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.