------------------------------------------- Property Name Creekwood Post Ridge Management Company Edwin B. Raskin AIMCO LOCATION: Address 7439 SR-70 South 595 Hicks Road City, State Nashville, TN Nashville, TN County Davidson Davidson Proximity to Subject Approx. 1.7 miles west of subject Approx.1.8 miles northeast of subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 230,400 223,340 Year Built 1971 1972 Effective Age 32 31 Building Structure Type Brick & wood siding walls; asphalt Brick & wood siding walls; asphalt shingle roof shingle roof Parking Type (Gr., Cov., etc.) Open Open Open Number of Units 200 150 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 2 1Br/1Ba 744 48 $570 6 2Br/2Ba 1,375 56 $699 6 2Br/2Ba 1,211 126 $697 7 2Br/2.5Ba 1,280 21 $749 7 3Br/2.5Ba 1,620 26 $885 6 2Br/3Ba 1,580 24 $789 8 3Br/2Ba 1,550 24 $779 8 3Br/2.5Ba 1,550 12 $849 8 3Br/3Ba 1,980 13 $989 Average Unit Size (SF) 1,152 1,489 Unit Breakdown: Efficiency 0% 2-Bedroom 63% Efficiency 0% 2-Bedroom 67% 1-Bedroom 24% 3-Bedroom 13% 1-Bedroom 0% 3-Bedroom 33% CONDITION: Average Average APPEAL: Average Average AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X Balcony X X Fireplace X Fireplace X X Cable TV Ready X Cable TV Ready Storage Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court X 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 Business Office Jogging Track Business Office Gym Room X Gym Room OCCUPANCY: 97% 98% LEASING DATA: Available Leasing Terms 6 to 12 months 6 to 12 months Concessions $100 to $150 on selected units Discount on selected units Pet Deposit $250/$10 Months $300/$20 Months Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas Water Trash X Water Trash Confirmation Elizabeth Chapman/Property Manager Lisa Palmer/Property Manager Telephone Number 615.662.1600 615.646.1771 NOTES: None None COMPARISON TO SUBJECT: Similar Inferior
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B KNOLLWOOD, NASHVILLE, TENNESSEE PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 LEGACY HILL 501 Shadowood Drive Nashville, TN [PICTURE] COMPARABLE R-2 IROQUOIS 111 Old Hickory Road Nashville, TN [PICTURE] COMPARABLE R-3 ARCHSTONE AT BELLEVUE 1000 Amberwood Circle Nashville, TN [PICTURE] COMPARABLE R-4 CREEKWOOD 7439 SR-70 South Nashville, TN [PICTURE] COMPARABLE R-5 POST RIDGE 595 Hicks Road Nashville, TN [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C KNOLLWOOD, NASHVILLE, TENNESSEE EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C KNOLLWOOD, NASHVILLE, TENNESSEE 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 KNOLLWOOD, NASHVILLE, TENNESSEE 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 KNOLLWOOD, NASHVILLE, TENNESSEE 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 KNOLLWOOD, NASHVILLE, TENNESSEE 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. Daniel Salcedo 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 Tennessee Temporary Practice Permit #00053573 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E KNOLLWOOD, NASHVILLE, TENNESSEE EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E KNOLLWOOD, NASHVILLE, TENNESSEE 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 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E KNOLLWOOD, NASHVILLE, TENNESSEE STATE State of Arizona, Certified General Real Estate Appraiser, CERTIFICATIONS #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 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. KNOLLWOOD, NASHVILLE, TENNESSEE GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. KNOLLWOOD, NASHVILLE, TENNESSEE 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)(9) 11 d07256a1exv99wxcyx9y.txt APPRAISAL OF LAKE FOREST APARTMENTS LAKE FOREST 11402 EVANS STREET OMAHA, NEBRASKA 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] JUNE 27, 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: LAKE FOREST 11402 EVANS STREET OMAHA, DOUGLAS COUNTY, NEBRASKA In accordance with your authorization, we have completed the appraisal of the above-referenced property. This complete appraisal is intended to report our analysis and conclusions in a summary format. The subject property consists of an apartment project having 312 units with a total of 300,300 square feet of rentable area. The improvements were built in 1973. The improvements are situated on 21.17775482 acres. Overall, the improvements are in average condition. As of the date of this appraisal, the subject property is 96% 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 LAKE FOREST, OMAHA, NEBRASKA 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: ($12,200,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. June 27, 2003 -s- Jeff W. Briggs #053272 ---------------------- Jeff W. Briggs, MAI Engagement Director, Real Estate Group Nebraska Certified General Real Estate Appraiser #CG230072R Report By: Jeff W. Briggs AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 LAKE FOREST, OMAHA, NEBRASKA TABLE OF CONTENTS Cover Letter of Transmittal Table of Contents APPRAISAL DATA Executive Summary ......................................................... 4 Introduction .............................................................. 9 Area Analysis ............................................................. 11 Market Analysis ........................................................... 14 Site Analysis ............................................................. 16 Improvement Analysis ...................................................... 16 Highest and Best Use ...................................................... 17 VALUATION Valuation Procedure ....................................................... 18 Sales Comparison Approach ................................................. 20 Income Capitalization Approach ............................................ 26 Reconciliation and Conclusion ............................................. 37
ADDENDA Exhibit A - Photographs of Subject Property Exhibit B - Summary of Rent Comparables and Photograph of Comparables Exhibit C - Assumptions and Limiting Conditions Exhibit D - Certificate of Appraiser Exhibit E - Qualifications General Service Conditions AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 4 LAKE FOREST, OMAHA, NEBRASKA EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Lake Forest LOCATION: 11402 Evans Street Omaha, Nebraska INTENDED USE OF ASSIGNMENT: Court Settlement PURPOSE OF APPRAISAL: "As Is" Market Value of the Fee Simple Estate INTEREST APPRAISED: fee simple DATE OF VALUE: May 12, 2003 DATE OF REPORT: June 27, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 21.1777548209366 acres, or 922,503 square feet Assessor Parcel No.: 0139 1538 16; 0139 1598 16 Floodplain: Community Panel No. 315274 0025 F (February 6, 1991) Flood Zone AE, an area inside the floodplain. Zoning: R2, R6, DR, DR-FP (Single Family Residential District (R2), Low Density Multiple Family Residential District (R6 & R6 PUD), Drainage (DR & DR-FP)) BUILDING: No. of Units: 312 Units Total NRA: 300,300 Square Feet Average Unit Size: 963 Square Feet Apartment Density: 14.7 units per acre Year Built: 1973 UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
Market Rent Square ----------------- Monthly Annual Unit Type Feet Per Unit Per SF Income Income - ----------------------------------------------------------------------- 1 Bd/1 Bath (1A10) 850 $520 $0.61 $ 81,120 $ 973,440 2 Bd/1.5 Ba (2A20) 1,075 $640 $0.60 $ 99,840 $1,198,080 --------------------- Total $180,960 $2,171,520 =====================
OCCUPANCY: 96% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 25 Years
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 LAKE FOREST, OMAHA, NEBRASKA REMAINING ECONOMIC LIFE: 20 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [PICTURE] EXTERIOR - SIGNAGE AND VIEW FROM WEST MAPLE AVENUE [PICTURE] EXTERIOR - APARTMENT BUILDING AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 LAKE FOREST, OMAHA, NEBRASKA 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 LAKE FOREST, OMAHA, NEBRASKA PART TWO - ECONOMIC INDICATORS
Amount $/Unit ------------- ---------- INCOME CAPITALIZATION APPROACH DIRECT CAPITALIZATION Potential Rental Income $2,171,520 $6,960 Effective Gross Income $2,284,838 $7,323 Operating Expenses $1,109,522 $3,556 48.6% of EGI Net Operating Income: $1,112,916 $3,567 Capitalization Rate 9.25% DIRECT CAPITALIZATION VALUE $11,900,000 * $38,141 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 9% Stabilized Vacancy & Collection Loss: 8% Lease-up / Stabilization Period N/A Terminal Capitalization Rate 10.00% Discount Rate 11.50% Selling Costs 2.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $12,400,000 * $39,744 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $12,200,000 $39,103 / UNIT SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $29,545 to $48,817 Range of Sales $/Unit (Adjusted) $37,444 to $40,615 VALUE INDICATION - PRICE PER UNIT $12,100,000 * $38,782 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 5.27 to 6.08 Selected EGIM for Subject 5.40 Subject's Projected EGI $2,284,838 EGIM ANALYSIS CONCLUSION $12,200,000 * $39,103 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $11,900,000 * $38,141 / UNIT RECONCILED SALES COMPARISON VALUE $12,000,000 $38,462 / 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 LAKE FOREST, OMAHA, NEBRASKA PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $12,100,000 NOI Per Unit $11,900,000 EGIM Multiplier $12,200,000 INDICATED VALUE BY SALES COMPARISON $12,000,000 $38,462 / UNIT INCOME APPROACH: Direct Capitalization Method: $11,900,000 Discounted Cash Flow Method: $12,400,000 INDICATED VALUE BY THE INCOME APPROACH $12,200,000 $39,103 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $12,200,000 $39,103 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 LAKE FOREST, OMAHA, NEBRASKA INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 11402 Evans Street, Omaha, Douglas County, Nebraska. Omaha identifies it as 0139 1538 16; 0139 1598 16. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Jeff Briggs, MAI on May 12, 2003. Jeff W. Briggs, MAI made a personal inspection of the subject property, performed the research, valuation analysis and wrote the report. Jeff Briggs, MAI 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 12, 2003. The date of the report is June 27, 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 LAKE FOREST, OMAHA, NEBRASKA "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 CCP 4. 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 LAKE FOREST, OMAHA, NEBRASKA 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 Omaha, Nebraska. 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 - North 90th Street West - North 120th Street South - Blondo Street North - Fort Street MAJOR EMPLOYERS Major employers in the subject's area include Offutt Air Force Base, Alergent Health, Omaha Public Schools, First Data Corporation Methodist Health System, Mutual of Omaha Companies, ConAgra Foods Inc., and Union Pacific Railroad. 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 LAKE FOREST, OMAHA, NEBRASKA NEIGHBORHOOD DEMOGRAPHICS
AREA ---------------------------------------- CATEGORY 1-Mi. RADIUS 3-Mi. RADIUS 5-Mi. RADIUS MSA - --------------------------------------------------------------------------------- POPULATION TRENDS Current Population 11,579 82,147 186,606 729,638 5-Year Population 12,714 89,535 198,042 763,780 % Change CY-5Y 9.8% 9.0% 6.1% 4.7% Annual Change CY-5Y 2.0% 1.8% 1.2% 0.9% HOUSEHOLDS Current Households 5,347 35,155 76,296 282,018 5-Year Projected Households 6,057 38,880 82,269 298,876 % Change CY - 5Y 13.3% 10.6% 7.8% 6.0% Annual Change CY-5Y 2.7% 2.1% 1.6% 1.2% INCOME TRENDS Median Household Income $ 50,314 $ 57,569 $ 58,160 $ 45,791 Per Capita Income $ 25,130 $ 30,381 $ 29,064 $ 23,281 Average Household Income $ 54,711 $ 71,004 $ 71,221 $ 60,232
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 55.37% 39.28% 32.16% 31.64% 5-Year Projected % Renting 48.74% 38.39% 32.08% 31.18% % of Households Owning 40.73% 57.17% 64.38% 62.25% 5-Year Projected % Owning 47.78% 58.38% 64.72% 63.04%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 LAKE FOREST, OMAHA, NEBRASKA SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - single family residential South - single family residential East - commercial uses West - single family residential CONCLUSIONS The subject is well located within the city of Omaha. 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 LAKE FOREST, OMAHA, NEBRASKA MARKET ANALYSIS The subject property is located in the city of Omaha in Douglas County. The overall pace of development in the subject's market is more or less decreasing. There are no new units under construction in the subject's neighborhood as the area is effectively built out. The following table illustrates historical occupancy rates for the subject's market. HISTORICAL OCCUPANCY
Period Region Submarket - --------------------------------- Fall 1998 95.0% 88.0% Spring 1999 98.0% N/A Fall 1999 94.0% 94.0% Spring 2000 94.0% N/A Fall 2000 94.0% 92.0% Spring 2001 94.0% N/A Fall 2001 94.0% 93.0% Spring 2002 93.0% N/A Fall 2002 93.0% 92.0% Spring 2003 93.0% 92.0%
Source: Fall 2002 IREM, & Christopher Mustoe with C. Mustoe Appraisals Occupancy trends in the subject's market are decreasing. Historically speaking, the subject's submarket has equated the overall market. Concessions in the market are not widespread but are showing up in some projects. Population growth in the area is still occurring, however, the current high unemployment rate probably promotes some doubling up or shared apartments. The economic uncertainty may also be forcing younger people to delay moving out on their own. As this market segment is historically one of the larger segments of apartment dwellers, future "pent-up" demand may be building up, hopefully to surface when the economy recovers. 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 - -------------------------------------------------------------------- Fall 2001 - 1 Bedroom $536 - $558 - Fall 2002 - 1 Bedroom $540 0.7% $556 -0.4% Fall 2001 - 2 Bedroom $669 23.9% $695 25.0% Fall 2002 - 2 Bedroom $681 1.8% $704 1.3%
AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 LAKE FOREST, OMAHA, NEBRASKA 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 Maple Manor 259 90% 1968 1.8 miles east of the subject R-2 Laurelwood Apartment Homes & Townhomes 480 94% 1969 3.0 miles northeast of the subject R-3 Tudor Heights Apartments 418 96% 1970s 1.3-miles northeast of the subject R-4 Hidden Valley Apartments Townhomes 246 96% 1978 1.2-miles northeast of the subject R-5 Picadilly Square Apartments N/A 95% Early 1980s 1 block south of the subject Subject Lake Forest 312 96% 1973
While rents have declined or remained stable over the last two years, there has been a steady progression upward in rents going back to 1991. The data going back 10 years indicates rental rates that are growing in-line with inflation. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 LAKE FOREST, OMAHA, NEBRASKA PROPERTY DESCRIPTION SITE ANALYSIS Site Area 21.1777548209366 acres, or 922,503 square feet Shape Irregular Topography Moderate slope 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 315274 0025 F, dated February 6, 1991 Flood Zone Zone AE Zoning R2, R6, DR, DR-FP, the subject improvements represent a legal conforming use of the site. REAL ESTATE TAXES
ASSESSED VALUE - ---------------------------------- TAX RATE / PROPERTY PARCEL NUMBER LAND BUILDING TOTAL MILL RATE TAXES - -------------------------------------------------------------------------------- 0139 1538 16; NA $10,020,100 $10,020,100 $0.02043 $204,685 0139 1598 16
IMPROVEMENT ANALYSIS Year Built 1973 Number of Units 312 Net Rentable Area 300,300 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, tennis court, gym room, tanning bed, playground, detached garages, meeting hall, laundry room, business office, and parking area. Unit Amenities Individual unit amenities include a balcony, fireplace, cable TV connection, and washer dryer connection. Appliances available in each unit include a refrigerator, stove, AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 LAKE FOREST, OMAHA, NEBRASKA dishwasher, and oven. Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) - ------------------------------------------------ 1 Bd/1 Bath (1A10) 156 850 2 Bd/1.5 Ba (2A20) 156 1,075
Overall Condition Average Effective Age 25 years Economic Life 45 years Remaining Economic Life 20 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 1973 and consist of a 312-unit multifamily project. The highest and best use as improved is for a continued multifamily use. Overall, the highest and best use of the subject property is the continued use of the existing apartment project. AMERICAN APPRAISAL ASSOCIATES, INC. VALUATION PROCEDURE PAGE 18 LAKE FOREST, OMAHA, NEBRASKA 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 LAKE FOREST, OMAHA, NEBRASKA 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 LAKE FOREST, OMAHA, NEBRASKA 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 LAKE FOREST, OMAHA, NEBRASKA SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - ------------------------------------------------------------------------------------------------------------------------ Property Name Lake Forest Chalet Apartments & Townhomes Orchard Park Apartments LOCATION: Address 11402 Evans Street 3810 North 108th Street 7805-7809 Harney Street City, State Omaha, Nebraska Omaha, Nebraska Omaha, Nebraska County Douglas Douglas Douglas PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 300,300 236,510 33,910 Year Built 1973 1978 1980 Number of Units 312 246 44 Unit Mix: Type Total Type Total Type Total 1 Bd/1 Bath (1A10) 156 1 Br/1 Ba - apts. 80 N/A 2 Bd/1.5 Ba (2A20) 156 2 Br/1 Ba - apts. 16 1 Br/1 Ba - twnhm. 24 1 Br/1 Ba - twnhm. 20 1 Br/1.5Ba -twnhm. 52 2 Br/1.5Ba -twnhm. 17 2 Br/1.5Ba -twnhm. 8 2 Br/1.5Ba -twnhm. 12 2 Br/2.5 Ba-twnhm. 5 2 Br/2.5 Ba-twnhm. 12 Average Unit Size (SF) 963 961 771 Land Area (Acre) 21.1778 23.2247 1.7677 Density (Units/Acre) 14.7 10.6 24.9 Parking Ratio (Spaces/Unit) 0.00 N/A 1.64 Parking Type (Gr., Cov., etc.) Garage and open Garage and open Garage and open CONDITION: Average Average Average APPEAL: Average Average Average AMENITIES: Pool/Spa Yes/Yes Yes/Yes No/No Gym Room Yes Yes No Laundry Room Yes Yes No Secured Parking No No No Sport Courts Yes No No Washer/Dryer Connection No Yes Yes OCCUPANCY: 96% 94% 93% TRANSACTION DATA: Sale Date January, 2003 July, 2002 Sale Price ($) $9,600,000 $1,300,000 Grantor Chalet Investments, LLP LK Company LLC Grantee Hidden Valley Investments, LLC J B Conway, Trustee Sale Documentation Book 2231, Page 258 Book 2217, Page 325 Verification Confidential Confidential Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF ------- ------ ---- ------- ------ ---- Potential Gross Income $1,979,362 $8,046 $8.37 $253,982 $5,772 $7.49 Vacancy/Credit Loss $ 158,349 $ 644 $0.67 $ 22,858 $ 520 $0.67 ---------- ------ ----- -------- ------ ----- Effective Gross Income $1,821,013 $7,402 $7.70 $231,124 $5,253 $6.82 Operating Expenses $ 905,772 $3,682 $3.83 $112,806 $2,564 $3.33 ---------- ------ ----- -------- ------ ----- Net Operating Income $ 915,241 $3,720 $3.87 $118,318 $2,689 $3.49 ---------- ------ ----- -------- ------ ----- NOTES: Property contains 96 apt. Expenses include $200/unit units, 150 townhome units, reserve. Exposure time was & 15,494 SF comm. bldg. Expenses less than 6 months. include $200/u reserves PRICE PER UNIT $39,024 $29,545 PRICE PER SQUARE FOOT $ 40.59 $38.34 EXPENSE RATIO 49.7% 48.8% EGIM 5.27 5.62 OVERALL CAP RATE 9.53% 9.10% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA
COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 - ----------------------------------------------------------------------------------------------------------------------------- Property Name Brent Village Apartments Fontenelle Hills Apartments 1001 Apartments LOCATION: Address 1402-1510 Buck Drive 200 Martin Drive 1001 North 90th Street City, State Bellevue, Nebraska Bellevue, Nebraska Omaha, Nebraska County Sarpy Sarpy Doughas PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 147,320 379,819 111,805 Year Built 1971 1974 1969 Number of Units 180 338 110 Unit Mix: Type Total Type Total Type Total N/A N/A 1 Br/1Ba 55 2Br/2Ba 55 3Br/2Ba 110 Average Unit Size (SF) 818 1,124 1,016 Land Area (Acre) 9.2800 35.0700 4.5400 Density (Units/Acre) 19.4 9.6 24.2 Parking Ratio (Spaces/Unit) N/A N/A N/A Parking Type (Gr., Cov., etc.) Garage and open Garage and open Open, Covered CONDITION: Fair Good Average APPEAL: Average Average Average AMENITIES: Pool/Spa Yes/No Yes/No Yes/No Gym Room No Yes No Laundry Room Yes Yes Yes Secured Parking No No No Sport Courts No No No Washer/Dryer Connection Yes Yes Yes OCCUPANCY: 95% 97% 95% TRANSACTION DATA: Sale Date July, 2002 May, 2001 April, 2000 Sale Price ($) $5,970,000 $16,500,000 $4,315,000 Grantor Brent Village Associates, LLC Continental Fontenelle Inc. 90th Street Associates Grantee BV Associates LLC Haley Fontenelle Hills, LP Keystone Properties III, L.L.C. Sale Documentation Book 2002, Page 24483 Book 2002, Page 15007 Book 2150, Page 188 Verification Confidential Confidential Confidential Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF ---------- ------ ----- ---------- ------ ----- -------- ------ ----- Potential Gross Income $1,155,097 $6,417 $7.84 $2,969,923 $8,787 $7.82 $763,441 $6,940 $6.83 Vacancy/Credit Loss $ 80,857 $ 449 $0.55 $ 207,895 $ 615 $0.55 $ 53,441 $ 486 $0.48 ---------- ------ ----- ---------- ------ ----- -------- ------ ----- Effective Gross Income $1,074,240 $5,968 $7.29 $2,762,028 $8,172 $7.27 $710,000 $6,455 $6.35 Operating Expenses $ 519,408 $2,886 $3.53 $1,196,293 $3,539 $3.15 $304,200 $2,765 $2.72 ---------- ------ ----- ---------- ------ ----- -------- ------ ----- Net Operating Income $ 554,832 $3,082 $3.77 $1,565,735 $4,632 $4.12 $405,800 $3,689 $3.63 ---------- ------ ----- ---------- ------ ----- -------- ------ ----- NOTES: Expenses include $200/unit Expenses include $200/unit Expenses include $200/unit reserve. Exposure time was reserve. Exposure time was reserve. Exposure time is not less than 6 months. Property approx. 12 months. available. underwent moderate rehab. Property was renovated. PRICE PER UNIT $33,167 $48,817 $39,227 PRICE PER SQUARE FOOT $ 40.52 $ 43.44 $ 38.59 EXPENSE RATIO 48.4% 43.3% 42.8% EGIM 5.56 5.97 6.08 OVERALL CAP RATE 9.29% 9.49% 9.40% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA PRO FORMA
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 LAKE FOREST, OMAHA, NEBRASKA IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $29,545 to $48,817 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 $37,444 to $40,615 per unit with a mean or average adjusted price of $38,977 per unit. The median adjusted price is $39,286 per unit. Based on the following analysis, we have concluded to a value of $39,000 per unit, which results in an "as is" value of $12,100,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 LAKE FOREST, OMAHA, NEBRASKA SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - ------------------------------------------------------------------------------------------------------------------ Property Name Lake Forest Chalet Apartments & Townhomes Orchard Park Apartments Address 11402 Evans Street 3810 North 108th Street 7805-7809 Harney Street City Omaha, Nebraska Omaha, Nebraska Omaha, Nebraska Sale Date January, 2003 July, 2002 Sale Price ($) $9,600,000 $1,300,000 Net Rentable Area (SF) 300,300 236,510 33,910 Number of Units 312 246 44 Price Per Unit $39,024 $29,545 Year Built 1973 1978 1980 Land Area (Acre) 21.1778 23.2247 1.7677 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 01-2003 1% 07-2002 3% VALUE AFTER TRANS. ADJUST. ($/UNIT) $39,415 $30,432 Location Comparable 0% Comparable 0% Number of Units 312 246 0% 44 0% Quality / Appeal Average Superior -5% Comparable 0% Age / Condition 1973 1978 / Average 0% 1980 / Average 0% Occupancy at Sale 96% 94% 0% 93% 0% Amenities Pool, tennis, garages Comparable 0% Comparable 0% Average Unit Size (SF) 963 961 0% 771 25% PHYSICAL ADJUSTMENT -5% 25% FINAL ADJUSTED VALUE ($/UNIT) $37,444 $38,040 COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 - -------------------------------------------------------------------------------------------------------------------- Property Name Brent Village Apartments Fontenelle Hills Apartments 1001 Apartments Address 1402-1510 Buck Drive 200 Martin Drive 1001 North 90th Street City Bellevue, Nebraska Bellevue, Nebraska Omaha, Nebraska Sale Date July, 2002 May, 2001 April, 2000 Sale Price ($) $5,970,000 $16,500,000 $4,315,000 Net Rentable Area (SF) 147,320 379,819 111,805 Number of Units 180 338 110 Price Per Unit $33,167 $48,817 $39,227 Year Built 1971 1974 1969 Land Area (Acre) 9.2800 35.0700 4.5400 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) 07-2002 3% 05-2001 4% 04-2000 6% VALUE AFTER TRANS. ADJUST. ($/UNIT) $34,162 $50,769 $41,581 Location Comparable 0% Comparable 0% Comparable 0% Number of Units 180 0% 338 0% 110 0% Quality / Appeal Comparable 0% Superior -5% Superior -5% Age / Condition 1971 / Fair 0% 1974 / Good 0% 1969 / Average 0% Occupancy at Sale 95% 0% 97% 0% 95% 0% Amenities Comparable 0% Comparable 0% Comparable 0% Average Unit Size (SF) 818 15% 1,124 -15% 1,016 0% PHYSICAL ADJUSTMENT 15% -20% -5% FINAL ADJUSTED VALUE ($/UNIT) $39,286 $40,615 $39,502
SUMMARY VALUE RANGE (PER UNIT) $37,444 TO $40,615 MEAN (PER UNIT) $38,977 MEDIAN (PER UNIT) $39,286 VALUE CONCLUSION (PER UNIT) $39,000
VALUE OF IMPROVEMENT & MAIN SITE $12,168,000 PV OF CONCESSIONS -$ 114,000 VALUE INDICATED BY SALES COMPARISON APPROACH $12,054,000 ROUNDED $12,100,000
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 LAKE FOREST, OMAHA, NEBRASKA 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-1 246 $ 9,600,000 9.53% $ 915,241 $1,112,916 0.959 $37,415 $ 39,024 $ 3,720 $ 3,567 I-2 44 $ 1,300,000 9.10% $ 118,318 $1,112,916 1.327 $39,192 $ 29,545 $ 2,689 $ 3,567 I-3 180 $ 5,970,000 9.29% $ 554,832 $1,112,916 1.157 $38,381 $ 33,167 $ 3,082 $ 3,567 I-4 338 $16,500,000 9.49% $1,565,735 $1,112,916 0.770 $37,590 $ 48,817 $ 4,632 $ 3,567 I-5 110 $ 4,315,000 9.40% $ 405,800 $1,112,916 0.967 $37,929 $ 39,227 $ 3,689 $ 3,567
PRICE/UNIT
Low High Average Median $37,415 $39,192 $38,102 $37,929
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT Estimated Price Per Unit $ 38,500 Number of Units 312 Value $12,012,000 PV of Concessions -$ 114,000 ----------- Value Based on NOI Analysis $11,898,000 Rounded $11,900,000
The adjusted sales indicate a range of value between $37,415 and $39,192 per unit, with an average of $38,102 per unit. Based on the subject's competitive position within the improved sales, a value of $38,500 per unit is estimated. This indicates an "as is" market value of $11,900,000 (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 LAKE FOREST, OMAHA, NEBRASKA 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-1 246 $ 9,600,000 $1,821,013 $ 905,772 49.74% 5.27 $ 39,024 I-2 44 $ 1,300,000 $ 231,124 $ 112,806 48.81% 5.62 $ 29,545 I-3 180 $ 5,970,000 $1,074,240 $ 519,408 48.35% 48.56% 5.56 $ 33,167 I-4 338 $16,500,000 $2,762,028 $1,196,293 43.31% 5.97 $ 48,817 I-5 110 $ 4,315,000 $ 710,000 $ 304,200 42.85% 6.08 $ 39,227
EGIM
Low High Average Median - --- ---- ------- ------ 5.27 6.08 5.70 5.62
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES Estimate EGIM 5.40 Subject EGI $ 2,284,838 Value $12,338,127 PV of Concessions -$ 114,000 ----------- Value Based on EGIM Analysis $12,224,127 Rounded $12,200,000 Value Per Unit $ 39,103
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 48.56% before reserves. The comparable sales indicate a range of expense ratios from 42.85% to 49.74%, while their EGIMs range from 5.27 to 6.08. Overall, we conclude to an EGIM of 5.40, which results in an "as is" value estimate in the EGIM Analysis of $12,200,000. SALES COMPARISON CONCLUSION The three valuation methods in the Sales Comparison Approach are shown below. The overall value via the Sales Comparison Approach is estimated at $12,000,000. Price Per Unit $12,100,000 NOI Per Unit $11,900,000 EGIM Analysis $12,200,000 Sales Comparison Conclusion $12,000,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 LAKE FOREST, OMAHA, NEBRASKA 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 LAKE FOREST, OMAHA, NEBRASKA 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 - ---------------------------------------------------------- 1 Bd/1 Bath (1A10) 850 $534 $0.63 94.9% 2 Bd/1.5 Ba (2A20) 1075 $644 $0.60 96.2%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 LAKE FOREST, OMAHA, NEBRASKA RENT ANALYSIS
COMPARABLE RENTS ---------------------------------------------------- R-1 R-2 R-3 R-4 R-5 ---------------------------------------------------- Laurelwood Hidden Apartments Tudor Valley Picadilly Maple Homes & Heights Apartments Square Manor Townhomes Apartments Townhomes Apartments ---------------------------------------------------- COMPARISON TO SUBJECT SUBJECT SUBJECT --------------------------------------------------- SUBJECT UNIT ACTUAL ASKING Slightly Slightly Slightly DESCRIPTION TYPE RENT RENT Inferior Inferior Similar Similar Superior MIN MAX MEDIAN AVERAGE - --------------------------------------------------------------------------------------------------------------------------- Monthly Rent 1 Bd/1 BATH $ 534 $ 517 $ 535 $ 490 $ 465 $ 500 $ 525 $ 465 $ 535 $ 500 $ 503 Unit Area (SF) (1A10) 850 850 830 850 750 780 750 750 850 780 792 Monthly Rent Per Sq. Ft. $ 0.63 $ 0.61 $ 0.64 $ 0.58 $ 0.62 $0.64 $ 0.70 $0.58 $ 0.70 $ 0.64 $ 0.64 Monthly Rent 2 Bd/1.5 Ba $ 644 $ 635 $ 595 $ 587 $ 610 $ 580 $ 650 $ 580 $ 650 $ 595 $ 604 Unit Area (SF) (2A20) 1,075 1,075 1,000 1,025 1,050 850 1,100 850 1,100 1,025 1,005 Monthly Rent Per Sq. Ft. $ 0.60 $ 0.59 $ 0.60 $ 0.57 $ 0.58 $0.68 $ 0.59 $0.57 $ 0.68 $ 0.59 $ 0.60
CONCLUDED MARKET RENTAL RATES AND TERMS Based on this analysis above, the subject's concluded market rental rates and gross rental income is calculated as follows: GROSS RENTAL INCOME PROJECTION
Market Rent Unit Area ---------------- Monthly Annual Unit Type Number of Units (Sq. Ft.) Per Unit Per SF Income Income - -------------------------------------------------------------------------------------- 1 Bd/1 Bath (1A10) 156 850 $520 $0.61 $ 81,120 $ 973,440 2 Bd/1.5 Ba (2A20) 156 1,075 $640 $0.60 $ 99,840 $1,198,080 ---------------------------- Total $180,960 $2,171,520 ============================
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 LAKE FOREST, OMAHA, NEBRASKA 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 $2,357,163 $7,555 $2,320,936 $7,439 $2,276,168 $7,295 $2,373,354 $7,607 Vacancy $ 263,182 $ 844 $ 199,296 $ 639 $ 157,997 $ 506 $ 129,800 $ 416 Credit Loss/Concessions $ 269,272 $ 863 $ 104,836 $ 336 $ 55,004 $ 176 $ 52,400 $ 168 ---------------------------------------------------------------------------------------- Subtotal $ 532,454 $1,707 $ 304,132 $ 975 $ 213,001 $ 683 $ 182,200 $ 584 Laundry Income $ 26,294 $ 84 $ 24,455 $ 78 $ 27,174 $ 87 $ 39,931 $ 128 Garage Revenue $ 49,282 $ 158 $ 49,465 $ 159 $ 53,139 $ 170 $ 0 $ 0 Other Misc. Revenue $ 155,339 $ 498 $ 146,828 $ 471 $ 201,324 $ 645 $ 223,274 $ 716 ---------------------------------------------------------------------------------------- Subtotal Other Income $ 230,915 $ 740 $ 220,748 $ 708 $ 281,637 $ 903 $ 263,205 $ 844 ---------------------------------------------------------------------------------------- Effective Gross Income $2,055,624 $6,589 $2,237,552 $7,172 $2,344,804 $7,515 $2,454,359 $7,867 Operating Expenses Taxes $ 177,510 $ 569 $ 169,019 $ 542 $ 216,407 $ 694 $ 176,389 $ 565 Insurance $ 28,234 $ 90 $ 40,885 $ 131 $ 42,453 $ 136 $ 47,032 $ 151 Utilities $ 193,224 $ 619 $ 217,386 $ 697 $ 181,411 $ 581 $ 151,832 $ 487 Repair & Maintenance $ 159,874 $ 512 $ 163,454 $ 524 $ 135,036 $ 433 $ 149,355 $ 479 Cleaning $ 36,198 $ 116 $ 43,965 $ 141 $ 33,788 $ 108 $ 0 $ 0 Landscaping $ 35,905 $ 115 $ 31,035 $ 99 $ 31,913 $ 102 $ 79,040 $ 253 Security $ 5,878 $ 19 $ 6,958 $ 22 $ 1,290 $ 4 $ 0 $ 0 Marketing & Leasing $ 66,314 $ 213 $ 44,948 $ 144 $ 41,133 $ 132 $ 41,960 $ 134 General Administrative $ 283,210 $ 908 $ 368,338 $1,181 $ 284,674 $ 912 $ 318,387 $1,020 Management $ 109,833 $ 352 $ 128,878 $ 413 $ 117,208 $ 376 $ 120,707 $ 387 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------------------------------------------------------------------------------------- Total Operating Expenses $1,096,180 $3,513 $1,214,866 $3,894 $1,085,313 $3,479 $1,084,702 $3,477 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------------------------------------------------------------------------------------- Net Income $ 959,444 $3,075 $1,022,686 $3,278 $1,259,491 $4,037 $1,369,657 $4,390 ANNUALIZED YEAR 2003 ---------------------- PROJECTION AAA PROJECTION --------------------------------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT % - ------------------------------------------------------------------------------- Revenues Rental Income $2,231,648 $7,153 $2,171,520 $6,960 100.0% Vacancy $ 141,068 $ 452 $ 130,291 $ 418 6.0% Credit Loss/Concessions $ 176,568 $ 566 $ 43,430 $ 139 2.0% -------------------------------------------------- Subtotal $ 317,636 $1,018 $ 173,722 $ 557 8.0% Laundry Income $ 31,536 $ 101 $ 29,640 $ 95 1.4% Garage Revenue $ 56,264 $ 180 $ 54,600 $ 175 2.5% Other Misc. Revenue $ 215,336 $ 690 $ 202,800 $ 650 9.3% -------------------------------------------------- Subtotal Other Income $ 303,136 $ 972 $ 287,040 $ 920 13.2% -------------------------------------------------- Effective Gross Income $2,217,148 $7,106 $2,284,838 $7,323 100.0% Operating Expenses Taxes $ 176,604 $ 566 $ 210,600 $ 675 9.2% Insurance $ 49,328 $ 158 $ 45,240 $ 145 2.0% Utilities $ 304,132 $ 975 $ 202,800 $ 650 8.9% Repair & Maintenance $ 95,884 $ 307 $ 137,280 $ 440 6.0% Cleaning $ 35,932 $ 115 $ 34,320 $ 110 1.5% Landscaping $ 4,500 $ 14 $ 32,760 $ 105 1.4% Security $ 0 $ 0 $ 0 $ 0 0.0% Marketing & Leasing $ 43,500 $ 139 $ 43,680 $ 140 1.9% General Administrative $ 278,996 $ 894 $ 288,600 $ 925 12.6% Management $ 112,368 $ 360 $ 114,242 $ 366 5.0% Miscellaneous $ 0 $ 0 $ 0 $ 0 0.0% -------------------------------------------------- Total Operating Expenses $1,101,244 $3,530 $1,109,522 $3,556 48.6% Reserves $ 0 $ 0 $ 62,400 $ 200 5.6% -------------------------------------------------- Net Income $1,115,904 $3,577 $1,112,916 $3,567 48.7%
REVENUES AND EXPENSES The subject's revenue and expense projections are displayed on the previous chart. Rental income is based on the market analysis previously discussed. Other income consists of forfeited deposits, laundry income, late rent payments, month to month fees, pet fees, vending machine revenue, etc. We forecasted the property's annual operating expenses after reviewing its historical performance at the subject property. We analyzed each item of expense and attempted to forecast amounts a typical informed investor would consider reasonable. VACANCY AND COLLECTION LOSS An investor is primarily interested in the annual revenue an income property is likely to produce over a specified period of time, rather than the income it could produce if it were always 100% occupied and all tenants were paying their rent in full and on time. An investor normally expects some income loss as tenants vacate, fail to pay rent, or pay their rent late. We have projected a stabilized vacancy and collection loss rate of 8% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30 LAKE FOREST, OMAHA, NEBRASKA 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 LAKE FOREST, OMAHA, NEBRASKA SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR - ------------------------------------------------------- I-1 Jan-03 94% $39,024 9.53% I-2 Jul-02 93% $29,545 9.10% I-3 Jul-02 95% $33,167 9.29% I-4 May-01 97% $48,817 9.49% I-5 Apr-00 95% $39,227 9.40% High 9.53% Low 9.10% Average 9.36%
Based on this information, we have concluded the subject's overall capitalization rate should be 9.25%. The terminal capitalization rate is applied to the net operating income estimated for the year following the end of the holding period. Based on the concluded overall capitalization rate, the age of the property and the surveyed information, we have concluded the subject's terminal capitalization rate to be 10.00%. Finally, the subject's discount rate or yield rate is estimated based on the previous investor survey and an examination of returns available on alternative investments in the market. Based on this analysis, the subject's discount rate is estimated to be 11.50%. HOLDING PERIOD The survey of investors indicates that most investors are completing either 10-year cash flows or extending the analysis to the end of the lease if it is more than 10-years. A 10-year period has been used in the analysis of the subject with the eleventh year stabilized NOI used to determine the reversion. SELLING COSTS Sales of similar size properties are typically accomplished with the aid of a broker and will also incur legal and other transaction related cost. Based on our survey of brokers and a review of institutional investor projections, an allowance of 2.00% of the sale amount is applied. DISCOUNTED CASH FLOW CONCLUSION Discounting the annual cash flows and the equity reversion at the selected rate of 11.50% indicates a value of $12,400,000. In this instance, the reversion figure contributes AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32 LAKE FOREST, OMAHA, NEBRASKA 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 LAKE FOREST, OMAHA, NEBRASKA DISCOUNTED CASH FLOW ANALYSIS LAKE FOREST
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 APR-2010 FISCAL YEAR 1 2 3 4 5 6 7 - ------------------------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $2,171,520 $2,236,666 $2,303,766 $2,372,879 $2,444,065 $2,517,387 $2,592,908 Vacancy $ 130,291 $ 134,200 $ 138,226 $ 142,373 $ 146,644 $ 151,043 $ 155,575 Credit Loss $ 43,430 $ 44,733 $ 46,075 $ 47,458 $ 48,881 $ 50,348 $ 51,858 Concessions $ 86,861 $ 44,733 $ 0 $ 0 $ 0 $ 0 $ 0 ---------------------------------------------------------------------------------------- Subtotal $ 260,582 $ 223,667 $ 184,301 $ 189,830 $ 195,525 $ 201,391 $ 207,433 Laundry Income $ 29,640 $ 30,529 $ 31,445 $ 32,388 $ 33,360 $ 34,361 $ 35,392 Garage Revenue $ 54,600 $ 56,238 $ 57,925 $ 59,663 $ 61,453 $ 63,296 $ 65,195 Other Misc. Revenue $ 202,800 $ 208,884 $ 215,151 $ 221,605 $ 228,253 $ 235,101 $ 242,154 ---------------------------------------------------------------------------------------- Subtotal Other Income $ 287,040 $ 295,651 $ 304,521 $ 313,656 $ 323,066 $ 332,758 $ 342,741 ---------------------------------------------------------------------------------------- EFFECTIVE GROSS INCOME $2,197,978 $2,308,650 $2,423,985 $2,496,705 $2,571,606 $2,648,754 $2,728,217 OPERATING EXPENSES: Taxes $ 210,600 $ 216,918 $ 223,426 $ 230,128 $ 237,032 $ 244,143 $ 251,467 Insurance $ 45,240 $ 46,597 $ 47,995 $ 49,435 $ 50,918 $ 52,446 $ 54,019 Utilities $ 202,800 $ 208,884 $ 215,151 $ 221,605 $ 228,253 $ 235,101 $ 242,154 Repair & Maintenance $ 137,280 $ 141,398 $ 145,640 $ 150,010 $ 154,510 $ 159,145 $ 163,919 Cleaning $ 34,320 $ 35,350 $ 36,410 $ 37,502 $ 38,627 $ 39,786 $ 40,980 Landscaping $ 32,760 $ 33,743 $ 34,755 $ 35,798 $ 36,872 $ 37,978 $ 39,117 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 43,680 $ 44,990 $ 46,340 $ 47,730 $ 49,162 $ 50,637 $ 52,156 General Administrative $ 288,600 $ 297,258 $ 306,176 $ 315,361 $ 324,822 $ 334,566 $ 344,603 Management $ 109,899 $ 115,433 $ 121,199 $ 124,835 $ 128,580 $ 132,438 $ 136,411 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $1,105,179 $1,140,571 $1,177,092 $1,212,405 $1,248,777 $1,286,240 $1,324,827 Reserves $ 62,400 $ 64,272 $ 66,200 $ 68,186 $ 70,232 $ 72,339 $ 74,509 ---------------------------------------------------------------------------------------- NET OPERATING INCOME $1,030,399 $1,103,807 $1,180,693 $1,216,114 $1,252,597 $1,290,175 $1,328,880 Operating Expense Ratio (% of EGI) 50.3% 49.4% 48.6% 48.6% 48.6% 48.6% 48.6% Operating Expense Per Unit $ 3,542 $ 3,656 $ 3,773 $ 3,886 $ 4,002 $ 4,123 $ 4,246
YEAR APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 8 9 10 11 - ---------------------------------------------------------------------------------------- REVENUE Base Rent $2,670,696 $2,750,817 $2,833,341 $2,918,341 Vacancy $ 160,242 $ 165,049 $ 170,000 $ 175,100 Credit Loss $ 53,414 $ 55,016 $ 56,667 $ 58,367 Concessions $ 0 $ 0 $ 0 $ 0 ------------------------------------------------- Subtotal $ 213,656 $ 220,065 $ 226,667 $ 233,467 Laundry Income $ 36,453 $ 37,547 $ 38,673 $ 39,834 Garage Revenue $ 67,151 $ 69,166 $ 71,241 $ 73,378 Other Misc. Revenue $ 249,418 $ 256,901 $ 264,608 $ 272,546 ------------------------------------------------- Subtotal Other Income $ 353,023 $ 363,614 $ 374,522 $ 385,758 ------------------------------------------------- EFFECTIVE GROSS INCOME $2,810,063 $2,894,365 $2,981,196 $3,070,632 OPERATING EXPENSES: Taxes $ 259,011 $ 266,782 $ 274,785 $ 283,029 Insurance $ 55,639 $ 57,309 $ 59,028 $ 60,799 Utilities $ 249,418 $ 256,901 $ 264,608 $ 272,546 Repair & Maintenance $ 168,837 $ 173,902 $ 179,119 $ 184,493 Cleaning $ 42,209 $ 43,476 $ 44,780 $ 46,123 Landscaping $ 40,291 $ 41,499 $ 42,744 $ 44,027 Security $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 53,721 $ 55,333 $ 56,992 $ 58,702 General Administrative $ 354,942 $ 365,590 $ 376,558 $ 387,854 Management $ 140,503 $ 144,718 $ 149,060 $ 153,532 Miscellaneous $ 0 $ 0 $ 0 $ 0 ------------------------------------------------- TOTAL OPERATING EXPENSES $1,364,572 $1,405,509 $1,447,674 $1,491,105 Reserves $ 76,744 $ 79,046 $ 81,418 $ 83,860 ------------------------------------------------- NET OPERATING INCOME $1,368,747 $1,409,809 $1,452,104 $1,495,667 Operating Expense Ratio (% of EGI) 48.6% 48.6% 48.6% 48.6% Operating Expense Per Unit $ 4,374 $ 4,505 $ 4,640 $ 4,779
Estimated Stabilized NOI $1,112,916 Sales Expense Rate 2.00% Months to Stabilized 1 Discount Rate 11.50% Stabilized Occupancy 94.0% Terminal Cap Rate 10.00%
Gross Residual Sale Price $14,956,667 Deferred Maintenance $ 0 Less: Sales Expense $ 299,133 Add: Excess Land $ 0 ----------- Other Adjustments $ 0 Net Residual Sale Price $14,657,534 ----------- PV of Reversion $ 4,935,285 Value Indicated By $12,447,178 Add: NPV of NOI $ 7,511,893 "DCF" Rounded $12,400,000 ----------- PV Total $12,447,178
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE - ------------------------------------------------------------------------------------------ TOTAL VALUE 11.00% 11.25% 11.50% 11.75% 12.00% - ------------------------------------------------------------------------------------------ TERMINAL CAP RATE 9.50% $13,126,640 $12,914,486 $12,706,930 $12,503,857 $12,305,154 9.75% $12,987,311 $12,778,256 $12,573,724 $12,373,601 $12,177,776 10.00% $12,854,948 $12,648,838 $12,447,178 $12,249,858 $12,056,768 10.25% $12,729,042 $12,525,733 $12,326,805 $12,132,151 $11,941,662 10.50% $12,609,131 $12,408,489 $12,212,165 $12,020,049 $11,832,038
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 34 LAKE FOREST, OMAHA, NEBRASKA INCOME LOSS DURING LEASE-UP The subject is currently near or at 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 $114,000 (rounded). This amount has been deducted from the Direct Capitalization analysis, as well as the Sales Comparison Approach value. DIRECT CAPITALIZATION METHOD After having projected the income and expenses for the property, the next step in the valuation process is to capitalize the net income into an estimate of value. The selected overall capitalization rate ("OAR") covers both return on and return of capital. It is the overall rate of return an investor expects. After considering the market transactions and the investor surveys, we previously conclude that an overall rate of 9.25% percent is applicable to the subject. The results of our direct capitalization analysis are as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 35 LAKE FOREST, OMAHA, NEBRASKA LAKE FOREST
TOTAL PER SQ. FT. PER UNIT %OF EGI - --------------------------------------------------------------------------------------------- REVENUE Base Rent $ 2,171,520 $ 7.23 $ 6,960 Less: Vacancy & Collection Loss 8.00% $ 173,722 $ 0.58 $ 557 Plus: Other Income Laundry Income $ 29,640 $ 0.10 $ 95 1.30% Garage Revenue $ 54,600 $ 0.18 $ 175 2.39% Other Misc. Revenue $ 202,800 $ 0.68 $ 650 8.88% --------------------------------------------- Subtotal Other Income $ 287,040 $ 0.96 $ 920 12.56% EFFECTIVE GROSS INCOME $ 2,284,838 $ 7.61 $ 7,323 OPERATING EXPENSES: Taxes $ 210,600 $ 0.70 $ 675 9.22% Insurance $ 45,240 $ 0.15 $ 145 1.98% Utilities $ 202,800 $ 0.68 $ 650 8.88% Repair & Maintenance $ 137,280 $ 0.46 $ 440 6.01% Cleaning $ 34,320 $ 0.11 $ 110 1.50% Landscaping $ 32,760 $ 0.11 $ 105 1.43% Security $ 0 $ 0.00 $ 0 0.00% Marketing & Leasing $ 43,680 $ 0.15 $ 140 1.91% General Administrative $ 288,600 $ 0.96 $ 925 12.63% Management 5.00% $ 114,242 $ 0.38 $ 366 5.00% Miscellaneous $ 0 $ 0.00 $ 0 0.00% TOTAL OPERATING EXPENSES $ 1,109,522 $ 3.69 $ 3,556 48.56% Reserves $ 62,400 $ 0.21 $ 200 2.73% --------------------------------------------- NET OPERATING INCOME $ 1,112,916 $ 3.71 $ 3,567 48.71% "GOING IN" CAPITALIZATION RATE 9.25% VALUE INDICATION $12,031,530 $40.07 $38,563 PV OF CONCESSIONS ($ 114,000) "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $11,917,530 ROUNDED $11,900,000 $39.63 $38,141
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 36 LAKE FOREST, OMAHA, NEBRASKA DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF - ----------------------------------------------------------- 8.50% $12,979,135 $13,000,000 $41,667 $43.29 8.75% $12,605,045 $12,600,000 $40,385 $41.96 9.00% $12,251,739 $12,300,000 $39,423 $40.96 9.25% $11,917,530 $11,900,000 $38,141 $39.63 9.50% $11,600,910 $11,600,000 $37,179 $38.63 9.75% $11,300,528 $11,300,000 $36,218 $37.63 10.00% $11,015,165 $11,000,000 $35,256 $36.63
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $11,900,000. CORRELATION AND CONCLUSION BY THE INCOME APPROACH The two methods used to estimate the market value of the subject property by the income approach resulted in the following indications of value: Discounted Cash Flow Analysis $12,400,000 Direct Capitalization Method $11,900,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $12,200,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 37 LAKE FOREST, OMAHA, NEBRASKA 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 $12,000,000 Income Approach $12,200,000 Reconciled Value $12,200,000
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: $12,200,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA LAKE FOREST, OMAHA, NEBRASKA ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A LAKE FOREST, OMAHA, NEBRASKA EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A LAKE FOREST, OMAHA, NEBRASKA SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - SIGNAGE AND VIEW FROM WEST MAPLE AVENUE EXTERIOR - APARTMENT BUILDING [PICTURE] [PICTURE] EXTERIOR - APARTMENTS AND GARAGES EXTERIOR - CLOSEUP OF APARTMENT ENTRANCE [PICTURE] [PICTURE] EXTERIOR - OFFICE EXTERIOR - SWIMMING POOL AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A LAKE FOREST, OMAHA, NEBRASKA SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] INTERIOR - OFFICE AND MEETING ROOM SPACE INTERIOR - 1 BEDROOM MODEL UNIT LIVING ROOM [PICTURE] [PICTURE] INTERIOR - 1 BEDROOM MODEL UNIT KITCHEN INTERIOR - 1 BEDROOM MODEL UNIT BATHROOM [PICTURE] [PICTURE] INTERIOR - 2 BEDROOM MODEL UNIT LIVING ROOM INTERIOR - 2 BEDROOM MODEL UNIT BEDROOM AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B LAKE FOREST, OMAHA, NEBRASKA EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B LAKE FOREST, OMAHA, NEBRASKA PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 CHALET APARTMENTS & TOWNHOMES ORCHARD PARK APARTMENTS BRENT VILLAGE APARTMENTS 3810 North 108th Street 7805-7809 Harney Street 1402-1510 Buck Drive Omaha, Nebraska Omaha, Nebraska Bellevue, Nebraska [PICTURE] [PICTURE] N/A COMPARABLE I-4 COMPARABLE I-5 FONTENELLE HILLS APARTMENTS 1001 APARTMENTS 200 Martin Drive 1001 North 90th Street Bellevue, Nebraska Omaha, Nebraska N/A [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B LAKE FOREST, OMAHA, NEBRASKA SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 - ---------------------------------------------------------------------------------------------------------------------------------- Property Name Lake Forest Maple Manor Management Company AIMCO The Goodman Group LOCATION: Address 11402 Evans Street 3022 1/2 North 97th Street City, State Omaha, Nebraska Omaha, Nebraska County Douglas Douglas Proximity to Subject 1.8 miles east of the subject PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 300,300 N/A Year Built 1973 1968 Effective Age 25 35 Building Structure Type Brick & vinyl siding walls; asphalt shingle Brick veneer, wood frame, asphalt shingle roof roof Parking Type (Gr., Cov., etc.) Garage and open Garage and open Number of Units 312 259 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1 Bd/1 Bath (1A10) 850 156 $534 0 1Bd / 1Ba-Studio #1 520 $460 2 2 Bd/1.5 Ba (2A20) 1,075 156 $644 0 1Bd / 1Ba-Studio #2 540 $485 1 1 Bd / 1 Bath 830 $535 2 2 Bd / 2 Bath 1,000 $595 0 3 Bd / 1.5 Bath 1,250 $815 0 3 Bd / 2 Bath 1,250 $850 Average Unit Size (SF) 963 Unit Breakdown: Efficiency 0% 2-Bedroom 50% Efficiency N/A 2-Bedroom N/A 1-Bedroom 50% 3-Bedroom 0% 1-Bedroom N/A 3-Bedroom N/A CONDITION: Average APPEAL: Average Average AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X Ceiling Fans X Balcony X Ceiling Fans X Fireplace Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Detached Garages X Swimming Pool X Detached Garages 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 X Meeting Hall Sand Volley Ball X Meeting Hall X Tennis Court Secured Parking Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track X Business Office Jogging Track X Business Office X Gym Room Putting Green X Gym Room Putting Green X Tanning Bed Washer-Dryer Tanning Bed Washer-Dryer X Playground W/D Hookup X Playground X W/D Hookup OCCUPANCY: 96% 90% LEASING DATA: Available Leasing Terms 6 to 12 Months 6 to 12 Months Concessions 1/2 month free 1 month free with 12 month lease Pet Deposit $300 non-refundable fee/pet + $20/m pet rent $250 deposit ($150 refundable) + $15/m pet rnt. Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas X Water Trash Water Trash Confirmation May 12, 2003; Ms. Michelle Jackson (Property May 14, 2003; Ms. Lisa Hamernick (Community Telephone Number (402) 493-4131 (402) 572-1414 NOTES: All utility bills are paid by the landlord for the two Studio unit types. Natural gas heat is paid by the landlord for all unit types. Application fee is $25 and the security deposit is $250 for the studio, 1 and 2 bedroom units, and $300 for the 3 bedroom units. Garages rent for $35 per month. COMPARISON TO SUBJECT: Slightly Inferior COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 - ---------------------------------------------------------------------------------------------------------------------------------- Property Name Laurelwood Apartment Homes & Townhomes Tudor Heights Apartments Management Company N/A Providence Management Company, LLC LOCATION: Address 5439 North 100th Plaza 10505 Evans Plaza City, State Omaha, Nebraska Omaha, Nebraska County Douglas Douglas Proximity to Subject 3.0 miles northeast of the subject 1.3-miles northeast of the subject PHYSICAL CHARATERISTICS: Net Rentable Area (SF) N/A N/A Year Built 1969 1970s Effective Age 34 30+ Building Structure Type Brick veneer, wood frame; asphalt shingle roof Brick & stucco sidings; asphalt shingle roof Parking Type (Gr., Cov., etc.) Garage & open Garage, open and covered Number of Units 480 418 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1 Bd / 1 Ba - apt. 850 $490 1 1 Bd / 1Bath 750 $465 2 2 Bd / 2 Ba - apt. 1,000 $575 0 2 Bd / 1 Ba - Type 1 1,000 $565 2 2 Bd / 2 Ba - apt. 1,050 $599 2 2 Bd / 1.5Ba-Type 2 1,050 $610 0 1 Bd / 1 Ba-townhm. 825 $550 0 2 Bd / 2 Ba-townhm. 1,200 $805 Average Unit Size (SF) Unit Breakdown: Efficiency N/A 2-Bedroom N/A Efficiency N/A 2-Bedroom N/A 1-Bedroom N/A 3-Bedroom N/A 1-Bedroom N/A 3-Bedroom N/A CONDITION: Average Average APPEAL: Average Average AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony Ceiling Fans X Balcony Ceiling Fans X Fireplace Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Detached Garages X Swimming Pool X Detached Garages 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 X Sand Volley Ball X Meeting Hall X Sand Volley Ball X 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 Putting Green Gym Room X Putting Green Tanning Bed Washer-Dryer Tanning Bed Washer-Dryer X Playground W/D Hookup Playground W/D Hookup OCCUPANCY: 94% 96% LEASING DATA: Available Leasing Terms 6 to 12 Months 6 to 12 Months Concessions $200 off 1st months rent on certain apt. $200 off 1st months rent units Pet Deposit None, no pets allowed $200 non-refundable deposit/cat + $10/cat rent Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas Water Trash Water Trash Confirmation May 14, 2003; Mr. Eric Henderson (Leasing May 14, 2003; Matt (Leasing Consultant) Telephone Number (402) 572-1000 (402) 493-3777 NOTES: Property has an indoor pool as part of the Select units have been newly remodeled. fitness center. Application fee is $20 and Residents qualify for a membership discount at a security deposits range from $200 to $500 nearby fitness center, no onsite fitness center. depending upon the unit type. Garages rent Laundry facilities in each building. Security for $40 per month. The unit rents above deposit is $250, no application fee and garages reflect units that have had updated rent for $45 per month. Units have electric appliances. Rental rates are approx. $25 less heat, thus tenants pay heating expense. for units where the appliances have not been updated. COMPARISON TO SUBJECT: Slightly Inferior Similar COMPARABLE COMPARABLE DESCRIPTION R - 4 R - 5 - ---------------------------------------------------------------------------------------------------------------------------------- Property Name Hidden Valley Apartments Townhomes Picadilly Square Apartments Management Company Goldmark Property Management Inc. AMO The Philmoore Company LOCATION: Address 3816 North 109th Plaza 114th & West Maple Avenue City, State Omaha, Nebraska Omaha, Nebraska County Douglas Douglas Proximity to Subject 1.2-miles northeast of the subject 1 block south of the subject PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 221,016 N/A Year Built 1978 Early 1980s Effective Age 25 15 Building Structure Type Brick & wood siding walls; asphalt shingle roof Brick & wood siding walls; asphalt shingle roof Parking Type (Gr., Cov., etc.) Garage, Open, Covered Open surface only Number of Units 246 N/A Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 0 Apt-1Bd/1Ba - #1 670 36 $450 0 1 Bd / 1Ba - Type 1 650 N/A 0 Apt-1Bd/1Ba - #2 680 8 $480 1 1 Bd / 1Ba - Type 2 750 $525 1 Apt-1Bd/1Ba - #3 780 36 $500 2 2 Bd / 1.5 Ba 1,100 $650 2 Apt-2Bd/1Ba 850 16 $580 0 TH-1Bd/1ba - #1 760 24 $580 0 TH-1Bd/1ba - #2 850 20 $610 0 TH-1Bd/1ba - #3 870 52 $630 0 TH-2Bd/1.5ba - #1 1,030 17 $710 0 TH-2Bd/1.5ba - #2 1,050 8 $730 0 TH-2Bd/1.5ba - #3 1,575 12 $775 0 TH-2Bd/2.5ba - #1 1,085 5 $800 0 TH-2Bd/2.5ba - #2 1,630 12 $750 Average Unit Size (SF) 900 Unit Breakdown: Efficiency 0% 2-Bedroom 28% Efficiency N/A 2-Bedroom N/A 1-Bedroom 72% 3-Bedroom 0% 1-Bedroom N/A 3-Bedroom N/A CONDITION: Average Average APPEAL: Average Average AMENITIES: Unit Amenities X Attach. Garage X Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony Ceiling Fans X Balcony Ceiling Fans X Fireplace Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Detached Garages Swimming Pool X Detached Garages Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball X Meeting Hall Sand Volley Ball Meeting Hall Tennis Court Secured Parking Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball Laundry Room Jogging Track X Business Office Jogging Track X Business Office X Gym Room Putting Green Gym Room Putting Green Tanning Bed Washer-Dryer Tanning Bed X Washer-Dryer Playground W/D Hookup Playground W/D Hookup OCCUPANCY: 96% 95% LEASING DATA: Available Leasing Terms 6 to 12 Months 6 to 12 Months Concessions Security deposit is lowered to $99 $350 off 1st month on 12 month lease Pet Deposit $250/animal +$10/cat rent; $50/dog (TH only) None, no pets allowed Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas Water Trash X Water Trash Confirmation May 14, 2003; Ms. Christine Carlson (Community Subject's leasing summary as property management Telephone Number (402) 493-1491 (402) 496-1376 NOTES: Fireplaces are available in 21 of the 670 SF, Units include washer / dryers. Security deposit 1- bedroom units. The two largest 2 bedroom is $250. The property was built in two phases, town-home units have basement space included in 1968 and 1987, although the external as part of the living area. The basement areas inspection shows both phases to be fairly also have washer / dryer hookups. On-site 24 similar in to each other in design and appeal. hour laundry facility. Certain townhome units Also, the complex offers detached garages but include attached garage as part of rent. Apt. no rental information is available on them. garages rent for $40 per month. Tenants pay heat. COMPARISON TO SUBJECT: Similar Slightly Superior
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B LAKE FOREST, OMAHA, NEBRASKA PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 MAPLE MANOR LAURELWOOD APARTMENT HOMES & TOWNHOMES 3022 1/2 North 97th Street 5439 North 100th Plaza Omaha, Nebraska Omaha, Nebraska [PICTURE] [PICTURE] COMPARABLE R-3 COMPARABLE R-4 TUDOR HEIGHTS APARTMENTS HIDDEN VALLEY APARTMENTS TOWNHOMES 10505 Evans Plaza 3816 North 109th Plaza Omaha, Nebraska Omaha, Nebraska [PICTURE] [PICTURE] COMPARABLE R-5 PICADILLY SQUARE APARTMENTS 114th & West Maple Avenue Omaha, Nebraska [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C LAKE FOREST, OMAHA, NEBRASKA EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C LAKE FOREST, OMAHA, NEBRASKA 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 LAKE FOREST, OMAHA, NEBRASKA 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 LAKE FOREST, OMAHA, NEBRASKA 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 LAKE FOREST, OMAHA, NEBRASKA 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 inspect the subject property that is the subject of this report. I am currently in compliance with the Appraisal Institutes continuing education requirements. /s/ Jeff W. Briggs ----------------------- Jeff W. Briggs, MAI Engagement Director, Real Estate Group Nebraska Certified General Real Estate Appraiser #CG230072R AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E LAKE FOREST, OMAHA, NEBRASKA EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E LAKE FOREST, OMAHA, NEBRASKA JEFF W. BRIGGS, MAI ENGAGEMENT DIRECTOR, REAL ESTATE GROUP POSITION Jeff W. Briggs is an engagement director for the Dallas Real Estate Group of American Appraisal Associates, Inc. ("AAA"). EXPERIENCE Valuation Mr. Briggs' valuation experience includes all types of industrial property, Class A office buildings, regional malls, neighborhood and community shopping centers, apartments, hotels, and both daily fee and private golf facilities. He has appraised the vacant land of farms and ranches, single-family residential subdivisions, commercial subdivisions, commercial urban properties, and conservation easements. Special-purpose property valuations he has performed include a large pork production facility, cemeteries, nursing homes, and outpatient surgical clinics. Purchase price allocation assignments included valuation of the land components of a professional sports stadium and a pork production facility. Mr. Briggs has completed assignments in over 30 states throughout the country. Court Mr. Briggs has testified as an expert witness in federal bankruptcy court and assisted in condemnation assignments for the Texas Highway Department. Business Mr. Briggs joined AAA in 2000. Prior to joining AAA, he was a manager in the Dallas office of Arthur Andersen LLP from 1996 to 1999. Previously, Mr. Briggs had served as a senior appraiser for Wilson K. Mason Company and Integrated Evaluation, both Dallas real estate appraisal companies, and had been employed by Harvey Cornwell and Associates, also a Dallas-based real estate valuation firm.
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E LAKE FOREST, OMAHA, NEBRASKA EDUCATION University of North Texas Bachelor of Business Administration - Real Estate PROFESSIONAL Appraisal Institute, MAI Designated Member AFFILIATIONS STATE CERTIFICATIONS State of Arizona, Certified General Real Estate Appraiser, #31114 State of Arkansas, State Certified General Appraiser, #CG1588N State of Indiana, Certified General Appraiser, #CG40200493 Commonwealth of Kentucky, Certified General Real Property Appraiser, #002611 State of Michigan, Certified General Appraiser, #1201068301 State of Minnesota, Certified General Real Property Appraiser, #AP-20280553 State of Mississippi, State Certified General Real Estate Appraiser, #GA-625 State of Oregon, State Certified General Appraiser, #C000713 Commonwealth of Pennsylvania, Certified General Appraiser, #GA001870 State of Texas, State Certified General Real Estate Appraiser, #TX-1321403-G State of Washington, Certified General Real Estate Appraiser, #1101000
AMERICAN APPRAISAL ASSOCIATES, INC. LAKE FOREST, OMAHA, NEBRASKA GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. LAKE FOREST, OMAHA, NEBRASKA 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)(10) 12 d07256a1exv99wxcyx10y.txt APPRAISAL OF NOB HILL VILLA NOB HILL VILLA 180 WALLACE ROAD NASHVILLE, TENNESSEE Market Value -Fee Simple Estate As of May 5, 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 LOGO] [AMERICAN APPRAISAL ASSOCIATES LOGO] [AMERICAN APPRAISAL ASSOCIATES LETTERHEAD] JULY 2, 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: NOB HILL VILLA 180 WALLACE ROAD NASHVILLE, DAVIDSON COUNTY, TENNESSEE 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 472 units with a total of 378,800 square feet of rentable area. The improvements were built in 1971. The improvements are situated on 18.02 acres. Overall, the improvements are in average condition. As of the date of this appraisal, the subject property is 93% 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 NOB HILL VILLA, NASHVILLE, TENNESSEE 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 5, 2003 is: ($12,400,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. /s/ Frank Fehribach July 2, 2003 Frank Fehribach, MAI #053272 Managing Principal, Real Estate Group Tennessee Temporary Practice Permit #00053573 Report By: Daniel Salcedo Tennessee Temporary Practice Permit #00053558 AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 NOB HILL VILLA, NASHVILLE, TENNESSEE TABLE OF CONTENTS Cover Letter of Transmittal Table of Contents APPRAISAL DATA Executive Summary........................................... 4 Introduction................................................ 9 Area Analysis............................................... 11 Market Analysis............................................. 14 Site Analysis............................................... 16 Improvement Analysis........................................ 16 Highest and Best Use........................................ 17 VALUATION Valuation Procedure......................................... 18 Sales Comparison Approach................................... 20 Income Capitalization Approach.............................. 26 Reconciliation and Conclusion............................... 37
ADDENDA Exhibit A - Photographs of Subject Property Exhibit B - Summary of Rent Comparables and Photograph of Comparables Exhibit C - Assumptions and Limiting Conditions Exhibit D - Certificate of Appraiser Exhibit E - Qualifications General Service Conditions AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 4 NOB HILL VILLA, NASHVILLE, TENNESSEE EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Nob Hill Villa LOCATION: 180 Wallace Road Nashville, Tennessee 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 5, 2003 DATE OF REPORT: July 2, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 18.02 acres, or 784,951 square feet Assessor Parcel No.: 134-130-239 Floodplain: Community Panel No. 47037C3054F (April 20, 2001) Flood Zone X, an area outside the floodplain. Zoning: RM-20 (Medium to High Density Apartment District) BUILDING: No. of Units: 472 Units Total NRA: 378,800 Square Feet Average Unit Size: 803 Square Feet Apartment Density: 26.2 units per acre Year Built: 1971 UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
Square Market Rent Monthly Annual Unit Type Feet Per Unit Per SF Income Income 1Br/1Ba -1A10 650 $420 $0.65 $97,440 $1,169,280 2Br/2Ba -2A20 950 $530 $0.56 $127,200 $1,526,400 Total $224,640 $2,695,680
OCCUPANCY: 93% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 25 Years REMAINING ECONOMIC LIFE: 20 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 NOB HILL VILLA, NASHVILLE, TENNESSEE SUBJECT PHOTOGRAPHS [PICTURE OF UNIT TYPE FACADE] [PICTURE OF UNIT TYPE] [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 NOB HILL VILLA, NASHVILLE, TENNESSEE [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 NOB HILL VILLA, NASHVILLE, TENNESSEE PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION AMOUNT $/UNIT - --------------------- ------ ------ Potential Rental Income $ 2,695,680 $ 5,711 Effective Gross Income $ 2,765,952 $ 5,860 Operating Expenses $ 1,490,578 $ 3,158 53.9% of EGI Net Operating Income: $ 1,157,374 $ 2,452 Capitalization Rate 9.50% DIRECT CAPITALIZATION VALUE $ 12,200,000 * $25,847 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 11% Stabilized Vacancy & Collection Loss: 10% Lease-up / Stabilization Period N/A Terminal Capitalization Rate 10.50% Discount Rate 12.00% Selling Costs 2.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $ 12,400,000 * $26,271 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $ 12,400,000 $26,271 / UNIT SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $ 26,844 to $69,167 Range of Sales $/Unit (Adjusted) $ 23,045 to $27,667 VALUE INDICATION - PRICE PER UNIT $ 12,300,000 * $26,059 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 4.82 to 6.60 Selected EGIM for Subject 4.50 Subject's Projected EGI $ 2,765,952 EGIM ANALYSIS CONCLUSION $12,400,000 * $26,271 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $12,700,000 * $26,907 / UNIT RECONCILED SALES COMPARISON VALUE $12,400,000 $26,271 / 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 NOB HILL VILLA, NASHVILLE, TENNESSEE PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $12,300,000 NOI Per Unit $12,700,000 EGIM Multiplier $12,400,000 INDICATED VALUE BY SALES COMPARISON $12,400,000 $26,271 / Unit INCOME APPROACH: Direct Capitalization Method: $12,200,000 Discounted Cash Flow Method: $12,400,000 INDICATED VALUE BY THE INCOME APPROACH $12,400,000 $26,271 / Unit RECONCILED OVERALL VALUE CONCLUSION: $12,400,000 $26,271 / Unit
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 NOB HILL VILLA, NASHVILLE, TENNESSEE INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 180 Wallace Road, Nashville, Davidson County, Tennessee. Nashville identifies it as 134-130-239. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Daniel Salcedo on May 5, 2003. Frank Fehribach, MAI has not made a personal inspection of the subject property. Daniel Salcedo performed the research, valuation analysis and wrote the report. Frank Fehribach, MAI reviewed the report and concurs with the value. Frank Fehribach, MAI and Daniel Salcedo 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 5, 2003. The date of the report is July 2, 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 NOB HILL VILLA, NASHVILLE, TENNESSEE 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 CCP 4. 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 NOB HILL VILLA, NASHVILLE, TENNESSEE 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 Nashville, Tennessee. 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-24 West - SR-31 South - Haywood Lane North - Harding Road MAJOR EMPLOYERS Major employers in the subject's area include ComPlus, Concetra, Saturn Corporation, Gaylord Entertainment, Nissan Motor Manufacturing Corporation, Kroger Company, Reemay, Inc. United Parcel Service, First American National Bank, Shoney's Inc., Bell South, Inter-City Pro Corporation, NationsBank, and Bridgestone/Firestone. 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 NOB HILL VILLA, NASHVILLE, TENNESSEE NEIGHBORHOOD DEMOGRAPHICS
AREA CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA - ------------------------------------------------------------------------------------------------ POPULATION TRENDS Current Population 13,093 79,100 155,323 1,275,686 5-Year Population 13,834 82,500 166,987 1,391,452 % Change CY-5Y 5.7% 4.3% 7.5% 9.1% Annual Change CY-5Y 1.1% 0.9% 1.5% 1.8% HOUSEHOLDS Current Households 5,218 32,590 66,267 499,284 5-Year Projected Households 5,492 34,105 71,459 550,820 % Change CY - 5Y 5.3% 4.6% 7.8% 10.3% Annual Change CY-5Y 1.1% 0.9% 1.6% 2.1% INCOME TRENDS Median Household Income $ 30,139 $ 35,573 $ 37,725 $ 45,328 Per Capita Income $ 16,197 $ 19,158 $ 22,059 $ 23,901 Average Household Income $ 40,571 $ 46,247 $ 51,628 $ 61,067
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 54.19% 47.20% 47.35% 31.23% 5-Year Projected % Renting 54.75% 46.89% 46.79% 30.53% % of Households Owning 31.73% 43.05% 42.91% 61.72% 5-Year Projected % Owning 31.99% 43.72% 43.97% 62.91%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 NOB HILL VILLA, NASHVILLE, TENNESSEE SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Linbar Drive South - Wallace Road East - Retail West - Residential CONCLUSIONS The subject is well located within the city of Nashville. 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 NOB HILL VILLA, NASHVILLE, TENNESSEE MARKET ANALYSIS The subject property is located in the city of Nashville in Davidson County. The overall pace of development in the subject's market is more or less decreasing. Based on our site inspection of the market area, there was no evidence of additional development for multifamily use. The following table illustrates historical vacancy rates for the subject's market.
HISTORICAL VACANCY RATE Period Region Submarket - -------------------------------------------------------------------------- 1997 5.5% 5.0% 1998 6.7% 6.0% 1999 5.9% 5.8% 2000 5.9% 6.0% 2001 8.3% 7.7% 2002 8.0% 8.0%
Source: Greater Nashville Apartment Association Occupancy trends in the subject's market are stable. Historically speaking, the subject's submarket has equated the overall market. Occupancy in the subject's market area is expected to be around 92.0% in average. Any expected changes are caused by the short time fluctuations derived from the current economic situation affecting the local, regional and national markets. Market rents in the subject's market have been following a stable trend. The following table illustrates historical rental rates for the subject's market.
HISTORICAL AVERAGE RENT Period Region % Change Submarket % Change - --------------------------------------------------------------------------------- 1996 $583 - $512 - 1997 $604 3.6% $530 3.5% 1998 $634 5.0% $551 4.0% 1999 $647 2.1% $564 2.4% 2000 $667 3.1% $582 3.2% 2001 $677 1.5% $573 -1.5% 2002 $685 1.2% $570 -0.5%
Source: Greater Nashville Apartment Association The following table illustrates a summary of the subject's competitive set. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 NOB HILL VILLA, NASHVILLE, TENNESSEE COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject - ------------------------------------------------------------------------------------------------- R-1 South Brook 239 94% 1973 Approx. 0.6 miles east of subject R-2 Welch Bend 478 94% 1976 Approx. .8 miles west of subject R-3 Dominion House 200 99% 1973 Approx. 0.61 miles east of subject R-4 Sunrise 200 92% 1974 Less than 0.2 miles south of subject R-5 380 Harding 160 96% 1974 Approx. 0.7 miles northwest of subject Subject Nob Hill Villa 472 93% 1971
Rental rates are expected to stabilize. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 NOB HILL VILLA, NASHVILLE, TENNESSEE PROPERTY DESCRIPTION SITE ANALYSIS Site Area 18.02 acres, or 784,951 square feet Shape Irregular Topography Slightly slope 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 47037C3054F, dated April 20, 2001 Flood Zone Zone X Zoning RM-20, 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 134-130-239 $294,400 $2,204,840 $2,499,240 0.04580 $114,465
IMPROVEMENT ANALYSIS Year Built 1971 Number of Units 472 Net Rentable Area 378,800 Square Feet Construction: Foundation Concrete block wall 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, tennis court, gym room, barbeque equipment, meeting hall, laundry room, business office, and parking area. Unit Amenities Individual unit amenities include a balcony, fireplace, cable TV connection, and washer dryer connection. Appliances available in each unit include a refrigerator, stove, microwave dishwasher, water heater, garbage disposal, and AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 NOB HILL VILLA, NASHVILLE, TENNESSEE oven. Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) - ---------------------------------------------------------- 1Br/lBa -1A10 232 650 2Br/2Ba -2A20 240 950
Overall Condition Average Effective Age 25 years Economic Life 45 years Remaining Economic Life 20 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 1971 and consist of a 472-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 NOB HILL VILLA, NASHVILLE, TENNESSEE 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 NOB HILL VILLA, NASHVILLE, TENNESSEE 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 NOB HILL VILLA, NASHVILLE, TENNESSEE 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 NOB HILL VILLA, NASHVILLE, TENNESSEE SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - --------------------------------------------------------------------------------------------------------------------------------- Property Name Nob Hill Villa Prestige Pointe Brentwood Oaks Location: Address 180 Wallace Road 200 Paragon Place 100 Belle Valley Drive City, State Nashville, Tennessee Nashville, TN Nashville, TN County Davidson Davidson Davidson Physical Charateristics: Net Rentable Area (SF) 378,800 181,327 222,176 Year Built 1971 1968 1986 Number of Units 472 179 262 Unit Mix: Type Total Type Total Type Total 1Br/1Ba -1A10 232 1Br/1Ba 52 1Br/1Ba 130 2Br/2Ba -2A20 240 2Br/1Ba 96 2Br/2Ba 116 3Br/2.5Ba 30 3Br/2.5Ba 16 2Br/2Ba 60 3Br/2Ba 52 Average Unit Size (SF) 803 1,013 848 Land Area (Acre) 18.0200 11.4900 51.6800 Density (Units/Acre) 26.2 15.6 5.1 Parking Ratio (Spaces/Unit) 2.20 2.00 2.40 Parking Type (Gr., Cov., etc.) Open Open Open Condition: Good Average Good Appeal: Average Good Good Amenities: Pool/Spa Yes/Yes Yes/No Yes/No Gym Room Yes No Yes Laundry Room Yes Yes No Secured Parking No No Yes Sport Courts Yes Yes No Washer/Dryer Connection Yes Yes No Occupancy: 93% 94% 93% Transaction Data: Sale Date May, 2001 August, 2001 Sale Price ($) $5,500,000 $13,885,700 Grantor N/A N/A Grantee Paragon Place-GEAC LLC Brentwood Oaks Apt LLC Sale Documentation Deed-20010531-0056399 Deed- 20010829-0093580 Verification Gayner McKenzie Abby Wittenmeier Telephone Number 615.834.1380 615.834.6257 Estimated Pro-Forma: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $912,369 $5,097 $5.03 $3,098,858 $11,828 $13.95 Vacancy/Credit Loss $ 54,742 $ 306 $0.30 $ 216,920 $ 828 $ 0.98 Effective Gross Income $857,627 $4,791 $4.73 $2,881,938 $11,000 $12.97 Operating Expenses $396,377 $2,214 $2.19 $1,420,011 $ 5,420 $ 6.39 Net Operating Income $461,250 $2,577 $2.54 $1,461,927 $ 5,580 $ 6.58 Notes: Overall, slightly inferior Overall, superior to subject to subject Price Per Unit $30,726 $52,999 Price Per Square Foot $ 30.33 $ 62.50 Expense Ratio 46.2% 49.3% EGIM 6.41 4.82 Overall Cap Rate 8.39% 10.53% 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 Keystone Farms Preserve at Brentwood Berkley Ridge Location: Address 5360 Edmonson Pike 370 Oakley Drive 308 Plus Park Blvd City, State Nashville, TN Nashville, TN Nashville, TN County Davidson Davidson Davidson Physical Charateristics: Net Rentable Area (SF) 102,510 357,120 227,408 Year Built 1998 1997 1972 Number of Units 90 360 244 Unit Mix: Type Total Type Total Type Total 2Br/2Ba 58 1Br/1Ba 132 1Br/1Ba 90 3Br/2.5Ba 32 2Br/1Ba 180 2Br/1Ba 130 3Br/2Ba 48 3Br/2.5Ba 24 Average Unit Size (SF) 1,139 992 932 Land Area (Acre) 9.7100 26.3600 18.1100 Density (Units/Acre) 9.3 13.7 13.5 Parking Ratio (Spaces/Unit) 2.40 2.20 2.80 Parking Type (Gr., Cov., etc.) Open Open,Carport/Garage Open Condition: Good Very Good Good Appeal: Average Good Average Amenities: Pool/Spa Yes/No Yes/No Yes/No Gym Room Yes Yes Yes Laundry Room No Yes Yes Secured Parking Yes Yes No Sport Courts No Yes No Washer/Dryer Connection Yes Yes Yes Occupancy: 92% 90% 91% Transaction Data: Sale Date December, 2001 September, 2002 June, 2002 Sale Price ($) $5,510,000 $24,900,000 $6,550,000 Grantor N/A The Morgan Group N/A Grantee Keystone Farms LLC Invesco Realty Advisers RCP Summittree LLC Sale Documentation Deed-20011220-0140573 Deed-20020910-0109883 Dee-20010619-0064950 Verification Monica M. Waltman Elizabeth Sanchez Heather Simpson Telephone Number 615.837.8776 615.837.1911 615.361.6793 Estimated Pro-Forma: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $958,261 $10,647 $9.35 $4,194,624 $11,652 $11.75 $1,154,130 $4,730 $5.08 Vacancy/Credit Loss $ 76,661 $ 852 $0.75 $ 419,463 $ 1,165 $ 1.17 $ 103,871 $ 426 $0.46 Effective Gross Income $881,600 $ 9,796 $8.60 $3,775,161 $10,487 $10.57 $1,050,259 $4,304 $4.62 Operating Expenses $375,140 $ 4,168 $3.66 $1,524,561 $ 4,235 $ 4.27 $ 502,109 $2,058 $2.21 Net Operating Income $506,460 $ 5,627 $4.94 $2,250,600 $ 6,252 $ 6.30 $ 548,150 $2,247 $2.41 Notes: Overall, slightly superior Overall, superior to subject Overall, comparable to to subject to subject Price Per Unit $61,222 $69,167 $26,844 Price Per Square Foot $ 53.75 $ 69.72 $ 28.80 Expense Ratio 42.6% 40.4% 47.8% EGIM 6.25 6.60 6.24 Overall Cap Rate 9.19% 9.04% 8.37% Cap Rate based on Pro Forma or Actual Income? Pro Forma Pro Forma Pro Forma
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 NOB HILL VILLA, NASHVILLE, TENNESSEE [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $26,844 to $69,167 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 $23,045 to $27,667 per unit with a mean or average adjusted price of $25,784 per unit. The median adjusted price is $26,499 per unit. Based on the following analysis, we have concluded to a value of $26,000 per unit, which results in an "as is" value of $12,300,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 NOB HILL VILLA, NASHVILLE, TENNESSEE SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - ----------------------------------------------------------------------------------------------------------------- Property Name Nob Hill Villa Prestige Pointe Brentwood Oaks Address 180 Wallace Road 200 Paragon Place 100 Belle Valley Drive City Nashville, Tennessee Nashville, TN Nashville, TN Sale Date May, 2001 August, 2001 Sale Price ($) $5,500,000 $13,885,700 Net Rentable Area (SF) 378,800 181,327 222,176 Number of Units 472 179 262 Price Per Unit $30,726 $52,999 Year Built 1971 1968 1986 Land Area (Acre) 18.0200 11.4900 51.6800 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 05-2001 0% 08-2001 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $30,726 $52,999 Location Comparable 0% Comparable 0% Number of Units 472 179 -15% 262 -10% Quality / Appeal Good Superior -15% Superior -15% Age / Condition 1971 1968 / Average 0% 1986 / Good -25% Occupancy at Sale 93% 94% 0% 93% 0% Amenities Good Comparable 0% Comparable 0% Average Unit Size (SF) 803 1,013 5% 848 0% PHYSICAL ADJUSTMENT -25% -50% FINAL ADJUSTED VALUE ($/UNIT) $23,045 $26,499
COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 - ------------------------------------------------------------------------------------------------------------------------ Property Name Keystone Farms Preserve at Berkley Ridge Brentwood Address 5360 Edmonson 370 Oakley Drive 308 Plus Park Pike Blvd City Nashville, TN Nashville, TN Nashville, TN Sale Date December, 2001 September, 2002 June, 2002 Sale Price ($) $5,510,000 $24,900,000 $6,550,000 Net Rentable Area (SF) 102,510 357,120 227,408 Number of Units 90 360 244 Price Per Unit $61,222 $69,167 $26,844 Year Built 1998 1997 1972 Land Area (Acre) 9.7100 26.3600 18.1100 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) 12-2001 0% 09-2002 0% 06-2002 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $61,222 $69,167 $26,844 Location Comparable 0% Comparable 0% Comparable 0% Number of Units 90 -20% 360 -5% 244 -10% Quality / Appeal Superior -15% Superior -10% Comparable 0% Age / Condition 1998 / Good -25% 1997 / Very Good -45% 1972 / Good 0% Occupancy at Sale 92% 0% 90% 0% 91% 0% Amenities Comparable 0% Comparable 0% Comparable 0% Average Unit Size (SF) 1,139 5% 992 0% 932 0% PHYSICAL ADJUSTMENT -55% -60% -10% FINAL ADJUSTED VALUE ($/UNIT) $27,550 $27,667 $24,160
VALUE RANGE (PER UNIT) $23,045 TO $27,667 MEAN (PER UNIT) $25,784 MEDIAN (PER UNIT) $26,499 VALUE CONCLUSION (PER UNIT) $26,000
VALUE INDICATED BY SALES COMPARISON APPROACH $12,272,000 ROUNDED $12,300,000
NET OPERATING INCOME (NOI) ANALYSIS We have also conducted a net operating income (NOI) comparison analysis. The NOI effectively takes into account the various physical, location, and operating aspects of the sale. When the subject's NOI is compared to the sale NOI, a percent adjustment can be arrived at. The following table illustrates this analysis. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 24 NOB HILL VILLA, NASHVILLE, TENNESSEE 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-1 179 $ 5,500,000 8.39% $ 461,250 $1,157,374 0.952 $29,239 $ 30,726 $ 2,577 $ 2,452 I-2 262 $13,885,700 10.53% $1,461,927 $1,157,374 0.439 $23,290 $ 52,999 $ 5,580 $ 2,452 I-3 90 $ 5,510,000 9.19% $ 506,460 $1,157,374 0.436 $26,677 $ 61,222 $ 5,627 $ 2,452 I-4 360 $24,900,000 9.04% $2,250,600 $1,157,374 0.392 $27,129 $ 69,167 $ 6,252 $ 2,452 I-5 244 $ 6,550,000 8.37% $ 548,150 $1,157,374 1.091 $29,300 $ 26,844 $ 2,247 $ 2,452
PRICE/UNIT
Low High Average Median $23,290 $29,300 $27,127 $27,129
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT Estimated Price Per Unit $ 27,000 Number of Units 472 Value Based on NOI Analysis $12,744,000 Rounded $12,700,000
The adjusted sales indicate a range of value between $23,290 and $29,300 per unit, with an average of $27,127 per unit. Based on the subject's competitive position within the improved sales, a value of $27,000 per unit is estimated. This indicates an "as is" market value of $12,700,000 (rounded after necessary adjustment, if any) for the NOI Per Unit Analysis. EFFECTIVE GROSS INCOME MULTIPLIER (EGIM) ANALYSIS The effective gross income multiplier (EGIM) is derived by dividing the sales price by the total effective gross income. The following table illustrates the EGIMs for the comparable improved sales. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 25 NOB HILL VILLA, NASHVILLE, TENNESSEE 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-1 179 $ 5,500,000 $ 857,627 $ 396,377 46.22% 6.41 $ 30,726 I-2 262 $13,885,700 $ 2,881,938 $1,420,011 49.27% 4.82 $ 52,999 I-3 90 $ 5,510,000 $ 881,600 $ 375,140 42.55% 6.25 $ 61,222 53.89% I-4 360 $24,900,000 $ 3,775,161 $1,524,561 40.38% 6.60 $ 69,167 I-5 244 $ 6,550,000 $ 1,050,259 $ 502,109 47.81% 6.24 $ 26,844
EGIM
Low High Average Median 4.82 6.60 6.06 6.25
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES Estimate EGIM 4.50 Subject EGI $ 2,765,952 Value Based on EGIM Analysis $12,446,784 Rounded $12,400,000 Value Per Unit $ 26,271
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 53.89% before reserves. The comparable sales indicate a range of expense ratios from 40.38% to 49.27%, while their EGIMs range from 4.82 to 6.60. Overall, we conclude to an EGIM of 4.50, which results in an "as is" value estimate in the EGIM Analysis of $12,400,000. 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 $12,400,000. Price Per Unit $12,300,000 NOI Per Unit $12,700,000 EGIM Analysis $12,400,000 Sales Comparison Conclusion $12,400,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 NOB HILL VILLA, NASHVILLE, TENNESSEE 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 NOB HILL VILLA, NASHVILLE, TENNESSEE method is normally more appropriate for properties with relatively stable operating histories and expectations. A pro forma analysis for the first year of the investment is made to estimate a reasonable potential net operating income for the Subject Property. Such an analysis entails an estimate of the gross income the property should command in the marketplace. From this total gross income must be deducted an allowance for vacancy/collection loss and operating expenses as dictated by general market conditions and the overall character of the subject's tenancy and leased income to arrive at a projected estimate of net operating income. Conversion of the net operating income to an indication of value is accomplished by the process of capitalization, as derived primarily from market data. MARKET RENT ANALYSIS In order to determine a market rental rate for the subject, a survey of competing apartment communities was performed. This survey was displayed previously in the market analysis section of the report. Detailed information pertaining to each of the comparable rental communities, along with photographs, is presented in the Addenda of this report. The following charts display the subject's current asking and actual rent rates as well as a comparison with the previous referenced comparable rental properties. SUMMARY OF ACTUAL AVERAGE RENTS
Average Unit Area ------------------------ Unit Type (Sq. Ft.) Per Unit Per SF %Occupied 1Br/1Ba -1A10 650 $426 $0.66 97.0% 2Br/2Ba -2A20 950 $540 $0.57 88.3%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 NOB HILL VILLA, NASHVILLE, TENNESSEE
COMPARABLE RENTS ---------------------------------------------- R-1 R-2 R-3 R-4 R-5 ---------------------------------------------- South Welch Dominion Brook Bend House Sunrise 380 Harding ---------------------------------------------- COMPARISON TO SUBJECT SUBJECT SUBJECT ---------------------------------------------- SUBJECT UNIT ACTUAL ASKING Slightly Slightly DESCRIPTION TYPE RENT RENT Inferior Similar Superior Inferior Similar MIN MAX MEDIAN AVERAGE - ----------------------------------------------------------------------------------------------------------------------------------- Monthly Rent 1Br/1Ba -1A10 $ 426 $ 410 $ 447 $ 416 $ 475 $ 442 $ 460 $ 416 $ 475 $ 447 $ 448 Unit Area (SF) 650 650 650 660 678 594 656 594 678 656 648 Monthly Rent Per Sq. Ft. $ 0.66 $ 0.63 $ 0.69 $0.63 $ 0.70 $0.74 $ 0.70 $0.63 $ 0.74 $ 0.70 $ 0.69 Monthly Rent 2Br/2Ba -2A20 $ 540 $ 499 $ 518 $ 556 $ 575 $ 603 $ 518 $ 603 $ 566 $ 563 Unit Area (SF) 950 950 925 916 936 1,051 916 1,051 931 957 Monthly Rent Per Sq. Ft. $ 0.57 $ 0.53 $ 0.56 $0.61 $ 0.61 $ 0.57 $0.56 $ 0.61 $ 0.59 $ 0.59
CONCLUDED MARKET RENTAL RATES AND TERMS Based on this analysis above, the subject's concluded market rental rates and gross rental income is calculated as follows: GROSS RENTAL INCOME PROJECTION
Market Rent Unit Area ----------------------- Monthly Annual Unit Type Number of Units (Sq. Ft.) Per Unit Per SF Income Income - ------------------------------------------------------------------------------------------------------- 1Br/1Ba -1A10 232 650 $420 $0.65 $ 97,440 $1,169,280 2Br/2Ba -2A20 240 950 $530 $0.56 $127,200 $1,526,400 Total $224,640 $2,695,680
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 NOB HILL VILLA, NASHVILLE, TENNESSEE SUMMARY OF HISTORICAL INCOME & EXPENSES
FISCAL FISCAL FISCAL YEAR 2000 YEAR 2001 YEAR 2002 -------------------- -------------------- -------------------- DESCRIPTION ACTUAL ACTUAL ACTUAL -------------------- -------------------- -------------------- TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT - --------------------------------------------------------------------------------------------- Revenues Rental Income $2,968,588 $ 6,289 $3,030,079 $ 6,420 $2,821,823 $ 5,978 Vacancy $ 173,776 $ 368 $ 260,870 $ 553 $ 259,134 $ 549 Credit Loss/Concessions $ 64,309 $ 136 $ 142,061 $ 301 $ 39,774 $ 84 Subtotal $ 238,085 $ 504 $ 402,931 $ 854 $ 298,908 $ 633 Laundry Income $ 52,699 $ 112 $ 77,583 $ 164 $ 56,300 $ 119 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 120,712 $ 256 $ 113,358 $ 240 $ 290,811 $ 616 Subtotal Other Income $ 173,411 $ 367 $ 190,941 $ 405 $ 347,111 $ 735 Effective Gross Income $2,903,914 $ 6,152 $2,818,089 $ 5,971 $2,870,026 $ 6,081 Operating Expenses Taxes $ 204,648 $ 434 $ 222,121 $ 471 $ 224,697 $ 476 Insurance $ 49,391 $ 105 $ 75,976 $ 161 $ 83,783 $ 178 Utilities $ 316,579 $ 671 $ 300,073 $ 636 $ 362,071 $ 767 Repair & Maintenance $ 144,408 $ 306 $ 174,070 $ 369 $ 140,056 $ 297 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 76,752 $ 163 $ 94,539 $ 200 $ 91,314 $ 193 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 28,755 $ 61 $ 30,078 $ 64 $ 28,457 $ 60 General Administrative $ 318,329 $ 674 $ 393,973 $ 835 $ 329,838 $ 699 Management $ 147,565 $ 313 $ 151,550 $ 321 $ 137,626 $ 292 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Total Operating Expenses $1,286,427 $ 2,725 $1,442,380 $ 3,056 $1,397,842 $ 2,962 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Net Income $1,617,487 $ 3,427 $1,375,709 $ 2,915 $1,472,184 $ 3,119
FISCAL YEAR 2003 ANNUALIZED 2003 -------------------- -------------------- DESCRIPTION MANAGEMENT BUDGET PROJECTION AAA PROJECTION -------------------- -------------------- ------------------------------ TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT % - ------------------------------------------------------------------------------------------------------ Revenues Rental Income $2,709,206 $ 5,740 $2,692,512 $ 5,704 $2,695,680 $ 5,711 100.0% Vacancy $ 151,068 $ 320 $ 329,452 $ 698 $ 215,654 $ 457 8.0% Credit Loss/Concessions $ 12,100 $ 26 $ 134,868 $ 286 $ 53,914 $ 114 2.0% Subtotal $ 163,168 $ 346 $ 464,320 $ 984 $ 269,568 $ 571 10.0% Laundry Income $ 56,384 $ 119 $ 58,608 $ 124 $ 56,640 $ 120 2.1% Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 303,200 $ 642 $ 405,136 $ 858 $ 283,200 $ 600 10.5% Subtotal Other Income $ 359,584 $ 762 $ 463,744 $ 983 $ 339,840 $ 720 12.6% Effective Gross Income $2,905,622 $ 6,156 $2,691,936 $ 5,703 $2,765,952 $ 5,860 100.0% Operating Expenses Taxes $ 224,696 $ 476 $ 224,696 $ 476 $ 224,200 $ 475 8.1% Insurance $ 92,592 $ 196 $ 103,548 $ 219 $ 94,400 $ 200 3.4% Utilities $ 345,880 $ 733 $ 385,940 $ 818 $ 365,800 $ 775 13.2% Repair & Maintenance $ 154,460 $ 327 $ 282,060 $ 598 $ 188,800 $ 400 6.8% Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Landscaping $ 98,364 $ 208 $ 143,508 $ 304 $ 94,400 $ 200 3.4% Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Marketing & Leasing $ 28,622 $ 61 $ 43,928 $ 93 $ 30,680 $ 65 1.1% General Administrative $ 326,394 $ 692 $ 430,856 $ 913 $ 354,000 $ 750 12.8% Management $ 136,921 $ 290 $ 121,768 $ 258 $ 138,298 $ 293 5.0% Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Total Operating Expenses $1,407,929 $ 2,983 $1,736,304 $ 3,679 $1,490,578 $ 3,158 53.9% Reserves $ 0 $ 0 $ 0 $ 0 $ 118,000 $ 250 7.9% Net Income $1,497,693 $ 3,173 $ 955,632 $ 2,025 $1,157,374 $ 2,452 41.8%
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 10% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30 NOB HILL VILLA, NASHVILLE, TENNESSEE RESERVES FOR REPLACEMENT "Reserves for replacements" is a contingency account allocated to the expenses of the property to provide for replacement of short-lived items and for unforeseen necessary capital expenditures. We have utilized the Korpacz Real Estate Investor Survey of the national apartment market, which reports a range of replacement reserves between $150 and $400 per unit. For purposes of this analysis, we have included an allowance of $250 per unit for reserves for replacement. CAPITAL EXPENDITURES Capital expenditures represent expenses for immediate repair or replacement of items that have average to long lives. Based on our inspection of the property as well as discussions with property management personnel, there are no major items remaining in need of repair or replacement that would require an expense beyond our reserves for replacement. Therefore an allowance of $250 per unit should be satisfactory in our reserves for replacement to cover future capital expenditures. DISCOUNTED CASH FLOW ANALYSIS As the subject is a multi-tenant income property, the Discounted Cash Flow Method is considered appropriate. This method is especially meaningful in that it isolates the timing of the annual cash flows and discounts them, along with the expected equity reversion, to a present value. The present value of the cash flow is added to the present value of the reversion, resulting in a total property value. INVESTMENT CRITERIA Appropriate investment criteria will be derived for the subject based upon analysis of comparable sales and a survey of real estate investors. The following table summarizes the findings of Korpacz National Investor Survey for the most recent period. KORPACZ NATIONAL INVESTOR SURVEY 1ST QUARTER 2003 NATIONAL APARTMENT MARKET CAPITALIZATION RATES
GOING-IN TERMINAL LOW HIGH LOW HIGH Range 6.00% 10.00% 7.00% 10.00% Average 8.14% 8.47%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 31 NOB HILL VILLA, NASHVILLE, TENNESSEE SUMMARY OF OVERALL CAPITALIZATION RATES
Comp. No. Sale Date Occup. Price/Unit OAR - ------------------------------------------------------ 1-1 May-01 94% $30,726 8.39% 1-2 Aug-01 93% $52,999 10.53% 1-3 Dec-01 92% $61,222 9.19% 1-4 Sep-02 90% $69,167 9.04% 1-5 Jun-02 91% $26,844 8.37% High 10.53% Low 8.37% Average 9.10%
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 10.50%. 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 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 $12,400,000. In this instance, the reversion figure contributes AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32 NOB HILL VILLA, NASHVILLE, TENNESSEE approximately 38% of the total value. Investors surveyed for this assignment indicated they would prefer to have the cash flow contribute anywhere from 50% to 60%. Overall, the blend seems reasonable. The cash flow and pricing matrix are located on the following pages. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 33 NOB HILL VILLA, NASHVILLE, TENNESSEE NOB HILL VILLA
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 FISCAL YEAR 1 2 3 4 5 6 - ----------------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $2,695,680 $2,776,550 $2,859,847 $2,945,642 $3,034,012 $3,125,032 Vacancy $ 215,654 $ 222,124 $ 228,788 $ 235,651 $ 242,721 $ 250,003 Credit Loss $ 53,914 $ 55,531 $ 57,197 $ 58,913 $ 60,680 $ 62,501 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------------------------- Subtotal $ 269,568 $ 277,655 $ 285,985 $ 294,564 $ 303,401 $ 312,503 Laundry Income $ 56,640 $ 58,339 $ 60,089 $ 61,892 $ 63,749 $ 65,661 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 283,200 $ 291,696 $ 300,447 $ 309,460 $ 318,744 $ 328,306 -------------------------------------------------------------------------------- Subtotal Other Income $ 339,840 $ 350,035 $ 360,536 $ 371,352 $ 382,493 $ 393,968 -------------------------------------------------------------------------------- EFFECTIVE GROSS INCOME $2,765,952 $2,848,931 $2,934,398 $3,022,430 $3,113,103 $3,206,496 OPERATING EXPENSES: Taxes $ 224,200 $ 230,926 $ 237,854 $ 244,989 $ 252,339 $ 259,909 Insurance $ 94,400 $ 97,232 $ 100,149 $ 103,153 $ 106,248 $ 109,435 Utilities $ 365,800 $ 376,774 $ 388,077 $ 399,720 $ 411,711 $ 424,062 Repair & Maintenance $ 188,800 $ 194,464 $ 200,298 $ 206,307 $ 212,496 $ 218,871 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 94,400 $ 97,232 $ 100,149 $ 103,153 $ 106,248 $ 109,435 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 30,680 $ 31,600 $ 32,548 $ 33,525 $ 34,531 $ 35,567 General Administrative $ 354,000 $ 364,620 $ 375,559 $ 386,825 $ 398,430 $ 410,383 Management $ 138,298 $ 142,447 $ 146,720 $ 151,122 $ 155,655 $ 160,325 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $1,490,578 $1,535,295 $1,581,354 $1,628,794 $1,677,658 $1,727,988 Reserves $ 118,000 $ 121,540 $ 125,186 $ 128,942 $ 132,810 $ 136,794 -------------------------------------------------------------------------------- NET OPERATING INCOME $1,157,374 $1,192,096 $1,227,859 $1,264,694 $1,302,635 $1,341,714 Operating Expense Ratio (% of EGI) 53.9% 53.9% 53.9% 53.9% 53.9% 53.9% Operating Expense Per Unit $ 3,158 $ 3,253 $ 3,350 $ 3,451 $ 3,554 $ 3,661
YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 7 8 9 10 11 - --------------------------------------------------------------------------------------------------------- REVENUE Base Rent $3,218,783 $3,315,346 $3,414,807 $3,517,251 $3,622,769 Vacancy $ 257,503 $ 265,228 $ 273,185 $ 281,380 $ 289,821 Credit Loss $ 64,376 $ 66,307 $ 68,296 $ 70,345 $ 72,455 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------ Subtotal $ 321,878 $ 331,535 $ 341,481 $ 351,725 $ 362,277 Laundry Income $ 67,631 $ 69,660 $ 71,750 $ 73,902 $ 76,119 GarageRevenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 338,156 $ 348,300 $ 358,749 $ 369,512 $ 380,597 ------------------------------------------------------------------ Subtotal Other Income $ 405,787 $ 417,960 $ 430,499 $ 443,414 $ 456,717 ------------------------------------------------------------------ EFFECTIVE GROSS INCOME $3,302,691 $3,401,772 $3,503,825 $3,608,940 $3,717,208 OPERATING EXPENSES: Taxes $ 267,707 $ 275,738 $ 284,010 $ 292,530 $ 301,306 Insurance $ 112,719 $ 116,100 $ 119,583 $ 123,171 $ 126,866 Utilities $ 436,784 $ 449,888 $ 463,384 $ 477,286 $ 491,605 Repair & Maintenance $ 225,437 $ 232,200 $ 239,166 $ 246,341 $ 253,731 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 112,719 $ 116,100 $ 119,583 $ 123,171 $ 126,866 Security $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 36,634 $ 37,733 $ 38,865 $ 40,030 $ 41,231 GeneralAdministrative $ 422,695 $ 435,375 $ 448,437 $ 461,890 $ 475,746 Management $ 165,135 $ 170,089 $ 175,191 $ 180,447 $ 185,860 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------ TOTAL OPERATING EXPENSES $1,779,828 $1,833,222 $1,888,219 $1,944,866 $2,003,212 Reserves $ 140,898 $ 145,125 $ 149,479 $ 153,963 $ 158,582 ------------------------------------------------------------------ NET OPERATING INCOME $1,381,966 $1,423,425 $1,466,127 $1,510,111 $1,555,414 Operating Expense Ratio (% of EGI) 53.9% 53.9% 53.9% 53.9% 53.9% Operating Expense Per Unit $ 3,771 $ 3,884 $ 4,000 $ 4,120 $ 4,244
Estimated Stabilized NOI $1,157,374 Sales Expense Rate 2.00% Months to Stabilized 1 Discount Rate 12.00% Stabilized Occupancy 92.0% Terminal Cap Rate 10.50%
"DCF" VALUE ANALYSIS Gross Residual Sale Price $ 14,813,471 Deferred Maintenance $ 0 Less: Sales Expense $ 296,269 Add: Excess Land $ 0 ------------ Net Residual Sale Price $ 14,517,201 Other Adjustments $ 0 ----------- PV of Reversion $ 4,674,150 Value Indicated By "DCF" $12,416,546 Add: NPV of NOI $ 7,742,395 Rounded $12,400,000 ------------ PV Total $ 12,416,546
"DCF" VALUE SENSITIVITY TABLE
TOTAL VALUE DISCOUNT RATE 11.50% 11.75% 12.00% 12.25% 12.50% 10.00% $13,056,920 $12,851,386 $12,650,253 $12,453,413 $12,260,758 10.25% $12,931,739 $12,728,977 $12,530,549 $12,336,348 $12,146,269 10.50% $12,812,518 $12,612,397 $12,416,546 $12,224,859 $12,037,233 TERMINAL CAP RATE 10.75% $12,698,843 $12,501,239 $12,307,845 $12,118,554 $11,933,267 11.00% $12,590,335 $12,395,134 $12,204,084 $12,017,082 $11,834,027
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 34 NOB HILL VILLA, NASHVILLE, TENNESSEE 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 9.50% percent is applicable to the subject. The results of our direct capitalization analysis are as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 35 NOB HILL VILLA, NASHVILLE, TENNESSEE Nob Hill Villa
TOTAL PER SQ. FT. PER UNIT %OF EGI - --------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $ 2,695,680 $ 7.12 $ 5,711 Less: Vacancy & Collection 10.00% $ 269,568 $ 0.71 $ 571 Loss Plus: Other Income Laundry Income $ 56,640 $ 0.15 $ 120 2.05% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 283,200 $ 0.75 $ 600 10.24% ----------------------------------------------------- Subtotal Other Income $ 339,840 $ 0.90 $ 720 12.29% EFFECTIVE GROSS INCOME $ 2,765,952 $ 7.30 $ 5,860 OPERATING EXPENSES: Taxes $ 224,200 $ 0.59 $ 475 8.11% Insurance $ 94,400 $ 0.25 $ 200 3.41% Utilities $ 365,800 $ 0.97 $ 775 13.23% Repair & Maintenance $ 188,800 $ 0.50 $ 400 6.83% Cleaning $ 0 $ 0.00 $ 0 0.00% Landscaping $ 94,400 $ 0.25 $ 200 3.41% Security $ 0 $ 0.00 $ 0 0.00% Marketing & Leasing $ 30,680 $ 0.08 $ 65 1.11% General Administrative 5.00% $ 354,000 $ 0.93 $ 750 12.80% Management $ 138,298 $ 0.37 $ 293 5.00% Miscellaneous $ 0 $ 0.00 $ 0 0.00% TOTAL OPERATING EXPENSES $ 1,490,578 $ 3.93 $ 3,158 53.89% RESERVES $ 118,000 $ 0.31 $ 250 4.27% ----------------------------------------------------- NET OPERATING INCOME $ 1,157,374 $ 3.06 $ 2,452 41.84% ----------------------------------------------------- "GOING IN" CAPITALIZATION RATE 9.50% VALUE INDICATION $12,182,888 $ 32.16 $25,811 "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $12,182,888 ROUNDED $12,200,000 $ 32.21 $25,847 -----------------------------------------------------
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 36 NOB HILL VILLA, NASHVILLE, TENNESSEE DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF - ------------------------------------------------------------------------ 8.75% $13,227,136 $13,200,000 $27,966 $34.85 9.00% $12,859,716 $12,900,000 $27,331 $34.05 9.25% $12,512,156 $12,500,000 $26,483 $33.00 9.50% $12,182,888 $12,200,000 $25,847 $32.21 9.75% $11,870,507 $11,900,000 $25,212 $31.41 10.00% $11,573,744 $11,600,000 $24,576 $30.62 10.25% $11,291,458 $11,300,000 $23,941 $29.83
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $12,200,000. 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 $12,400,000 Direct Capitalization Method $12,200,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $12,400,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 37 NOB HILL VILLA, NASHVILLE, TENNESSEE 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 $12,400,000 Income Approach $12,400,000 Reconciled Value $12,400,000
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 5, 2003 the market value of the fee simple estate in the property is: $12,400,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA NOB HILL VILLA, NASHVILLE, TENNESSEE ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A NOB HILL VILLA, NASHVILLE, TENNESSEE EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A NOB HILL VILLA, NASHVILLE, TENNESSEE SUBJECT PHOTOGRAPHS [PICTURE OF UNIT TYPE FACADE] [PICTURE OF UNIT TYPE] [PICTURE OF BEDROOM] [PICTURE OF BEDROOM] [PICTURE OF LIVING ROOM AREA] [PICTURE OF LIVING ROOM AREA] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A NOB HILL VILLA, NASHVILLE, TENNESSEE SUBJECT PHOTOGRAPHS [PICTURE OF POOL] [PICTURE OF FITNESS CENTER] [PICTURE OF SITE IMPROVEMENTS] [PICTURE OF MAIN ENTRANCE] [PICTURE OF WALLACE ROAD-SOUTH] [PICTURE OF WALLACE ROAD-NORTH] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B NOB HILL VILLA, NASHVILLE, TENNESSEE EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B NOB HILL VILLA, NASHVILLE, TENNESSEE PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-I COMPARABLE I-2 COMPARABLE I-3 PRESTIGE POINTE BRENTWOOD OAKS KEYSTONE FARMS 200 Paragon Place 100 Belle Valley Drive 5360 Edmonson Pike Nashville, TN Nashville, TN Nashville, TN [PICTURE] [PICTURE] [PICTURE] COMPARABLE I-4 COMPARABLE I-5 PRESERVE AT BRENTWOOD BERKLEY RIDGE 370 Oakley Drive 308 Plus Park Blvd Nashville, TN Nashville, TN [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B NOB HILL VILLA, NASHVILLE, TENNESSEE SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 Property Name Nob Hill Villa South Brook Management Company AIMCO Volunteer Properties LOCATION: Address 180 Wallace Road 5101 Lindbar Drive City, State Nashville, Tennessee Nashville, TN County Davidson Davidson Proximity to Subject Approx. 0.6 miles east of subject PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 378,800 181,640 Year Built 1971 1973 Effective Age 25 10 Building Structure Type Brick & wood siding walls; asphalt shingle Brick & wood siding walls; asphalt shingle roof roof Parking Type (Gr., Cov., etc.) Open Open Number of Units 472 239 Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo. Rent 1 1Br/1Ba-1A10 650 232 $ 426 1 1Br/1Ba 650 143 $ 447 2 2Br/2Ba-2A20 950 240 $ 540 2 2 Br/2Ba 925 96 $ 518 Average Unit Size (SF) 803 760 Unit Breakdown: Efficiency 0% 2-Bedroom 39% Efficiency 0% 2-Bedroom 41% 1-Bedroom 61% 3-Bedroom 0% 1-Bedroom 59% 3-Bedroom 0% CONDITION: Good Good APPEAL: Average Fair AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony W/D Connection Balcony W/D Connection X Fireplace Other Fireplace Other 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 Theater Room Volleyball Court Theater Room Sand Volley Ball X Meeting Hall Sand Volley Ball X Meeting Hall X Tennis Court Secured Parking Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track X Business Office Jogging Track Business Office X Gym Room Gym Room OCCUPANCY: 93% 94% LEASING DATA: Available Leasing Terms 6 to 12 months 3 to 12 months Concessions $99 deposit and no application fee $300 off first month Pet Deposit $300/$20Mnth $300 Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas X Water Trash Water Trash Confirmation Tracy Crowe/Property Manager Tracy Thompson/Property Manager Telephone Number 615.834.0694 615.834.8340 NOTES: Renovated in 1992 COMPARISON TO SUBJECT: INFERIOR COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 Property Name Welch Bend Dominion House Management Company Freeman Webb First Management Services LOCATION: Address 100 Tanglewood Ct 5099 Linbar Drive City, State Nashville, TN Nashville, TN County Davidson Davidson Proximity to Subject Approx. .8 miles west of subject Approx. 0.61 miles east of subject PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 383,834 169,000 Year Built 1976 1973 Effective Age 27 25 Building Structure Type Brick & wood siding walls; asphalt shingle Brick & wood siding walls; asphalt shingle roof roof Parking Type (Gr., Cov., etc.) Open Open Number of Units 478 200 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1Br/1Ba 660 210 $416 1 1Br/1Ba 678 76 $475 2 2Br/2Ba 868 228 $533 2 2Br/2Ba 936 114 $575 2 2 Br/2.5Ba 1,188 40 $690 3Br/2Ba 1,081 10 $785 Average Unit Size (SF) 803 845 Unit Breakdown: Efficiency 0% 2-Bedroom 57% Efficiency 0% 2-Bedroom 57% 1-Bedroom 43% 3-Bedroom 0% 1-Bedroom 38% 3-Bedroom 5% CONDITION: Good Good APPEAL: Average Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling Balcony X W/D Connection X Balcony X W/D Connection Fireplace Other X Fireplace Other X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Basketball Court X BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball Meeting Hall Sand Volley Ball X 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 Gym Room X Gym Room OCCUPANCY: 94% 99% LEASING DATA: Available Leasing Terms 6 to 12 months 6 to 12 months Concessions 1 month None Pet Deposit No Pets $250 Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas X Water Trash Water Trash Confirmation Cindy Myers/Property Manager Wayne Woodside/Property Manager Telephone Number 615.833.5643 615.833.0218 NOTES: None None Similar Slightly Superior COMPARABLE COMPARABLE DESCRIPTION R - 4 R - 5 Property Name Sunrise 380 Harding Management Company First Management Services Freeman Webb LOCATION: Address 189 Wallace Road 380 Harding Place City, State Nashville, TN Nashville, TN County Davidson Davidson Proximity to Subject Less than 0.2 miles south of subject Approx. 0.7 miles northwest of subject PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 118,800 248,005 Year Built 1974 1974 Effective Age 10 18 Building Structure Type Brick & wood siding walls; asphalt shingle Brick & wood siding walls; asphalt shingle roof roof Parking Type (Gr., Cov., etc.) Open Open Number of Units 200 160 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1Br/1Ba 594 200 $442 1 1Br/1Ba 656 79 $460 2 2Br/2Ba 1,051 71 $603 3Br/2.5Ba 1,500 10 $740 Average Unit Size (SF) 594 884 Unit Breakdown: Efficiency 0% 2-Bedroom 0% Efficiency 0% 2-Bedroom 44% 1-Bedroom 100% 3-Bedroom 0% 1-Bedroom 49% 3-Bedroom 7% CONDITION: Good Good APPEAL: Average Average AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling Balcony W/D Connection Balcony X W/D Connection X Fireplace Other X Fireplace Other X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Basketball Court X BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball X Meeting Hall Sand Volley Ball X Meeting Hall 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 Gym Room OCCUPANCY: 92% 96% LEASING DATA: Available Leasing Terms 6 to 12 months 9 to 12 months Concessions Reeduced rates for select units $100 off first month's rent Pet Deposit $250 $250 Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas Water Trash Water Trash Confirmation Jim Crowson/Property Manager Ann Mead/Property Manager Telephone Number 615.333.7733 615.832.6847 NOTES: None None Slightly Inferior Similar
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B NOB HILL VILLA, NASHVILLE, TENNESSEE PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 SOUTH BROOK WELCH BEND DOMINION HOUSE 5101 Lindbar Drive 100 Tanglewood Ct 5099 Linbar Drive Nashville, TN Nashville, TN Nashville, TN [PICTURE] [PICTURE] [PICTURE] COMPARABLE R-4 COMPARABLE R-5 SUNRISE 380 HARDING 189 Wallace Road 380 Harding Place Nashville, TN Nashville, TN [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C NOB HILL VILLA, NASHVILLE, TENNESSEE EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 pages) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C NOB HILL VILLA, NASHVILLE, TENNESSEE 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 NOB HILL VILLA, NASHVILLE, TENNESSEE 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 NOB HILL VILLA, NASHVILLE, TENNESSEE 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 NOB HILL VILLA, NASHVILLE, TENNESSEE 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. Daniel Salcedo 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 Tennessee Temporary Practice Permit #00053573 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E NOB HILL VILLA, NASHVILLE, TENNESSEE EXHIBIT E QUALIFICATIONS OF APPRAISER (2 pages) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E NOB HILL VILLA, NASHVILLE, TENNESSEE 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 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E NOB HILL VILLA, NASHVILLE, TENNESSEE STATE CERTIFICATIONS State of Arizona, 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 PROFESSIONAL Appraisal Institute, MAI Designated Member Candidate AFFILIATIONS Member of the CCIM Institute pursuing Certified Commercial Investment Member (CCIM) designation PUBLICATIONS "An Analysis of the Determinants of Industrial Property Valuation," Co-authored with Dr. Ronald C. Rutherford and Dr. Mark Eakin, The Journal of Real Estate Research, Vol. 8, No. 3, Summer 1993, p. 365. AMERICAN APPRAISAL ASSOCIATES, INC. NOB HILL VILLA, NASHVILLE, TENNESSEE GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. NOB HILL VILLA, NASHVILLE, TENNESSEE 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)(11) 13 d07256a1exv99wxcyx11y.txt APPRAISAL OF POINT WEST POINT WEST APARTMENTS & TOWNHOMES 415 PARKDALE DRIVE CHARLESTON, SOUTH CAROLINA MARKET VALUE - FEE SIMPLE ESTATE AS OF MAY 28, 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] Apartment Investment and Management JULY 3, 2003 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: POINT WEST APARTMENTS & TOWNHOMES 415 PARKDALE DRIVE CHARLESTON, CHARLESTON COUNTY, SOUTH CAROLINA 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 120 units with a total of 101,368 square feet of rentable area. The improvements were built in 1973. The improvements are situated on 8.82 acres. Overall, the improvements are in average condition. As of the date of this appraisal, the subject property is 89% 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 POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA 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 28, 2003 is: ($4,500,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. -s- Frank Fehribach ----------------------------------- July 3, 2003 Frank Fehribach, MAI #053272 Managing Principal, Real Estate Group South Carolina Temporary Practice Permit #095-03 Report By: Jimmy Pat James, MAI South Carolina Temporary Practice Permit #103-03 Assisted By: David Johnsen, MAI AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA TABLE OF CONTENTS
Cover Letter of Transmittal Table of Contents APPRAISAL DATA Executive Summary ............................................................. 4 Introduction .................................................................. 9 Area Analysis ................................................................. 11 Market Analysis ............................................................... 14 Site Analysis ................................................................. 16 Improvement Analysis .......................................................... 16 Highest and Best Use .......................................................... 17 VALUATION Valuation Procedure ........................................................... 18 Sales Comparison Approach ..................................................... 20 Income Capitalization Approach ................................................ 26 Reconciliation and Conclusion ................................................. 37
ADDENDA Exhibit A - Photographs of Subject Property Exhibit B - Summary of Rent Comparables and Photograph of Comparables Exhibit C - Assumptions and Limiting Conditions Exhibit D - Certificate of Appraiser Exhibit E - Qualifications General Service Conditions AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 4 POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Point West Apartments & Townhomes LOCATION: 415 Parkdale Drive Charleston, South Carolina 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 28, 2003 DATE OF REPORT: July 3, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 8.82 acres, or 384,199 square feet Assessor Parcel No.: 310-10-00-004 Floodplain: Community Panel No. 4554130291 G (July 15, 1988) Flood Zone C and B, an area inside the floodplain. Zoning: DR-1F (Residential) BUILDING: No. of Units: 120 Units Total NRA: 101,368 Square Feet Average Unit Size: 845 Square Feet Apartment Density: 13.6 units per acre Year Built: 1973 UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
Market Rent Square --------------------- Monthly Annual Unit Type Feet Per Unit Per SF Income Income - --------- ------ -------- ------ ------ ------ 1Br/1Ba 648 $520 $0.80 $16,640 $199,680 2Br/1.5Ba 868 $600 $0.69 $42,000 $504,000 3Br/1.5Ba 1,104 $700 $0.63 $12,600 $151,200 ------------------------------------------ Total $71,240 $854,880 ==========================================
OCCUPANCY: 89% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 20 Years REMAINING ECONOMIC LIFE: 25 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP:
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA SUBJECT PHOTOGRAPHS [EXTERIOR - APARTMENT BUILDING PICTURE] [STREET SCENE FACING NORTH PICTURE] [AREA MAP] [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA 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 POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
Amount $/Unit ------------ ------------- DIRECT CAPITALIZATION Potential Rental Income $854,880 $7,124 Effective Gross Income $870,490 $7,254 Operating Expenses $455,724 $3,798 52.4% of EGI Net Operating Income: $384,765 $3,206 Capitalization Rate 8.50% DIRECT CAPITALIZATION VALUE $4,500,000 * $37,500 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 14% Stabilized Vacancy & Collection Loss: 8% Lease-up / Stabilization Period N/A 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 $4,500,000 * $37,500 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $4,500,000 $37,500 / UNIT
SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $27,691 to $66,383 Range of Sales $/Unit (Adjusted) $38,075 to $41,250 VALUE INDICATION - PRICE PER UNIT $4,700,000 * $39,167 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 4.88 to 7.15 Selected EGIM for Subject 5.50 Subject's Projected EGI $870,490 EGIM ANALYSIS CONCLUSION $4,800,000 * $40,000 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $4,600,000 * $38,333 / UNIT RECONCILED SALES COMPARISON VALUE $4,700,000 $39,167 / 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 POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $4,700,000 NOI Per Unit $4,600,000 EGIM Multiplier $4,800,000 INDICATED VALUE BY SALES COMPARISON $4,700,000 $39,167 / UNIT INCOME APPROACH: Direct Capitalization Method: $4,500,000 Discounted Cash Flow Method: $4,500,000 INDICATED VALUE BY THE INCOME APPROACH $4,500,000 $37,500 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $4,500,000 $37,500 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 415 Parkdale Drive, Charleston, Charleston County, South Carolina. Charleston identifies it as 310-10-00-004. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by David Johnsen, MAI on May 28, 2003. Jimmy Pat James, MAI and Frank Fehribach, MAI have not made a personal inspection of the subject property. David Johnsen, MAI assisted Jimmy Pat James, MAI with the research, valuation analysis and writing the report. Frank Fehribach, MAI reviewed the report and concurs with the value. Frank Fehribach, MAI, Jimmy Pat James, MAI, and David Johnsen, MAI 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 28, 2003. The date of the report is July 3, 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 POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA 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 Point West Associates, 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 POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA 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 Charleston, South Carolina. Overall, the neighborhood is characterized as an urban setting with the predominant land use being residential. The subject's neighborhood is generally defined by the following boundaries. NEIGHBORHOOD BOUNDARIES East - Ashley River West - Branchi Creek South - Stano River North - Savannah Highway (Route 17) MAJOR EMPLOYERS Major employers in the subject's area include Medical University of South Carolina, Charleston Air Force Base, US Navy, Charleston County School District, CareAlliance Health Services, Berkeley county School District and Westvaco Corporation. Downtown Charleston is located less than a fifteen minute drive from the subject property and provides a wide variety of employment options.. 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 POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA NEIGHBORHOOD DEMOGRAPHICS
AREA ----------------------------------------------- CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA - ----------------------------------------------------------------------------------------------------------- POPULATION TRENDS Current Population 4,879 36,292 80,035 555,374 5-Year Population 4,830 35,067 80,501 573,153 % Change CY-5Y -1.0% -3.4% 0.6% 3.2% Annual Change CY-5Y -0.2% -0.7% 0.1% 0.6% HOUSEHOLDS Current Households 2,169 15,634 33,373 213,507 5-Year Projected Households 2,212 15,621 34,730 225,969 % Change CY - 5Y 2.0% -0.1% 4.1% 5.8% Annual Change CY-5Y 0.4% 0.0% 0.8% 1.2% INCOME TRENDS Median Household Income $40,293 $34,887 $38,136 $ 37,645 Per Capita Income $23,955 $20,783 $22,089 $ 20,671 Average Household Income $54,150 $47,831 $52,899 $ 53,767
Source: Demographics Now The subject neighborhood's population is expected to show increases below 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 39.24% 44.88% 36.76% 29.38% 5-Year Projected % Renting 37.15% 44.03% 36.04% 28.21% % of Households Owning 55.79% 48.34% 57.13% 60.14% 5-Year Projected % Owning 57.89% 49.08% 58.02% 61.84%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Single family South - Single family East - Single family West - Single family CONCLUSIONS The subject is well located within the city of Charleston. The neighborhood is characterized as being mostly urban 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 POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA MARKET ANALYSIS The subject property is located in the city of Charleston in Charleston County. The overall pace of development in the subject's market is more or less stable. No new construction has been noted in the subject neighborhood. The following table illustrates historical vacancy rates for the subject's market. HISTORICAL VACANCY RATE
Period Region Submarket - ------------------------------------------------------------------------------- Dec. '00 8.5% 6.9% June '01 8.9% 6.4% Dec. '01 10.2% 9.1% June '02 8.9% 7.8% Dec. '02 8.9% 7.6%
Source: Carolina's Real Data Occupancy trends in the subject's market are stable. Historically speaking, the subject's submarket has outperformed the overall market. This market has been exhibiting an increase in the overall vacancy rate; however, it remains below the overall market as a whole. 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 - ---------------------------------------------------------------------------------------------------------------- Dec. '00 $626 - $635 - June '01 $644 2.9% $643 1.3% Dec. '01 $654 1.6% $652 1.4% June '02 $672 2.8% $662 1.5% Dec/ '02 $678 0.9% $666 0.6%
Source: Carolina's Real Data The following table illustrates a summary of the subject's competitive set. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject - -------------------------------------------------------------------------------------------------------------------------- R-1 Ashley Oaks 420 97% 1978 3 miles north of the subject R-2 Castlewood 614 93% 1989 1 mile north of the subject R-3 Melrose Park 156 N/A 1972 1 mile northwest of the subject R-4 Windjammer 188 94% 1973 2 miles northeast of the subject R-5 Palmetto Point 116 92% 1979 3 miles north of he subject Subject Point West Apartments & Townhomes 120 89% 1973
Overall, this market commands slightly lower rates than the overall Charleston market. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA PROPERTY DESCRIPTION SITE ANALYSIS Site Area 8.82 acres, or 384,199 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 4554130291 G, dated July 15, 1988 Flood Zone Zone C and B Zoning DR-1F, 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 - ------------------------------------------------------------------------------------------------------------------------- 310-10-00-004 $397,000 $3,253,000 $3,650,000 0.01666 $60,821
IMPROVEMENT ANALYSIS Year Built 1973 Number of Units 120 Net Rentable Area 101,368 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, 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 POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) - ------------------------------------------------------ 1Br/1Ba 32 648 2Br/1.5Ba 70 868 3Br/1.5Ba 18 1,104
Overall Condition Average Effective Age 20 years Economic Life 45 years Remaining Economic Life 25 years Deferred Maintenance None HIGHEST AND BEST USE ANALYSIS In accordance with the definition of highest and best use, an analysis of the site relating to its legal uses, physical possibilities, and financial feasibility is appropriate. The highest and best use as vacant is to hold for future multi-family development. The subject improvements were constructed in 1973 and consist of a 120-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 POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA 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 POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA 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 POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA 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 POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 ----------- ------- ----- ----- Property Name Point West Apartments & Melrose Park Carrington Place Townhomes LOCATION: Address 415 Parkdale Drive 2494 Etiwan Avenue 1300 Park West Boulevard City, State Charleston, South Carolina Charleston, SC Mt. Pleasant, SC County Charleston Charleston Charleston PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 101,368 141,024 236,128 Year Built 1973 1972 2000 Number of Units 120 156 244 Unit Mix: Type Total Type Total Type Total 1Br/1Ba 32 1Br/1Ba 102 1Br/1Ba 96 2Br/1.5Ba 70 2Br/1.5Ba 54 2Br/2Ba 128 3Br/1.5Ba 18 3Br/2Ba 20 Average Unit Size (SF) 845 904 968 Land Area (Acre) 8.8200 9.0000 19.0000 Density (Units/Acre) 13.6 17.3 12.8 Parking Ratio (Spaces/Unit) 0.00 N/A N/A Parking Type (Gr., Cov., etc.) Open Open Garages, Open CONDITION: Average Average Very Good APPEAL: Average Average Very Good AMENITIES: Pool/Spa Yes/No Yes/Yes Yes/Yes Gym Room No Yes Yes Laundry Room Yes Yes Yes Secured Parking No Yes Yes Sport Courts No Yes Yes Washer/Dryer Connection No No Yes Fireplaces No No No OCCUPANCY: 89% 95% N/A TRANSACTION DATA: Sale Date February, 2002 June, 2001 Sale Price ($) $6,202,410 $16,197,370 Grantor N/A The Spanos Corporation Grantee JRC JV Melrose LLC Town Place LP, LLC Sale Documentation Book K387, Page 564 Book A375, Page 699 Verification Real Data Confidential Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF ---------- ------ ----- ---------- ------ ------ Potential Gross Income $1,050,840 $6,736 $7.45 $2,416,800 $9,905 $10.24 Vacancy/Credit Loss $ 52,542 $ 337 $0.37 $ 145,008 $ 594 $ 0.61 ---------- ------ ----- ---------- ------ ------ Effective Gross Income $ 998,298 $6,399 $7.08 $2,271,792 $9,311 $ 9.62 Operating Expenses $ 499,200 $3,200 $3.54 $ 942,748 $3,864 $ 3.99 ---------- ------ ----- ---------- ------ ------ Net Operating Income $ 499,098 $3,199 $3.54 $1,329,044 $5,447 $ 5.63 ---------- ------ ----- ---------- ------ ------ NOTES: None None PRICE PER UNIT $39,759 $66,383 PRICE PER SQUARE FOOT $ 43.98 $ 68.60 EXPENSE RATIO 50.0% 41.5% EGIM 6.21 7.13 OVERALL CAP RATE 8.05% 8.21% 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 Martin's Creek Peppertree Westbury Mews LOCATION: Address 700 Martin's Creek 4640 Forest Hills Drive 1425 Old Trolley Road Bouleavard City, State Summerville, SC N. Charleston, SC Summerville, SC County Dochester Charleston Dorchester PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 195,200 302,168 118,536 Year Built 1985 1980 1988 Number of Units 200 353 132 Unit Mix: Type Total Type Total Type Total 1Br/1Ba 48 1Br/1Ba 122 1Br/1Ba 44 2Br/2Ba 128 2Br/2Ba 231 2Br/1Ba 12 3Br/12Ba 24 2Br/2Ba 60 3Br/2Ba 16 Average Unit Size (SF) 976 856 898 Land Area (Acre) N/A N/A N/A Density (Units/Acre) Parking Ratio (Spaces/Unit) N/A N/A N/A Parking Type (Gr., Cov., etc.) Open Open Open CONDITION: Average Average Good APPEAL: Average Average Good AMENITIES: Pool/Spa Yes/Yes Yes/Yes Yes/Yes Gym Room Yes No Yes Laundry Room Yes Yes Yes Secured Parking No No No Sport Courts No No No Washer/Dryer Connection Yes No No Fireplaces Yes No Yes OCCUPANCY: 96% 92% 98% TRANSACTION DATA: Sale Date December, 2000 March, 1999 September, 1998 Sale Price ($) $10,000,000 $9,775,000 $6,125,000 Grantor N/A N/A N/A Grantee Jupiter Realty Peppertree I, LLC High Associates, Ltd. Sale Documentation N/A Book F323, Page 772 N/A Verification Real Data Real Data Real Data Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF ---------- ------ ---- ---------- ------ ----- ------- ------ ----- Potential Gross Income $1,473,120 $7,366 $7.55 $2,163,648 $6,129 $7.16 $960,384 $7,276 $8.10 Vacancy/Credit Loss $ 73,656 $ 368 $0.38 $ 162,274 $ 460 $0.54 $ 48,019 $ 364 $0.41 ---------- ------ ---- ---------- ------ ----- ------- ------ ----- Effective Gross Income $1,399,464 $6,997 $7.17 $2,001,374 $5,670 $6.62 $912,365 $6,912 $7.70 Operating Expenses $ 600,000 $3,000 $3.07 $1,059,000 $3,000 $3.50 $396,000 $3,000 $3.34 ---------- ------ ---- ---------- ------ ----- ------- ------ ----- Net Operating Income $ 799,464 $3,997 $4.10 $ 942,374 $2,670 $3.12 $516,365 $3,912 $4.36 ---------- ------ ---- ---------- ------ ----- ------- ------ ----- NOTES: None None None PRICE PER UNIT $50,000 $27,691 $46,402 PRICE PER SQUARE FOOT $ 51.23 $ 32.35 $ 51.67 EXPENSE RATIO 42.9% 52.9% 43.4% EGIM 7.15 4.88 6.71 OVERALL CAP RATE 7.99% 9.64% 8.43% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA PRO FORMA
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA [IMPROVED SALES MAP] [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $27,691 to $66,383 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 $38,075 to $41,250 per unit with a mean or average adjusted price of $39,317 per unit. The median adjusted price is $38,904 per unit. Based on the following analysis, we have concluded to a value of $39,000 per unit, which results in an "as is" value of $4,700,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - --------------------------------------------------------------------------------------------------------------------------------- Property Name Point West Apartments & Melrose Park Carrington Place Townhomes Address 415 Parkdale Drive 2494 Etiwan Avenue 1300 Park West Boulevard City Charleston, South Charleston, SC Mt. Pleasant, SC Carolina Sale Date February, 2002 June, 2001 Sale Price ($) $6,202,410 $16,197,370 Net Rentable Area (SF) 101,368 141,024 236,128 Number of Units 120 156 244 Price Per Unit $39,759 $66,383 Year Built 1973 1972 2000 Land Area (Acre) 8.8200 9.0000 19.0000 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 02-2002 3% June, 2001 5% VALUE AFTER TRANS. ADJUST. ($/UNIT) $40,952 $69,702 Location Comparable 0% Comparable 0% Number of Units 120 156 0% 244 0% Quality / Appeal Average Comparable 0% Superior -20% Age / Condition 1973 1972 / Average 0% 2000 / Very Good -10% Occupancy at Sale 89% 95% 0% N/A 0% Amenities Average Superior -5% Superior -10% Average Unit Size (SF) 845 904 0% 968 -5% PHYSICAL ADJUSTMENT -5% -45% FINAL ADJUSTED VALUE ($/UNIT) $38,904 $38,336 COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 - --------------------------------------------------------------------------------------------------------------------------------- Property Name Martin's Creek Peppertree Westbury Mews Address 700 Martin's Creek 4640 Forest Hills 1425 Old Trolley Bouleavard Drive Road City Summerville, SC N. Charleston, SC Summerville, SC Sale Date December, 2000 March, 1999 September, 1998 Sale Price ($) $10,000,000 $9,775,000 $6,125,000 Net Rentable Area (SF) 195,200 302,168 118,536 Number of Units 200 353 132 Price Per Unit $50,000 $27,691 $46,402 Year Built 1985 1980 1988 Land Area (Acre) N/A N/A N/A VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) December, 2000 10% 03-1999 10% 09-1998 15% VALUE AFTER TRANS. ADJUST. ($/UNIT) $55,000 $30,460 $53,362 Location Comparable 0% Inferior 25% Comparable 0% Number of Units 200 0% 353 0% 132 0% Quality / Appeal Superior -10% Comparable 0% Superior -10% Age / Condition 1985 / Average -5% 1980 / Average 0% 1988 / Good -5% Occupancy at Sale 96% 0% 92% 0% 98% 0% Amenities Superior -10% Comparable 0% Superior -10% Average Unit Size (SF) 976 0% 856 0% 898 0% PHYSICAL ADJUSTMENT -25% 25% -25% FINAL ADJUSTED VALUE ($/UNIT) $41,250 $38,075 $40,021
SUMMARY VALUE RANGE (PER UNIT) $38,075 TO $41,250 MEAN (PER UNIT) $39,317 MEDIAN (PER UNIT) $38,904 VALUE CONCLUSION (PER UNIT) $39,000
VALUE INDICATED BY SALES COMPARISON APPROACH $4,680,000 ROUNDED $4,700,000
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 POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA 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-1 156 $ 6,202,410 8.05% $ 499,098 $384,765 1.002 $39,846 $ 39,759 $ 3,199 $ 3,206 I-2 244 $16,197,370 8.21% $1,329,044 $384,765 0.589 $39,077 $ 66,383 $ 5,447 $ 3,206 I-3 200 $10,000,000 7.99% $ 799,464 $384,765 0.802 $40,107 $ 50,000 $ 3,997 $ 3,206 I-4 353 $ 9,775,000 9.64% $ 942,374 $384,765 1.201 $33,259 $ 27,691 $ 2,670 $ 3,206 I-5 132 $ 6,125,000 8.43% $ 516,365 $384,765 0.820 $38,033 $ 46,402 $ 3,912 $ 3,206
PRICE/UNIT
Low High Average Median $33,259 $40,107 $38,064 $39,077
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT Estimated Price Per Unit $ 38,000 ---------- Number of Units 120 ---------- Value Based on NOI Analysis $4,560,000 Rounded $4,600,000
The adjusted sales indicate a range of value between $33,259 and $40,107 per unit, with an average of $38,064 per unit. Based on the subject's competitive position within the improved sales, a value of $38,000 per unit is estimated. This indicates an "as is" market value of $4,600,000 (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 POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA 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-1 156 $ 6,202,410 $ 998,298 $ 499,200 50.01% 6.21 $ 39,759 I-2 244 $16,197,370 $2,271,792 $ 942,748 41.50% 7.13 $ 66,383 I-3 200 $10,000,000 $1,399,464 $ 600,000 42.87% 52.35% 7.15 $ 50,000 I-4 353 $ 9,775,000 $2,001,374 $1,059,000 52.91% 4.88 $ 27,691 I-5 132 $ 6,125,000 $ 912,365 $ 396,000 43.40% 6.71 $ 46,402
EGIM
Low High Average Median - --- ---- ------- ------ 4.88 7.15 6.42 6.71
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES Estimate EGIM 5.50 Subject EGI $ 870,490 ---------- Value Based on EGIM Analysis $4,787,693 Rounded $4,800,000 Value Per Unit $ 40,000
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 52.35% before reserves. The comparable sales indicate a range of expense ratios from 41.50% to 52.91%, while their EGIMs range from 4.88 to 7.15. Overall, we conclude to an EGIM of 5.50, which results in an "as is" value estimate in the EGIM Analysis of $4,800,000. 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 $4,700,000. Price Per Unit $4,700,000 NOI Per Unit $4,600,000 EGIM Analysis $4,800,000 Sales Comparison Conclusion $4,700,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA 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 POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA method is normally more appropriate for properties with relatively stable operating histories and expectations. A pro forma analysis for the first year of the investment is made to estimate a reasonable potential net operating income for the Subject Property. Such an analysis entails an estimate of the gross income the property should command in the marketplace. From this total gross income must be deducted an allowance for vacancy/collection loss and operating expenses as dictated by general market conditions and the overall character of the subject's tenancy and leased income to arrive at a projected estimate of net operating income. Conversion of the net operating income to an indication of value is accomplished by the process of capitalization, as derived primarily from market data. MARKET RENT ANALYSIS In order to determine a market rental rate for the subject, a survey of competing apartment communities was performed. This survey was displayed previously in the market analysis section of the report. Detailed information pertaining to each of the comparable rental communities, along with photographs, is presented in the Addenda of this report. The following charts display the subject's current asking and actual rent rates as well as a comparison with the previous referenced comparable rental properties. SUMMARY OF ACTUAL AVERAGE RENTS
Average Unit Area -------------------- Unit Type (Sq. Ft.) Per Unit Per SF %Occupied - ----------------------------------------------------------------------------------- 1Br/1Ba 648 $515 $0.79 87.5% 2Br/1.5Ba 868 $593 $0.68 90.0% 3Br/1.5Ba 1104 $700 $0.63 88.9%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA RENT ANALYSIS
COMPARABLE RENTS ---------------------------------------------------------------- R-1 R-2 R-3 R-4 R-5 ---------------------------------------------------------------- Ashley Melrose Palmetto Oaks Castlewood Park Windjammer Point ---------------------------------------------------------------- SUBJECT SUBJECT COMPARISON TO SUBJECT SUBJECT UNIT ACTUAL ASKING ----------------------------------------------------------------- DESCRIPTION TYPE RENT RENT Similar Similar Similar Superior Similar ----------- ---- ---- ---- ------- ------- ------- -------- ------- Monthly Rent 1Br/1Ba $ 515 $ 529 $ 520 $ 550 $ 566 $ 510 Unit Area (SF) 648 648 650 800 659 742 Monthly Rent Per Sq. Ft. $ 0.79 $ 0.82 $ 0.80 $ 0.69 $ 0.86 $ 0.69 Monthly Rent 2Br/1.5Ba $ 593 $ 639 $ 605 $ 625 $ 630 $ 714 $ 600 Unit Area (SF) 868 868 950 1,080 1,100 1,044 912 Monthly Rent Per Sq. Ft. $ 0.68 $ 0.74 $ 0.64 $ 0.58 $ 0.57 $ 0.68 $ 0.66 Monthly Rent 3Br/1.5Ba $ 700 $ 749 $ 665 $ 810 $ 700 Unit Area (SF) 1,104 1,104 1,100 1,037 1,142 Monthly Rent Per Sq. Ft. $ 0.63 $ 0.68 $ 0.60 $ 0.78 $ 0.61 DESCRIPTION MIN MAX MEDIAN AVERAGE ----------- --- --- ------ ------- Monthly Rent $ 510 $ 566 $ 535 $ 537 Unit Area (SF) 650 800 701 713 Monthly Rent Per Sq. Ft. $ 0.69 $ 0.86 $ 0.74 $ 0.76 Monthly Rent $ 600 $ 714 $ 625 $ 635 Unit Area (SF) 912 1,100 1,044 1,017 Monthly Rent Per Sq. Ft. $ 0.57 $ 0.68 $ 0.64 $ 0.63 Monthly Rent $ 665 $ 810 $ 700 $ 725 Unit Area (SF) 1,037 1,142 1,100 1,093 Monthly Rent Per Sq. Ft. $ 0.60 $ 0.78 $ 0.61 $ 0.67
CONCLUDED MARKET RENTAL RATES AND TERMS Based on this analysis above, the subject's concluded market rental rates and gross rental income is calculated as follows: GROSS RENTAL INCOME PROJECTION
Market Rent Unit Area --------------------- Monthly Annual Unit Type Number of Units (Sq. Ft.) Per Unit Per SF Income Income --------- --------------- --------- -------- ------ ------ ------ 1Br/1Ba 32 648 $520 $0.80 $16,640 $199,680 2Br/1.5Ba 70 868 $600 $0.69 $42,000 $504,000 3Br/1.5Ba 18 1,104 $700 $0.63 $12,600 $151,200 ---------------------- Total $71,240 $854,880 ======================
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 POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA 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 $775,251 $ 6,460 $830,320 $ 6,919 $829,190 $ 6,910 $831,900 $ 6,933 Vacancy $ 24,790 $ 207 $ 38,199 $ 318 $ 62,816 $ 523 $ 57,000 $ 475 Credit Loss/Concessions $ 13,455 $ 112 $ 29,314 $ 244 $ 56,850 $ 474 $ 25,800 $ 215 --------------------------------------------------------------------------------------------------- Subtotal $ 38,245 $ 319 $ 67,513 $ 563 $119,666 $ 997 $ 82,800 $ 690 Laundry Income $ 10,678 $ 89 $ 9,668 $ 81 $ 10,886 $ 91 $ 14,400 $ 120 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 37,666 $ 314 $ 68,738 $ 573 $ 86,278 $ 719 $ 72,000 $ 600 --------------------------------------------------------------------------------------------------- Subtotal Other Income $ 48,344 $ 403 $ 78,406 $ 653 $ 97,164 $ 810 $ 86,400 $ 720 --------------------------------------------------------------------------------------------------- Effective Gross Income $785,350 $ 6,545 $841,213 $ 7,010 $806,688 $ 6,722 $835,500 $ 6,963 Operating Expenses Taxes $ 38,630 $ 322 $ 55,218 $ 460 $ 75,473 $ 629 $ 74,399 $ 620 Insurance $ 25,185 $ 210 $ 69,151 $ 576 $ 72,933 $ 608 $ 25,090 $ 209 Utilities $ 81,642 $ 680 $ 73,903 $ 616 $ 75,402 $ 628 $ 78,000 $ 650 Repair & Maintenance $ 58,889 $ 491 $ 66,655 $ 555 $ 58,927 $ 491 $ 71,600 $ 597 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 $ 13,384 $ 112 $ 12,529 $ 104 $ 12,591 $ 105 $ 13,500 $ 113 General Administrative $105,162 $ 876 $100,593 $ 838 $101,895 $ 849 $ 99,050 $ 825 Management $ 39,484 $ 329 $ 45,003 $ 375 $ 43,044 $ 359 $ 41,760 $ 348 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 --------------------------------------------------------------------------------------------------- Total Operating Expenses $362,376 $ 3,020 $423,052 $ 3,525 $440,265 $ 3,669 $403,399 $ 3,362 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 --------------------------------------------------------------------------------------------------- Net Income $422,974 $ 3,525 $418,161 $ 3,485 $366,423 $ 3,054 $432,101 $ 3,601 ANNUALIZED 2003 --------------- PROJECTION AAA PROJECTION ---------- -------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT % ----------- ----- -------- ----- -------- ----- Revenues Rental Income $810,740 $ 6,756 $854,880 $ 7,124 100.0% Vacancy $ 89,316 $ 744 $ 51,293 $ 427 6.0% Credit Loss/Concessions $ 56,648 $ 472 $ 17,098 $ 142 2.0% ----------------------------------------------------------- Subtotal $145,964 $ 1,216 $ 68,390 $ 570 8.0% Laundry Income $ 11,792 $ 98 $ 12,000 $ 100 1.4% Garage Revenue $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $109,816 $ 915 $ 72,000 $ 600 8.4% ----------------------------------------------------------- Subtotal Other Income $121,608 $ 1,013 $ 84,000 $ 700 9.8% ----------------------------------------------------------- Effective Gross Income $786,384 $ 6,553 $870,490 $ 7,254 100.0% Operating Expenses Taxes $ 82,860 $ 691 $ 74,400 $ 620 8.5% Insurance $ 76,012 $ 633 $ 72,000 $ 600 8.3% Utilities $ 88,820 $ 740 $ 78,000 $ 650 9.0% Repair & Maintenance $ 99,884 $ 832 $ 72,000 $ 600 8.3% Cleaning $ 0 $ 0 $ 0 $ 0 0.0% Landscaping $ 0 $ 0 $ 0 $ 0 0.0% Security $ 0 $ 0 $ 0 $ 0 0.0% Marketing & Leasing $ 18,852 $ 157 $ 13,800 $ 115 1.6% General Administrative $127,640 $ 1,064 $102,000 $ 850 11.7% Management $ 36,908 $ 308 $ 43,524 $ 363 5.0% Miscellaneous $ 0 $ 0 $ 0 $ 0 0.0% ----------------------------------------------------------- Total Operating Expenses $530,976 $ 4,425 $455,724 $ 3,798 52.4% Reserves $ 0 $ 0 $ 30,000 $ 250 6.6% ----------------------------------------------------------- Net Income $255,408 $ 2,128 $384,765 $ 3,206 44.2%
REVENUES AND EXPENSES The subject's revenue and expense projections are displayed on the previous chart. Rental income is based on the market analysis previously discussed. Other income consists of forfeited deposits, laundry income, late rent payments, month to month fees, pet fees, vending machine revenue, etc. We forecasted the property's annual operating expenses after reviewing its historical performance at the subject property. We analyzed each item of expense and attempted to forecast amounts a typical informed investor would consider reasonable. VACANCY AND COLLECTION LOSS An investor is primarily interested in the annual revenue an income property is likely to produce over a specified period of time, rather than the income it could produce if it were always 100% occupied and all tenants were paying their rent in full and on time. An investor normally expects some income loss as tenants vacate, fail to pay rent, or pay their rent late. We have projected a stabilized vacancy and collection loss rate of 8% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30 POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA RESERVES FOR REPLACEMENT "Reserves for replacements" is a contingency account allocated to the expenses of the property to provide for replacement of short-lived items and for unforeseen necessary capital expenditures. We have utilized the Korpacz Real Estate Investor Survey of the national apartment market, which reports a range of replacement reserves between $150 and $400 per unit. For purposes of this analysis, we have included an allowance of $250 per unit for reserves for replacement. CAPITAL EXPENDITURES Capital expenditures represent expenses for immediate repair or replacement of items that have average to long lives. Based on our inspection of the property as well as discussions with property management personnel, there are no major items remaining in need of repair or replacement that would require an expense beyond our reserves for replacement. Therefore an allowance of $250 per unit should be satisfactory in our reserves for replacement to cover future capital expenditures. DISCOUNTED CASH FLOW ANALYSIS As the subject is a multi-tenant income property, the Discounted Cash Flow Method is considered appropriate. This method is especially meaningful in that it isolates the timing of the annual cash flows and discounts them, along with the expected equity reversion, to a present value. The present value of the cash flow is added to the present value of the reversion, resulting in a total property value. INVESTMENT CRITERIA Appropriate investment criteria will be derived for the subject based upon analysis of comparable sales and a survey of real estate investors. The following table summarizes the findings of Korpacz National Investor Survey for the most recent period. KORPACZ NATIONAL INVESTOR SURVEY 1ST QUARTER 2003 NATIONAL APARTMENT MARKET
CAPITALIZATION RATES ------------------------------------------------------------------------------------- GOING-IN TERMINAL ------------------------------------------------------------------------------------- LOW HIGH LOW HIGH --- ---- --- ---- RANGE 6.00% 10.00% 7.00% 10.00% AVERAGE 8.14% 8.47%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 31 POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR - --------- --------- ------ ---------- --- I-1 Feb-02 95% $39,759 8.05% I-2 June, 2001 N/A $66,383 8.21% I-3 December, 2000 96% $50,000 7.99% I-4 Mar-99 92% $27,691 9.64% I-5 Sep-98 98% $46,402 8.43% High 9.64% Low 7.99% Average 8.46%
Based on this information, we have concluded the subject's overall capitalization rate should be 8.50%. 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 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 $4,500,000. In this instance, the reversion figure contributes AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32 POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA approximately 40% of the total value. Investors surveyed for this assignment indicated they would prefer to have the cash flow contribute anywhere from 50% to 60%. Overall, the blend seems reasonable. The cash flow and pricing matrix are located on the following pages. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 33 POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA DISCOUNTED CASH FLOW ANALYSIS POINT WEST APARTMENTS & TOWNHOMES
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 FISCAL YEAR 1 2 3 4 5 6 ----------- ---------- ---------- ---------- ---------- ---------- ---------- REVENUE Base Rent $ 854,880 $ 880,526 $ 906,942 $ 934,150 $ 962,175 $ 991,040 Vacancy $ 51,293 $ 52,832 $ 54,417 $ 56,049 $ 57,730 $ 59,462 Credit Loss $ 17,098 $ 17,611 $ 18,139 $ 18,683 $ 19,243 $ 19,821 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- ---------- Subtotal $ 68,390 $ 70,442 $ 72,555 $ 74,732 $ 76,974 $ 79,283 Laundry Income $ 12,000 $ 12,360 $ 12,731 $ 13,113 $ 13,506 $ 13,911 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 72,000 $ 74,160 $ 76,385 $ 78,676 $ 81,037 $ 83,468 ---------- ---------- ---------- ---------- ---------- ---------- Subtotal Other Income $ 84,000 $ 86,520 $ 89,116 $ 91,789 $ 94,543 $ 97,379 ---------- ---------- ---------- ---------- ---------- ---------- EFFECTIVE GROSS INCOME $ 870,490 $ 896,604 $ 923,502 $ 951,207 $ 979,744 $1,009,136 OPERATING EXPENSES: Taxes $ 74,400 $ 76,632 $ 78,931 $ 81,299 $ 83,738 $ 86,250 Insurance $ 72,000 $ 74,160 $ 76,385 $ 78,676 $ 81,037 $ 83,468 Utilities $ 78,000 $ 80,340 $ 82,750 $ 85,233 $ 87,790 $ 90,423 Repair & Maintenance $ 72,000 $ 74,160 $ 76,385 $ 78,676 $ 81,037 $ 83,468 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 13,800 $ 14,214 $ 14,640 $ 15,080 $ 15,532 $ 15,998 General Administrative $ 102,000 $ 105,060 $ 108,212 $ 111,458 $ 114,802 $ 118,246 Management $ 43,524 $ 44,830 $ 46,175 $ 47,560 $ 48,987 $ 50,457 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- ---------- TOTAL OPERATING EXPENSES $ 455,724 $ 469,396 $ 483,478 $ 497,982 $ 512,922 $ 528,310 Reserves $ 30,000 $ 30,900 $ 31,827 $ 32,782 $ 33,765 $ 34,778 ---------- ---------- ---------- ---------- ---------- ---------- NET OPERATING INCOME $ 384,765 $ 396,308 $ 408,197 $ 420,443 $ 433,057 $ 446,048 ========== ========== ========== ========== ========== ========== Operating Expense Ratio (% of EGI) 52.4% 52.4% 52.4% 52.4% 52.4% 52.4% Operating Expense Per Unit $ 3,798 $ 3,912 $ 4,029 $ 4,150 $ 4,274 $ 4,403 YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 7 8 9 10 11 ----------- ---------- ---------- ---------- ---------- ---------- REVENUE Base Rent $1,020,771 $1,051,395 $1,082,936 $1,115,424 $1,148,887 Vacancy $ 61,246 $ 63,084 $ 64,976 $ 66,925 $ 68,933 Credit Loss $ 20,415 $ 21,028 $ 21,659 $ 22,308 $ 22,978 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- Subtotal $ 81,662 $ 84,112 $ 86,635 $ 89,234 $ 91,911 Laundry Income $ 14,329 $ 14,758 $ 15,201 $ 15,657 $ 16,127 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 85,972 $ 88,551 $ 91,207 $ 93,944 $ 96,762 ---------- ---------- ---------- ---------- ---------- Subtotal Other Income $ 100,300 $ 103,309 $ 106,409 $ 109,601 $ 112,889 ---------- ---------- ---------- ---------- ---------- EFFECTIVE GROSS INCOME $1,039,410 $1,070,592 $1,102,710 $1,135,791 $1,169,865 OPERATING EXPENSES: Taxes $ 88,837 $ 91,503 $ 94,248 $ 97,075 $ 99,987 Insurance $ 85,972 $ 88,551 $ 91,207 $ 93,944 $ 96,762 Utilities $ 93,136 $ 95,930 $ 98,808 $ 101,772 $ 104,825 Repair & Maintenance $ 85,972 $ 88,551 $ 91,207 $ 93,944 $ 96,762 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 Security $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 16,478 $ 16,972 $ 17,481 $ 18,006 $ 18,546 General Administrative $ 121,793 $ 125,447 $ 129,211 $ 133,087 $ 137,079 Management $ 51,971 $ 53,530 $ 55,136 $ 56,790 $ 58,493 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- TOTAL OPERATING EXPENSES $ 544,159 $ 560,484 $ 577,298 $ 594,617 $ 612,456 Reserves $ 35,822 $ 36,896 $ 38,003 $ 39,143 $ 40,317 ---------- ---------- ---------- ---------- ---------- NET OPERATING INCOME $ 459,430 $ 473,213 $ 487,409 $ 502,031 $ 517,092 ========== ========== ========== ========== ========== Operating Expense Ratio (% of EGI) 52.4% 52.4% 52.4% 52.4% 52.4% Operating Expense Per Unit $ 4,535 $ 4,671 $ 4,811 $ 4,955 $ 5,104
Estimated Stabilized NOI $384,765 Sales Expense Rate 2.00% Months to Stabilized 0 Discount Rate 11.00% Stabilized Occupancy 94.0% Terminal Cap Rate 10.00%
Gross Residual Sale Price $5,170,921 Deferred Maintenance $ 0 Less: Sales Expense $ 103,418 Add: Excess Land $ 0 ---------- Other Adjustments $ 0 Net Residual Sale Price $5,067,503 ---------- PV of Reversion $1,784,696 Value Indicated By "DCF" $4,481,927 Add: NPV of NOI $2,697,231 Rounded $4,500,000 ---------- PV Total $4,481,927
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE ------------- TOTAL VALUE 10.50% 10.75% 11.00% 11.25% 11.50% 9.50% $4,727,711 $4,650,948 $4,575,858 $4,502,400 $4,430,531 9.75% $4,677,317 $4,601,680 $4,527,688 $4,455,301 $4,384,478 TERMINAL CAP RATE 10.00% $4,629,442 $4,554,875 $4,481,927 $4,410,558 $4,340,728 10.25% $4,583,903 $4,510,353 $4,438,398 $4,367,997 $4,299,112 10.50% $4,540,532 $4,467,951 $4,396,941 $4,327,463 $4,259,477
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 34 POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA 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 8.50% percent is applicable to the subject. The results of our direct capitalization analysis are as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 35 POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA POINT WEST APARTMENTS & TOWNHOMES
TOTAL PER SQ. FT. PER UNIT %OF EGI ----- ----------- -------- ------- REVENUE Base Rent $ 854,880 $ 8.43 $ 7,124 Less: Vacancy & Collection Loss 8.00% $ 68,390 $ 0.67 $ 570 Plus: Other Income Laundry Income $ 12,000 $ 0.12 $ 100 1.38% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 72,000 $ 0.71 $ 600 8.27% ---------- ------ ------- ----- Subtotal Other Income $ 84,000 $ 0.83 $ 700 9.65% EFFECTIVE GROSS INCOME $ 870,490 $ 8.59 $ 7,254 OPERATING EXPENSES: Taxes $ 74,400 $ 0.73 $ 620 8.55% Insurance $ 72,000 $ 0.71 $ 600 8.27% Utilities $ 78,000 $ 0.77 $ 650 8.96% Repair & Maintenance $ 72,000 $ 0.71 $ 600 8.27% Cleaning $ 0 $ 0.00 $ 0 0.00% Landscaping $ 0 $ 0.00 $ 0 0.00% Security $ 0 $ 0.00 $ 0 0.00% Marketing & Leasing $ 13,800 $ 0.14 $ 115 1.59% General Administrative $ 102,000 $ 1.01 $ 850 11.72% Management 5.00% $ 43,524 $ 0.43 $ 363 5.00% Miscellaneous $ 0 $ 0.00 $ 0 0.00% TOTAL OPERATING EXPENSES $ 455,724 $ 4.50 $ 3,798 52.35% Reserves $ 30,000 $ 0.30 $ 250 3.45% ---------- ------ ------- ----- NET OPERATING INCOME $ 384,765 $ 3.80 $ 3,206 44.20% "GOING IN" CAPITALIZATION RATE 8.50% VALUE INDICATION $4,526,648 $44.66 $37,722 "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $4,526,648 ROUNDED $4,500,000 $44.39 $37,500
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 36 POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF - -------- ----- ------- ------ ---- 7.75% $4,964,711 $5,000,000 $41,667 $49.33 8.00% $4,809,564 $4,800,000 $40,000 $47.35 8.25% $4,663,820 $4,700,000 $39,167 $46.37 8.50% $4,526,648 $4,500,000 $37,500 $44.39 8.75% $4,397,316 $4,400,000 $36,667 $43.41 9.00% $4,275,168 $4,300,000 $35,833 $42.42 9.25% $4,159,623 $4,200,000 $35,000 $41.43
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $4,500,000. 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 $4,500,000 Direct Capitalization Method $4,500,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $4,500,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 37 POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA 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 $4,700,000 Income Approach $4,500,000 Reconciled Value $4,500,000
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 28, 2003 the market value of the fee simple estate in the property is: $4,500,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA SUBJECT PHOTOGRAPHS [EXTERIOR - APARTMENT BUILDING PICTURE] [STREET SCENE FACING NORTH PICTURE] [SWIMMING POOL PICTURE] [EXTERIOR - APARTMENT BUILDING PICTURE] [EXTERIOR - PARKING LOT PICTURE] [EXTERIOR - APARTMENT BUILDINGS PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA SUBJECT PHOTOGRAPHS [INTERIOR - CLUBHOUSE PICTURE] [INTERIOR - LIVING ROOM PICTURE] [INTERIOR - KITCHEN PICTURE] [INTERIOR - BEDROOM PICTURE] [INTERIOR - BATHROOM PICTURE] [INTERIOR - LAUNDRY ROOM PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 MELROSE PARK CARRINGTON PLACE MARTIN'S CREEK 2494 Etiwan Avenue 1300 Park West Boulevard 700 Martin's Creek Bouleavard Charleston, SC Mt. Pleasant, SC Summerville, SC [PICTURE] [PICTURE] [PICTURE] COMPARABLE I-4 COMPARABLE I-5 PEPPERTREE WESTBURY MEWS 4640 Forest Hills Drive 1425 Old Trolley Road N. Charleston, SC Summerville, SC [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 ----------- ------- ---------- Property Name Point West Apartments & Townhomes Ashley Oaks Management Company AIMCO Asset Management Consulting Services LOCATION: Address 415 Parkdale Drive 78 Ashley Hall Plantation Road City, State Charleston, South Carolina Charleston, South Carolina County Charleston Charleston Proximity to Subject 3 miles north of the subject PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 101,368 402,600 Year Built 1973 1978 Effective Age 20 20 Building Structure Type Brick & wood siding walls; asphalt shingle roof Brick & wood siding walls; asphalt shingle roof Parking Type (Gr., Cov., etc.) Open Open Number of Units 120 420 Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo. 1 1Br/1Ba 648 32 $515 1 1BD/1BA 650 80 $520 2 2Br/1.5Ba 868 70 $593 2 2BD/2BA 950 176 $605 3 3Br/1.5Ba 1,104 18 $700 0 2BD/2.5BA 1,100 10 $690 3 3BD/2BA 1,100 144 $665 0 3BD/2.5BA 1,400 10 $770 Average Unit Size (SF) 845 959 Unit Breakdown: Efficiency 0% 2-Bedroom 58% Efficiency 0% 2-Bedroom 44% 1-Bedroom 27% 3-Bedroom 15% 1-Bedroom 19% 3-Bedroom 37% CONDITION: Good Good APPEAL: Average Average 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 Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment X 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 X Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track X Business Office Jogging Track X Business Office Gym Room Gym Room OCCUPANCY: 89% 97% LEASING DATA: Available Leasing Terms 6 to 15 Months 6 to 12 Months Concessions $40 off 1BR; $80 off 2BR & 3BR None Pet Deposit $400 $400 Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water Trash Water Trash Confirmation May 28, 2003; Amy Bills (Property Manager) June 2, 2003; (Property Manager) Telephone Number (843) 556-8200 (843) 766-6369 NOTES: None COMPARISON TO SUBJECT: Similar COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 ----------- ---------- ---------- Property Name Castlewood Melrose Park Management Company N/A Jupiter Communities LOCATION: Address 885 Castlewood Boulevard 2494 Etiwan Avenue City, State Charleston, South Carolina Charleston, South Carolina County Charleston Charleston Proximity to Subject PHYSICAL CHARATERISTICS: 1 mile north of the subject 1 mile northwest of the subject Net Rentable Area (SF) Year Built 698,118 141,024 Effective Age 1989 1972 Building Structure Type 10 20 Parking Type (Gr., Cov., etc.) Brick & wood siding walls; asphalt shingle roof Brick & wood siding walls; asphalt shingle roof Number of Units Open Garage, Open, Covered Unit Mix: 614 156 Type Unit Qty. Mo. Type Unit Qty. Mo. 2 2BR/1BA 1,080 46 $625 1 1BD/1BA 800 102 $550 0 2BR/2.5BA 1,120 416 $625 2 2BD/1.5BA 1,100 54 $630 0 2BR/2.5BA 1,200 152 $650 Average Unit Size (SF) 1,137 904 Unit Breakdown: Efficiency 0% 2-Bedroom 68% Efficiency 0% 2-Bedroom 15% 1-Bedroom 7% 3-Bedroom 25% 1-Bedroom 65% 3-Bedroom 0% CONDITION: Good Good APPEAL: Average Average AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling X Attach. Garage Vaulted Ceiling X Balcony X X Balcony Fireplace Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash X Basketball Court BBQ Equipment X Basketball Court BBQ Equipment Volleyball Court Theater Room X Volleyball Court Theater Room Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall Tennis Court Secured Parking X Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track X Business Office Jogging Track X Business Office X Gym Room Gym Room OCCUPANCY: 93% N/A LEASING DATA: Available Leasing Terms 6 to 12 Months 6, 9 & 12 Months Concessions 1 month free on 12 month lease N/A Pet Deposit $300 $300 Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas Water Trash Water Trash Confirmation Mel Spring 2003 (Brochure) Telephone Number (843) 556-2030 (843) 766-1330 NOTES: None Gated access COMPARISON TO SUBJECT: Similar Similar COMPARABLE COMPARABLE DESCRIPTION R - 4 R - 5 ----------- ---------- ---------- Property Name Windjammer Palmetto Point Management Company JMG Realty AMCS LOCATION: Address 1742 Sam Rittenberg Boulevard 1751 Dogwood Road City, State Charleston, South Carolina Charleston, South Carolina County Charleston Charleston Proximity to Subject PHYSICAL CHARATERISTICS: 2 miles northeast of the subject 3 miles north of he subject Net Rentable Area (SF) Year Built Effective Age 162,432 108,632 Building Structure Type 1973 1979 Parking Type (Gr., Cov., etc.) 20 20 Number of Units Brick & wood siding walls; asphalt shingle roof Brick & wood siding walls; asphalt shingle roof Unit Mix: Garage, Open, Covered Open 188 116 Type Unit Qty. Mo. Type Unit Qty. Mo. 0 Efficiency 550 28 $510 1 1BD/1BA 742 32 $510 1 1BD/1BA - Type 1 650 28 $550 2 2BD/1.5BA 912 48 $600 1 1BD/1BA - Type 2 670 24 $585 3 3BD/1.5BA 1,142 36 $700 2 2BD/1BH - Type 1 950 28 $695 2 2BD/1BA - Type 2 1,037 14 $745 2 2BD/1.5BA 1,097 52 $715 3 3BR/1BA 1,037 14 $810 Average Unit Size (SF) 864 936 Unit Breakdown: Efficiency 15% 2-Bedroom 50% Efficiency 0% 2-Bedroom 41% 1-Bedroom 28% 3-Bedroom 7% 1-Bedroom 28% 3-Bedroom 31% CONDITION: Good Good APPEAL: Average Average 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 Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court X BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room X Sand Volley Ball X 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 Gym Room Gym Room OCCUPANCY: 94% 92% LEASING DATA: Available Leasing Terms 6, 9 & 12 Months 6, 9 & 12 months Concessions $35 off 2BR/1.5BA floor plan None Pet Deposit $200 $250 Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas Water Trash Water Trash Confirmation June 3, 2003; (Property Manager) June 3, 2003; (Property Manager) Telephone Number (843) 571-0471 (843) 571-1900 NOTES: None None COMPARISON TO SUBJECT: Superior Similar
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 ASHLEY OAKS CASTLEWOOD 78 Ashley Hall Plantation Road 885 Castlewood Boulevard Charleston, South Carolina Charleston, South Carolina [PICTURE] [PICTURE] COMPARABLE R-3 COMPARABLE R-4 MELROSE PARK WINDJAMMER 2494 Etiwan Avenue 1742 Sam Rittenberg Boulevard Charleston, South Carolina Charleston, South Carolina [PICTURE] [PICTURE] COMPARABLE R-5 PALMETTO POINT 1751 Dogwood Road Charleston, South Carolina [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA 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 POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA 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 POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA 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 POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA 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. Jimmy Pat James, MAI and David Johnsen, MAI 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 South Carolina Temporary Practice Permit #095-03 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA 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 POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA 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. POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. POINT WEST APARTMENTS & TOWNHOMES, CHARLESTON, SOUTH CAROLINA 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)(12) 14 d07256a1exv99wxcyx12y.txt APPRAISAL OF POST RIDGE APARTMENTS POST RIDGE 595 HICKS ROAD NASHVILLE, TENNESSEE MARKET VALUE - FEE SIMPLE ESTATE AS OF MAY 7, 2003 PREPARED FOR: APARTMENT INVESTMENT AND MANAGEMENT COMPANY (AIMCO) C/O LINER YANKELEVITZ SUNSHINE & REGENSTREIF LLP & LIEFF CABRASER HEIMANN & BERNSTEIN ON BEHALF OF NUANES, ET. AL. [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LETTER HEAD] JULY 2, 2003 Apartment Investment and Management Company ("AIMCO") c/o Mr. Steven A. Velkei, Esq. Liner Yankelevitz Sunshine & Regenstreif LLP 1100 Glendon Avenue, 14(th) 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: POST RIDGE 595 HICKS ROAD NASHVILLE, DAVIDSON COUNTY, TENNESSEE 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 150 units with a total of 223,340 square feet of rentable area. The improvements were built in 1972. The improvements are situated on 26.64 acres. Overall, the improvements are in average condition. As of the date of this appraisal, the subject property is 98% 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 POST RIDGE, NASHVILLE, TENNESSEE The opinions expressed in this appraisal cover letter can only be completely understood by reading the narrative report, addenda, and other data, which is attached. The appraisal is subject to the attached general assumptions and limiting conditions and general service conditions. As a result of our investigation, it is our opinion that the fee simple market value of the subject, effective May 7, 2003 is: ($7,400,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. -s- Frank Fehribach July 2, 2003 Frank Fehribach, MAI #053272 Managing Principal, Real Estate Group Tennessee Temporary Practice Permit #00053573 Report By: Daniel Salcedo Tennessee Temporary Practice Permit #00053558 AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 POST RIDGE, NASHVILLE, TENNESSEE 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 Analysis ............................................. 17 VALUATION Valuation Procedure ....................................................... 18 Sales Comparison Approach ................................................. 20 Income Capitalization Approach ............................................ 26 Reconciliation and Conclusion ............................................. 37 ADDENDA Exhibit A - Photographs of Subject Property Exhibit B - Summary of Rent Comparables and Photograph of Comparables Exhibit C - Assumptions and Limiting Conditions Exhibit D - Certificate of Appraiser Exhibit E - Qualifications General Service Conditions
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 4 POST RIDGE, NASHVILLE, TENNESSEE EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Post Ridge LOCATION: 595 Hicks Road Nashville, Tennessee INTENDED USE OF ASSIGNMENT: Court Settlement PURPOSE OF APPRAISAL: "As Is" Market Value of the Fee Simple Estate INTEREST APPRAISED: Fee simple estate DATE OF VALUE: May 7, 2003 DATE OF REPORT: July 2, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 26.64 acres, or 1,160,438 square feet Assessor Parcel No.: 128-00-0-099 Floodplain: Community Panel No. 47037C0308F (April 20, 2001) Flood Zone X, an area outside the floodplain. Zoning: R-15 (Medium to High Density Apartment District) BUILDING: No. of Units: 150 Units Total NRA: 223,340 Square Feet Average Unit Size: 1,489 Square Feet Apartment Density: 5.6 units per acre Year Built: 1972 UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
Market Rent Square ------------------ Monthly Annual Unit Type Feet Per Unit Per SF Income Income - --------- ------ -------- ------ -------- ---------- 2Br/2Ba - 2A20 1,375 $700 $0.51 $ 39,200 $ 470,400 2Br/2.5Ba - 2A25 1,280 $750 $0.59 $ 15,750 $ 189,000 2Br/3Ba - 2A30 1,580 $790 $0.50 $ 18,960 $ 227,520 3Br/2Ba - 3A20 1,550 $780 $0.50 $ 18,720 $ 224,640 3Br/2.5Ba - 3A25 1,550 $850 $0.55 $ 10,200 $ 122,400 3Br/3Ba - 3A30 1,980 $990 $0.50 $ 12,870 $ 154,440 Total $115,700 $1,388,400
OCCUPANCY: 98% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 25 Years AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 POST RIDGE, NASHVILLE, TENNESSEE REMAINING ECONOMIC LIFE: 20 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [UNIT TYPE FACADE PICTURE] [UNIT TYPE PICTURE] [AREA MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 POST RIDGE, NASHVILLE, TENNESSEE [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 POST RIDGE, NASHVILLE, TENNESSEE PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION Amount $/Unit Potential Rental Income $1,388,400 $9,256 Effective Gross Income $1,389,078 $9,261 Operating Expenses $ 624,454 $4,163 45.0% of EGI Net Operating Income: $ 727,124 $4,847 Capitalization Rate 10.00% DIRECT CAPITALIZATION VALUE $7,300,000 * $48,667 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 9% Stabilized Vacancy & Collection Loss: 8% Lease-up / Stabilization Period N/A Terminal Capitalization Rate 11.00% Discount Rate 12.50% Selling Costs 2.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $7,400,000 * $49,333 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $7,400,000 $49,333 / UNIT
SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $41,538 to $71,552 Range of Sales $/Unit (Adjusted) $43,615 to $50,962 VALUE INDICATION - PRICE PER UNIT $7,200,000 * $48,000 / UNIT
EGIM ANALYSIS Range of EGIMs from Improved Sales 5.76 to 6.85 Selected EGIM for Subject 5.50 Subject's Projected EGI $ 1,389,078 EGIM ANALYSIS CONCLUSION $ 7,600,000 * $50,667 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $ 7,500,000 * $50,000 / UNIT RECONCILED SALES COMPARISON VALUE $ 7,500,000 $50,000 / 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 POST RIDGE, NASHVILLE, TENNESSEE PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $7,200,000 NOI Per Unit $7,500,000 EGIM Multiplier $7,600,000 INDICATED VALUE BY SALES COMPARISON $7,500,000 $50,000 / UNIT INCOME APPROACH: Direct Capitalization Method: $7,300,000 Discounted Cash Flow Method: $7,400,000 INDICATED VALUE BY THE INCOME APPROACH $7,400,000 $49,333 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $7,400,000 $49,333 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 POST RIDGE, NASHVILLE, TENNESSEE INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 595 Hicks Road, Nashville, Davidson County, Tennessee. Nashville identifies it as 128-00-0-099. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Daniel Salcedo on May 7, 2003. Frank Fehribach, MAI has not made a personal inspection of the subject property. Daniel Salcedo performed the research, valuation analysis and wrote the report. Frank Fehribach, MAI reviewed the report and concurs with the value. Frank Fehribach, MAI and Daniel Salcedo have extensive experience in appraising similar properties and meet the USPAP competency provision. The scope of this investigation comprises the inspection of the property and the collection, verification, and analysis of general and specific data pertinent to the subject property. We have researched current improved sales and leases of similar properties, analyzing them as to their comparability, and adjusting them accordingly. We completed the Sales Comparison and Income Capitalization Approaches to value. From these approaches to value, a concluded overall value was made. DATE OF VALUE AND REPORT This appraisal was made to express the opinion of value as of May 7, 2003. The date of the report is July 2, 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 POST RIDGE, NASHVILLE, TENNESSEE 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 CCP 4. 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 POST RIDGE, NASHVILLE, TENNESSEE 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 Nashville, Tennessee. 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 - Old Hickory Road West - I-40 South - SR-70 North - I-40 MAJOR EMPLOYERS Major employers in the subject's area include ComPlus, Concetra, Saturn Corporation, Gaylord Entertainment, Nissan Motor Manufacturing Corporation, Kroger Company, Reemay Inc., United parcel Service, First National Bank, Shoney's Inc., BellSouth, Inter-City Pro Corporation, Nationsbank, and Bridgestone/Firestone. 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 POST RIDGE, NASHVILLE, TENNESSEE NEIGHBORHOOD DEMOGRAPHICS
AREA ---------------------------------------- CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA ------------ ------------ ------------ --------- POPULATION TRENDS Current Population 8,296 36,691 57,714 1,275,686 5-Year Population 8,701 40,494 62,538 1,391,452 % Change CY-5Y 4.9% 10.4% 8.4% 9.1% Annual Change CY-5Y 1.0% 2.1% 1.7% 1.8% HOUSEHOLDS Current Households 4,240 16,603 24,615 499,284 5-Year Projected Households 4,570 18,595 27,019 550,820 % Change CY-5Y 7.8% 12.0% 9.8% 10.3% Annual Change CY-5Y 1.6% 2.4% 2.0% 2.1% INCOME TRENDS Median Household Income $ 45,136 $ 64,490 $ 71,555 $ 45,328 Per Capita Income $ 29,179 $ 33,959 $ 39,845 $ 23,901 Average Household Income $ 58,018 $ 74,678 $ 92,907 $ 61,067 Source: Demographics Now
The subject neighborhood's population is expected to show increases above that of the region. The immediate market offers inferior income levels as compared to the broader market. The following table illustrates the housing statistics in the subject's immediate area, as well as the MSA region. HOUSING TRENDS
AREA ---------------------------------------------- CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA ------------ ------------ ------------ ----- HOUSING TRENDS % of Households Renting 47.40% 34.78% 28.10% 31.23% 5-Year Projected % Renting 48.10% 34.59% 28.09% 30.53% % of Households Owning 44.36% 59.08% 66.19% 61.72% 5-Year Projected % Owning 43.93% 59.78% 66.62% 62.91%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 POST RIDGE, NASHVILLE, TENNESSEE SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Sawyer Brown Road South - Residential East - Residential West - Hicks Road CONCLUSIONS The subject is well located within the city of Nashville. 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 POST RIDGE, NASHVILLE, TENNESSEE MARKET ANALYSIS The subject property is located in the city of Nashville in Davidson County. The overall pace of development in the subject's market is more or less decreasing. Based on our site inspection of the market area, there was no evidence of additional development for multifamily use. The following table illustrates historical vacancy rates for the subject's market.
HISTORICAL VACANCY RATE Period Region Submarket - ------ ------ --------- 1997 5.5% 5.0% 1998 6.7% 6.0% 1999 5.9% 7.0% 2000 5.9% 7.9% 2001 8.3% 8.6% 2002 8.0% 8.0%
Source: Greater Nashville Apartment Association Occupancy trends in the subject's market are stable. Historically speaking, the subject's submarket has equated the overall market. Occupancy in the subject's market area is expected to be around 94.0% in average. Any expected changes are caused by the short time fluctuations derived from the current economic situation affecting the local, regional and national markets. 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 - ------ ------ -------- --------- -------- 1996 $583 - $735 - 1997 $604 3.6% $760 3.4% 1998 $634 5.0% $769 1.2% 1999 $647 2.1% $784 2.0% 2000 $667 3.1% $796 1.5% 2001 $677 1.5% $814 2.3% 2002 $685 1.2% $820 0.7%
Source: Greater Nashville Apartment Association The following table illustrates a summary of the subject's competitive set. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 POST RIDGE, NASHVILLE, TENNESSEE COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject - --- ------------- ----- ----- ---------- -------------------- R-1 Legacy Hill 206 95% 1977 Approx. 3.2 miles east of subject R-2 Iroquois 376 90% 1967 Approx. 1.3 miles southeast of subject R-3 Archstone at Bellevue 225 91% 1986 Approx. 2.5 miles east of subject R-4 Creekwood 200 94% 1971 Approx. 2.5 miles west of subject R-5 Knollwood 326 97% 1972 Approx. 1.45 miles southeast of subject Subject Post Ridge 150 98% 1972
Rental rates are expected to stabilize. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 POST RIDGE, NASHVILLE, TENNESSEE PROPERTY DESCRIPTION SITE ANALYSIS Site Area 26.64 acres, or 1,160,438 square feet Shape Irregular Topography Steep slope 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 47037C0308F, dated April 20, 2001 Flood Zone Zone X Zoning R-15, 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 128-00-0-099 $360,000 $2,360,000 $2,720,000 0.03840 $104,448
IMPROVEMENT ANALYSIS Year Built 1972 Number of Units 150 Net Rentable Area 223,340 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, barbecue equipment, meeting hall, 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, microwave dishwasher, water heater, garbage disposal, and oven. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 POST RIDGE, NASHVILLE, TENNESSEE Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) 2Br/2Ba-2A20 56 1,375 2Br/2.5Ba-2A25 21 1,280 2Br/3Ba-2A30 24 1,580 3Br/2Ba-3A20 24 1,550 3Br/2.5Ba-3A25 12 1,550 3Br/3Ba-3A30 13 1,980
Overall Condition Average Effective Age 25 years Economic Life 45 years Remaining Economic Life 20 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 1972 and consist of a 150-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 POST RIDGE, NASHVILLE, TENNESSEE 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 POST RIDGE, NASHVILLE, TENNESSEE 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 POST RIDGE, NASHVILLE, TENNESSEE 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 POST RIDGE, NASHVILLE, TENNESSEE SUMMARY OF COMPARABLE SALES - IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - ---------------------------------------------------------------------------------------------------------------------- Property Name Post Ridge Dunhill Village Belle Valley LOCATION: Address 595 Hicks Road 512 Old Hickory Blvd 100 Belle Valley Drive City, State Nashville, Tennessee Nashville, TN Nashville, TN County Davidson Davidson Davidson PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 223,340 337,908 287,040 Year Built 1972 1998 1985 Number of Units 150 348 260 Unit Mix: Type Total Type Total Type Total 2Br/2Ba-2A20 56 1Br/1Ba 168 1Br/1Ba 60 2Br/2.5Ba-2A25 21 2Br/1Ba 128 2Br/2Ba 160 2Br/3Ba-2A30 24 3Br/2Ba 52 2Br/2.5Ba 40 3Br/2Ba-3A20 24 3Br/2.5Ba-3A25 12 3Br/3Ba-3A30 13 Average Unit Size (SF) 1,489 971 1,104 Land Area (Acre) 26.64 36.11 51.91 Density (Units/Acre) 5.6 9.6 5 Parking Ratio (Spaces/Unit) 2.01 2.4 2.2 Parking Type (Gr., Cov., etc.) Open Open Carport/Garage Open CONDITION: Average Good Good APPEAL: Average Good Good AMENITIES: Pool/Spa Yes/No Yes/No Yes/No Gym Room No Yes Yes Laundry Room Yes Yes No Secured Parking No No Yes Sport Courts Yes No Yes Washer/Dryer Connection Yes Yes Yes Storage No Yes No OCCUPANCY: 98% 93% 92% TRANSACTION DATA: Sale Date September 2002 November 2002 Sale Price ($) $24,900,000 $10,800,000 Grantor N/A N/A Grantee Dunhill Owners LLC Belle Valley Ltd Sale Documentation Deed - 20020905-0107891 Deed - 00006430-0000732 Verification Dawn Edmonson Margaret Woody Telephone Number 615.352.1977 615.356.5000 ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $4,650,255 $13,363 $13.76 $1,712,758 $6,588 $5.97 Vacancy/Credit Loss $ 325,518 $ 935 $ 0.96 $ 137,021 $ 527 $0.48 Effective Gross Income $4,324,737 $12,427 $12.80 $1,575,737 $6,061 $5.49 Operating Expenses $1,946,637 $ 5,594 $ 5.76 $ 679,537 $2,614 $2.37 Net Operating Income $2,378,100 $ 6,834 $ 7.04 $ 896,200 $3,447 $3.12 NOTES: Overall superior to subject Overall slightly superior to subject Price Per Unit $71,552 $41,538 Price Per Square Foot $ 73.69 $ 37.63 Expense Ratio 45.00% 43.10% EGIM 5.76 6.85 Overall Cap Rate 9.55% 8.30% Cap Rate based on Pro Forma or Actual Income? Pro Forma Pro Forma
COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 - --------------------------------------------------------------------------------------------- Property Name The Lexington at Bellevue Wyndchase Bellevue LOCATION: Address 510 Old Hickory Blvd 7221 SR-70 South City, State Nashville, TN Nashville, TN County Davidson Davidson PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 260,000 229,320 Year Built 1996 1999 Number of Units 250 234 Unit Mix: Type Total Type Total 1Br/1Ba 120 1Br/1Ba 114 2Br/1Ba 92 2Br/1Ba 96 3Br/2.5Ba 38 3Br/2.5Ba 24 Average Unit Size (SF) 1,040 980 Land Area (Acre) 21.79 10.77 Density (Units/Acre) 11.5 21.7 Parking Ratio (Spaces/Unit) 2.2 2.5 Parking Type (Gr., Cov., etc.) Open Carport/Garage Open Carport/Garage CONDITION: Good Good APPEAL: Good Good AMENITIES: Pool/Spa Yes/No Yes/No Gym Room Yes Yes Laundry Room Yes Yes Secured Parking Yes No Sport Courts No No Washer/Dryer Connection Yes No Storage No Yes OCCUPANCY: 93% 93% TRANSACTION DATA: SALE Date December 2002 October 2001 Sale Price ($) $16,975,000 $15,900,000 Grantor N/A N/A Grantee Lexington Owners LLC Wyndchase Lake Gibson Parke Sale Documentation Deed - 20021220-0157848 Deed - 20011005-0108456 Verification Fay Shaw Amy Prater Telephone Number 615.352.5700 615.646.7575 ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $2,737,903 $10,952 $10.53 $2,523,809 $10,786 $11.01 Vacancy/Credit Loss $ 191,653 $ 767 $ 0.74 $ 176,666 $ 755 $ 0.77 Effective Gross Income $2,546,250 $10,185 $ 9.79 $2,347,143 $10,031 $10.24 Operating Expenses $1,081,000 $ 4,324 $ 4.16 $ 926,943 $ 3,961 $ 4.04 Net Operating Income $1,465,250 $ 5,861 $ 5.64 $1,420,200 $ 6,069 $ 6.19 NOTES: Overall superior to subject Overall superior to subject Price Per Unit $67,900 $67,949 Price Per Square Foot $ 65.29 $ 69.34 Expense Ratio 42.50% 39.50% EGIM 6.67 6.77 Overall Cap Rate 8.63% 8.93% Cap Rate based on Pro Forma or Actual Income? Pro Forma Pro Forma
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 POST RIDGE, NASHVILLE, TENNESSEE [MAP OF IMPROVED SALES MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $41,538 to $71,552 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 $43,615 to $50,962 per unit with a mean or average adjusted price of $48,048 per unit. The median adjusted price is $48,808 per unit. Based on the following analysis, we have concluded to a value of $48,000 per unit, which results in an "as is" value of $7,200,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 POST RIDGE, NASHVILLE, TENNESSEE SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - ----------------------------------- ----------------- ---------------------- ---------------------- Property Name Post Ridge Dunhill Village Belle Valley Address 595 Hicks Road 512 Old Hickory Blvd 100 Belle Valley Drive City Nashville, Tennessee Nashville, TN Nashville, TN Sale Date September 2002 November 2002 December 2002 Sale Price ($) $24,900,000 $10,800,000 Net Rentable Area (SF) 223,340 337,908 287,040 Number of Units 150 348 260 Price Per Unit $71,552 $41,538 Year Built 1972 1998 1985 Land Area (Acre) 26.6400 36.1100 51.9100 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. - ----------------------------------- ----------------- ---------------------- ---------------------- Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 09-2002 0% 11-2002 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $71,552 $41,538 - ----------------------------------- ----------------- ---------------------- ---------------------- Location Comparable 0% Comparable 0% Number of Units 150 348 0% 260 0% Quality / Appeal Good Superior -15% Inferior 15% Age / Condition 1972 1998 / Good -20% 1985 / Good -10% Occupancy at Sale 98% 93% 0% 92% 0% Amenities Good Comparable 0% Comparable 0% Average Unit Size (SF) 1,489 971 5% 1,104 0% PHYSICAL ADJUSTMENT -30% 5% FINAL ADJUSTED VALUE ($/UNIT) $50,086 $43,615 SUMMARY VALUE RANGE (PER UNIT) $43,615 TO $50,962 MEAN (PER UNIT) $48,048 MEDIAN (PER UNIT) $48,808 VALUE CONCLUSION (PER UNIT) $48,000 VALUE INDICATED BY SALES COMPARISON APPROACH $7,200,000 ROUNDED $7,200,000 COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 - ----------------------------------- ------------------------- --------------------- Property Name The Lexington at Bellevue Wyndchase Bellevue Address 510 Old Hickory Blvd 7221 SR-70 South City Nashville, TN Nashville, TN Sale Date October 2001 Sale Price ($) $16,975,000 $15,900,000 Net Rentable Area (SF) 260,000 229,320 Number of Units 250 234 Price Per Unit $67,900 $67,949 Year Built 1996 1999 Land Area (Acre) 21.7900 10.7700 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. - ----------------------------------- ------------------------- --------------------- Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 12-2002 0% 10-2001 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $67,900 $67,949 - ----------------------------------- ------------------------- --------------------- Location Comparable 0% Comparable 0% Number of Units 250 0% 234 0% Quality / Appeal Superior -15% Superior -10% Age / Condition 1996 / Good -15% 1999 / Good -20% Occupancy at Sale 93% 0% 93% 0% Amenities Comparable 0% Comparable 0% Average Unit Size (SF) 1,040 0% 980 5% PHYSICAL ADJUSTMENT -30% -25% FINAL ADJUSTED VALUE ($/UNIT) $47,530 $50,962 SUMMARY VALUE RANGE (PER UNIT) MEAN (PER UNIT) MEDIAN (PER UNIT) VALUE CONCLUSION (PER UNIT) VALUE INDICATED BY SALES COMPARISON APPROACH ROUNDED
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 POST RIDGE, NASHVILLE, TENNESSEE 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-1 348 $24,900,000 9.55% $2,378,100 $727,124 0.709 $50,756 $ 71,552 $ 6,834 $ 4,847 I-2 260 $10,800,000 8.30% $ 896,200 $727,124 1.406 $58,417 $ 41,538 $ 3,447 $ 4,847 I-3 250 $16,975,000 8.63% $1,465,250 $727,124 0.827 $56,158 $ 67,900 $ 5,861 $ 4,847 I-4 234 $15,900,000 8.93% $1,420,200 $727,124 0.799 $54,271 $ 67,949 $ 6,069 $ 4,847
PRICE/UNIT VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT - ---------------------------------------------------------------------------------------- Low High Average Median Estimated Price Per Unit $ 50,000 Number of Units 150 $50,756 $58,417 $54,900 $55,215 Value Based on NOI Analysis $7,500,000 Rounded $7,500,000
The adjusted sales indicate a range of value between $50,756 and $58,417 per unit, with an average of $54,900 per unit. Based on the subject's competitive position within the improved sales, a value of $50,000 per unit is estimated. This indicates an "as is" market value of $7,500,000 (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. 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-1 348 $24,900,000 $4,324,737 $1,946,637 45.01% 5.76 $ 71,552 I-2 260 $10,800,000 $1,575,737 $ 679,537 43.13% 6.85 $ 41,538 44.95% I-3 250 $16,975,000 $2,546,250 $1,081,000 42.45% 6.67 $ 67,900 I-4 234 $15,900,000 $2,347,143 $ 926,943 39.49% 6.77 $ 67,949
EGIM VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES - --------------------------------------------------------------------------------------------------- Low High Average Median Estimate EGIM 5.50 5.76 6.85 6.51 6.72 Subject EGI $1,389,078 Value Based on EGIM Analysis $7,639,929 Rounded $7,600,000 Value Per Unit $ 50,667
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 25 POST RIDGE, NASHVILLE, TENNESSEE 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 44.95% before reserves. The comparable sales indicate a range of expense ratios from 39.49% to 45.01%, while their EGIMs range from 5.76 to 6.85. Overall, we conclude to an EGIM of 5.50, which results in an "as is" value estimate in the EGIM Analysis of $7,600,000. 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 $7,500,000. Price Per Unit $7,200,000 NOI Per Unit $7,500,000 EGIM Analysis $7,600,000 Sales Comparison Conclusion $7,500,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 POST RIDGE, NASHVILLE, TENNESSEE 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 judgme nts 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 POST RIDGE, NASHVILLE, TENNESSEE 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 2Br/2Ba-2A20 1375 $699 $ 0.51 98.2% 2Br/2.5Ba-2A25 1280 $749 $ 0.59 95.2% 2Br/3Ba-2A30 1580 $789 $ 0.50 100.0% 3Br/2Ba-3A20 1550 $779 $ 0.50 95.8% 3Br/2.5Ba-3A25 1550 $849 $ 0.55 100.0% 3Br/3Ba-3A30 1980 $989 $ 0.50 100.0%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 POST RIDGE, NASHVILLE, TENNESSEE
SUBJECT SUBJECT SUBJECT UNIT ACTUAL ASKING DESCRIPTION TYPE RENT RENT - ------------------------------------------------------------- Monthly Rent 2Br/2Ba-2A20 $ 699 $ 689 Unit Area (SF) 1,375 1,375 Monthly Rent Per Sq. Ft. $ 0.51 $ 0.50 Monthly Rent 2Br/2.5Ba-2A25 $ 749 $ 663 Unit Area (SF) 1,280 1,280 Monthly Rent Per Sq. Ft. $ 0.59 $ 0.52 Monthly Rent 2Br/3Ba-2A30 $ 789 $ 789 Unit Area (SF) 1,580 1,580 Monthly Rent Per Sq. Ft. $ 0.50 $ 0.50 Monthly Rent 3Br/2Ba-3A20 $ 779 $ 755 Unit Area (SF) 1,550 1,550 Monthly Rent Per Sq. Ft. $ 0.50 $ 0.49 Monthly Rent 3Br/2.5Ba-3A25 $ 849 $ 816 Unit Area (SF) 1,550 1,550 Monthly Rent Per Sq. Ft. $ 0.72 $ 0.53 Monthly Rent 3Br/3Ba-3A30 $ 989 $ 998 Unit Area (SF) 1,980 1,980 Monthly Rent Per Sq. Ft. $ 0.50 $ 0.50
COMPARABLE RENTS R-1 R-2 R-3 R-4 R-5 ARCHSTONE PEGACY HILL IROQUOIS AT BELIEVE CREEKWOOD KNOLLWOOD COMPARISON TO SUBJECT DESCRIPTION SIMILAR INTERIOR SUPERIOR SIMILAR SUPERIOR - ----------------------------------------------------------------------------------- Monthly Rent $ 689 $ 697 $ 674 Unit Area (SF) 800 1,211 1,152 Monthly Rent Per Sq. Ft. $ 0.86 $ 0.58 $ 0.59 Monthly Rent $ 693 $ 699 Unit Area (SF) 1,030 1,257 Monthly Rent Per Sq. Ft. $ 0.67 $ 0.56 Monthly Rent Unit Area (SF) Monthly Rent Per Sq. Ft. Monthly Rent $ 780 Unit Area (SF) 1,269 Monthly Rent Per Sq. Ft. $ 0.61 Monthly Rent $ 811 $ 879 $ 885 $ 904 Unit Area (SF) 1,519 1,223 1,620 1,550 Monthly Rent Per Sq. Ft. $ 0.53 $ 0.72 $ 0.55 $ 0.58 Monthly Rent $ 1,077 Unit Area (SF) 1,697 Monthly Rent Per Sq. Ft. $ 0.63
DESCRIPTION MIN MAX MEDIAN AVERAGE - ---------------------------------------------------------- Monthly Rent $ 674 $ 697 $ 689 $ 687 Unit Area (SF) 800 1,211 1,152 1,054 Monthly Rent Per Sq. Ft. $ 0.58 $ 0.86 $ 0.59 $ 0.67 Monthly Rent $ 693 $ 699 $ 696 $ 696 Unit Area (SF) 1,030 1,257 1,144 1,144 Monthly Rent Per Sq. Ft. $ 0.56 $ 0.67 $ 0.61 $ 0.61 Monthly Rent Unit Area (SF) Monthly Rent Per Sq. Ft. Monthly Rent $ 780 $ 780 $ 780 $ 780 Unit Area (SF) 1,269 1,269 1,269 1,269 Monthly Rent Per Sq. Ft. $ 0.61 $ 0.61 $ 0.61 $ 0.61 Monthly Rent $ 811 $ 904 $ 882 $ 870 Unit Area (SF) 1,223 1,620 1,535 1,478 Monthly Rent Per Sq. Ft. $ 0.53 $ 0.72 $ 0.56 $ 0.60 Monthly Rent $1,077 $1,077 $1,077 $ 1,077 Unit Area (SF) 1,697 1,697 1,697 1,697 Monthly Rent Per Sq. Ft. $ 0.63 $ 0.63 $ 0.63 $ 0.63
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
Unit Area Market Rent Monthly Annual Unit Type Number of Units (Sq. Ft.) Per Unit Per SF Income Income - ------------------------------------------------------------------------------------------------------------- 2Br/2Ba-2A20 56 1,375 $ 700 $ 0.51 $ 39,200 $ 470,400 2Br/2.5Ba-2A25 21 1,280 $ 750 $ 0.59 $ 15,750 $ 189,000 2Br/3Ba-2A30 24 1,580 $ 790 $ 0.50 $ 18,960 $ 227,520 3Br/2Ba-3A20 24 1,550 $ 780 $ 0.50 $ 18,720 $ 224,640 3Br/2.5Ba-3A25 12 1,550 $ 850 $ 0.55 $ 10,200 $ 122,400 3Br/3Ba-3A30 13 1,980 $ 990 $ 0.50 $ 12,870 $ 154,440 Total $ 115,700 $1,388,400
PRO FORMA ANALYSIS For purposes of this appraisal, we were provided with income and expense data for the subject property. A summary of this data is presented on the following page. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 29 POST RIDGE, NASHVILLE, TENNESSEE SUMMARY OF HISTORICAL INCOME & EXPENSES
FISCAL YEAR 2000 FISCAL YEAR 2001 FISCAL YEAR 2002 DESCRIPTION ACTUAL ACTUAL ACTUAL TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT - ---------------------------------------------------------------------------------------------------------- Revenues Rental Income $1,471,052 $ 9,807 $1,496,327 $ 9,976 $1,409,373 $ 9,396 Vacancy $ 124,088 $ 827 $ 148,002 $ 987 $ 110,285 $ 735 Credit Loss/Concessions $ 46,181 $ 308 $ 76,596 $ 511 $ 12,468 $ 83 ---------- ---------- ---------- --------- ---------- ---------- Subtotal $ 170,269 $ 1,135 $ 224,598 $ 1,497 $ 122,753 $ 818 Laundry Income $ 6,379 $ 43 $ 2,331 $ 16 $ 2,058 $ 14 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 45,081 $ 301 $ 49,539 $ 330 $ 64,836 $ 432 ---------- ---------- ---------- --------- ---------- ---------- Subtotal Other Income $ 51,460 $ 343 $ 51,870 $ 346.00 $ 66,894 $ 446 ---------- ---------- ---------- --------- ---------- ---------- Effective Gross Income $1,352,243 $ 9,015 $1,323,599 $ 8,824 $1,353,514 $ 9,023 Operating Expenses Taxes $ 91,530 $ 610.00 $ 92,445 $ 616.00 $ 104,448 $ 696 Insurance $ 21,810 $ 145 $ 20,412 $ 136 $ 29,194 $ 195 Utilities 89,557 $ 597 $ 84,370 $ 562 $ 80,907 $ 539 Repair & Maintenance $ 41,552 $ 277 $ 52,305 $ 349 $ 53,232 $ 355 Cleaning $ 0 $ 0.00 $ 0.00 $ 0 $ 0 $ 0 Landscaping $ 28,685 $ 191 $ 34,213 $ 228 $ 36,576 $ 244 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 25,336 $ 169 $ 31,325 $ 209 $ 22,522 $ 150 General Administrative $ 182,156 $ 1,214.00 $ 208,273 $ 1,388 $ 188,077 $ 1,254 Management $ 68,073 $ 454 $ 73,977 $ 493 $ 67,893 $ 453 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- --------- ---------- ---------- Total Operating Expenses $ 548,699 $ 3,658 $ 597,320 $ 3,982 $ 582,849 $ 3,886 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- --------- ---------- ---------- Net Income $ 803,544 $ 5,357 $ 726,279 $ 4,842 $ 770,665 $ 5,138
FISCAL YEAR 2003 ANNUALIZED 2003 DESCRIPTION MANAGEMENT BUDGET PROJECTION AAA PROJECTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT % - ------------------------------------------------------------------------------------------------------------------------- Revenues Rental Income $1,378,000 $ 9,187 $1,353,264 $ 9,022 $1,388,400 $ 9,256.00 100% Vacancy $ 53,740 $ 358 $ 56,440 $ 376 $ 83,304 $ 555.00 6.0% Credit Loss/Concessions $ 6,400 $ 43 $ 10,320 $ 69 $ 27,768 $ 185.00 2.0% ---------- ---------- ---------- ---------- ---------- ---------- ----- Subtotal $ 60,140 $ 401 $ 66,760 $ 445 $ 111,072 $ 740 8.0% Laundry Income $ 2,148 $ 14 $ 7,824 $ 52 $ 6,750 $ 45 0.5% Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 105,765 $ 705 $ 101,360 $ 676 $ 105,000 $ 700 7.6% ---------- ---------- ---------- ---------- ---------- ---------- ----- Subtotal Other Income $ 107,913 $ 719 $ 109,184 $ 728 $ 111,750 $ 745 8.0% ---------- ---------- ---------- ---------- ---------- ---------- ----- Effective Gross Income $1,425,773 $ 9,505 $1,395,688 $ 9,305 $1,389,078 $ 9,261 100.0% Operating Expenses Taxes $ 104,448 $ 696 $ 104,448 $ 696.00 $ 105,000 $ 700.00 7.6% Insurance $ 33,662 $ 224 $ 33,332 $ 222 $ 33,750 $ 225 2.4% Utilities $ 92,475 $ 617 $ 92,000 $ 613 $ 90,000 $ 600 6.5% Repair & Maintenance $ 62,440 $ 416 $ 64,136 $ 428 $ 60,000 $ 400 4.3% Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Landscaping $ 37,930 $ 253 $ 49,900 $ 333 $ 45,000 $ 300 3.2% Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Marketing & Leasing $ 23,648 $ 158 $ 10,748 $ 72 $ 26,250 $ 175 1.9% General Administrative $ 194,478 $ 1,297 $ 208,300 $ 1,389 $ 195,000 $ 1,300 14.0% Management $ 70,918 $ 473 $ 66,272 $ 442 $ 69,454 $ 463 5.0% Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% ---------- ---------- ---------- ---------- ---------- ---------- ----- Total Operating Expenses $ 619,999 $ 4,133 $ 629,136 $ 4,194 $ 624,454 $ 4,163 45.0% Reserves $ 0 $ 0 $ 0 $ 0 $ 37,500 $ 250 6.0% ---------- ---------- ---------- ---------- ---------- ---------- ----- Net Income $ 805,774 $ 5,372 $ 766,552 $ 5,110 $ 727,124 $ 4,847 52.3%
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 8% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30 POST RIDGE, NASHVILLE, TENNESSEE RESERVES FOR REPLACEMENT "Reserves for replacements" is a contingency account allocated to the expenses of the property to provide for replacement of short-lived items and for unforeseen necessary capital expenditures. We have utilized the Korpacz Real Estate Investor Survey of the national apartment market, which reports a range of replacement reserves between $150 and $400 per unit. For purposes of this analysis, we have included an allowance of $250 per unit for reserves for replacement. CAPITAL EXPENDITURES Capital expenditures represent expenses for immediate repair or replacement of items that have average to long lives. Based on our inspection of the property as well as discussions with property management personnel, there are no major items remaining in need of repair or replacement that would require an expense beyond our reserves for replacement. Therefore an allowance of $250 per unit should be satisfactory in our reserves for replacement to cover future capital expenditures. DISCOUNTED CASH FLOW ANALYSIS As the subject is a multi-tenant income property, the Discounted Cash Flow Method is considered appropriate. This method is especially meaningful in that it isolates the timing of the annual cash flows and discounts them, along with the expected equity reversion, to a present value. The present value of the cash flow is added to the present value of the reversion, resulting in a total property value. INVESTMENT CRITERIA Appropriate investment criteria will be derived for the subject based upon analysis of comparable sales and a survey of real estate investors. The following table summarizes the findings of Korpacz National Investor Survey for the most recent period. KORPACZ NATIONAL INVESTOR SURVEY 1ST QUARTER 2003 NATIONAL APARTMENT MARKET
CAPITALIZATION RATES GOING-IN TERMINAL LOW HIGH LOW HIGH - ------------------------------------------------------------------- RANGE 6.00% 10.00% 7.00% 10.00% AVERAGE 8.14% 8.47%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 31 POST RIDGE, NASHVILLE, TENNESSEE SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR - -------------------------------------------------------------------------------- I-1 2-Sep 93% $ 71,552 9.55% I-2 2-Nov 92% $41,538.00 8.30% I-3 2-Dec 93% $ 67,900 8.63% I-4 1-Oct 93% $67,949.00 8.93% I-5 Jan-00 0% N/A High 9.55% Low 8.30% Average 8.85%
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 12.50%. HOLDING PERIOD The survey of investors indicates that most investors are completing either 10-year cash flows or extending the analysis to the end of the lease if it is more than 10-years. A 10-year period has been used in the analysis of the subject with the eleventh year stabilized NOI used to determine the reversion. SELLING COSTS Sales of similar size properties are typically accomplished with the aid of a broker and will also incur legal and other transaction related cost. Based on our survey of brokers and a review of institutional investor projections, an allowance of 2.00% of the sale amount is applied. DISCOUNTED CASH FLOW CONCLUSION Discounting the annual cash flows and the equity reversion at the selected rate of 12.50% indicates a value of $7,400,000. In this instance, the reversion figure contributes AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32 POST RIDGE, NASHVILLE, TENNESSEE approximately 36% of the total value. Investors surveyed for this assignment indicated they would prefer to have the cash flow contribute anywhere from 50% to 60%. Overall, the blend seems reasonable. The cash flow and pricing matrix are located on the following pages. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 33 POST RIDGE, NASHVILLE, TENNESSEE DISCOUNTED CASH FLOW ANALYSIS
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 APR-2010 FISCAL YEAR 100% $2 300.00% 400.00% 5 $6 7 - ------------------------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $ 1,388,400 $1,430,052.00 $1,472,954 $1,517,142 $1,562,656.00 $ 1,609,536 $ 1,657,822 Vacancy $ 83,304 $ 85,803 $ 88,377 $ 91,029 $ 93,759 $ 96,572 $ 99,469 Credit Loss $ 27,768 $ 28,601 $ 29,459 $ 30,343 $ 31,253 $ 32,191 $ 33,156 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------------------------------- Subtotal $ 111,072 $ 114,404 $ 117,836 $ 121,371 $ 125,013 $ 128,763 $ 132,626 Laundry Income $ 6,750 $ 6,953 $ 7,161 $ 7,376 $ 7,597 $ 7,825 $ 8,060 Garage Revenue $ 0 $ 0 $ 0 $ 0.00 $ 0 $ 0.00 $ 0 Other Misc. Revenue $ 105,000 $ 108,150.00 $ 111,395 $ 114,736 $ 118,178.00 $121,724.00 $125,375.00 ------------------------------------------------------------------------------------------- Subtotal Other Income $ 111,750 $ 115,103 $ 118,556 $ 122,112 $ 125,776 $ 129,549 $ 133,435 EFFECTIVE GROSS INCOME 1,389,078 $ 1,430,750 1,473,673 $1,517,883 $ 1,563,420 $ 1,610,322 $ 1,658,632 OPERATING EXPENSES: Taxes $ 105,000 108,150 111,395 $ 114,736 $ 118,178 $ 121,724 $ 125,375 Insurance $ 33,750 34,763 $ 35,805 $ 36,880 $ 37,986 $ 39,126 $ 40,299 Utilities $ 90,000 $ 92,700 $ 95,481 $ 98,345 $ 101,296 $ 104,335 $ 107,465 Repair & Maintenance $ 60,000 $ 61,800 $ 63,654 $ 65,564 $ 67,531 $ 69,556 $ 71,643 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping 45,000 $ 46,350 47,741 $ 49,173 $ 50,648 $ 52,167 $ 53,732 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 26,250 $ 27,038 $ 27,849 $ 28,684 $ 29,545 $ 30,431 $ 31,344 General Administrative $ 195,000 $ 200,850 206,876 $ 213,082 219,474 $ 226,058 $ 232,840 Management 69,454 $ 71,538 $ 73,684 $ 75,894 78,171 $ 80,516 82,932 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $ 624,454 $ 643,188 $ 662,483 $ 682,358 $ 702,828 $ 723,913 $ 745,631 Reserves $ 37,500 $ 38,625 $ 39,784 $ 40,977 $ 42,207 $ 43,473 $ 44,777 ------------------------------------------------------------------------------------------- NET OPERATING INCOME $ 727,124 $ 748,938 $ 771,406 $ 794,548 $ 818,385 $ 842,936 $ 868,224 Operating Expense Ratio (% of EGI) 45.0% 45.0% 45.0% 45.0% 45.0% 45.0% 45.0% Operating Expense Per Unit $ 4,163 $ 4,288 $ 4,417 $ 4,549 $ 4,686 $ 4,826 $ 4,971 YEAR APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 8 9 10 11 - ------------------------------------------------------------------------------------------ REVENUE Base Rent $ 1,707,557 $ 1,758,784 $ 1,811,547 $ 1,865,894 Vacancy $ 102,453 $ 105,527 $ 108,693 $ 111,954 Credit Loss $ 34,151 $ 35,176 $ 36,231 $ 37,318 Concessions $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------ Subtotal $ 136,605 $ 140,703 $ 144,924 $ 149,271 Laundry Income $ 8,302 $ 8,551 $ 8,807 $ 9,071 Garage Revenue $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 129,137 $ 133,011 $ 137,001 $ 141,111 ------------------------------------------------------ Subtotal Other Income $ 137,438 $ 141,562 $ 145,808 $ 150,183 EFFECTIVE GROSS INCOME $ 1,708,391 1,759,642 1,812,432 1,866,805 OPERATING EXPENSES: Taxes $ 129,137 $ 133,011 $ 137,001 $ 141,111 Insurance $ 41,508 $ 42,753 $ 44,036 $ 45,357 Utilities $ 110,689 $ 114,009 $ 117,430 $ 120,952 Repair & Maintenance $ 73,792 $ 76,006 $ 78,286 $ 80,635 Cleaning $ 0 $ 0 $ 0 $ 0 Landscaping $ 55,344 57,005 58,715 60,476 Security $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 32,284 $ 33,253 $ 34,250 $ 35,278 General Administrative $ 239,825 $ 247,020 $ 254,431 $ 262,064 Management $ 85,420 87,982 90,622 93,340 Miscellaneous $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------ TOTAL OPERATING EXPENSES $ 768,000 $ 791,040 $ 814,771 $ 839,214 Reserves $ 46,120 $ 47,504 $ 48,929 $ 50,397 ------------------------------------------------------ NET OPERATING INCOME $ 894,271 $ 921,099 $ 948,732 $ 977,194 Operating Expense Ratio (% of EGI) 45.0% 45.0% 45.0% 45.0% Operating Expense Per Unit $ 5,120 $ 5,274 $ 5,432 $ 5,595
DCF Value Analysis ------------------ Gross Residual Sale Price $8,883,582 Deferred Maintenance $ 0 Estimated Stabilized NOI $727,124 Sales Expense Rate 2.00% Less: Sales Expense $ 177,672 Add: Excess Land $ 0 ---------- Months to Stabilized 1 Discount Rate 12.50% Net Residual Sale Price $8,705,910 Other Adjustments $ 0 ---------- Stabilized Occupancy 94.0% Terminal Cap Rate 11.00% PV of Reversion $2,680,951 Value Indicated By "DCF" $7,434,765 Add: NPV of NOI $4,753,813 Rounded $7,400,000 ---------- PV Total $7,434,765
"DCF" VALUE SENSITIVITY TABLE
TOTAL VALUE DISCOUNT RATE ---------------------------------------------------------------------- TERMINAL CAP RATE 12.00% 12.25% 12.50% 12.75% 13.00% - ------------------------------------------------------------------------------------------------ 10.50% $7,800,734 $7,680,306 $7,562,429 $7,447,041 $7,334,080 10.75% $7,732,442 $7,613,520 $7,497,112 $7,383,158 $7,271,596 11.00% $7,667,254 $7,549,769 $7,434,765 $7,322,179 $7,211,953 11.25% $7,604,964 $7,488,852 $7,375,188 $7,263,910 $7,154,961 11.50% $7,545,382 $7,430,584 $7,318,202 $7,208,175 $7,100,446
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 34 POST RIDGE, NASHVILLE, TENNESSEE 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 35 POST RIDGE, NASHVILLE, TENNESSEE POST RIDGE
TOTAL PER SQ. FT. PER UNIT %OF EGI - ---------------------------------------------------------------------------------------------- REVENUE Base Rent $1,388,400 $ 6.22 $ 9,256 Less: Vacancy & Collection Loss 8.00% $ 111,072 $ 0.50 $ 740 Plus: Other Income Laundry Income $ 6,750 $ 0.03 $ 45 0.49% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 105,000 $ 0.47 $ 700 7.56% -------------------------------------------------- Subtotal Other Income $ 111,750 $ 0.50 $ 745 8.04% EFFECTIVE GROSS INCOME $1,389,078 $ 6.22 $ 9,261 OPERATING EXPENSES: Taxes $ 105,000 $ 0.47 $ 700 7.56% Insurance $ 33,750 $ 0.15 $ 225 2.43% Utilities $ 90,000 $ 0.40 $ 600 6.48% Repair & Maintenance $ 60,000 $ 0.27 $ 400 4.32% Cleaning $ 0 $ 0.00 $ 0 0.00% Landscaping $ 45,000 $ 0.20 $ 300 3.24% Security $ 0 $ 0.00 $ 0 0.00% Marketing & Leasing $ 26,250 $ 0.12 $ 175 1.89% General Administrative $ 195,000 $ 0.87 $ 1,300 14.04% Management 5.00% $ 69,454 $ 0.31 $ 463 5.00% Miscellaneous $ 0 $ 0.00 $ 0 0.00% TOTAL OPERATING EXPENSES $ 624,454 $ 2.80 $ 4,163 44.95% Reserves $ 37,500 $ 0.17 $ 250 2.70% -------------------------------------------------- NET OPERATING INCOME $ 727,124 $ 3.26 $ 4,847 52.35% "GOING IN" CAPITALIZATION RATE 10.00% VALUE INDICATION $7,271,241 $ 32.56 $ 48,475 "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $7,271,241 ROUNDED $7,300,000 $ 32.69 $ 48,667
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 36 POST RIDGE, NASHVILLE, TENNESSEE DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF - --------------------------------------------------------------------------- 9.25% $7,860,801 $7,900,000 $52,667 $35.37 9.50% $7,653,938 $7,700,000 $51,333 $34.48 9.75% $7,457,683 $7,500,000 $50,000 $33.58 10.00% $7,271,241 $7,300,000 $48,667 $32.69 10.25% $7,093,894 $7,100,000 $47,333 $31.79 10.50% $6,924,991 $6,900,000 $46,000 $30.89 10.75% $6,763,945 $6,800,000 $45,333 $30.45
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $7,300,000. 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 $7,400,000 Direct Capitalization Method $7,300,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $7,400,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 37 POST RIDGE, NASHVILLE, TENNESSEE 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 $7,500,000 Income Approach $7,400,000 Reconciled Value $7,400,000
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 7, 2003 the market value of the fee simple estate in the property is: $7,400,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA POST RIDGE, NASHVILLE, TENNESSEE ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A POST RIDGE, NASHVILLE, TENNESSEE EXHIBIT A SUBJECT PHOTOGRAPHS EXHIBIT A AMERICAN APPRAISAL ASSOCIATES, INC. POST RIDGE, NASHVILLE, TENNESSEE SUBJECT PHOTOGRAPHS [UNIT TYPE FACADE PICTURE] [UNIT TYPE PICTURE] [BEDROOM PICTURE] [BEDROOM PICTURE] [KITCHEN AREA PICTURE] [LIVING ROOM AREA PICTURE]] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A POST RIDGE, NASHVILLE, TENNESSEE SUBJECT PHOTOGRAPHS [POOL PICTURE] [PLAYGROUND PICTURE] [MAIN DRIVE WAY PICTURE] [PARKING PICTURE] [HICKS ROAD-SOUTHEAST PICTURE] [HICKS ROAD-NORTHWEST PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B POST RIDGE, NASHVILLE, TENNESSEE EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B POST RIDGE, NASHVILLE, TENNESSEE PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES
COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 DUNHILL VILLAGE BELLE VALLEY THE LEXINGTON AT BELLEVUE 512 Old Hickory Blvd 100 Belle Valley Drive 510 Old Hickory Blvd Nashville, TN Nashville, TN Nashville, TN [PICTURE] [PICTURE] [PICTURE] COMPARABLE I-4 WYNDCHASE BELLEVUE 7221 SR-70 South Nashville, TN [PICTURE] N/A
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B POST RIDGE, NASHVILLE, TENNESSEE SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R- 1 - ------------------------------------------------------------------------------------------------------------------ Property Name Post Ridge Legacy Hill Management Company AIMCO United Dominion Realty - ------------------------------------------------------------------------------------------------------------------ LOCATION: - ------------------------------------------------------------------------------------------------------------------ Address 595 Hicks Road 501 Shadowood Drive City, State Nashville, Tennessee Nashville, TN County Davidson Davidson Proximity to Subject Approx. 3.2 miles east of subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 223,340 209,090 Year Built 1972 1977 Effective Age 25 10 Building Structure Type Brick & wood siding walls; asphalt Brick & wood siding walls; asphalt shingle roof shingle roof - ------------------------------------------------------------------------------------------------------------------ Parking Type Open Open (Gr., Cov., etc.) - ------------------------------------------------------------------------------------------------------------------ Number of Units 150 206 Unit Mix: Type Unit Qty Mo Type Unit Qty Mo 1 2Br/2Ba-2A20 1,375 56 $ 699 1 Br/1Ba 761 56 $587 2 Br/2.5Ba-2A25 1,280 21 $ 749 2 2 Br/2Ba 1,030 100 $693 3 2Br/3Ba-2A30 1,580 24 $ 789 4 3 Br/2.5 Ba 1,269 50 $780 4 3Br/2Ba-3A20 1,550 24 $ 779 5 Br/2.5Ba-3A25 1,550 12 $ 849 6 3Br/3Ba-3A30 1,980 13 $ 989 Average Unit Size (SF) 1,489 1,015 Unit Breakdown: Efficiency 0% 2-Bedroom 65% Efficiency 0% 2-Bedroom 49% 1-Bedroom 0% 3-Bedroom 35% 1-Bedroom 27% 3-Bedroom 27% - ------------------------------------------------------------------------------------------------------------------ CONDITION: Average Good - ------------------------------------------------------------------------------------------------------------------ APPEAL: Average Average AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony Balcony X Fireplace X Fireplace X X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court X BBQ Equipment Basketball Court BBQ Equipment ------------------------------------------------------------------------------------ Volleyball Court Theater Room Volleyball Court Theater Room ------------------------------------------------------------------------------------ X Sand Volley Ball X Meeting Hall Sand Volley Ball X Meeting Hall ------------------------------------------------------------------------------------ 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 Gym Room X Gym Room OCCUPANCY: 98% 95% LEASING DATA: Available Leasing Terms 6 to 12 months 6 to 12 months - ------------------------------------------------------------------------------------------------------------------ Concessions 1/2 month Reduce rents on selected units - ------------------------------------------------------------------------------------------------------------------ Pet Deposit $300/$20 Mnth $300/$18 Mnth Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas X Water X Trash X Water Trash Confirmation Lisa Palmer/Property Manager Sharon Gossard/Property manager Telephone Number 615.646.1771 615.352.6444 NOTES: Renovated in 1997 COMPARISON TO SUBJECT: Similar - ------------------------------------------------------------------------------------------------------------------ COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 - ------------------------------------------------------------------------------------------------------------------------- Property Name Iroquois Archstone at Bellevue Management Company Edwin B. Raskin Archstone Community - ------------------------------------------------------------------------------------------------------------------------- LOCATION: - ------------------------------------------------------------------------------------------------------------------------- Address 111 Old Hickory Road 1000 Amberwood Circle City, State Nashville, TN Nashville, TN County Davidson Davidson Proximity to Subject Approx. 1.3 miles southeast of subject Approx. 2.5 miles east of subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 463,984 291,600 Year Built 1967 1986 Effective Age 36 5 Building Structure Type Brick & wood siding walls; asphalt Brick & wood siding walls; asphalt shingle roof shingle roof - ------------------------------------------------------------------------------------------------------------------------- Parking Type Open Open (Gr., Cov., etc.) - ------------------------------------------------------------------------------------------------------------------------- Number of Units 376 225 Unit Mix: Type Unit Qty Mo Type Unit Qty Mo 1 Br/1Ba 820 80 $568 1 1 Br/1Ba 800 15 $ 689 2 2 Br/2Ba 1,257 196 $699 5 2 Br/1Ba 1,223 162 $ 879 5 3 Br/2.5Ba 1,519 100 $811 6 3Br/2.5Ba 1,697 48 $1,077 Average Unit Size (SF) 1,234 1,296 Unit Breakdown: Efficiency 0% 2-Bedroom 52% Efficiency 0% 2-Bedroom 72% 3-Bedroom 21% 1-Bedroom 27% 3-Bedroom 7% 3-Bedroom 21% - ------------------------------------------------------------------------------------------------------------------------- CONDITION: Average Good - ------------------------------------------------------------------------------------------------------------------------- APPEAL: Fair Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling Balcony X X Balcony X X Fireplace X Fireplace X X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash X Basketball Court BBQ Equipment X Basketball Court X BBQ Equipment ------------------------------------------------------------------------------------------- Volleyball Court Theater Room Volleyball Court Theater Room ------------------------------------------------------------------------------------------- Sand Volley Ball X Meeting Hall Sand Volley Ball X Meeting Hall ------------------------------------------------------------------------------------------- X Tennis Court Secured Parking X Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track Business Office Jogging Track Business Office X Gym Room X Gym Room OCCUPANCY: 90% 91% LEASING DATA: Available Leasing Terms 12 months 2 to 12 months - ------------------------------------------------------------------------------------------------------------------------- Concessions $100 to $150 off selected units Discounting continuously on selected units - ------------------------------------------------------------------------------------------------------------------------- Pet Deposit $250/$10 Mnth $200/$10 Mnth Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas Water Trash X Water Trash Confirmation Linda Hunt/Property Manager Margaret Woody/Property Manager Telephone Number 615.662.0667 615.662.1600 NOTES: None Renovated in 1999 COMPARISON TO SUBJECT: Inferior Superior - ------------------------------------------------------------------------------------------------------------------------- COMPARABLE COMPARABLE DESCRIPTION R - 4 R - 5 - ----------------------------------------------------------------------------------------------------------------------- Property Name Creekwood Knollwood Management Company Edwin B. Raskin AIMCO - ----------------------------------------------------------------------------------------------------------------------- LOCATION: - ----------------------------------------------------------------------------------------------------------------------- Address 7439 SR-70 South 865 Bellevue Road City, State Nashville, TN Nashville, TN County Davidson Davidson Proximity to Subject Approx 2.5 miles west of subject Approx. 1.45 miles southeast of subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 230,400 358,280 Year Built 1971 1972 Effective Age 32 31 Building Structure Type Brick & wood siding walls; Brick & wood siding walls; asphalt shingle roof asphalt shingle roof - ----------------------------------------------------------------------------------------------------------------------- Parking Type Open Open (Gr., Cov., etc.) - ----------------------------------------------------------------------------------------------------------------------- Number of Units 200 326 Unit Mix: Type Unit Qty Mo Type Unit Qty Mo 1 Br/1Ba 744 48 $ 570 1 Br/1 Ba 681 76 $ 562 1 2 Br/2Ba 1,211 126 $ 697 1 2 Br/1.5 Ba 1,064 72 $ 666 5 3 Br/2.5Ba 1,620 26 $ 885 1 2 Br/2Ba 1,108 72 $ 689 1 2 Br/1.5Ba 1,310 60 $ 667 5 3 Br/2.5Ba 1,550 46 $ 904 Average Unit Size (SF) 1,152 1,098 Unit Breakdown: Efficiency 0% 2-Bedroom 63% Efficiency 0% 2-Bedroom 63% 1-Bedroom 24% 3-Bedroom 13% 1-Bedroom 23% 3-Bedroom 14% - ----------------------------------------------------------------------------------------------------------------------- CONDITION: Good Good - ----------------------------------------------------------------------------------------------------------------------- APPEAL: Average Average AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X Balcony X X Fireplace X Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi 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 X Meeting Hall ----------------------------------------------------------------------------------------- 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 Gym Room X Gym Room OCCUPANCY: 94% 97% LEASING DATA: Available Leasing Terms to 12 months 6 to 13 months - ----------------------------------------------------------------------------------------------------------------------- Concessions $100 to $150 on selected units 1/2 month off selected units - ----------------------------------------------------------------------------------------------------------------------- Pet Deposit $250/$10 Mnth $300/$20 Mnth Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas Water Trash X Water Trash Confirmation Elizabeth Chapman/Property Manager Sara Poole/Property Manager Telephone Number 615.662.1811 615.646.0533 NOTES: None None COMPARISON TO SUBJECT: Similar Superior - -----------------------------------------------------------------------------------------------------------------------
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B POST RIDGE, NASHVILLE, TENNESSEE PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES
COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 LEGACY HILL IROQUOIS ARCHSTONE AT BELLEVUE 501 Shadowood Drive 111 Old Hickory Road 1000 Amberwood Circle Nashville, TN Nashville, TN Nashville, TN [PICTURE] [PICTURE] [PICTURE] COMPARABLE R-4 COMPARABLE R-5 CREEKWOOD KNOLLWOOD 7439 SR-70 South 865 Bellevue Road Nashville, TN Nashville, TN [PICTURE] [PICTURE]
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C POST RIDGE, NASHVILLE, TENNESSEE EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C POST RIDGE, NASHVILLE, TENNESSEE 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 POST RIDGE, NASHVILLE, TENNESSEE 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 POST RIDGE, NASHVILLE, TENNESSEE 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 POST RIDGE, NASHVILLE, TENNESSEE 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. Daniel Salcedo 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, MAI ---------------------------- Frank Fehribach, MAI Managing Principal, Real Estate Group Tennessee Temporary Practice Permit #00053573 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E POST RIDGE, NASHVILLE, TENNESSEE EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E POST RIDGE, NASHVILLE, TENNESSEE 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 involind 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 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E POST RIDGE, NASHVILLE, TENNESSEE STATE CERTIFICATIONS State of Arizona, 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 PROFESSIONAL Appraisal Institute, MAI Designated Member Candidate Member of the CCIM Institute pursuing Certified AFFILIATIONS 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. POST RIDGE, NASHVILLE, TENNESSEE GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. POST RIDGE, NASHVILLE, TENNESSEE 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)(13) 15 d07256a1exv99wxcyx13y.txt APPRAISAL OF RIVERS EDGE RIVER'S EDGE 1741 22ND STREET NE AUBURN, WASHINGTON MARKET VALUE - FEE SIMPLE ESTATE AS OF MAY 20, 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. [LOGO OF AMERICAN APPRAISAL ASSOCIATES(R)] [AMERICAN APPRAISAL ASSOCIATES(R) LETTERHEAD] JULY 2, 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: RIVER'S EDGE 1741 22ND STREET NE AUBURN, KING COUNTY, WASHINGTON 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 120 units with a total of 111,660 square feet of rentable area. The improvements were built in 1976. The improvements are situated on 7.73 acres. Overall, the improvements are in average condition. As of the date of this appraisal, the subject property is 92% 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 RIVER'S EDGE, AUBURN, WASHINGTON 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 20, 2003 is: ($7,500,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. -S- Douglas Needham ------------------------------- July 2, 2003 Douglas Needham, MAI #053272 Managing Principal, Real Estate Group Washington State Certified General Real Estate Appraiser #1101111 Report By: Susan M. Kim AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 RIVER'S EDGE, AUBURN, WASHINGTON TABLE OF CONTENTS Cover Letter of Transmittal Table of Contents APPRAISAL DATA Executive Summary ............................................... 4 Introduction .................................................... 9 Area Analysis ................................................... 11 Market Analysis ................................................. 14 Site Analysis ................................................... 16 Improvement Analysis ............................................ 16 Highest and Best Use ............................................ 17 VALUATION Valuation Procedure ............................................. 18 Sales Comparison Approach ....................................... 20 Income Capitalization Approach .................................. 26 Reconciliation and Conclusion ................................... 37
ADDENDA Exhibit A - Photographs of Subject Property Exhibit B - Summary of Rent Comparables and Photograph of Comparables Exhibit C - Assumptions and Limiting Conditions Exhibit D - Certificate of Appraiser Exhibit E - Qualifications General Service Conditions AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 4 RIVER'S EDGE, AUBURN, WASHINGTON EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: River's Edge LOCATION: 1741 22nd Street NE Auburn, Washington 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 20, 2003 DATE OF REPORT: July 2, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 7.73 acres, or 336,719 square feet Assessor Parcel No.: 8944130005 Floodplain: Community Panel No. 53033C1254F (May 16, 1995) Flood Zone X, an area outside the floodplain. Zoning: R4 (Medium to High Density Apartment District) BUILDING: No. of Units: 120 Units Total NRA: 111,660 Square Feet Average Unit Size: 931 Square Feet Apartment Density: 15.5 units per acre Year Built: 1976 UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
Market Rent Unit Type Square ------------------- Monthly Annual Feet Per Unit Per SF Income Income - ---------------------------------------------------------------------------- 1Br/1Ba 675 $ 610 $ 0.90 $ 14,640 $ 175,680 2Br/1Ba 975 $ 710 $ 0.73 $ 59,640 $ 715,680 3Br/2Ba 1,130 $ 850 $ 0.75 $ 10,200 $ 122,400 Total $ 84,480 $ 1,013,760
OCCUPANCY: 92% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 20 Years REMAINING ECONOMIC LIFE: 25 Years
SUBJECT PHOTOGRAPHS AND LOCATION MAP: AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 RIVER'S EDGE, AUBURN, WASHINGTON SUBJECT PHOTOGRAPHS [PHOTOGRAPH] [PHOTOGRAPH] EXTERIOR - OFFICE EXTERIOR - APARTMENT BUILDING AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 RIVER'S EDGE, AUBURN, WASHINGTON 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 RIVER'S EDGE, AUBURN, WASHINGTON PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION Amount $/Unit - --------------------- ------ ------ Potential Rental Income $1,013,760 $ 8,448 Effective Gross Income $1,008,230 $ 8,402 Operating Expenses $ 386,412 $ 3,220 38.3% of EGI Net Operating Income: $ 591,819 $ 4,932 Capitalization Rate 8.00% DIRECT CAPITALIZATION VALUE $7,400,000 * $61,667 / UNIT
DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 9% Stabilized Vacancy & Collection Loss: 8.5% Lease-up / Stabilization Period N/A Terminal Capitalization Rate 9.00% Discount Rate 10.50% Selling Costs 2.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $7,400,000 * $61,667 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $7,400,000 $61,667 / UNIT
SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $56,800 to $69,095 Range of Sales $/Unit (Adjusted) $60,617 to $65,463 VALUE INDICATION - PRICE PER UNIT $7,600,000 * $63,333 / UNIT
EGIM ANALYSIS Range of EGIMs from Improved Sales 6.92 to 7.71 Selected EGIM for Subject 7.50 Subject's Projected EGI $1,008,230 EGIM ANALYSIS CONCLUSION $7,600,000 * $63,333 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $7,400,000 * $61,667 / UNIT RECONCILED SALES COMPARISON VALUE $7,600,000 $63,333 / 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 RIVER'S EDGE, AUBURN, WASHINGTON PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $7,600,000 NOI Per Unit $7,400,000 EGIM Multiplier $7,600,000 INDICATED VALUE BY SALES COMPARISON $7,600,000 $63,333 / UNIT INCOME APPROACH: Direct Capitalization Method: $7,400,000 Discounted Cash Flow Method: $7,400,000 INDICATED VALUE BY THE INCOME APPROACH $7,400,000 $61,667 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $7,500,000 $62,500 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 RIVER'S EDGE, AUBURN, WASHINGTON INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 1741 22nd Street NE, Auburn, King County, Washington. Auburn identifies it as 8944130005. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Susan M. Kim on May 20, 2003. Douglas Needham, MAI has not made a personal inspection of the subject property. Susan M. Kim performed the research, valuation analysis and wrote the report. Douglas Needham, MAI reviewed the report and concurs with the value. Douglas Needham, MAI and Susan M. Kim 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 20, 2003. The date of the report is July 2, 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 RIVER'S EDGE, AUBURN, WASHINGTON 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 CCP 4. 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 RIVER'S EDGE, AUBURN, WASHINGTON 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 Auburn, Washington. 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 - 104th Avenue SE West - Auburn Way N South - SE 320th Street North - S 227th Street MAJOR EMPLOYERS Major employers in the subject's area include Boeing, Microsoft, and various high-tech/biotech industries. 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 RIVER'S EDGE, AUBURN, WASHINGTON NEIGHBORHOOD DEMOGRAPHICS
AREA ---------------------------------------- CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA - ---------------------------------------------------------------------------------- POPULATION TRENDS Current Population 10,332 56,361 174,331 2,480,018 5-Year Population 10,918 60,923 189,630 2,656,373 % Change CY-5Y 5.7% 8.1% 8.8% 7.1% Annual Change CY-5Y 1.1% 1.6% 1.8% 1.4% HOUSEHOLDS Current Households 4,036 21,304 65,975 991,697 5-Year Projected Households 4,268 22,961 71,796 1,065,406 % Change CY - 5Y 5.7% 7.8% 8.8% 7.4% Annual Change CY-5Y 1.1% 1.6% 1.8% 1.5% INCOME TRENDS Median Household Income $ 42,122 $ 49,363 $ 52,588 $ 63,191 Per Capita Income $ 23,370 $ 21,768 $ 21,951 $ 28,774 Average Household Income $ 58,631 $ 57,565 $ 58,007 $ 71,954 Source: Demographics Now
The subject neighborhood's population is expected to show increases above that of the region. The immediate market offers inferior income levels as compared to the broader market. The following table illustrates the housing statistics in the subject's immediate area, as well as the MSA region. HOUSING TRENDS
AREA ---------------------------------------- CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA - ------------------------------------------------------------------------------- HOUSING TRENDS % of Households Renting 42.59% 39.26% 39.71% 35.89% 5-Year Projected % Renting 39.77% 38.41% 39.20% 35.51% % of Households Owning 54.34% 56.97% 55.72% 59.13% 5-Year Projected % Owning 57.25% 58.03% 56.52% 59.78% Source: Demographics Now
AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 RIVER'S EDGE, AUBURN, WASHINGTON SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Green River South - Single-family homes East - Single-family homes West - Single-family homes CONCLUSIONS The subject is well located within the city of Auburn. 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 RIVER'S EDGE, AUBURN, WASHINGTON MARKET ANALYSIS The subject property is located in the city of Auburn in King County. The overall pace of development in the subject's market is more or less decreasing. There is no new construction coming into the market. The overall economic downturn in the subject's market has limited new construction. The following table illustrates historical vacancy rates for the subject's market. HISTORICAL VACANCY RATE
Period Region Submarket - ----------------------------------------------------------------------------------- Sep-98 4.2% 5.5% Mar-99 3.7% 3.6% Sep-99 4.0% 4.7% Mar-00 3.7% 3.4% Sep-00 3.5% 4.9% Mar-01 4.2% 3.9% Sep-01 5.1% 5.8% Mar-02 8.2% 8.5% Sep-02 8.2% 8.2% Mar-03 7.5% 7.4%
Source: Dupre & Scott Apartment Advisors Occupancy trends in the subject's market are increasing during the last six months. Historically speaking, the subject's submarket has equated the overall market. Since 2001, vacancy rates have increased due to the general slowing in the economy. Boeing has downsized their current operations and anticipates more lay-offs in 2003. However, market participants anticipate that occupancy levels will stabilize by the end of 2003. 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. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 RIVER'S EDGE, AUBURN, WASHINGTON HISTORICAL AVERAGE RENT
Period Region % Change Submarket % Change - ----------------------------------------------------------------------------------------------- Sep-98 $760 - $615 - Mar-99 $769 1.2% $609 -1.0% Sep-99 $798 3.8% $636 4.4% Mar-00 $812 1.8% $643 1.1% Sep-00 $852 4.9% $676 5.1% 1-Mar $855 0.4% $690 2.1% 1-Sep $884 3.4% $713 3.3% 2-Mar $881 -0.3% $716 0.4% 2-Sep $882 0.1% $711 -0.7% 3-Mar $853 -3.3% $741 4.2%
Source: Dupre & Scott Apartment Advisors 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 Brittany Park 190 96% 1968 2-miles south of the subject R-2 Amberview 157 92% 1990 2-miles south of the subject R-3 Auburn Glen 148 96% 1990 Within 5 mile radius R-4 Clearwater Ridge 142 89% 1990 Within 5-mile radius R-5 0 0% 0 $0 Subject River's Edge 120 92% 1976
Rental rates have gradually increased over the past year despite the slowing economy. Concessions and move-in specials are common in the market. However, occupancy rates are beginning to stabilize and rental rates are increasing. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 RIVER'S EDGE, AUBURN, WASHINGTON PROPERTY DESCRIPTION SITE ANALYSIS Site Area 7.73 acres, or 336,719 square feet Shape Generally rectangular Topography Level Utilities All necessary utilities are available to the site. Soil Conditions Stable Easements Affecting Site None other than typical utility easements Overall Site Appeal Average Flood Zone: Community Panel 53033C1254F, dated May 16, 1995 Flood Zone Zone X Zoning R4, the subject improvements represent a legal conforming use of the site. REAL ESTATE TAXES
ASSESSED VALUE - 2003 -------------------------------------- TAX RATE / PROPERTY PARCEL NUMBER LAND BUILDING TOTAL MILL RATE TAXES - -------------------------------------------------------------------------------------------------- 8944130005 $1,009,800 $4,146,200 $5,156,000 0.01358 $ 70,015
IMPROVEMENT ANALYSIS Year Built 1976 Number of Units 120 Net Rentable Area 111,660 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, laundry room, and parking area. Unit Amenities Individual unit amenities include a balcony, cable TV connection, and washer dryer connection Appliances available in each unit include a refrigerator, stove, dishwasher, water heater, garbage disposal, washer/dryer, and oven. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 RIVER'S EDGE, AUBURN, WASHINGTON Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) - --------------------------------------- 1Br/1Ba 24 675 2Br/1Ba 84 975 3Br/2Ba 12 1,130
Overall Condition Average Effective Age 20 years Economic Life 45 years Remaining Economic Life 25 years Deferred Maintenance None HIGHEST AND BEST USE ANALYSIS In accordance with the definition of highest and best use, an analysis of the site relating to its legal uses, physical possibilities, and financial feasibility is appropriate. The highest and best use as vacant is to hold for future multi-family development. The subject improvements were constructed in 1976 and consist of a 120-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 RIVER'S EDGE, AUBURN, WASHINGTON 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 RIVER'S EDGE, AUBURN, WASHINGTON 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 RIVER'S EDGE, AUBURN, WASHINGTON 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 RIVER'S EDGE, AUBURN, WASHINGTON SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - ---------------------------------------------------------------------------------------------------- Property Name River's Edge The Pointe Whispering at Redondo Hills LOCATION: Address 1741 22nd 28300 18th 2120 SW Street NE Avenue South 352nd Street City, State Auburn, Federal Federal Washington Way, WA Way, WA County King King King PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 111,660 227,622 112,020 Year Built 1976 1990 1985 Number of Units 120 225 111 Unit Mix: Type Total Type Total Type Total 1Br/1Ba 24 1Br/1Ba 67 1Br/1Ba 2Br/1Ba 84 2Br/2Ba 92 2Br/2Ba 84 3Br/2Ba 12 3Br/2Ba 66 3Br/2Ba 27 Average Unit Size (SF) 931 1,012 1,009 Land Area (Acre) 7.7300 16.6300 8.6100 Density (Units/Acre) 15.5 13.5 12.9 Parking Ratio 0.00 1.92 1.84 (Spaces/Unit) Parking Type (Gr., Open, Covered Garage, Open, Covered Covered Cov., etc.) CONDITION: Average Average Fair APPEAL: Average Average Fair AMENITIES: Pool/Spa Yes/No No/Yes No/No Gym Room No No No Laundry Room Yes Secured Parking No No No Sport Courts No Yes Washer/Dryer Connection Yes OCCUPANCY: 92% 96% 95% TRANSACTION DATA: Sale Date January, October, 2003 2002 Sale Price ($) $15,504,500 $7,669,500 Grantor Pointe At Whispering Hills Redondo 2000 LLC Associates LLC Grantee Redondo Whispering Associates LLC Hills/Bird LLC Sale Documentation N/A N/A Verification N/A N/A Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $2,191,380 $9,739 $9.63 $1,064,700 $9,592 $9.50 Vacancy/Credit Loss $ 87,655 $ 390 $0.39 $ 53,235 $ 480 $0.48 ---------- ------ ----- ---------- ------ ----- Effective Gross Income $2,103,725 $9,350 $9.24 $1,011,465 $9,112 $9.03 Operating Expenses $ 682,083 $3,031 $3.00 $ 445,045 $4,009 $3.97 ---------- ------ ----- ---------- ------ ----- Net Operating Income $1,421,642 $6,318 $6.25 $ 566,420 $5,103 $5.06 ---------- ------ ----- ---------- ------ ----- NOTES: None None PRICE PER UNIT $68,909 $69,095 PRICE PER SQUARE FOOT $ 68.12 $ 68.47 EXPENSE RATIO 32.4% 44.0% EGIM 7.37 7.58 OVERALL CAP RATE 9.17% 7.39% ======= ======= Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 - --------------------------------------------------------------------------------- Property Name Mallard Pointe Woodtrail Apartments Apartments LOCATION: Address 802 45th 1901 SW Street NE 320th Street City, State Auburn, Federal Way, WA WA County King King PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 164,705 263,133 Year Built 1989 1981 Number of Units 180 300 Unit Mix: Type Total Type Total 1Br/1Ba 60 1Br/1Ba 120 2Br/2Ba 106 2Br/2Ba 160 3Br/2Ba 14 3Br/2Ba 20 Average Unit Size (SF) 915 877 Land Area (Acre) 8.0600 10.3000 Density (Units/Acre) 22.3 29.1 Parking Ratio 1.61 2.14 (Spaces/Unit) Parking Type (Gr., Garage, Open, Covered Covered Cov., etc.) CONDITION: Good Average APPEAL: Good Average AMENITIES: Pool/Spa Yes/Yes Yes/No Gym Room Yes No Laundry Room No Secured Parking No No Sport Courts Washer/Dryer Connection Yes OCCUPANCY: 94% 94% TRANSACTION DATA: Sale Date September, August, 2002 2002 Sale Price ($) $11,546,000 $17,040,000 Grantor MP Auburn LLC Woodtrail Apartments Grantee SM Mallard LLC & Woodtrail Victorian Village Woods LLC Sale Documentation N/A N/A Verification N/A N/A Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $1,774,920 $9,861 $10.78 $2,350,000 $7,833 $8.93 Vacancy/Credit Loss $ 106,495 $ 592 $ 0.65 $ 141,000 $ 470 $0.54 ---------- ------ ----- ---------- ------ ----- Effective Gross Income $1,668,425 $9,269 $10.13 $2,209,000 $7,363 $8.39 Operating Expenses $ 654,480 $3,636 $ 3.97 $ 954,000 $3,180 $3.63 ---------- ------ ----- ---------- ------ ----- Net Operating Income $1,013,945 $5,633 $ 6.16 $1,255,000 $4,183 $4.77 ---------- ------ ----- ---------- ------ ----- NOTES: None None PRICE PER UNIT $ 64,144 $56,800 PRICE PER SQUARE FOOT $ 70.10 $ 64.76 EXPENSE RATIO 39.2% 43.2% EGIM 6.92 7.71 OVERALL CAP RATE 8.78% 7.37% ======== ======== Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 RIVER'S EDGE, AUBURN, WASHINGTON IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $56,800 to $69,095 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 $60,617 to $65,463 per unit with a mean or average adjusted price of $63,499 per unit. The median adjusted price is $63,958 per unit. Based on the following analysis, we have concluded to a value of $63,000 per unit, which results in an "as is" value of $7,600,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 RIVER'S EDGE, AUBURN, WASHINGTON SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 I - 3 I - 4 - ----------------------------------------------------------------------------------------------------------------------------- Property Name River's Edge The Pointe at Whispering Mallard Pointe Woodtrail Redondo Hills Apartments Apartments Address 1741 22nd 28300 18th Avenue 2120 SW 352nd 802 45th 1901 SW 320th Street NE South Street Street NE Street City Auburn, Federal Way, WA Federal Way, Auburn, WA Federal Way, Washington WA WA Sale Date January, 2003 October, 2002 September, August, 2002 2002 Sale Price ($) $15,504,500 $7,669,500 $11,546,000 $17,040,000 Net Rentable Area (SF) 111,660 227,622 112,020 164,705 263,133 Number of Units 120 225 111 180 300 Price Per Unit $68,909 $69,095 $64,144 $56,800 Year Built 1976 1990 1985 1989 1981 Land Area (Acre) 7.7300 16.6300 8.6100 8.0600 10.3000 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Fee Simple 0% Fee Simple 0% Fee Simple 0% Fee Simple 0% Estate Estate Estate Estate Estate Financing Cash To Seller 0% Cash To Seller 0% Cash To 0% Cash To Seller 0% Seller Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) 01-2003 0% 10-2002 5% 09-2002 5% 08-2002 5% VALUE AFTER TRANS. ADJUST. $68,909 $72,549 $67,352 $59,640 ($/UNIT) Location Comparable 0% Comparable 0% Comparable 0% Comparable 0% Number of Units 120 225 5% 111 0% 180 0% 300 5% Quality / Appeal Average Superior -5% Superior -5% Superior -5% Comparable 0% Age / Condition 1976 1990 / Average -5% 1985 / Fair -5% 1989 / Good -5% 1981 / Average 0% Occupancy at Sale 92% 96% 0% 95% 0% 94% 0% 94% 0% Amenities Good Comparable 0% Comparable 0% Comparable 0% Comparable 0% Average Unit Size (SF) 931 1,012 0% 1,009 0% 915 0% 877 0% PHYSICAL ADJUSTMENT -5% -10% -10% 5% FINAL ADJUSTED VALUE $65,463 $65,294 $60,617 $62,622 ($/UNIT)
SUMMARY VALUE RANGE (PER UNIT) $60,617 TO $65,463 MEAN (PER UNIT) $63,499 MEDIAN (PER UNIT) $63,958 VALUE CONCLUSION (PER UNIT) $63,000
VALUE INDICATED BY SALES COMPARISON APPROACH $7,560,000 ROUNDED $7,600,000
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 RIVER'S EDGE, AUBURN, WASHINGTON 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-1 225 $15,504,500 9.17% $1,421,642 $591,819 0.781 $53,787 $ 68,909 $ 6,318 $ 4,932 I-2 111 $ 7,669,500 7.39% $ 566,420 $591,819 0.966 $66,778 $ 69,095 $ 5,103 $ 4,932 I-3 180 $11,546,000 8.78% $1,013,945 $591,819 0.876 $56,160 $ 64,144 $ 5,633 $ 4,932 I-4 300 $17,040,000 7.37% $1,255,000 $591,819 1.179 $66,963 $ 56,800 $ 4,183 $ 4,932
PRICE/UNIT
Low High Average Median $53,787 $66,963 $60,922 $61,469
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT Estimated Price Per Unit $ 62,000 Number of Units 120 ---------- Value Based on NOI Analysis $7,440,000 Rounded $7,400,000
The adjusted sales indicate a range of value between $53,787 and $66,963 per unit, with an average of $60,922 per unit. Based on the subject's competitive position within the improved sales, a value of $62,000 per unit is estimated. This indicates an "as is" market value of $7,400,000 (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.
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-1 225 $15,504,500 $2,103,725 $682,083 32.42% 7.37 $ 68,909 I-2 111 $ 7,669,500 $1,011,465 $445,045 44.00% 7.58 $ 69,095 38.33% I-3 180 $11,546,000 $1,668,425 $654,480 39.23% 6.92 $ 64,144 I-4 300 $17,040,000 $2,209,000 $954,000 43.19% 7.71 $ 56,800
EGIM
Low High Average Median 6.92 7.71 7.40 7.48
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES Estimate EGIM 7.50 Subject EGI $1,008,230 ---------- Value Based on EGIM $7,561,728 Rounded $7,600,000 Value Per Unit $ 63,333
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 25 RIVER'S EDGE, AUBURN, WASHINGTON 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 38.33% before reserves. The comparable sales indicate a range of expense ratios from 32.42% to 44.00%, while their EGIMs range from 6.92 to 7.71. Overall, we conclude to an EGIM of 7.50, which results in an "as is" value estimate in the EGIM Analysis of $7,600,000. 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 $7,600,000. Price Per Unit $7,600,000 NOI Per Unit $7,400,000 EGIM Analysis $7,600,000 Sales Comparison Conclusion $7,600,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 RIVER'S EDGE, AUBURN, WASHINGTON 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 RIVER'S EDGE, AUBURN, WASHINGTON method is normally more appropriate for properties with relatively stable operating histories and expectations. A pro forma analysis for the first year of the investment is made to estimate a reasonable potential net operating income for the Subject Property. Such an analysis entails an estimate of the gross income the property should command in the marketplace. From this total gross income must be deducted an allowance for vacancy/collection loss and operating expenses as dictated by general market conditions and the overall character of the subject's tenancy and leased income to arrive at a projected estimate of net operating income. Conversion of the net operating income to an indication of value is accomplished by the process of capitalization, as derived primarily from market data. MARKET RENT ANALYSIS In order to determine a market rental rate for the subject, a survey of competing apartment communities was performed. This survey was displayed previously in the market analysis section of the report. Detailed information pertaining to each of the comparable rental communities, along with photographs, is presented in the Addenda of this report. The following charts display the subject's current asking and actual rent rates as well as a comparison with the previous referenced comparable rental properties. SUMMARY OF ACTUAL AVERAGE RENTS
Average Unit Area ----------------- Unit Type (Sq. Ft.) Per Unit Per SF % Occupied - ------------------------------------------------------------ 1Br/1Ba 675 $ 609 $ 0.90 83.3% 2Br/1Ba 975 $ 710 $ 0.73 92.9% 3Br/2Ba 1130 $ 836 $ 0.74 100.0%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 RIVER'S EDGE, AUBURN, WASHINGTON RENT ANALYSIS
COMPARABLE RENTS --------------------------------------------- R-1 R-2 R-3 R-4 R-5 --------------------------------------------- Brittany Auburn Clearwater Park Amberview Glen Ridge --------------------------------------------- SUBJECT SUBJECT SUBJECT COMPARISON TO SUBJECT UNIT ACTUAL ASKING --------------------------------------------- DESCRIPTION TYPE RENT RENT Inferior Superior Superior Superior 0 MIN MAX MEDIAN AVERAGE - -------------------------------------------------------------------------------------------------------------------------- Monthly Rent 1BR/1BA $ 609 $ 659 $ 575 $ 650 $ 675 $ 620 $ 575 $ 675 $ 635 $ 630 Unit Area (SF) 675 675 690 700 701 674 674 701 695 691 Monthly Rent Per $0.90 $ 0.98 $ 0.83 $ 0.93 $ 0.96 $ 0.92 $0.83 $0.96 $0.92 $ 0.91 Sq. Ft. Monthly Rent 2BR/1BA $ 710 $ 729 $ 701 $ 750 $ 735 $ 677 $ 677 $ 750 $ 718 $ 716 Unit Area (SF) 975 975 908 880 902 910 880 910 905 900 Monthly Rent Per $ 0.73 $ 0.75 $ 0.77 $ 0.85 $ 0.81 $ 0.74 $0.74 $0.85 $0.79 $ 0.80 Sq. Ft. Monthly Rent 3BR/2BA $ 836 $ 859 $ 900 $ 950 $ 975 $ 850 $ 850 $ 975 $ 925 $ 919 Unit Area (SF) 1,130 1,130 1,340 1,080 1,082 1,098 1,080 1,340 1,090 1,150 Monthly Rent Per Sq. Ft. $ 0.74 $ 0.76 $ 0.67 $ 0.88 $ 0.90 $ 0.77 $0.67 $0.90 $0.83 $ 0.81
CONCLUDED MARKET RENTAL RATES AND TERMS Based on this analysis above, the subject's concluded market rental rates and gross rental income is calculated as follows: GROSS RENTAL INCOME PROJECTION
Market Rent Unit Area -------------------- Monthly Annual Unit Type Number of Units (Sq. Ft.) Per Unit Per SF Income Income - ----------------------------------------------------------------------------------------------- 1Br/1Ba 24 675 $610 $0.90 $14,640 $ 175,680 2Br/1Ba 84 975 $710 $0.73 $59,640 $ 715,680 3Br/2Ba 12 1,130 $850 $0.75 $10,200 $ 122,400 Total $84,480 $1,013,760
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 RIVER'S EDGE, AUBURN, WASHINGTON 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 $935,894 $ 7,799 $989,275 $ 8,244 $1,015,025 $ 8,459 $1,014,000 $8,450 Vacancy $ 18,929 $ 158 $ 40,089 $ 334 $ 80,317 $ 669 $ 63,500 $ 529 Credit Loss/Concessions $ 14,018 $ 117 $ 72 $ 1 $ 7,485 $ 62 $ 6,750 $ 56 -------- -------- -------- -------- --------- -------- ---------- ------ Subtotal $ 32,947 $ 275 $ 40,161 $ 335 $ 87,802 $ 732 $ 70,250 $ 585 Laundry Income $ 4,855 $ 40 $ 3,732 $ 31 $ 2,646 $ 22 $ 7,212 $ 60 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 27,794 $ 232 $ 43,354 $ 361 $ 74,575 $ 621 $ 55,080 $ 459 -------- -------- -------- -------- --------- -------- ---------- ------ Subtotal Other Income $ 32,649 $ 272 $ 47,086 $ 392 $ 77,221 $ 644 $ 62,292 $ 519 Effective Gross Income $935,596 $ 7,797 $996,200 $ 8,302 $1,004,444 $ 8,370 $1,006,042 $8,384 Operating Expenses Taxes $ 55,908 $ 466 $ 53,165 $ 443 $ 52,009 $ 433 $ 51,849 $ 432 Insurance $ 7,844 $ 65 $ 18,865 $ 157 $ 17,361 $ 145 $ 18,701 $ 156 Utilities $ 43,160 $ 360 $ 31,641 $ 264 $ 48,013 $ 400 $ 44,400 $ 370 Repair & Maintenance $ 43,780 $ 365 $ 41,849 $ 349 $ 44,495 $ 371 $ 9,300 $ 78 Cleaning $ 5,324 $ 44 $ 7,069 $ 59 $ 12,716 $ 106 $ 11,800 $ 98 Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 37,800 $ 315 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 10,487 $ 87 $ 9,894 $ 82 $ 20,593 $ 172 $ 21,600 $ 180 General Administrative $104,814 $ 873 $134,355 $ 1,120 $ 110,983 $ 925 $ 117,367 $ 978 Management $ 47,349 $ 395 $ 49,826 $ 415 $ 51,753 $ 431 $ 50,304 $ 419 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 -------- -------- -------- -------- --------- -------- ---------- ------ Total Operating Expenses $318,666 $ 2,656 $346,664 $ 2,889 $ 357,923 $ 2,983 $ 363,121 $3,026 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 -------- -------- -------- -------- --------- -------- ---------- ------ Net Income $616,930 $ 5,141 $649,536 $ 5,413 $ 646,521 $ 5,388 $ 642,921 $5,358 ANNUALIZED 2003 ----------------------- PROJECTION AAA PROJECTION ------------------------------------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT % - ---------------------------------------------------------------------------------- Revenues Rental Income $1,012,772 $ 8,440 $1,013,760 $ 8,448 100.0% Vacancy $ 85,540 $ 713 $ 81,101 $ 676 8.0% Credit Loss/Concessions $ 3,564 $ 30 $ 5,069 $ 42 0.5% ---------- ------- ---------- -------- ---- Subtotal $ 89,104 $ 743 $ 86,170 $ 718 8.5% Laundry Income $ 2,524 $ 21 $ 2,640 $ 22 0.3% Garage Revenue $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 87,148 $ 726 $ 78,000 $ 650 7.7% ---------- ------- ---------- -------- ---- Subtotal Other Income $ 89,672 $ 747 $ 80,640 $ 672 8.0% Effective Gross Income $1,013,340 $ 8,445 $1,008,230 $ 8,402 100% Operating Expenses Taxes $ 53,636 $ 447 $ 70,800 $ 590 7.0% Insurance $ 17,312 $ 144 $ 18,000 $ 150 1.8% Utilities $ 62,196 $ 518 $ 54,000 $ 450 5.4% Repair & Maintenance $ 37,244 $ 310 $ 42,000 $ 350 4.2% Cleaning $ 15,268 $ 127 $ 13,200 $ 110 1.3% Landscaping $ 0 $ 0 $ 0 $ 0 0.0% Security $ 0 $ 0 $ 0 $ 0 0.0% Marketing & Leasing $ 23,412 $ 195 $ 21,600 $ 180 2.1% General Administrative $ 116,372 $ 970 $ 116,400 $ 970 11.5% Management $ 51,260 $ 427 $ 50,412 $ 420 5.0% Miscellaneous $ 0 $ 0 $ 0 $ 0 0.0% ---------- ------- ---------- -------- ---- Total Operating Expenses $ 376,700 $ 3,139 $ 386,412 $ 3,220 38.3% Reserves $ 0 $ 0 $ 30,000 $ 250 7.8% ---------- ------- ---------- -------- ---- Net Income $ 636,640 $ 5,305 $ 591,819 $ 4,932 58.7%
REVENUES AND EXPENSES The subject's revenue and expense projections are displayed on the previous chart. Rental income is based on the market analysis previously discussed. Other income consists of forfeited deposits, laundry income, late rent payments, month to month fees, pet fees, vending machine revenue, etc. We forecasted the property's annual operating expenses after reviewing its historical performance at the subject property. We analyzed each item of expense and attempted to forecast amounts a typical informed investor would consider reasonable. VACANCY AND COLLECTION LOSS An investor is primarily interested in the annual revenue an income property is likely to produce over a specified period of time, rather than the income it could produce if it were always 100% occupied and all tenants were paying their rent in full and on time. An investor normally expects some income loss as tenants vacate, fail to pay rent, or pay their rent late. We have projected a stabilized vacancy and collection loss rate of 8.5% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30 RIVER'S EDGE, AUBURN, WASHINGTON RESERVES FOR REPLACEMENT "Reserves for replacements" is a contingency account allocated to the expenses of the property to provide for replacement of short-lived items and for unforeseen necessary capital expenditures. We have utilized the Korpacz Real Estate Investor Survey of the national apartment market, which reports a range of replacement reserves between $150 and $400 per unit. For purposes of this analysis, we have included an allowance of $250 per unit for reserves for replacement. CAPITAL EXPENDITURES Capital expenditures represent expenses for immediate repair or replacement of items that have average to long lives. Based on our inspection of the property as well as discussions with property management personnel, there are no major items remaining in need of repair or replacement that would require an expense beyond our reserves for replacement. Therefore an allowance of $250 per unit should be satisfactory in our reserves for replacement to cover future capital expenditures. DISCOUNTED CASH FLOW ANALYSIS As the subject is a multi-tenant income property, the Discounted Cash Flow Method is considered appropriate. This method is especially meaningful in that it isolates the timing of the annual cash flows and discounts them, along with the expected equity reversion, to a present value. The present value of the cash flow is added to the present value of the reversion, resulting in a total property value. INVESTMENT CRITERIA Appropriate investment criteria will be derived for the subject based upon analysis of comparable sales and a survey of real estate investors. The following table summarizes the findings of Korpacz National Investor Survey for the most recent period. KORPACZ NATIONAL INVESTOR SURVEY 1ST QUARTER 2003 NATIONAL APARTMENT MARKET
CAPITALIZATION RATES ------------------------------------------------- GOING-IN TERMINAL ------------------------------------------------- LOW HIGH LOW HIGH - -------------------------------------------------------------- RANGE 6.00% 10.00% 7.00% 10.00% AVERAGE 8.14% 8.47%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 31 RIVER'S EDGE, AUBURN, WASHINGTON SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR - ---------------------------------------------------------- I-1 Jan-03 96% $68,909 9.17% I-2 Oct-02 95% $69,095 7.39% I-3 Sep-02 94% $64,144 8.78% I-4 Aug-02 94% $56,800 7.37% I-5 Jan-00 0% N/A High 9.17% Low 7.37% Average 8.18%
Based on this information, we have concluded the subject's overall capitalization rate should be 8.00%. The terminal capitalization rate is applied to the net operating income estimated for the year following the end of the holding period. Based on the concluded overall capitalization rate, the age of the property and the surveyed information, we have concluded the subject's terminal capitalization rate to be 9.00%. 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 10.50%. HOLDING PERIOD The survey of investors indicates that most investors are completing either 10-year cash flows or extending the analysis to the end of the lease if it is more than 10-years. A 10-year period has been used in the analysis of the subject with the eleventh year stabilized NOI used to determine the reversion. SELLING COSTS Sales of similar size properties are typically accomplished with the aid of a broker and will also incur legal and other transaction related cost. Based on our survey of brokers and a review of institutional investor projections, an allowance of 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 10.50% indicates a value of $7,400,000. In this instance, the reversion figure contributes AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32 RIVER'S EDGE, AUBURN, WASHINGTON approximately 43% of the total value. Investors surveyed for this assignment indicated they would prefer to have the cash flow contribute anywhere from 50% to 60%. Overall, the blend seems reasonable. The cash flow and pricing matrix are located on the following pages. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 33 RIVER'S EDGE, AUBURN, WASHINGTON DISCOUNTED CASH FLOW ANALYSIS RIVER'S EDGE
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 FISCAL YEAR 1 2 3 4 5 6 - ------------------------------------------------------------------------------------------------------------------------ REVENUE Base Rent $1,013,760 $1,044,173 $1,075,498 $1,107,763 $1,140,996 $1,175,226 Vacancy $ 81,101 $ 83,534 $ 86,040 $ 88,621 $ 91,280 $ 94,018 Credit Loss $ 5,069 $ 5,221 $ 5,377 $ 5,539 $ 5,705 $ 5,876 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 --------------------------------------------------------------------------------- Subtotal $ 86,170 $ 88,755 $ 91,417 $ 94,160 $ 96,985 $ 99,894 Laundry Income $ 2,640 $ 2,719 $ 2,801 $ 2,885 $ 2,971 $ 3,060 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 78,000 $ 80,340 $ 82,750 $ 85,233 $ 87,790 $ 90,423 --------------------------------------------------------------------------------- Subtotal Other Income $ 80,640 $ 83,059 $ 85,551 $ 88,118 $ 90,761 $ 93,484 --------------------------------------------------------------------------------- EFFECTIVE GROSS INCOME $1,008,230 $1,038,477 $1,069,632 $1,101,721 $1,134,772 $1,168,815 OPERATING EXPENSES: Taxes $ 70,800 $ 72,924 $ 75,112 $ 77,365 $ 79,686 $ 82,077 Insurance $ 18,000 $ 18,540 $ 19,096 $ 19,669 $ 20,259 $ 20,867 Utilities $ 54,000 $ 55,620 $ 57,289 $ 59,007 $ 60,777 $ 62,601 Repair & Maintenance $ 42,000 $ 43,260 $ 44,558 $ 45,895 $ 47,271 $ 48,690 Cleaning $ 13,200 $ 13,596 $ 14,004 $ 14,424 $ 14,857 $ 15,302 Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 21,600 $ 22,248 $ 22,915 $ 23,603 $ 24,311 $ 25,040 General Administrative $ 116,400 $ 119,892 $ 123,489 $ 127,193 $ 131,009 $ 134,940 Management $ 50,412 $ 51,924 $ 53,482 $ 55,086 $ 56,739 $ 58,441 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 --------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $ 386,412 $ 398,004 $ 409,944 $ 422,242 $ 434,910 $ 447,957 Reserves $ 30,000 $ 30,900 $ 31,827 $ 32,782 $ 33,765 $ 34,778 --------------------------------------------------------------------------------- NET OPERATING INCOME $ 591,819 $ 609,573 $ 627,861 $ 646,696 $ 666,097 $ 686,080 --------------------------------------------------------------------------------- Operating Expense Ratio (% of EGI) 38.3% 38.3% 38.3% 38.3% 38.3% 38.3% Operating Expense Per Unit $ 3,220 $ 3,317 $ 3,416 $ 3,519 $ 3,624 $ 3,733 YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 7 8 9 10 11 - ---------------------------------------------------------------------------------------------------------- REVENUE Base Rent $1,210,482 $1,246,797 $1,284,201 $1,322,727 $1,362,409 Vacancy $ 96,839 $ 99,744 $ 102,736 $ 105,818 $ 108,993 Credit Loss $ 6,052 $ 6,234 $ 6,421 $ 6,614 $ 6,812 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------- Subtotal $ 102,891 $ 105,978 $ 109,157 $ 112,432 $ 115,805 Laundry Income $ 3,152 $ 3,247 $ 3,344 $ 3,445 $ 3,548 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 93,136 $ 95,930 $ 98,808 $ 101,772 $ 104,825 ------------------------------------------------------------------- Subtotal Other Income $ 96,288 $ 99,177 $ 102,152 $ 105,217 $ 108,373 ------------------------------------------------------------------- EFFECTIVE GROSS INCOME $1,203,880 $1,239,996 $1,277,196 $1,315,512 $1,354,977 OPERATING EXPENSES: Taxes $ 84,539 $ 87,075 $ 89,687 $ 92,378 $ 95,149 Insurance $ 21,493 $ 22,138 $ 22,802 $ 23,486 $ 24,190 Utilities $ 64,479 $ 66,413 $ 68,406 $ 70,458 $ 72,571 Repair & Maintenance $ 50,150 $ 51,655 $ 53,204 $ 54,800 $ 56,444 Cleaning $ 15,761 $ 16,234 $ 16,721 $ 17,223 $ 17,740 Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 Security $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 25,792 $ 26,565 $ 27,362 $ 28,183 $ 29,029 General Administrative $ 138,988 $ 143,157 $ 147,452 $ 151,876 $ 156,432 Management $ 60,194 $ 62,000 $ 63,860 $ 65,776 $ 67,749 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------- TOTAL OPERATING EXPENSES $ 461,396 $ 475,237 $ 489,495 $ 504,179 $ 519,305 Reserves $ 35,822 $ 36,896 $ 38,003 $ 39,143 $ 40,317 ------------------------------------------------------------------- NET OPERATING INCOME $ 706,663 $ 727,863 $ 749,698 $ 772,189 $ 795,355 ------------------------------------------------------------------- Operating Expense Ratio (% of EGI) 38.3% 38.3% 38.3% 38.3% 38.3% Operating Expense Per Unit $ 3,845 $ 3,960 $ 4,079 $ 4,201 $ 4,328
Gross Residual Sale Price $8,837,279 Deferred Maintenance $ 0 Estimated Stabilized NOI $591,819 Sales Expense Rate 2.00% Less: Sales Expense $ 176,746 Add: Excess Land $ 0 ---------- ---------- Months to Stabilized 1 Discount Rate 10.50% Net Residual Sale Price $8,660,533 Other Adjustments $ 0 Stabilized Occupancy 92.0% Terminal Cap Rate 9.00% PV of Reversion $3,190,964 Value Indicated By "DCF" $7,439,781 Add: NPV of NOI $4,248,818 ---------- Rounded $7,400,000 PV Total $7,439,781
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE ------------------------------------------------------------------------- TOTAL VALUE 10.00% 10.25% 10.50% 10.75% 11.00% - -------------------------------------------------------------------------------------------------------- 8.50% $7,888,119 $7,756,345 $7,627,485 $7,501,466 $7,378,216 TERMINAL 8.75% $7,787,107 $7,657,600 $7,530,952 $7,407,090 $7,285,944 CAP 9.00% $7,691,707 $7,564,341 $7,439,781 $7,317,957 $7,198,798 RATE 9.25% $7,601,464 $7,476,123 $7,353,539 $7,233,641 $7,116,363 9.50% $7,515,970 $7,392,548 $7,271,836 $7,153,764 $7,038,266
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 34 RIVER'S EDGE, AUBURN, WASHINGTON 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 8.00% percent is applicable to the subject. The results of our direct capitalization analysis are as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 35 RIVER'S EDGE, AUBURN, WASHINGTON RIVER'S EDGE
TOTAL PER SQ. FT. PER UNIT %OF EGI - ------------------------------------------------------------------------------------------------ REVENUE Base Rent $1,013,760 $ 9.08 $ 8,448 Less: Vacancy & Collection Loss 8.50% $ 86,170 $ 0.77 $ 718 Plus: Other Income Laundry Income $ 2,640 $ 0.02 $ 22 0.26% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 78,000 $ 0.70 $ 650 7.74% -------------------------------------- ------ Subtotal Other Income $ 80,640 $ 0.72 $ 672 8.00% EFFECTIVE GROSS INCOME $1,008,230 $ 9.03 $ 8,402 OPERATING EXPENSES: Taxes $ 70,800 $ 0.63 $ 590 7.02% Insurance $ 18,000 $ 0.16 $ 150 1.79% Utilities $ 54,000 $ 0.48 $ 450 5.36% Repair & Maintenance $ 42,000 $ 0.38 $ 350 4.17% Cleaning $ 13,200 $ 0.12 $ 110 1.31% Landscaping $ 0 $ 0.00 $ 0 0.00% Security $ 0 $ 0.00 $ 0 0.00% Marketing & Leasing $ 21,600 $ 0.19 $ 180 2.14% General Administrative $ 116,400 $ 1.04 $ 970 11.54% Management 5.00% $ 50,412 $ 0.45 $ 420 5.00% Miscellaneous $ 0 $ 0.00 $ 0 0.00% TOTAL OPERATING EXPENSES $ 386,412 $ 3.46 $ 3,220 38.33% Reserves $ 30,000 $ 0.27 $ 250 2.98% --------------------------------------------- NET OPERATING INCOME $ 591,819 $ 5.30 $ 4,932 58.70% "GOING IN" CAPITALIZATION RATE 8.00% VALUE INDICATION $7,397,736 $66.25 $61,648 "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $7,397,736 ROUNDED $7,400,000 $66.27 $61,667
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 36 RIVER'S EDGE, AUBURN, WASHINGTON DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF - ---------------------------------------------------------------------- 7.25% $8,163,019 $8,200,000 $68,333 $73.44 7.50% $7,890,918 $7,900,000 $65,833 $70.75 7.75% $7,636,373 $7,600,000 $63,333 $68.06 8.00% $7,397,736 $7,400,000 $61,667 $66.27 8.25% $7,173,562 $7,200,000 $60,000 $64.48 8.50% $6,962,575 $7,000,000 $58,333 $62.69 8.75% $6,763,644 $6,800,000 $56,667 $60.90
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $7,400,000. CORRELATION AND CONCLUSION BY THE INCOME APPROACH The two methods used to estimate the market value of the subject property by the income approach resulted in the following indications of value: Discounted Cash Flow Analysis $7,400,000 Direct Capitalization Method $7,400,000 Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $7,400,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 37 RIVER'S EDGE, AUBURN, WASHINGTON 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 $7,600,000 Income Approach $7,400,000 Reconciled Value $7,500,000
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 20, 2003 the market value of the fee simple estate in the property is: $7,500,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA RIVER'S EDGE, AUBURN, WASHINGTON ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A RIVER'S EDGE, AUBURN, WASHINGTON EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A RIVER'S EDGE, AUBURN, WASHINGTON SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - OFFICE EXTERIOR - APARTMENT BUILDING [PICTURE] [PICTURE] EXTERIOR - LANDSCAPING EXTERIOR - POOL [PICTURE] [PICTURE] EXTERIOR - ENTRANCE EXTERIOR - EASTERLY VIEW OF 22ND STREET NE AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A RIVER'S EDGE, AUBURN, WASHINGTON SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - EASTERLY VIEW OF 22ND STREET NE INTERIOR - LEASING OFFICE [PICTURE] [PICTURE] INTERIOR - LEASING OFFICE INTERIOR - APARTMENT UNIT [PICTURE] [PICTURE] INTERIOR - APARTMENT UNIT INTERIOR - APARTMENT UNIT AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B RIVER'S EDGE, AUBURN, WASHINGTON EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B RIVER'S EDGE, AUBURN, WASHINGTON PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 THE POINTE AT REDONDO 28300 18th Avenue South Federal Way, WA [PICTURE] COMPARABLE I-2 WHISPERING HILLS 2120 SW 352nd Street Federal Way, WA [PICTURE] COMPARABLE I-3 MALLARD POINTE APARTMENTS 802 45th Street NE Auburn, WA [PICTURE] COMPARABLE I-4 WOODTRAIL APARTMENTS 1901 SW 320th Street Federal Way, WA [PICTURE] N/A [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B RIVER'S EDGE, AUBURN, WASHINGTON SUMMARY OF COMPARABLE RENTAL PROPERTIES
DESCRIPTION SUBJECT COMPARABLE R - 1 - ----------------------------------------------------------------------------------------------------------------------------- Property Name River's Edge Brittany Park Management Company AIMCO Reeder LOCATION: - ----------------------------------------------------------------------------------------------------------------------------- Address 1741 22nd Street NE 1433 8th Street NE City, State Auburn, Washington Auburn, WA County King King Proximity to Subject 2-miles south of the subject PHYSICAL CHARACTERISTICS: - ----------------------------------------------------------------------------------------------------------------------------- Net Rentable Area (SF) 111,660 152,440 Year Built 1976 1968 Effective Age 20 25 Building Structure Type Wood siding walls; asphalt shingle roof Stucco walls; asphalt shingle roof Parking Type (Gr., Cov., etc.) Garage, Open Covered Open Number of Units 120 190 - ----------------------------------------------------------------------------------------------------------------------------- Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo. 1 1Br/1Ba 675 24 $609 1 1BD/1BH 690 104 $575 2 2Br/1Ba 975 84 $710 2 2BD/1BH 900 64 $695 3 3Br/2Ba 1,130 12 $836 2 2BD/1.5BH 940 16 $725 3 3BD/1.5BH 1,340 6 $900 - ----------------------------------------------------------------------------------------------------------------------------- Average Unit Size (SF) 931 802 Unit Breakdown: Efficiency 0% 2-Bedroom 70% Efficiency 0% 2-Bedroom 42% 1-Bedroom 20% 3-Bedroom 10% 1-Bedroom 55% 3-Bedroom 3% CONDITION: Average Fair APPEAL: Average Fair - ----------------------------------------------------------------------------------------------------------------------------- AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X W/D Connect. X Balcony X W/D Connect. Fireplace Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall Tennis Court Secured Parking Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track Business Office Jogging Track Business Office Gym Room X Gym Room - ----------------------------------------------------------------------------------------------------------------------------- OCCUPANCY: 92% 96% LEASING DATA: Available Leasing Terms 6 to 12 Months 6 to 12 Months Concessions $50-$70 off 1st month rent for 1BD & 2BD 1 Months Free Pet Deposit $200 $300 Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas ---------------------------------------------------------------------------------------- X Water Trash X Water Trash Confirmation May 2003, Property Manager May 2003, Property Manager Telephone Number (253) 735-2125 (253) 939-4846 NOTES: None Inferior Comparison to Subject: DESCRIPTION COMPARABLE COMPARABLE R - 2 R - 3 - ----------------------------------------------------------------------------------------------------------------------------- Property Name Amberview Auburn Glen Management Company S-J Management LLC Allied Group, Inc. LOCATION: - ----------------------------------------------------------------------------------------------------------------------------- Address 32115 105th Place SE 1902 A Street SE City, State Auburn, WA Auburn, WA County King King Proximity to Subject 2-miles south of the Within 5 mile radius subject PHYSICAL CHARACTERISTICS: - ----------------------------------------------------------------------------------------------------------------------------- Net Rentable Area (SF) 131,920 126,764 Year Built 1990 1990 Effective Age 10 10 Building Structure Type Wood siding walls; asphalt shingle roof Wood siding walls; asphalt shingle roof Parking Type (Gr., Cov., etc.) Open, Covered, Garbage Open, Covered Number of Units 157 148 - ----------------------------------------------------------------------------------------------------------------------------- Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1BD/1BH 700 58 $650 1 1BD/1BH 701 48 $675 2 2BD/2BH 880 78 $750 2 2BD/1BH 839 36 $715 3 3BD/2BH 1,080 21 $950 2 2BD/2BH 950 48 $750 3 3BD/2BH 1,082 16 $975 - ----------------------------------------------------------------------------------------------------------------------------- Average Unit Size (SF) 840 857 Unit Breakdown: Efficiency 0% 2-Bedroom 50% Efficiency 0% 2-Bedroom 57% 1-Bedroom 37% 3-Bedroom 13% 1-Bedroom 32% 3-Bedroom 11% CONDITION: Good Good APPEAL: Good Good - ----------------------------------------------------------------------------------------------------------------------------- AMENITIES: Unit Amenities Attach. Garage X Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X W/D Connect. X Balcony X W/D Connect. X Fireplace X Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool 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 X Secured Parking Tennis Court Secured Parking Racquet Ball Laundry Room Racquet Ball Laundry Room Jogging Track Business Office Jogging Track Business Office X Gym Room X Gym Room - ----------------------------------------------------------------------------------------------------------------------------- OCCUPANCY: 92% 96% LEASING DATA: Available Leasing Terms 6 to 12 Months 6 to 12 Months - ----------------------------------------------------------------------------------------------------------------------------- Concessions 1/2 - 1 Months Free 1/2 - 1 Months Free Pet Deposit $300 $300 Utilities Paid by Tenant: Electric X Natural Gas X Electric X Natural Gas ------------------------------------------------------------------------------------------- Water Trash X Water Trash Confirmation May 2003, Leasing Agent May 2003, Property Manager Telephone Number (253) 735-2007 (253) 939-4449 NOTES: None None Superior Superior Comparison to Subject: DESCRIPTION COMPARABLE COMPARABLE R - 4 R - 5 - ---------------------------------------------------------------------------------------------------------------------------- Property Name Clearwater Ridge Management Company Con-Am Management Company LOCATION: - ---------------------------------------------------------------------------------------------------------------------------- Address 3702 Auburn Way South City, State Auburn, WA County King Proximity to Subject Within 5-mile radius PHYSICAL CHARACTERISTICS: - ---------------------------------------------------------------------------------------------------------------------------- Net Rentable Area (SF) 132,892 Year Built 1990 Effective Age 10 Building Structure Type Wood siding walls; asphalt shingle roof Parking Type (Gr., Cov., etc.) Open, Covered Number of Units 142 - ---------------------------------------------------------------------------------------------------------------------------- Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1BD/1BH 674 18 $620 2 2BD/1BH 834 36 $660 2 2BD/2BH 970 46 $690 3 3BD/2BH 1,098 42 $850 - ----------------------------------------------------------------------------------------------------------------------------- Average Unit Size (SF) 936 Unit Breakdown: Efficiency 0% 2-Bedroom 57% Efficiency 2-Bedroom 1-Bedroom 13% 3-Bedroom 30% 1-Bedroom 3-Bedroom CONDITION: Slightly Superior Slightly Superior APPEAL: Good Good - ----------------------------------------------------------------------------------------------------------------------------- AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X W/D Connect. Balcony W/D Connect. X Fireplace Fireplace X Cable TV Ready Cable TV Ready Project Amenities X Swimming Pool 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 Laundry Room Racquet Ball Laundry Room Jogging Track Business Office Jogging Track Business Office X Gym Room Gym Room - ----------------------------------------------------------------------------------------------------------------------------- OCCUPANCY: 89% LEASING DATA: Available Leasing Terms 6 to 12 Months Concessions 1/2 - 1 Months Free Pet Deposit $300 Utilities Paid by Tenant: X Electric X Natural Gas Electric Natural Gas ----------------------------------------------------------------------------------- X Water Trash Water Trash Confirmation May 2003, Property Manager Telephone Number (253) 939-8836 NOTES: None Superior Comparison to Subject:
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B RIVER'S EDGE, AUBURN, WASHINGTON PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 BRITTANY PARK 1433 8th Street NE Auburn, WA [PICTURE] COMPARABLE R-2 AMBERVIEW 32115 105th Place SE Auburn, WA [PICTURE] COMPARABLE R-3 AUBURN GLEN 1902 A Street SE Auburn, WA [PICTURE] COMPARABLE R-4 CLEARWATER RIDGE 3702 Auburn Way South Auburn, WA [PICTURE] COMPARABLE R-5 N/A [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C RIVER'S EDGE, AUBURN, WASHINGTON EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C RIVER'S EDGE, AUBURN, WASHINGTON 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 RIVER'S EDGE, AUBURN, WASHINGTON 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 RIVER'S EDGE, AUBURN, WASHINGTON 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 RIVER'S EDGE, AUBURN, WASHINGTON 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. Susan M. Kim provided significant real property appraisal assistance in the preparation of this report. I am currently in compliance with the Appraisal Institute's continuing education requirements. -S- Douglas Needham ------------------------------ Douglas Needham, MAI Managing Principal, Real Estate Group Washington State Certified General Real Estate Appraiser #1101111 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E RIVER'S EDGE, AUBURN, WASHINGTON EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E RIVER'S EDGE, AUBURN, WASHINGTON 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 RIVER'S EDGE, AUBURN, WASHINGTON VALUATION AND Appraisal Institute SPECIAL COURSES Advanced Income Capitalization Appraisal Principles Appraisal Procedures Basic Income Capitalization Standards of Professional Practice AMERICAN APPRAISAL ASSOCIATES, INC. RIVER'S EDGE, AUBURN, WASHINGTON GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. RIVER'S EDGE, AUBURN, WASHINGTON 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)(14) 16 d07256a1exv99wxcyx14y.txt APPRAISAL OF VILLAGE EAST VILLAGE EAST 781 HATHAWAY DRIVE UNINCORPORATED AREA OF EL PASO COUNTY, COLORADO MARKET VALUE - FEE SIMPLE ESTATE AS OF MAY 15, 2003 PREPARED FOR: APARTMENT INVESTMENT AND MANAGEMENT COMPANY (AIMCO) C/O LINER YANKELEVITZ SUNSHINE & REGENSTRE IF 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: VILLAGE EAST 781 HATHAWAY DRIVE UNINCORPORATED AREA OF EL PASO COUNTY, EL PASO 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 137 units with a total of 103,095 square feet of rentable area. The improvements were built in 1973. The improvements are situated on 6.15 acres. Overall, the improvements are in average condition. As of the date of this appraisal, the subject property is 63% 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 EAST, UNINCORPORATED AREA OF EL PASO 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 15, 2003 is: ($5,000,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. /s/ Douglas Needham, MAI 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 VILLAGE EAST, UNINCORPORATED AREA OF EL PASO 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 VILLAGE EAST, UNINCORPORATED AREA OF EL PASO COUNTY, COLORADO EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Village East LOCATION: 781 Hathaway Drive Unincorporated area of El Paso 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 15, 2003 DATE OF REPORT: June 28, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 6.15 acres, or 267,894 square feet Assessor Parcel No.: 5407407036; 5407407037 Floodplain: Community Panel No. 08041C0754F (March 17, 1997) Flood Zone X, an area outside the floodplain. Zoning: R-4 (Planned Development District) BUILDING: No. of Units: 137 Units Total NRA: 103,095 Square Feet Average Unit Size: 753 Square Feet Apartment Density: 22.3 units per acre Year Built: 1973 UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
Square Market Rent Monthly Annual Unit Type Feet Per Unit Per SF Income Income - ------------------------------------------------------------------------------------------ 1Bd/1Ba 610 $570 $0.93 $22,800 $ 273,600 2Bd/1Ba 810 $690 $0.85 $49,680 $ 596,160 2Bd/1.5Ba Loft 815 $730 $0.90 $18,250 $ 219,000 Total $90,730 $1,088,760 ==========================================================================================
OCCUPANCY: 63% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 23 Years REMAINING ECONOMIC LIFE: 22 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 VILLAGE EAST, UNINCORPORATED AREA OF EL PASO COUNTY, COLORADO SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - ENTRANCE EXTERIOR - LANDSCAPE AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 VILLAGE EAST, UNINCORPORATED AREA OF EL PASO 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 VILLAGE EAST, UNINCORPORATED AREA OF EL PASO COUNTY, COLORADO PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION Amount $/Unit - --------------------- ------ ------ Potential Rental Income $1,088,760 $7,947 Effective Gross Income $968,133 $7,067 Operating Expenses $424,472 $3,098 43.8% of EGI Net Operating Income: $516,262 $3,768 Capitalization Rate 9.50% DIRECT CAPITALIZATION VALUE $4,900,000 * $35,766 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 27% Stabilized Vacancy & Collection Loss: 18% Lease-up / Stabilization Period 24 months Terminal Capitalization Rate 10.00% Discount Rate 12.50% Selling Costs 2.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $4,600,000 * $33,577 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $4,800,000 $35,036 / UNIT SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $41,282 to $85,514 Range of Sales $/Unit (Adjusted) $38,481 to $45,410 VALUE INDICATION - PRICE PER UNIT $5,300,000 * $38,686 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 6.23 to 8.64 Selected EGIM for Subject 6.25 Subject's Projected EGI $968,133 EGIM ANALYSIS CONCLUSION $5,500,000 * $40,146 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $5,400,000 * $39,416 / UNIT RECONCILED SALES COMPARISON VALUE $5,400,000 $39,416 / 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 EAST, UNINCORPORATED AREA OF EL PASO COUNTY, COLORADO PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $5,300,000 NOI Per Unit $5,400,000 EGIM Multiplier $5,500,000 INDICATED VALUE BY SALES COMPARISON $5,400,000 $39,416 / UNIT INCOME APPROACH: Direct Capitalization Method: $4,900,000 Discounted Cash Flow Method: $4,600,000 INDICATED VALUE BY THE INCOME APPROACH $4,800,000 $35,036 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $5,000,000 $36,496 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 VILLAGE EAST, UNINCORPORATED AREA OF EL PASO COUNTY, COLORADO INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 781 Hathaway Drive, Unincorporated area of El Paso County, El Paso County, Colorado. Unincorporated area of El Paso County identifies it as 5407407036; 5407407037. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by James Newell on May 15, 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. Both, 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 15, 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 VILLAGE EAST, UNINCORPORATED AREA OF EL PASO 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 CCP/IV Associates LTD C/O PWC-Property Tax Group. 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 EAST, UNINCORPORATED AREA OF EL PASO 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 El Paso 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 - Peterson Road West - North Powers Boulevard South - East Platte Avenue North - Palmer Park Boulevard MAJOR EMPLOYERS Major employers in the subject's area include Agilent Technologies and WorldCom. 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 VILLAGE EAST, UNINCORPORATED AREA OF EL PASO COUNTY, COLORADO NEIGHBORHOOD DEMOGRAPHICS
AREA ---------------------------------------------- CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA - ------------------------------------------------------------------------------------------------- POPULATION TRENDS Current Population 6,046 61,694 171,099 538,844 5-Year Population 6,176 67,756 183,595 595,713 % Change CY-5Y 2.2% 9.8% 7.3% 10.6% Annual Change CY-5Y 0.4% 2.0% 1.5% 2.1% HOUSEHOLDS Current Households 2,317 22,463 65,222 201,086 5-Year Projected Households 2,380 24,576 70,051 223,226 % Change CY - 5Y 2.7% 9.4% 7.4% 11.0% Annual Change CY-5Y 0.5% 1.9% 1.5% 2.2% INCOME TRENDS Median Household Income $ 40,186 $ 45,294 $ 39,316 $ 50,108 Per Capita Income $ 17,423 $ 19,000 $ 18,736 $ 22,841 Average Household Income $ 46,190 $ 52,195 $ 49,171 $ 61,206
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 40.64% 34.90% 37.07% 31.26% 5-Year Projected % Renting 37.73% 31.93% 34.69% 29.31% % of Households Owning 47.67% 55.61% 53.10% 59.98% 5-Year Projected % Owning 50.64% 59.13% 55.90% 62.54%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 VILLAGE EAST, UNINCORPORATED AREA OF EL PASO COUNTY, COLORADO SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Residential Condominiums South - Residential Condominiums East - Apartments West - Vacant land CONCLUSIONS The subject is well located within the city of Unincorporated area of El Paso 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 VILLAGE EAST, UNINCORPORATED AREA OF EL PASO COUNTY, COLORADO MARKET ANALYSIS The subject property is located in the city of Unincorporated area of El Paso County in El Paso County. The overall pace of development in the subject's market is more or less decreasing. Over the last several years there has been ongoing construction in northern Colorado Springs. The Austin Bluffs Apartment project, located on Whetstone Drive, is currently under construction and about 65% complete. The following table illustrates historical vacancy rates for the subject's market. HISTORICAL VACANCY RATE
Period Region Submarket - ------------------------------------------------- 1999 5.1% 5.4% 2000 3.1% 2.8% 2001 8.9% 4.7% 2002 8.2% 8.2%
{Source:Hendricks & Partners: Apartment Update: Rocky Mountain Region} Occupancy trends in the subject's market are decreasing. Historically speaking, the subject's submarket has equated the overall market. There is currently an increasing trend in occupancy due to large concessions and a slowing housing market due to economic conditions. Due to the large number of military personnel recently deployed, the Colorado Springs apartment market has suffered over the last several months. The local market, especially in the south end of town, will grow with the return of the personnel. 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 $693 - $ 637 - 2002 $642 -7.4% $ 559 -12.2%
The following table illustrates a summary of the subject's competitive set. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 VILLAGE EAST, UNINCORPORATED AREA OF EL PASO COUNTY, COLORADO COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject - ---------------------------------------------------------------------------------------------------------------------- R-1 Dove Tree N/A 88% 1980 Approx. 2 miles west of subject R-2 Pine Creek Village 312 80% 1973 Approx. 3 miles southwest of subject R-3 Western Hills 0 85% 1975 Adjacent to the east R-4 Courtyard Estates 176 88% 1975 Approx. 2 miles west of subject R-5 Greentree Village 214 94% 1985 Approx. 5 miles northwest of subject Subject Village East 137 63% 1973
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 VILLAGE EAST, UNINCORPORATED AREA OF EL PASO COUNTY, COLORADO PROPERTY DESCRIPTION SITE ANALYSIS Site Area 6.15 acres, or 267,894 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 08041C0754F; 08041C0752F, dated March 17, 1997; March 17, 1997 Flood Zone Zone X; 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 - ------------------------------------------------------------------------------------------- 5407407036; 5407407037 $31,990 $331,640 $363,630 $0.06732 $ 24,478
IMPROVEMENT ANALYSIS Year Built 1973 Number of Units 137 Net Rentable Area 103,095 Square Feet Construction: Foundation Reinforced concrete slab Frame Heavy or light wood Exterior Walls Stucco wall Roof Composition shingle over a wood truss structure Project Amenities Amenities at the subject include a swimming pool, laundry room, and parking area. Unit Amenities Individual unit amenities include a 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 VILLAGE EAST, UNINCORPORATED AREA OF EL PASO COUNTY, COLORADO Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) - ------------------------------------------------------------------ 1Bd/1Ba 40 610 2Bd/1Ba 72 810 2Bd/1.5Ba Loft 25 815
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 1973 and consist of a 137-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 EAST, UNINCORPORATED AREA OF EL PASO 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 VILLAGE EAST, UNINCORPORATED AREA OF EL PASO 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 VILLAGE EAST, UNINCORPORATED AREA OF EL PASO 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 VILLAGE EAST, UNINCORPORATED AREA OF EL PASO COUNTY, COLORADO SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 ----------- ------- ---------- ---------- Property Name VillageEast Cheyenne Creek Park Meadows LOCATION: Address 781 Hathaway Drive 115 West Cheyenne Road 970 Mount Werner Circle City, State Unincorporated area of Colorado Springs, Colorado Springs, Colorado El Paso Colorado County El Paso County El Paso County El Paso County PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 103,095 107,261 47,179 Year Built 1973 1985 1984 Number of Units 137 107 60 Unit Mix: Type Total Type Total Type Total 1Bd/1Ba 40 2Bd/1Ba 34 2Bd/1Ba 60 2Bd/1Ba 72 2Bd/2Ba 73 2Bd/1.5Ba Loft 25 Average Unit Size (SF) 753 1,002 786 Land Area (Acre) 6.1500 4.4010 4.0200 Density (Units/Acre) 22.3 24.3 14.9 Parking Ratio (Spaces/Unit) 1.69 1.75 2.00 Parking Type (Gr., Cov., etc.) Open, Open Covered 107 Covered Open CONDITION: 0 Good Average APPEAL: 0 Very Good Average AMENITIES: Pool/Spa Yes/No No/No Gym Room No Laundry Room Yes Secured Parking No No No Sport Courts No No No OCCUPANCY: 63% 94% 90% TRANSACTION DATA: Sale Date June, 2002 April, 2002 Sale Price ($) $9,150,000 $3,100,000 Grantor BP Cheyenne Creek Apts Park Meadows Apartments Grantee 115 West Cheyenne Road Park Meadows Affordable Housing Sale Documentation 2100444 55416 Verification CoStar Realty Buyer Telephone Number 800-204-5960 719-447-9300 ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $1,239,540 $11,584 $11.56 $ 405,000 $6,750 $ 8.58 Vacancy/Credit Loss $ 74,372 $ 695 $ 0.69 $ 40,500 $ 675 $ 0.86 Effective Gross Income $1,165,168 $10,889 $10.86 $ 364,500 $6,075 $ 7.73 Operating Expenses $ 407,809 $ 3,811 $ 3.80 $ 135,011 $2,250 $ 2.86 Net Operating Income $ 757,359 $ 7,078 $ 7.06 $ 229,489 $3,825 $ 4.86 NOTES: PRICE PER UNIT $85,514 $51,667 PRICE PER SQUARE FOOT $ 85.31 $ 65.71 EXPENSE RATIO 35.0% 37.0% EGIM 7.85 8.50 OVERALL CAP RATE 8.28% 7.40% 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 Cedar Crest Colony Hills Windtree Apartments LOCATION: Address 2010 Carmel Drive 3950 Patrick Drive 2530 Paragon Drive City, State Colorado Springs, Colorado Colorado Springs, Colorado Colorado Springs, Colorado County El Paso County El Paso County El Paso County PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 61,104 216,000 209,896 Year Built 1968 1985 1986 Number of Units 78 216 260 Unit Mix: Type Total Type Total Type Total 1Bd/1Ba 18 2Bd/1Ba 216 Studio 24 2Bd/1Ba 60 1Bd/1Ba 124 2Bd/1Ba 112 Average Unit Size (SF) 783 1,000 807 Land Area (Acre) 1.6000 6.6000 11.7900 Density (Units/Acre) 48.8 32.7 22.1 Parking Ratio (Spaces/Unit) 1.05 1.62 1.56 Parking Type (Gr., Cov., etc.) Open Some Covered Open CONDITION: Fair Good Good APPEAL: Fair Good Good AMENITIES: Pool/Spa No/No Yes/Yes Gym Room Yes Laundry Room Yes Secured Parking No No No Sport Courts No No No OCCUPANCY: 95% 93% 90% TRANSACTION DATA: Sale Date January, 2003 July, 2001 December, 2001 Sale Price ($) $3,220,000 $10,500,000 $18,565,000 Grantor Cedar Creek Investments Bigelow Colorado II, LLC ERI II Windtree, Inc. Grantee Stanley & Robin Douglas Colony Hills Colorado Springs KKMF Windtree, Inc. Aps, LLC Sale Documentation 11028 101636 188335 Verification Buyer's Broker Christina Soliz (Broker) Jeff Hawks (Buyers Broker) Telephone Number 303-607-9001 602-912-1700 303-572-7700 ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $ 536,160 $56,874 $ 8.77 $1,811,808 $8,388 $8.39 $2,387,000 $9,181 $11.37 Vacancy/Credit Loss $ 26,808 $ 344 $ 0.44 $ 126,827 $ 587 $0.59 $ 238,700 $ 918 $ 1.14 Effective Gross Income $ 509,352 $ 6,530 $ 8.34 $1,684,981 $7,801 $7.80 $2,148,300 $8,263 $10.24 Operating Expenses $ 203,741 $ 2,612 $ 3.33 $ 869,269 $4,024 $4.02 $ 751,000 $2,888 $ 3.58 Net Operating Income $ 305,611 $ 3,918 $ 5.00 $ 815,712 $3,776 $3.78 $1,522,300 $5,855 $ 7.25 NOTES: PRICE PER UNIT $41,282 $48,611 $71,404 PRICE PER SQUARE FOOT $ 52.70 $ 48.61 $ 88.45 EXPENSE RATIO 40.0% 51.6% 35.0% EGIM 6.32 6.23 8.64 OVERALL CAP RATE 9.49% 7.77% 8.20% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA PRO FORMA
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 VILLAGE EAST, UNINCORPORATED AREA OF EL PASO COUNTY, COLORADO IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $41,282 to $85,514 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 $38,481 to $45,410 per unit with a mean or average adjusted price of $42,037 per unit. The median adjusted price is $41,333 per unit. Based on the following analysis, we have concluded to a value of $42,000 per unit, which results in an "as is" value of $5,300,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 VILLAGE EAST, UNINCORPORATED AREA OF EL PASO COUNTY, COLORADO SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - ----------------------------------------------------------------------------------------------------------------------------- Property Name Village East Cheyenne Creek Park Meadows Address 781 Hathaway Drive 115 West Cheyenne Road 970 Mount Werner Circle City Unincorporated area of El Paso Colorado Springs, Colorado Colorado Springs, Colorado Sale Date June, 2002 April, 2002 Sale Price ($) $9,150,000 $3,100,000 Net Rentable Area (SF) 103,095 107,261 47,179 Number of Units 137 107 60 Price Per Unit $85,514 $51,667 Year Built 1973 1985 1984 Land Area (Acre) 6.1500 4.4010 4.0200 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 06-2002 0% 04-2002 0% VALUE AFTER TRANS. ADJUST. $85,514 $51,667 ($/UNIT) Location Superior -10% Comparable 0% Number of Units 137 107 0% 60 -10% Quality / Appeal Good Superior -20% Superior -10% Age / Condition 1973 1985 / Good -15% 1984 / Average -10% Occupancy at Sale 63% 94% 0% 90% 0% Amenities Good Comparable 0% Inferior 10% Average Unit Size (SF) 753 1,002 -10% 786 0% PHYSICAL ADJUSTMENT -55% -20% FINAL ADJUSTED VALUE ($/UNIT) $38,481 $41,333 COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 - ------------------------------------------------------------------------------------------------------------------------------- Property Name Cedar Crest Colony Hills Windtree Apartments Address 2010 Carmel Drive 3950 Patrick Drive 2530 Paragon Drive City Colorado Springs, Colorado Colorado Springs, Colorado Colorado Springs, Colorado Sale Date January, 2003 July, 2001 December, 2001 Sale Price ($) $3,220,000 $10,500,000 $18,565,000 Net Rentable Area (SF) 61,104 216,000 209,896 Number of Units 78 216 260 Price Per Unit $41,282 $48,611 $71,404 Year Built 1968 1985 1986 Land Area (Acre) 1.6000 6.6000 11.7900 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) 01-2003 0% 07-2001 5% 12-2001 3% VALUE AFTER TRANS. ADJUST. $41,282 $51,042 $73,546 ($/UNIT) Location Comparable 0% Comparable 0% Superior -10% Number of Units 78 -10% 216 5% 260 5% Quality / Appeal Comparable 0% Superior -10% Superior -20% Age / Condition 1968 / Fair 10% 1985 / Good -15% 1986 / Good -15% Occupancy at Sale 95% 0% 93% 0% 90% 0% Amenities Inferior 10% Inferior 5% Comparable 0% Average Unit Size (SF) 783 0% 1,000 -5% 807 0% PHYSICAL ADJUSTMENT 10% -20% -40% FINAL ADJUSTED VALUE ($/UNIT) $45,410 $40,833 $44,128
SUMMARY VALUE RANGE (PER UNIT) $38,481 TO $45,410 MEAN (PER UNIT) $42,037 MEDIAN (PER UNIT) $41,333 VALUE CONCLUSION (PER UNIT) $42,000 VALUE OF IMPROVEMENT & MAIN SITE $5,754,000 LESS: LEASE-UP COST -$219,000 PV OF CONCESSIONS -$284,000 VALUE INDICATED BY SALES COMPARISON APPROACH $5,251,000 ROUNDED $5,300,000
NET OPERATING INCOME (NOI) ANALYSIS We have also conducted a net operating income (NOI) comparison analysis. The NOI effectively takes into account the various physical, location, and operating aspects of the sale. When the subject's NOI is compared to the sale NOI, a percent adjustment can be arrived at. The following table illustrates this analysis. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 24 VILLAGE EAST, UNINCORPORATED AREA OF EL PASO COUNTY, COLORADO NOI PER UNIT COMPARISON
COMPARABLE NO. OF SALE PRICE NOI/ SUBJECT NOI ADJUSTMENT INDICATED NO. UNITS PRICE/UNIT OAR NOI/UNIT SUBJ. NOI/UNIT FACTOR VALUE/UNIT - ------------------------------------------------------------------------------------------------------------------------------ I-1 107 $ 9,150,000 8.28% $ 757,359 $ 516,262 0.532 $45,527 $ 85,514 $ 7,078 $ 3,768 I-2 60 $ 3,100,000 7.40% $ 229,489 $ 516,262 0.985 $50,904 $ 51,667 $ 3,825 $ 3,768 I-3 78 $ 3,220,000 9.49% $ 305,611 $ 516,262 0.962 $39,704 $ 41,282 $ 3,918 $ 3,768 I-4 216 $10,500,000 7.77% $ 815,712 $ 516,262 0.998 $48,507 $ 48,611 $ 3,776 $ 3,768 I-5 260 $18,565,000 8.20% $1,522,300 $ 516,262 0.644 $45,956 $ 71,404 $ 5,855 $ 3,768
PRICE/UNIT VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT - ------------------------------------------------------------------------------------------------------ Low High Average Median Estimated Price Per Unit $ 43,000 $39,704 $50,904 $46,120 $45,956 Number of Units 137 Value $5,891,000 Less: Lease-Up Cost -$ 219,000 PV of Concessions -$ 284,000 Value Based on NOI Analysis $5,388,000 Rounded $5,400,000
The adjusted sales indicate a range of value between $39,704 and $50,904 per unit, with an average of $46,120 per unit. Based on the subject's competitive position within the improved sales, a value of $43,000 per unit is estimated. This indicates an "as is" market value of $5,400,000 (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 VILLAGE EAST, UNINCORPORATED AREA OF EL PASO COUNTY, COLORADO EFFECTIVE GROSS INCOME MULTIPLIER COMPARISON
COMPARABLE NO. OF SALE PRICE EFFECTIVE OPERATING SUBJECT NO. UNITS PRICE/UNIT GROSS INCOME EXPENSE OER PROJECTED OER EGIM - ----------------------------------------------------------------------------------------------------------------------- I-1 107 $ 9,150,000 $1,165,168 $407,809 35.00% 7.85 $ 85,514 I-2 60 $ 3,100,000 $ 364,500 $135,011 37.04% 8.50 $ 51,667 I-3 78 $ 3,220,000 $ 509,352 $203,741 40.00% 43.84% 6.32 $ 41,282 I-4 216 $10,500,000 $1,684,981 $869,269 51.59% 6.23 $ 48,611 I-5 260 $18,565,000 $2,148,300 $751,000 34.96% 8.64 $ 71,404
EGIM VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES - ------------------------------------------------------------------------------------------ Low High Average Median Estimate EGIM 6.25 Subject EGI $ 968,133 6.23 8.64 7.51 7.85 Value $6,050,833 Less: Lease-Up Cost -$ 219,000 PV of Concessions -$ 284,000 ---------- Value Based on EGIM Analysis $5,547,833 Rounded $5,500,000 Value Per Unit $ 40,146
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 43.84% before reserves. The comparable sales indicate a range of expense ratios from 34.96% to 51.59%, while their EGIMs range from 6.23 to 8.64. Overall, we conclude to an EGIM of 6.25, which results in an "as is" value estimate in the EGIM Analysis of $5,500,000. 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 $5,400,000. Price Per Unit $5,300,000 NOI Per Unit $5,400,000 EGIM Analysis $5,500,000 Sales Comparison Conclusion $5,400,000
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 26 VILLAGE EAST, UNINCORPORATED AREA OF EL PASO 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. SALES COMPARISON APPROACH PAGE 27 VILLAGE EAST, UNINCORPORATED AREA OF EL PASO 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 610 $526 $0.86 67.5% 2Bd/1Ba 810 $639 $0.79 70.8% 2Bd/1.5Ba Loft 815 $732 $0.90 36.0%
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 28 VILLAGE EAST, UNINCORPORATED AREA OF EL PASO COUNTY, COLORADO RENT ANALYSIS
COMPARABLE RENTS ----------------------------------------------- R-1 R-2 R-3 R-4 R-5 ----------------------------------------------- Pine Dove Creek Western Courtyard Greentree Tree Village Hills Estates Village SUBJECT SUBJECT SUBJECT UNIT ACTUAL ASKING ----------------------------------------------- DESCRIPTION TYPE RENT RENT COMPARISON TO SUBJECT MIN MAX MEDIAN AVERAGE ----------------------------------------------- Similar Similar Similar Slightly Slightly Inferior Superior - ------------------------------------------------------------------------------------------------------------------------------------ Monthly Rent 1BD/1BA $ 526 $ 589 $ 563 $ 540 $ 699 $ 480 $ 480 $ 699 $ 551 $ 570 Unit Area (SF) 610 610 630 762 668 500 500 762 649 640 Monthly Rent Per Sq. Ft. $0.86 $0.97 $0.89 $0.71 $1.05 $0.96 $0.71 $1.05 $0.93 $0.90 Monthly Rent 2BD/1BA $ 639 $ 689 $ 769 $ 605 $ 732 $ 605 $ 769 $ 732 $ 702 Unit Area (SF) 810 810 833 750 893 750 893 833 825 Monthly Rent Per Sq. Ft. $0.79 $0.85 $0.92 $0.81 $0.82 $0.81 $0.92 $0.82 $0.85 Monthly Rent 2BD/1.5BA $ 732 $ 729 $ 720 $ 690 $ 799 $ 690 $ 799 $ 720 $ 736 LOFT Unit Area (SF) 815 815 970 960 916 916 970 960 949 Monthly Rent Per Sq. Ft. $0.90 $0.89 $0.74 $0.72 $0.87 $0.72 $0.87 $0.74 $0.78
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 - -------------------------------------------------------------------------------------------------- 1Bd/1Ba 40 610 $570 $0.93 $22,800 $ 273,600 2Bd/1Ba 72 810 $690 $0.85 $49,680 $ 596,160 2Bd/1.5Ba Loft 25 815 $730 $0.90 $18,250 $ 219,000 Total $90,730 $1,088,760 ==================================================================================================
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 VILLAGE EAST, UNINCORPORATED AREA OF EL PASO COUNTY, COLORADO SUMMARY OF HISTORICAL INCOME & EXPENSES
FISCAL YEAR 2000 FISCAL YEAR 2001 FISCAL YEAR 2002 FISCAL YEAR 2003 -------------------- -------------------- -------------------- -------------------- DESCRIPTION ACTUAL ACTUAL ACTUAL MANAGEMENT BUDGET - ------------------------- -------------------- -------------------- -------------------- -------------------- TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT ---------- -------- ---------- -------- ---------- -------- ---------- -------- Revenues Rental Income $1,063,705 $ 7,764 $1,144,403 $ 8,353 $1,090,795 $ 7,962 $1,044,000 $ 7,620 Vacancy $ 31,147 $ 227 $ 82,807 $ 604 $ 213,500 $ 1,558 $ 234,000 $ 1,708 Credit Loss/Concessions $ 6,052 $ 44 $ 58,737 $ 429 $ 81,620 $ 596 $ 57,300 $ 418 Subtotal $ 37,199 $ 272 $ 141,544 $ 1,033 $ 295,120 $ 2,154 $ 291,300 $ 2,126 Laundry Income $ 1,734 $ 13 $ 480 $ 4 $ 5,358 $ 39 $ 3,288 $ 24 Garage Revenue $ 7,467 $ 55 $ 6,105 $ 45 $ 4,644 $ 34 $ 0 $ 0 Other Misc. Revenue $ 83,989 $ 613 $ 85,133 $ 621 $ 46,472 $ 339 $ 68,210 $ 498 Subtotal Other Income $ 93,190 $ 680 $ 91,718 $ 669 $ 56,474 $ 412 $ 71,498 $ 522 Effective Gross Income $1,119,696 $ 8,173 $1,094,577 $ 7,990 $ 852,149 $ 6,220 $ 824,198 $ 6,016 Operating Expenses Taxes $ 22,033 $ 161 $ 25,755 $ 188 $ 25,141 $ 184 $ 26,149 $ 191 Insurance $ 13,064 $ 95 $ 17,875 $ 130 $ 17,152 $ 125 $ 18,793 $ 137 Utilities $ 83,881 $ 612 $ 124,983 $ 912 $ 109,190 $ 797 $ 104,340 $ 762 Repair & Maintenance $ 23,408 $ 171 $ 17,134 $ 125 $ 30,292 $ 221 $ 36,720 $ 268 Cleaning $ 7,837 $ 57 $ 4,137 $ 30 $ 16,685 $ 122 $ 0 $ 0 Landscaping $ 13,585 $ 99 $ 13,081 $ 95 $ 14,805 $ 108 $ 21,965 $ 160 Security $ 2,247 $ 16 $ 1,438 $ 10 $ 125 $ 1 $ 0 $ 0 Marketing & Leasing $ 34,502 $ 252 $ 34,967 $ 255 $ 40,407 $ 295 $ 45,040 $ 329 General Administrative $ 142,525 $ 1,040 $ 117,778 $ 860 $ 106,032 $ 774 $ 116,480 $ 850 Management $ 56,043 $ 409 $ 65,177 $ 476 $ 42,908 $ 313 $ 42,944 $ 313 Miscellaneous $ 3,205 $ 23 $ 4,352 $ 32 $ 1,102 $ 8 $ 0 $ 0 Total Operating Expenses $ 402,330 $ 2,937 $ 426,677 $ 3,114 $ 403,839 $ 2,948 $ 412,431 $ 3,010 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Net Income $ 717,366 $ 5,236 $ 667,900 $ 4,875 $ 448,310 $ 3,272 $ 411,767 $ 3,006 ANNUALIZED 2003 ------------------------ DESCRIPTION PROJECTION AAA PROJECTION - ------------------------- ------------------------ -------------------------------- TOTAL PER UNIT TOTAL PER UNIT % ----------- -------- ---------- ---------- ----- Revenues Rental Income $1,049,308 $ 7,659 $1,088,760 $ 7,947 100.0% Vacancy $ 363,228 $ 2,651 $ 141,539 $ 1,033 13.0% Credit Loss/Concessions $ 44,972 $ 328 $ 54,438 $ 397 5.0% Subtotal $ 408,200 $ 2,980 $ 195,977 $ 1,430 18.0% Laundry Income $ 6,900 $ 50 $ 5,480 $ 40 0.5% Garage Revenue $ 3,612 $ 26 $ 4,795 $ 35 0.4% Other Misc. Revenue ($ 3,480) -$ 25 $ 65,075 $ 475 6.0% Subtotal Other Income $ 7,032 $ 51 $ 75,350 $ 550 6.9% Effective Gross Income $ 648,140 $ 4,731 $ 968,133 $ 7,067 100.0% Operating Expenses Taxes $ 28,156 $ 206 $ 26,030 $ 190 2.7% Insurance $ 18,396 $ 134 $ 18,495 $ 135 1.9% Utilities $ 143,860 $ 1,050 $ 109,600 $ 800 11.3% Repair & Maintenance $ 37,324 $ 272 $ 30,140 $ 220 3.1% Cleaning $ 20,416 $ 149 $ 10,275 $ 75 1.1% Landscaping $ 512 $ 4 $ 17,125 $ 125 1.8% Security $ 0 $ 0 $ 0 $ 0 0.0% Marketing & Leasing $ 53,496 $ 390 $ 45,210 $ 330 4.7% General Administrative $ 90,580 $ 661 $ 116,450 $ 850 12.0% Management $ 34,476 $ 252 $ 48,407 $ 353 5.0% Miscellaneous $ 3,320 $ 24 $ 2,740 $ 20 0.3% Total Operating Expenses $ 430,536 $ 3,143 $ 424,472 $ 3,098 43.8% Reserves $ 0 $ 0 $ 27,400 $ 200 6.5% Net Income $ 217,604 $ 1,588 $ 516,262 $ 3,768 53.3%
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 18% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 30 VILLAGE EAST, UNINCORPORATED AREA OF EL PASO 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. SALES COMPARISON APPROACH PAGE 31 VILLAGE EAST, UNINCORPORATED AREA OF EL PASO COUNTY, COLORADO SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR - -------------------------------------------------------------------- I-1 Jun-02 94% $85,514 8.28% I-2 Apr-02 90% $51,667 7.40% I-3 Jan-03 95% $41,282 9.49% I-4 Jul-01 93% $48,611 7.77% I-5 Dec-01 90% $71,404 8.20% ==================================================================== High 9.49% Low 7.40% Average 8.23% ====================================================================
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 12.50%. HOLDING PERIOD The survey of investors indicates that most investors are completing either 10-year cash flows or extending the analysis to the end of the lease if it is more than 10-years. A 10-year period has been used in the analysis of the subject with the eleventh year stabilized NOI used to determine the reversion. SELLING COSTS Sales of similar size properties are typically accomplished with the aid of a broker and will also incur legal and other transaction related cost. Based on our survey of brokers and a review of institutional investor projections, an allowance of 2.00% of the sale amount is applied. DISCOUNTED CASH FLOW CONCLUSION Discounting the annual cash flows and the equity reversion at the selected rate of 12.50% indicates a value of $4,600,000. In this instance, the reversion figure contributes AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 32 VILLAGE EAST, UNINCORPORATED AREA OF EL PASO COUNTY, COLORADO approximately 42% of the total value. Investors surveyed for this assignment indicated they would prefer to have the cash flow contribute anywhere from 50% to 60%. Overall, the blend seems reasonable. The cash flow and pricing matrix are located on the following pages. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 33 VILLAGE EAST, UNINCORPORATED AREA OF EL PASO COUNTY, COLORADO DISCOUNTED CASH FLOW ANALYSIS
VILLAGE EAST - ------------------------------------------------------------------------------------------------------------------------------ YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 FISCAL YEAR 1 2 3 4 5 6 - ------------------------------------------------------------------------------------------------------------------------------ REVENUE Base Rent $ 1,088,760 $ 1,088,760 $ 1,099,648 $ 1,132,637 $ 1,166,616 $ 1,201,615 Vacancy $ 338,880 $ 210,875 $ 142,954 $ 147,243 $ 151,660 $ 156,210 Credit Loss $ 54,438 $ 54,438 $ 54,982 $ 56,632 $ 58,331 $ 60,081 Concessions $ 169,332 $ 169,332 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------------------------------- Subtotal $ 562,650 $ 434,645 $ 197,937 $ 203,875 $ 209,991 $ 216,291 Laundry Income $ 5,480 $ 5,480 $ 5,535 $ 5,701 $ 5,872 $ 6,048 Garage Revenue $ 4,795 $ 4,795 $ 4,843 $ 4,988 $ 5,138 $ 5,292 Other Misc. Revenue $ 65,075 $ 65,075 $ 65,726 $ 67,698 $ 69,728 $ 71,820 -------------------------------------------------------------------------------------- Subtotal Other Income $ 75,350 $ 75,350 $ 76,104 $ 78,387 $ 80,738 $ 83,160 -------------------------------------------------------------------------------------- EFFECTIVE GROSS INCOME $ 601,460 $ 729,465 $ 977,815 $ 1,007,149 $ 1,037,363 $ 1,068,484 OPERATING EXPENSES: Taxes $ 26,030 $ 26,811 $ 27,615 $ 28,444 $ 29,297 $ 30,176 Insurance $ 18,495 $ 19,050 $ 19,621 $ 20,210 $ 20,816 $ 21,441 Utilities $ 109,600 $ 112,888 $ 116,275 $ 119,763 $ 123,356 $ 127,056 Repair & Maintenance $ 30,140 $ 31,044 $ 31,976 $ 32,935 $ 33,923 $ 34,941 Cleaning $ 10,275 $ 10,583 $ 10,901 $ 11,228 $ 11,565 $ 11,912 Landscaping $ 17,125 $ 17,639 $ 18,168 $ 18,713 $ 19,274 $ 19,853 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 45,210 $ 46,566 $ 47,963 $ 49,402 $ 50,884 $ 52,411 General Administrative $ 116,450 $ 119,944 $ 123,542 $ 127,248 $ 131,066 $ 134,997 Management $ 30,073 $ 36,473 $ 48,891 $ 50,357 $ 51,868 $ 53,424 Miscellaneous $ 2,740 $ 2,822 $ 2,907 $ 2,994 $ 3,084 $ 3,176 -------------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $ 406,138 $ 423,820 $ 447,858 $ 461,294 $ 475,133 $ 489,387 Reserves $ 27,400 $ 28,222 $ 29,069 $ 29,941 $ 30,839 $ 31,764 -------------------------------------------------------------------------------------- NET OPERATING INCOME $ 167,922 $ 277,423 $ 500,888 $ 515,914 $ 531,392 $ 547,334 Operating Expense Ratio (% of EGI) 67.5% 58.1% 45.8% 45.8% 45.8% 45.8% Operating Expense Per Unit $ 2,965 $ 3,094 $ 3,269 $ 3,367 $ 3,468 $ 3,572 VILLAGE EAST - ----------------------------------------------------------------------------------------------------------- YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 7 8 9 10 11 - ----------------------------------------------------------------------------------------------------------- REVENUE Base Rent $ 1,237,663 $1,274,793 $1,313,037 $1,352,428 $1,393,001 Vacancy $ 160,896 $ 165,723 $ 170,695 $ 175,816 $ 181,090 Credit Loss $ 61,883 $ 63,740 $ 65,652 $ 67,621 $ 69,650 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------- Subtotal $ 222,779 $ 229,463 $ 236,347 $ 243,437 $ 250,740 Laundry Income $ 6,229 $ 6,416 $ 6,609 $ 6,807 $ 7,011 Garage Revenue $ 5,451 $ 5,614 $ 5,783 $ 5,956 $ 6,135 Other Misc. Revenue $ 73,975 $ 76,194 $ 78,480 $ 80,834 $ 83,259 ------------------------------------------------------------------- Subtotal Other Income $ 85,655 $ 88,225 $ 90,872 $ 93,598 $ 96,406 ------------------------------------------------------------------- EFFECTIVE GROSS INCOME $ 1,100,539 $1,133,555 $1,167,562 $1,202,589 $1,238,666 OPERATING EXPENSES: Taxes $ 31,081 $ 32,014 $ 32,974 $ 33,963 $ 34,982 Insurance $ 22,084 $ 22,747 $ 23,429 $ 24,132 $ 24,856 Utilities $ 130,868 $ 134,794 $ 138,838 $ 143,003 $ 147,293 Repair & Maintenance $ 35,989 $ 37,068 $ 38,180 $ 39,326 $ 40,506 Cleaning $ 12,269 $ 12,637 $ 13,016 $ 13,407 $ 13,809 Landscaping $ 20,448 $ 21,062 $ 21,693 $ 22,344 $ 23,015 Security $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 53,983 $ 55,603 $ 57,271 $ 58,989 $ 60,758 General Administrative $ 139,047 $ 143,219 $ 147,515 $ 151,941 $ 156,499 Management $ 55,027 $ 56,678 $ 58,378 $ 60,129 $ 61,933 Miscellaneous $ 3,272 $ 3,370 $ 3,471 $ 3,575 $ 3,682 ------------------------------------------------------------------- TOTAL OPERATING EXPENSES $ 504,068 $ 519,190 $ 534,766 $ 550,809 $ 567,333 Reserves $ 32,717 $ 33,699 $ 34,710 $ 35,751 $ 36,823 ------------------------------------------------------------------- NET OPERATING INCOME $ 563,754 $ 580,666 $ 598,086 $ 616,029 $ 634,510 Operating Expense Ratio (% of EGI) 45.8% 45.8% 45.8% 45.8% 45.8% Operating Expense Per Unit $ 3,679 $ 3,790 $ 3,903 $ 4,021 $ 4,141
"DCF" VALUE ANALYSIS -------------------- Gross Residual Sale Price $6,345,097 Deferred Maintenance $ 0 Estimated Stabilized NOI $516,262 Sales Expense Rate 2.00% Less: Sales Expense $ 126,902 Add: Excess Land $ 0 ---------- Months to Stabilized 24 Discount Rate 12.50% Net Residual Sale Price $6,218,195 Other Adjustments $ 0 ---------- Stabilized Occupancy 87.0% Terminal Cap Rate 10.00% PV of Reversion $1,914,869 Value Indicated By "DCF" $4,566,157 Add: NPV of NOI $2,651,288 Rounded $4,600,000 ---------- PV Total $4,566,157
"DCF" VALUE SENSITIVITY TABLE - ------------------------------------------------------------------------------------- DISCOUNT RATE TOTAL VALUE ------------------------------------------------------------------ 12.00% 12.25% 12.50% 12.75% 13.00% - ------------------------------------------------------------------------------------- 9.50% $4,827,735 $4,746,459 $4,666,940 $4,589,132 $4,512,995 ------------------------------------------------------------------ 9.75% $4,773,698 $4,693,613 $4,615,256 $4,538,584 $4,463,554 ------------------------------------------------------------------ TERMINAL CAP RATE 10.00% $4,722,362 $4,643,410 $4,566,157 $4,490,562 $4,416,584 ------------------------------------------------------------------ 10.25% $4,673,531 $4,595,655 $4,519,453 $4,444,884 $4,371,906 10.50% $4,627,024 $4,550,174 $4,474,973 $4,401,380 $4,329,355
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 34 VILLAGE EAST, UNINCORPORATED AREA OF EL PASO COUNTY, COLORADO INCOME LOSS DURING LEASE-UP The subject is currently 63% occupied, below our stabilized occupancy projection. We have estimated a 24-month lease-up period. An adjustment must be made to bring the subject to a stabilized operating level. To account for this income loss during lease-up, we have compared the current DCF analysis to an "as stabilized" DCF analysis assuming the subject's occupancy were stabilized. The difference in net operating income during the lease-up period is discounted to a present value figure of $219,000 as shown in the following table.
DESCRIPTION YEAR 1 YEAR 2 - ------------------------------------------------------- "As Is" Net Operating Income $167,922 $277,423 Stabilized Net Operating Income $355,396 $343,292 ------------------- Difference $187,474 $ 65,869 PV of Income Loss During Lease-Up $218,688 - ------------------------------------------------------- Rounded $219,000 --------
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 $284,000 (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 VILLAGE EAST, UNINCORPORATED AREA OF EL PASO COUNTY, 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 VILLAGE EAST, UNINCORPORATED AREA OF EL PASO COUNTY, COLORADO
VILLAGE EAST ------------ TOTAL PER SQ. FT. PER UNIT %OF EGI - ------------------------------------------------------------------------------------------------- REVENUE Base Rent $1,088,760 $ 10.56 $ 7,947 Less: Vacancy & Collection Loss 18.00% $ 195,977 $ 1.90 $ 1,430 Plus: Other Income Laundry Income $ 5,480 $ 0.05 $ 40 0.57% Garage Revenue $ 4,795 $ 0.05 $ 35 0.50% Other Misc. Revenue $ 65,075 $ 0.63 $ 475 6.72% -------------------------------------------- Subtotal Other Income $ 75,350 $ 0.73 $ 550 7.78% EFFECTIVE GROSS INCOME $ 968,133 $ 9.39 $ 7,067 OPERATING EXPENSES: Taxes $ 26,030 $ 0.25 $ 190 2.69% Insurance $ 18,495 $ 0.18 $ 135 1.91% Utilities $ 109,600 $ 1.06 $ 800 11.32% Repair & Maintenance $ 30,140 $ 0.29 $ 220 3.11% Cleaning $ 10,275 $ 0.10 $ 75 1.06% Landscaping $ 17,125 $ 0.17 $ 125 1.77% Security $ 0 $ 0.00 $ 0 0.00% Marketing & Leasing $ 45,210 $ 0.44 $ 330 4.67% General Administrative $ 116,450 $ 1.13 $ 850 12.03% Management 5.00% $ 48,407 $ 0.47 $ 353 5.00% Miscellaneous $ 2,740 $ 0.03 $ 20 0.28% TOTAL OPERATING EXPENSES $ 424,472 $ 4.12 $ 3,098 43.84% Reserves $ 27,400 $ 0.27 $ 200 2.83% -------------------------------------------- NET OPERATING INCOME $ 516,262 $ 5.01 $ 3,768 53.33% - ------------------------------------------------------------------------------------------------ "GOING IN" CAPITALIZATION RATE 9.50% VALUE INDICATION $5,434,332 $ 52.71 $ 39,667 LESS: LEASE-UP COST ($ 219,000) PV OF CONCESSIONS ($ 284,000) "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $4,931,332 ROUNDED $4,900,000 $47.53 $ 35,766
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 37 VILLAGE EAST, UNINCORPORATED AREA OF EL PASO COUNTY, COLORADO
DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE - ------------------------------------------------------ CAP RATE VALUE ROUNDED $/UNIT $/SF - ------------------------------------------------------ 8.75% $5,397,132 $5,400,000 $39,416 $52.38 9.00% $5,233,239 $5,200,000 $37,956 $50.44 9.25% $5,078,206 $5,100,000 $37,226 $49.47 9.50% $4,931,332 $4,900,000 $35,766 $47.53 9.75% $4,791,990 $4,800,000 $35,036 $46.56 10.00% $4,659,615 $4,700,000 $34,307 $45.59 10.25% $4,533,698 $4,500,000 $32,847 $43.65
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $4,900,000. CORRELATION AND CONCLUSION BY THE INCOME APPROACH The two methods used to estimate the market value of the subject property by the income approach resulted in the following indications of value: Discounted Cash Flow Analysis $4,600,000 Direct Capitalization Method $4,900,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $4,800,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 38 VILLAGE EAST, UNINCORPORATED AREA OF EL PASO 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 $5,400,000 Income Approach $4,800,000 Reconciled Value $5,000,000
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 15, 2003 the market value of the fee simple estate in the property is: $5,000,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA VILLAGE EAST, UNINCORPORATED AREA OF EL PASO COUNTY, COLORADO ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A VILLAGE EAST, UNINCORPORATED AREA OF EL PASO COUNTY, COLORADO EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A VILLAGE EAST, UNINCORPORATED AREA OF EL PASO COUNTY, COLORADO SUBJECT PHOTOGRAPHS [EXTERIOR - ENTRANCE PICTURE] [EXTERIOR - LANDSCAPE PICTURE] [EXTERIOR - PLAYGROUND PICTURE] [INTERIOR - APARTMENT UNIT PICTURE] [INTERIOR - APARTMENT UNIT PICTURE] [INTERIOR - APARTMENT UNIT PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A VILLAGE EAST, UNINCORPORATED AREA OF EL PASO COUNTY, COLORADO SUBJECT PHOTOGRAPHS [INTERIOR - APARTMENT UNIT PICTURE] [INTERIOR - APARTMENT UNIT PICTURE] [EXTERIOR - APARTMENT BUILDING PICTURE] [EXTERIOR - APARTMENT BUILDING PICTURE] [EXTERIOR - PARKING LOT PICTURE] [EXTERIOR - POOL AREA PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B VILLAGE EAST, UNINCORPORATED AREA OF EL PASO COUNTY, COLORADO EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B VILLAGE EAST, UNINCORPORATED AREA OF EL PASO COUNTY, COLORADO PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 CHEYENNE CREEK PARK MEADOWS CEDAR CREST 115 West Cheyenne Road 970 Mount Werner Circle 2010 Carmel Drive Colorado Springs, Colorado Colorado Springs, Colorado Colorado Springs, Colorado [PICTURE] [PICTURE] [PICTURE] COMPARABLE I-4 COMPARABLE I-5 COLONY HILLS WINDTREE APARTMENTS 3950 Patrick Drive 2530 Paragon Drive Colorado Springs, Colorado Colorado Springs, Colorado [PICTURE] [PICTURE]
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B VILLAGE EAST, UNINCORPORATED AREA OF EL PASO COUNTY, COLORADO - -------------------------------------------------------------------------------- SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 - ------------------------------------------------------------------------------------------------------------------------------------ Property Name Village East Dove Tree Management Company AIMCO Sevo Miller - ------------------------------------------------------------------------------------------------------------------------------------ LOCATION: - ------------------------------------------------------------------------------------------------------------------------------------ Address 781 Hathaway Drive 255 Lionstone Drive City, State Unincorporated area of El Paso Colorado Springs, Colorado County, Colorado County El Paso County El Paso County Proximity to Subject Approx. 2 miles west of subject - ------------------------------------------------------------------------------------------------------------------------------------ PHYSICAL CHARACTERISTICS: - ------------------------------------------------------------------------------------------------------------------------------------ Net Rentable Area (SF) 103,095 Year Built 1973 1980 Effective Age 23 20 Building Structure Type Parking Type (Gr., Cov., etc.) Garage, Open Covered Open - ------------------------------------------------------------------------------------------------------------------------------------ Number of Units 137 N/A - ------------------------------------------------------------------------------------------------------------------------------------ Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1Bd/1Ba 610 40 $526 1 1Bd/1Ba 540 $525 2 2Bd/1Ba 810 72 $639 1 1Bd/1Ba 720 $600 3 2Bd/1.5Ba Loft 815 25 $732 3 2Bd/2Ba 970 $720 - ------------------------------------------------------------------------------------------------------------------------------------ Average Unit Size (SF) 753 Unit Breakdown: Efficiency 2-Bedroom Efficiency 2-Bedroom 1-Bedroom 3-Bedroom 1-Bedroom 3-Bedroom CONDITION: Average Good APPEAL: Average Good - ------------------------------------------------------------------------------------------------------------------------------------ AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling Balcony X Balcony Fireplace X Fireplace 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 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 Business Office Jogging Track Business Office Gym Room X Gym Room - ------------------------------------------------------------------------------------------------------------------------------------ OCCUPANCY: 63% 88% LEASING DATA: Available Leasing Terms 6-12 month lease 6-12 month leases Concessions 1 month free $1 move-in, $100 off each month Pet Deposit $250 $400 for dog and $10/month pet rent Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas ----------------------------------------------------------------------------------------------- X Water X Trash Water Trash Confirmation Property manager Leasing Agent Telephone Number 719-574-1672 NOTES: - ------------------------------------------------------------------------------------------------------------------------------------ COMPARISON TO SUBJECT: Similar - ------------------------------------------------------------------------------------------------------------------------------------ DESCRIPTION COMPARABLE COMPARABLE R - 2 R - 3 - ------------------------------------------------------------------------------------------------------------------------------------ Property Name Pine Creek Village Western Hills Management Company - ------------------------------------------------------------------------------------------------------------------------------------ LOCATION: - ------------------------------------------------------------------------------------------------------------------------------------ Address 720 Chapman Drive 810 Western Drive City, State Colorado Springs, Colorado Colorado Springs, Colorado County El Paso County El Paso County Proximity to Subject Approx. 3 miles southwest of subject Adjacent to the east subject - ------------------------------------------------------------------------------------------------------------------------------------ PHYSICAL CHARACTERISTICS: - ------------------------------------------------------------------------------------------------------------------------------------ Net Rentable Area (SF) Year Built 1973 1975 Effective Age 25 25 Building Structure Type Parking Type (Gr., Cov., etc.) Garage, Open Open - ------------------------------------------------------------------------------------------------------------------------------------ Number of Units 312 - ------------------------------------------------------------------------------------------------------------------------------------ Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1Bd/1Ba 762 $540 1 1Bd/1Ba 668 $699 3 2Bd/2Ba 960 $690 2 2Bd/1Ba 833 $769 3 2Bd/2Ba 916 $799 - ------------------------------------------------------------------------------------------------------------------------------------ Average Unit Size (SF) Unit Breakdown: Efficiency 2-Bedroom Efficiency 2-Bedroom 1-Bedroom 3-Bedroom 1-Bedroom 3-Bedroom CONDITION: Good APPEAL: Good - ------------------------------------------------------------------------------------------------------------------------------------ AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage X Vaulted Ceiling X Balcony X Balcony 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 Sand Volley Ball Meeting Hall 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 Gym Room X Gym Room - ------------------------------------------------------------------------------------------------------------------------------------ OCCUPANCY: 80% 85% LEASING DATA: Available Leasing Terms 6-12 month leases 6-12 month leases Concessions $150 off each month, $99 security deposit 1-2 months free Pet Deposit $300 w/ $20 per month 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 719-597-3239 719-570-7757 NOTES: W/D in unit - ------------------------------------------------------------------------------------------------------------------------------------ COMPARISON TO SUBJECT: Similar Similar - ------------------------------------------------------------------------------------------------------------------------------------ DESCRIPTION COMPARABLE COMPARABLE R - 4 R - 5 - ------------------------------------------------------------------------------------------------------------------------------------ Property Name Courtyard Estates Greentree Village Management Company Griffis/Blessing, Inc. - ------------------------------------------------------------------------------------------------------------------------------------ LOCATION: - ------------------------------------------------------------------------------------------------------------------------------------ Address 4370 East Pikes Peak Avenue 3562 North Carefree Circle City, State Colorado Springs, Colorado Colorado Springs, Colorado County El Paso County El Paso County Proximity to Subject Approx. 2 miles west of subject Approx. 5 miles northwest of subject - ------------------------------------------------------------------------------------------------------------------------------------ PHYSICAL CHARACTERISTICS: - ------------------------------------------------------------------------------------------------------------------------------------ Net Rentable Area (SF) Year Built 1975 1985 Effective Age 25 15 Building Structure Type Parking Type (Gr., Cov., etc.) Open Garages, open covered, open - ------------------------------------------------------------------------------------------------------------------------------------ Number of Units 176 214 - ------------------------------------------------------------------------------------------------------------------------------------ Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1Bd/1Ba 500 $480 2 2Bd/1Ba 918 $760 2 2Bd/1Ba 750 $605 2 2Bd/1Ba 863 $690 2 2Bd/1Ba 899 $745 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 Balcony X Balcony Fireplace X Fireplace X Cable TV Ready 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 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 X Laundry Room Jogging Track Business Office Jogging Track Business Office Gym Room X Gym Room - ------------------------------------------------------------------------------------------------------------------------------------ OCCUPANCY: 88% 94% LEASING DATA: Available Leasing Terms 6-12 month leases 6-12 Month leases Concessions $1 deposit, 1 month free, $120-200 off each month on select units $25-50 off each mo. Pet Deposit none $150 Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas Water Trash X Water X Trash Confirmation Leasing Agent Leasing agent Telephone Number 719-597-4949 719-597-3554 NOTES: - ------------------------------------------------------------------------------------------------------------------------------------ COMPARISON TO SUBJECT: Slightly Inferior Slightly Superior - ------------------------------------------------------------------------------------------------------------------------------------
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B VILLAGE EAST, UNINCORPORATED AREA OF EL PASO COUNTY, COLORADO PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 DOVE TREE PINE CREEK VILLAGE WESTERN HILLS 255 Lionstone Drive 720 Chapman Drive 810 Western Drive Colorado Springs, Colorado Colorado Springs, Colorado Colorado Springs, Colorado [PICTURE] [PICTURE] [PICTURE] COMPARABLE R-4 COMPARABLE R-5 COURTYARD ESTATES GREENTREE VILLAGE 4370 East Pikes Peak Avenue 3562 North Carefree Circle Colorado Springs, Colorado Colorado Springs, Colorado [PICTURE] [PICTURE]
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C VILLAGE EAST, UNINCORPORATED AREA OF EL PASO COUNTY, COLORADO EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C VILLAGE EAST, UNINCORPORATED AREA OF EL PASO 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 VILLAGE EAST, UNINCORPORATED AREA OF EL PASO 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 VILLAGE EAST, UNINCORPORATED AREA OF EL PASO 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 VILLAGE EAST, UNINCORPORATED AREA OF EL PASO 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 VILLAGE EAST, UNINCORPORATED AREA OF EL PASO COUNTY, COLORADO EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E VILLAGE EAST, UNINCORPORATED AREA OF EL PASO 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 AFFILIATIONS Appraisal Institute, MAI Designated Member AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E VILLAGE EAST, UNINCORPORATED AREA OF EL PASO 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. VILLAGE EAST, UNINCORPORATED AREA OF EL PASO COUNTY, COLORADO GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. VILLAGE EAST, UNINCORPORATED AREA OF EL PASO 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. -----END PRIVACY-ENHANCED MESSAGE-----