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.