EX-99.(C)(1) 3 d07259a2exv99wxcyx1y.txt APPRAISAL OF BEXLEY HOUSE BEXLEY HOUSE 2877 EAST BROAD STREET COLUMBUS, OHIO MARKET VALUE - FEE SIMPLE ESTATE AS OF APRIL 30, 2003 PREPARED FOR: APARTMENT INVESTMENT AND MANAGEMENT COMPANY (AIMCO) C/O LINER YANKELEVITZ SUNSHINE & REGENSTREIF LLP & LIEFF CABRASER HEIMANN & BERNSTEIN ON BEHALF OF NUANES, ET. AL. [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LETTERHEAD] JUNE 30, 2003 Apartment Investment and Management Company ("AIMCO") c/o Mr. Steven A. Velkei, Esq. Liner Yankelevitz Sunshine & Regenstreif LLP 1100 Glendon Avenue, 14th Floor Los Angeles, California 90024-3503 Nuanes, et al.( "Plaintiffs ") c/o Ms. Joy Kruse Lieff Cabraser Heimann & Bernstein Embarcadero Center West 275 Battery Street, 30th Floor San Francisco, California 94111 RE: BEXLEY HOUSE 2877 EAST BROAD STREET COLUMBUS, FRANKLIN COUNTY, OHIO 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 64 units with a total of 72,154 square feet of rentable area. The improvements were built in 1972. The improvements are situated on 2.023 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 BEXLEY HOUSE, COLUMBUS, OHIO 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 April 30, 2003 is: ($4,400,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. -s- BRIAN JOHNSON ------------- June 30, 2003 Brian Johnson, MAI #053272 Managing Principal, Real Estate Group Report By: Richard Mupo AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 BEXLEY HOUSE, COLUMBUS, OHIO TABLE OF CONTENTS Cover Letter of Transmittal Table of Contents APPRAISAL DATA Executive Summary ............................................. 4 Introduction .................................................. 9 Area Analysis ................................................. 11 Market Analysis ............................................... 14 Site Analysis ................................................. 16 Improvement Analysis .......................................... 16 Highest and Best Use .......................................... 17 VALUATION Valuation Procedure ........................................... 18 Sales Comparison Approach ..................................... 20 Income Capitalization Approach ................................ 26 Reconciliation and Conclusion ................................. 37 ADDENDA Exhibit A - Photographs of Subject Property Exhibit B - Summary of Rent Comparables and Photograph of Comparables Exhibit C - Assumptions and Limiting Conditions Exhibit D - Certificate of Appraiser Exhibit E - Qualifications General Service Conditions
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 4 BEXLEY HOUSE, COLUMBUS, OHIO EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Bexley House LOCATION: 2877 East Broad Street Columbus, Ohio 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: April 30, 2003 DATE OF REPORT: June 30, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 2.023 acres, or 88,122 square feet Assessor Parcel No.: 090-005526-00 Floodplain: Community Panel No. 390168-260G (August 2, 1995) Flood Zone X, an area outside the floodplain. Zoning: PUR (Planned Unit Residential) BUILDING: No. of Units: 64 Units Total NRA: 72,154 Square Feet Average Unit Size: 1,127 Square Feet Apartment Density: 31.6 units per acre Year Built: 1972 UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
Market Rent Square ----------------------- Monthly Annual Unit Type Feet Per Unit Per SF Income Income =========================================================================================== 1Br/1Ba - 1A10 728 $ 839 $ 1.15 $ 15,102 $181,224 2Br/2Ba - 2A20 1,060 $ 1,039 $ 0.98 $ 8,312 $ 99,744 2Br/2Ba - 2B20 1,222 $ 1,179 $ 0.96 $ 28,296 $339,552 3Br/2Ba - 3A20 1,367 $ 1,289 $ 0.94 $ 7,734 $ 92,808 3B/2.5Ba- 3A25 1,630 $ 1,359 $ 0.83 $ 10,872 $130,464 ------------------------------------------------------------------------------------------- Total $ 70,316 $843,792 ===========================================================================================
OCCUPANCY: 82% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 12 Years REMAINING ECONOMIC LIFE: 33 Years AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 BEXLEY HOUSE, COLUMBUS, OHIO SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [EXTERIOR - VIEW FROM STREET PICTURE] [EXTERIOR - WEST BUILDING PICTURE] [AREA MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 BEXLEY HOUSE, COLUMBUS, OHIO [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 BEXLEY HOUSE, COLUMBUS, OHIO PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
Amount $/Unit ------ ------ DIRECT CAPITALIZATION Potential Rental Income $ 843,792 $13,184 Effective Gross Income $ 860,364 $13,443 Operating Expenses $ 442,058 $ 6,907 51.4% of EGI Net Operating Income: $ 399,106 $ 6,236 Capitalization Rate 9.50% DIRECT CAPITALIZATION VALUE $ 4,100,000 * $64,063 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 2% Stabilized Vacancy & Collection Loss: 6% Lease-up / Stabilization Period N/A Terminal Capitalization Rate 10.25% Discount Rate 11.50% Selling Costs 2.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $ 4,400,000 * $68,750 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $ 4,400,000 $68,750 / UNIT SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $39,162 to $65,972 Range of Sales $/Unit (Adjusted) $51,802 to $69,271 VALUE INDICATION - PRICE PER UNIT $ 4,200,000 * $65,625 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 5.51 to 6.96 Selected EGIM for Subject 5.75 Subject's Projected EGI $ 860,364 EGIM ANALYSIS CONCLUSION $ 4,900,000 * $76,563 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $ 4,400,000 * $68,750 / UNIT RECONCILED SALES COMPARISON VALUE $ 4,400,000 $68,750 / 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 BEXLEY HOUSE, COLUMBUS, OHIO PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $ 4,200,000 NOI Per Unit $ 4,400,000 EGIM Multiplier $ 4,900,000 INDICATED VALUE BY SALES COMPARISON $ 4,400,000 $68,750 / UNIT INCOME APPROACH: Direct Capitalization Method: $ 4,100,000 Discounted Cash Flow Method: $ 4,400,000 INDICATED VALUE BY THE INCOME APPROACH $ 4,400,000 $68,750 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $ 4,400,000 $68,750 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 BEXLEY HOUSE, COLUMBUS, OHIO INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 2877 East Broad Street, Columbus, Franklin County, Ohio. Columbus identifies it as 090-005526-00. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Richard Mupo on April 30, 2003. Brian Johnson, MAI has not made a personal inspection of the subject property. Richard Mupo performed the research, valuation analysis and wrote the report. Brian Johnson, MAI reviewed the report and concurs with the value. Brian Johnson, MAI and Richard Mupo 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 April 30, 2003. The date of the report is June 30, 2003. PURPOSE AND USE OF APPRAISAL The purpose of the appraisal is to estimate the market value of the fee simple interest in the subject property. It is understood that the appraisal is intended to assist the clients in litigation settlement proceedings. The appraisal was not based on a requested minimum valuation, a specific valuation, or the approval of a loan. PROPERTY RIGHTS APPRAISED We have appraised the Fee Simple Estate in the subject property (as applied in the Sales & Income Approaches), subject to the existing short-term leases. A Fee Simple Estate is AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 10 BEXLEY HOUSE, COLUMBUS, OHIO 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 Bexley House LP. 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 BEXLEY HOUSE, COLUMBUS, OHIO 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 Columbus, Ohio. 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 - St. James Road West - Parkview Avenue South - Main Street North - East Broad Street MAJOR EMPLOYERS Major employers in the subject's area include State of Ohio, Ohio State University, Federal Gov., Nationwide Insurance, and Bank One. 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 BEXLEY HOUSE, COLUMBUS, OHIO NEIGHBORHOOD DEMOGRAPHICS
AREA -------------------------------------------- CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA ================================================================================================================= POPULATION TRENDS Current Population 18,122 107,029 279,263 1,572,971 5-Year Population 17,960 102,856 270,631 1,660,843 % Change CY-5Y -0.9% -3.9% -3.1% 5.6% Annual Change CY-5Y -0.2% -0.8% -0.6% 1.1% HOUSEHOLDS Current Households 7,489 45,092 118,793 629,122 5-Year Projected Households 7,446 44,394 118,546 678,975 % Change CY - 5Y -0.6% -1.5% -0.2% 7.9% Annual Change CY-5Y -0.1% -0.3% 0.0% 1.6% INCOME TRENDS Median Household Income $35,289 $ 30,378 $ 30,225 $ 45,736 Per Capita Income $26,720 $ 19,390 $ 18,852 $ 24,105 Average Household Income $64,799 $ 45,792 $ 44,417 $ 60,267
Source: Demographics Now The subject neighborhood's population is expected to show increases below that of the region. The immediate market offers inferior income levels as compared to the broader market. The following table illustrates the housing statistics in the subject's immediate area, as well as the MSA region. HOUSING TRENDS
AREA -------------------------------------------- CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA ================================================================================================================= HOUSING TRENDS % of Households Renting 44.81% 44.15% 48.14% 35.12% 5-Year Projected % Renting 44.14% 43.86% 47.72% 34.33% % of Households Owning 45.46% 45.09% 41.69% 59.14% 5-Year Projected % Owning 46.30% 45.48% 42.27% 60.33%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 BEXLEY HOUSE, COLUMBUS, OHIO SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Multi-Family Residential South - Single-Family Residential East - Single-Family Residential West - Single-Family Residential CONCLUSIONS The subject is well located within the city of Columbus. 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 BEXLEY HOUSE, COLUMBUS, OHIO MARKET ANALYSIS The subject property is located in the city of Columbus in Franklin County. The overall pace of development in the subject's market is more or less stable. The pace of multi-family development was strong over the past several years and well into 2002. As a result, occupancy levels have dropped over the past several months. The following table illustrates historical occupancy rates for the subject's market. HISTORICAL OCCUPANCY
Period Region Submarket ======================================================================= Apr-03 91.5% 90.2% Oct-02 92.2% 90.2% Apr-02 93.2% 92.2% Oct-01 94.0% 93.5%
Source - Apartment Realty Advisors Midwest, Inc. Occupancy trends in the subject's market are decreasing. Historically speaking, the subject's submarket has underperformed the overall market. Occupancy has been on a general decline since early 2001 due to a weak and stagnant economy, increasing new development and declining absorption rates. New construction appears to have slowed and the market is likely to stabilize over the next 12 months. Rental concessions equal to one free month of rent are typical, and are likely to remain in place until the market recovers. The subject's submarket has slightly underperformed the overall market over the past few years due to competition from more desirable submarkets to the north. Occupancy for Class B properties tends to be higher than that of newer Class A product. Market rents in the subject's market have been following a stable trend. The following table illustrates historical rental rates for the subject's market. HISTORICAL AVERAGE RENT
Period Region % Change Submarket % Change =================================================================================== Apr-01 $610 - $546 - Apr-02 $620 1.6% $557 2.0% Apr-03 $630 1.6% $566 1.6%
Source - Apartment Realty Advisors Midwest, Inc. The following table illustrates a summary of the subject's competitive set. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 BEXLEY HOUSE, COLUMBUS, OHIO COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject ======================================================================================= R-1 Parkview Arms 103 100% 1966 - 1976 1 Mile to the Southwest R-2 Parkhill 137 95% 1990 2+ Miles to the Southeast R-3 The Meridian 480 95% 2000 2+ Miles to the West Subject Bexley House 64 82% 1972
Rents have shown very modest increases over the past two years. Net effective rents have actually declined slightly in recent months due to concessions being offered by most property managers. Rent growth will likely be minimal over the next twelve months but should rebound to pace inflation as the market recovers. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 BEXLEY HOUSE, COLUMBUS, OHIO PROPERTY DESCRIPTION SITE ANALYSIS Site Area 2.023 acres, or 88,122 square feet Shape Rectangular Topography Level Utilities All necessary utilities are available to the site. Soil Conditions Stable Easements Affecting Site None other than typical utility easements Overall Site Appeal Average Flood Zone: Community Panel 390168-260G, dated August 2, 1995 Flood Zone Zone X Zoning PUR, 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 ========================================================================================================== 090-005526-00 $164,680 $919,490 $1,084,170 0.08950 $97,032
IMPROVEMENT ANALYSIS Year Built 1972 Number of Units 64 Net Rentable Area 72,154 Square Feet Construction: Foundation Reinforced concrete slab Frame Reinforced concrete block Exterior Walls Brick or masonry Roof Built-up asphalt with or without gravel over a reinforced concrete beams structure Project Amenities Amenities at the subject include a laundry room, business office, and parking area. Unit Amenities Individual unit amenities include a 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 BEXLEY HOUSE, COLUMBUS, OHIO Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) ============================================================================== 1Br/1Ba - 1A10 18 728 2Br/2Ba - 2A20 8 1,060 2Br/2Ba - 2B20 24 1,222 3Br/2Ba - 3A20 6 1,367 3B/2.5Ba- 3A25 8 1,630
Overall Condition Average Effective Age 12 years Economic Life 45 years Remaining Economic Life 33 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 64-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 BEXLEY HOUSE, COLUMBUS, OHIO 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 BEXLEY HOUSE, COLUMBUS, OHIO 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 BEXLEY HOUSE, COLUMBUS, OHIO 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 BEXLEY HOUSE, COLUMBUS, OHIO SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 I - 3 ================================================================================================================================= Property Name Bexley House Shaker Square Apts River Oaks Woodside Place LOCATION: Address 2877 East Broad Street 280 Barkley Place West 2299 River Oaks Drive 3280 Tivoli Court City, State Columbus, Ohio Columbus, Ohio Columbus, Ohio Columbus, Ohio County Franklin Franklin Franklin Franklin PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 72,154 211,200 275,516 82,302 Year Built 1972 1970 1998 1986 Number of Units 64 194 288 112 Unit Mix: Type Total Type Total Type Total Type Total 1Br/1Ba - 1A10 18 2Br.1.5Ba 194 1Br/1Ba 144 1Br/1Ba 56 2Br/2Ba - 2A20 8 2Br/2Ba 114 2Br/1Ba 56 2Br/2Ba - 2B20 24 3Br/2Ba 30 3Br/2Ba - 3A20 6 3B/2.5Ba-3A25 8 Average Unit Size (SF) 1,127 1,089 957 735 Land Area (Acre) 2.0230 12.5900 24.3360 7.6800 Density (Units/Acre) 31.6 15.4 11.8 14.6 Parking Ratio (Spaces/Unit) 1.39 1.18 2.10 1.50 Parking Type (Gr., Cov., etc.) Open Covered Open, Covered Open, Covered, Garage Open, Garage CONDITION: Average Average Good Average APPEAL: Good Average Good Average AMENITIES: Pool/Spa No/No Yes/No Yes/No No/No Gym Room No No No No Laundry Room Yes No No Yes Secured Parking No No No No Sport Courts No No No No Washer/Dryer Connection Yes Yes Yes Yes Clubhouse Clubhouse OCCUPANCY: 82% 95% 95% 95% TRANSACTION DATA: Sale Date September, 2002 March, 2003 April, 2002 Sale Price ($) $7,597,500 $19,000,000 $4,445,000 Grantor Square Shaker LP River Oaks Investors LLC Woodside Place Ltd. Grantee Everest Shaker Square LP Bronx River Oaks LLC Woodeside/Core LLC Sale Documentation Doc. #200209300243330 Doc. #200303280089789 Doc. #200204090090064 Verification Buyer Seller Buyer Telephone Number (614) 866-8872 (614) 792-2770 (614) 221-1857 ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $1,451,880 $7,484 $6.87 $2,871,828 $9,972 $10.42 $777,840 $6,945 $9.45 Vacancy/Credit Loss $ 72,594 $ 374 $0.34 $ 143,591 $ 499 $ 0.52 $ 38,893 $ 347 $0.47 Effective Gross Income $1,379,286 $7,110 $6.53 $2,728,237 $9,473 $ 9.90 $738,947 $6,598 $8.98 Operating Expenses $ 514,477 $2,652 $2.44 $1,094,400 $3,800 $ 3.97 $328,788 $2,936 $3.99 Net Operating Income $ 864,809 $4,458 $4.09 $1,633,837 $5,673 $ 5.93 $410,159 $3,662 $4.98 NOTES: None None None PRICE PER UNIT $39,162 $65,972 $39,688 PRICE PER SQUARE FOOT $ 35.97 $ 68.96 $ 54.01 EXPENSE RATIO 37.3% 40.1% 44.5% EGIM 5.51 6.96 6.02 OVERALL CAP RATE 11.38% 8.60% 9.23% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA PRO FORMA
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 BEXLEY HOUSE, COLUMBUS, OHIO IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $39,162 to $65,972 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 $51,802 to $69,271 per unit with a mean or average adjusted price of $60,797 per unit. The median adjusted price is $61,317 per unit. Based on the following analysis, we have concluded to a value of $67,000 per unit, which results in an "as is" value of $4,200,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 BEXLEY HOUSE, COLUMBUS, OHIO SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 I - 3 ============================================================================================================================== Property Name Bexley House Shaker Square Apts River Oaks Woodside Place Address 2877 East Broad Street 280 Barkley Place West 2299 River Oaks Drive 3280 Tivoli Court City Columbus, Ohio Columbus, Ohio Columbus, Ohio Columbus, Ohio Sale Date September, 2002 March, 2003 April, 2002 Sale Price ($) $7,597,500 $19,000,000 $4,445,000 Net Rentable Area (SF) 72,154 211,200 275,516 82,302 Number of Units 64 194 288 112 Price Per Unit $39,162 $65,972 $39,688 Year Built 1972 1970 1998 1986 Land Area (Acre) 2.0230 12.5900 24.3360 7.6800 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) 09-2002 2% 03-2003 0% 04-2002 3% VALUE AFTER TRANS. ADJUST. ($/UNIT) $39,848 $65,972 $40,878 Location Comparable 0% Inferior 5% Inferior 10% Number of Units 64 194 10% 288 10% 112 5% Quality / Appeal Good Inferior 20% Comparable 0% Inferior 10% Age / Condition 1972 1970 / Average 0% 1998 / Good -10 1986 / Average 0% Occupancy at Sale 82% 95% 0% 95% 0% 95% 0% Amenities Good Comparable 0% Superior -5% Inferior 10% Average Unit Size (SF) 1,127 1,089 0% 957 5% 735 15% PHYSICAL ADJUSTMENT 30% 5% 50% FINAL ADJUSTED VALUE ($/UNIT) $51,802 $69,271 $61,317
SUMMARY VALUE RANGE (PER UNIT) $ 51,802 TO $69,271 MEAN (PER UNIT) $60,797 MEDIAN (PER UNIT) $61,317 VALUE CONCLUSION (PER UNIT) $67,000
VALUE OF IMPROVEMENT & MAIN SITE $4,288,000 PV OF CONCESSIONS -$ 61,000 VALUE INDICATED BY SALES COMPARISON APPROACH $4,227,000 ROUNDED $4,200,000
NET OPERATING INCOME (NOI) ANALYSIS We have also conducted a net operating income (NOI) comparison analysis. The NOI effectively takes into account the various physical, location, and operating aspects of the sale. When the subject's NOI is compared to the sale NOI, a percent adjustment can be arrived at. The following table illustrates this analysis. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 24 BEXLEY HOUSE, COLUMBUS, OHIO 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-1 194 $ 7,597,500 11.38% $ 864,809 $399,106 1.399 $54,785 $ 39,162 $ 4,458 $ 6,236 I-2 288 $19,000,000 8.60% $1,633,837 $399,106 1.099 $72,519 $ 65,972 $ 5,673 $ 6,236 I-3 112 $ 4,445,000 9.23% $ 410,159 $399,106 1.703 $67,582 $ 39,688 $ 3,662 $ 6,236
PRICE/UNIT VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT =========================================================================================================== Low High Average Median Estimated Price Per Unit $ 70,000 Number of Units 64 $54,785 $72,519 $64,962 $67,582 Value $4,480,000 PV of Concessions -$ 61,000 Value Based on NOI Analysis $4,419,000 Rounded $4,400,000
The adjusted sales indicate a range of value between $54,785 and $72,519 per unit, with an average of $64,962 per unit. Based on the subject's competitive position within the improved sales, a value of $70,000 per unit is estimated. This indicates an "as is" market value of $4,400,000 (rounded after necessary adjustment, if any) for the NOI Per Unit Analysis. EFFECTIVE GROSS INCOME MULTIPLIER (EGIM) ANALYSIS The effective gross income multiplier (EGIM) is derived by dividing the sales price by the total effective gross income. The following table illustrates the EGIMs for the comparable improved sales. EFFECTIVE GROSS INCOME MULTIPLIER COMPARISON
SALE PRICE COMPARABLE NO. OF ========== EFFECTIVE OPERATING SUBJECT NO. UNITS PRICE/UNIT GROSS INCOME EXPENSE OER PROJECTED OER EGIM ----------------------------------------------------------------------------------------------------- I-1 194 $ 7,597,500 $1,379,286 $ 514,477 37.30% 5.51 $ 39,162 I-2 288 $19,000,000 $2,728,237 $1,094,400 40.11% 51.38% 6.96 $ 65,972 I-3 112 $ 4,445,000 $ 738,947 $ 328,788 44.49% 6.02 $ 39,688
EGIM VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES =================================================================================================================== Low High Average Median Estimate EGIM 5.75 Subject EGI $ 860,364 5.51 6.96 6.16 6.02 Value $4,947,096 PV of Concessions -$ 61,000 ----------- Value Based on EGIM Analysis $4,886,096 Rounded $4,900,000 Value Per Unit $ 76,563
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 25 BEXLEY HOUSE, COLUMBUS, OHIO 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 51.38% before reserves. The comparable sales indicate a range of expense ratios from 37.30% to 44.49%, while their EGIMs range from 5.51 to 6.96. Overall, we conclude to an EGIM of 5.75, which results in an "as is" value estimate in the EGIM Analysis of $4,900,000. SALES COMPARISON CONCLUSION The three valuation methods in the Sales Comparison Approach are shown below. The overall value via the Sales Comparison Approach is estimated at $4,400,000. Price Per Unit $4,200,000 NOI Per Unit $4,400,000 EGIM Analysis $4,900,000 Sales Comparison Conclusion $4,400,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 BEXLEY HOUSE, COLUMBUS, OHIO 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 BEXLEY HOUSE, COLUMBUS, OHIO method is normally more appropriate for properties with relatively stable operating histories and expectations. A pro forma analysis for the first year of the investment is made to estimate a reasonable potential net operating income for the Subject Property. Such an analysis entails an estimate of the gross income the property should command in the marketplace. From this total gross income must be deducted an allowance for vacancy/collection loss and operating expenses as dictated by general market conditions and the overall character of the subject's tenancy and leased income to arrive at a projected estimate of net operating income. Conversion of the net operating income to an indication of value is accomplished by the process of capitalization, as derived primarily from market data. MARKET RENT ANALYSIS In order to determine a market rental rate for the subject, a survey of competing apartment communities was performed. This survey was displayed previously in the market analysis section of the report. Detailed information pertaining to each of the comparable rental communities, along with photographs, is presented in the Addenda of this report. The following charts display the subject's current asking and actual rent rates as well as a comparison with the previous referenced comparable rental properties. SUMMARY OF ACTUAL AVERAGE RENTS
Average Unit Area ------------------ Unit Type (Sq. Ft.) Per Unit Per SF %Occupied ========================================================================= 1Br/1Ba - 1A10 728 $745 $1.02 90.0% 2Br/2Ba - 2A20 1060 $750 $0.71 8.0% 2Br/2Ba - 2B20 1222 $810 $0.66 93.0% 3Br/2Ba - 3A20 1367 $955 $0.70 100.0% 3B/2.5Ba- 3A25 1630 $920 $0.56 91.0%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 BEXLEY HOUSE, COLUMBUS, OHIO RENT ANALYSIS
COMPARABLE RENTS ------------------------------------- R-1 R-2 R-3 ------------------------------------- Parkview The Arms Parkhill Meridian ------------------------------------- SUBJECT SUBJECT COMPARISON TO SUBJECT SUBJECT UNIT ACTUAL ASKING ------------------------------------- DESCRIPTION TYPE RENT RENT Slightly Inferior Superior Superior MIN MAX MEDIAN AVERAGE ==================================================================================================================================== Monthly Rent 1BR/1BA - 1A10 $ 745 $ 909 $ 695 $ 878 $ 695 $ 878 $ 786 $ 786 Unit Area (SF) 728 728 819 760 760 819 789 789 Monthly Rent Per Sq. Ft. $ 1.02 $ 1.25 $ 0.85 $ 1.16 $ 0.85 $ 1.16 $ 1.00 $ 1.00 Monthly Rent 2BR/2BA - 2A20 $ 750 $ 1,049 $ 1,010 $1,010 $1,010 $ 1,010 $ 1,010 Unit Area (SF) 1,060 1,060 1,022 1,022 1,022 1,022 1,022 Monthly Rent Per Sq. Ft. $ 0.71 $ 0.99 $ 0.99 $ 0.99 $ 0.99 $ 0.99 $ 0.99 Monthly Rent 2BR/2BA - 2B20 $ 810 $ 1,199 $ 885 $ 1,245 $ 1,185 $ 885 $1,245 $ 1,185 $ 1,105 Unit Area (SF) 1,222 1,222 1,152 1,483 1,164 1,152 1,483 1,164 1,266 Monthly Rent Per Sq. Ft. $ 0.66 $ 0.98 $ 0.77 $ 0.84 $ 1.02 $ 0.77 $ 1.02 $ 0.84 $0.88 Monthly Rent 3BR/2BA - 3A20 $ 955 $ 1,299 $ 1,450 $1,450 $1,450 $ 1,450 $ 1,450 Unit Area (SF) 1,367 1,367 1,273 1,273 1,273 1,273 1,273 Monthly Rent Per Sq. Ft. $ 0.70 $ 0.95 $ 1.14 $ 1.14 $ 1.14 $ 1.14 $ 1.14 Monthly Rent 3B/2.5BA - 3A2 $ 920 $ 1,399 $ 1,345 $1,345 $1,345 $ 1,345 $ 1,345 Unit Area (SF) 1,630 1,630 1,699 1,699 1,699 1,699 1,699 Monthly Rent Per Sq. Ft. $ 0.56 $ 0.86 $ 0.79 $ 0.79 $ 0.79 $ 0.79 $ 0.79
CONCLUDED MARKET RENTAL RATES AND TERMS Based on this analysis above, the subject's concluded market rental rates and gross rental income is calculated as follows: GROSS RENTAL INCOME PROJECTION
Market Rent Unit Area ---------------- Monthly Annual Unit Type Number of Units (Sq. Ft.) Per Unit Per SF Income Income =============================================================================================== 1Br/1Ba - 1A10 18 728 $ 839 $1.15 $15,102 $181,224 2Br/2Ba - 2A20 8 1,060 $1,039 $0.98 $ 8,312 $ 99,744 2Br/2Ba - 2B20 24 1,222 $1,179 $0.96 $28,296 $339,552 3Br/2Ba - 3A20 6 1,367 $1,289 $0.94 $ 7,734 $ 92,808 3B/2.5Ba- 3A25 8 1,630 $1,359 $0.83 $10,872 $130,464 Total $70,316 $843,792
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 BEXLEY HOUSE, COLUMBUS, OHIO 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 $810,347 $ 12,662 $686,106 $ 10,720 $810,008 $ 12,656 $836,004 $ 13,063 Vacancy $ 40,100 $ 627 $ 54,849 $ 857 $ 10,002 $ 156 $ 12,400 $ 194 Credit Loss/Concessions $ 2,243 $ 35 $ 15,815 $ 247 $ 2,550 $ 40 $ 10,687 $ 167 ------------------------------------------------------------------------------ Subtotal $ 42,343 $ 662 $ 70,664 $ 1,104 $ 12,552 $ 196 $ 23,087 $ 361 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 68,716 $ 1,074 $ 64,575 $ 1,009 $ 79,710 $ 1,245 $ 83,516 $ 1,305 ------------------------------------------------------------------------------ Subtotal Other Income $ 68,716 $ 1,074 $ 64,575 $ 1,009 $ 79,710 $ 1,245 $ 83,516 $ 1,305 ------------------------------------------------------------------------------ Effective Gross Income $836,720 $ 13,074 $680,017 $ 10,625 $877,166 $ 13,706 $896,433 $ 14,007 Operating Expenses Taxes $ 77,095 $ 1,205 $ 89,090 $ 1,392 $107,115 $ 1,674 $110,322 $ 1,724 Insurance $ 9,891 $ 155 $ 9,528 $ 149 $ 13,381 $ 209 $ 14,921 $ 233 Utilities $ 61,556 $ 962 $ 77,248 $ 1,207 $ 84,692 $ 1,323 $ 84,610 $ 1,322 Repair & Maintenance $ 21,605 $ 338 $ 18,624 $ 291 $ 13,289 $ 208 $ 15,773 $ 246 Cleaning $ 26,633 $ 416 $ 25,164 $ 393 $ 33,470 $ 523 $ 33,884 $ 529 Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 12,963 $ 203 $ 22,824 $ 357 $ 5,703 $ 89 $ 10,480 $ 164 General Administrative $ 14,567 $ 228 $ 14,167 $ 221 $ 17,734 $ 277 $ 15,068 $ 235 Management $ 42,044 $ 657 $ 34,612 $ 541 $ 44,430 $ 694 $ 44,822 $ 700 Miscellaneous $122,192 $ 1,909 $106,277 $ 1,661 $124,584 $ 1,947 $111,586 $ 1,744 ------------------------------------------------------------------------------ Total Operating Expenses $388,546 $ 6,071 $397,534 $ 6,211 $444,398 $ 6,944 $441,466 $ 6,898 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------------------ Net Income $448,174 $ 7,003 $282,483 $ 4,414 $432,768 $ 6,762 $454,967 $ 7,109 ANNUALIZED 2003 ------------------ PROJECTION AAA PROJECTION ------------------ -------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT % ------------------------------------------------------------------------------------ Revenues Rental Income $948,168 $ 14,85 $843,792 $ 13,184 100.0% Vacancy $ 56,860 $ 888 $ 42,190 $ 659 5.0% Credit Loss/Concessions $ 11,296 $ 177 $ 8,438 $ 132 1.0% --------------------------------------------- Subtotal $ 68,156 $ 1,065 $ 50,628 $ 791 6.0% Laundry Income $ 0 $ 0 $ 0 $ 0 0.0% Garage Revenue $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 74,260 $ 1,160 $ 67,200 $ 1,050 8.0% --------------------------------------------- Subtotal Other Income $ 74,260 $ 1,160 $ 67,200 $ 1,050 8.0% --------------------------------------------- Effective Gross Income $954,272 $ 14,911 $860,364 $ 13,443 100.0% Operating Expenses Taxes $101,320 $ 1,583 $108,800 $ 1,700 12.6% Insurance $ 14,268 $ 223 $ 14,720 $ 230 1.7% Utilities $115,880 $ 1,811 $ 84,800 $ 1,325 9.9% Repair & Maintenance $ 27,712 $ 433 $ 14,400 $ 225 1.7% Cleaning $ 42,840 $ 669 $ 33,920 $ 530 3.9% Landscaping $ 0 $ 0 $ 0 $ 0 0.0% Security $ 0 $ 0 $ 0 $ 0 0.0% Marketing & Leasing $ 10,256 $ 160 $ 11,200 $ 175 1.3% General Administrative $ 17,224 $ 269 $ 16,000 $ 250 1.9% Management $ 28,776 $ 450 $ 43,018 $ 672 5.0% Miscellaneous $110,696 $ 1,730 $115,200 $ 1,800 13.4% --------------------------------------------- Total Operating Expenses $468,972 $ 7,328 $442,058 $ 6,907 51.4% Reserves $ 0 $ 0 $ 19,200 $ 300 4.3% --------------------------------------------- Net Income $485,300 $ 7,583 $399,106 $ 6,236 46.4%
REVENUES AND EXPENSES The subject's revenue and expense projections are displayed on the previous chart. Rental income is based on the market analysis previously discussed. Other income consists of forfeited deposits, laundry income, late rent payments, month to month fees, pet fees, vending machine revenue, etc. We forecasted the property's annual operating expenses after reviewing its historical performance at the subject property. We analyzed each item of expense and attempted to forecast amounts a typical informed investor would consider reasonable. VACANCY AND COLLECTION LOSS An investor is primarily interested in the annual revenue an income property is likely to produce over a specified period of time, rather than the income it could produce if it were always 100% occupied and all tenants were paying their rent in full and on time. An investor normally expects some income loss as tenants vacate, fail to pay rent, or pay their rent late. We have projected a stabilized vacancy and collection loss rate of 6% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30 BEXLEY HOUSE, COLUMBUS, OHIO 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 $300 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 $300 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 BEXLEY HOUSE, COLUMBUS, OHIO SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR I-1 Sep-02 95% $39,162 11.38% I-2 Mar-03 95% $65,972 8.60% I-3 Apr-02 95% $39,688 9.23% I-4 Jan-00 0% N/A I-5 Jan-00 0% N/A High 11.38% Low 8.60% Average 9.74%
Based on this information, we have concluded the subject's overall capitalization rate should be 9.50%. The terminal capitalization rate is applied to the net operating income estimated for the year following the end of the holding period. Based on the concluded overall capitalization rate, the age of the property and the surveyed information, we have concluded the subject's terminal capitalization rate to be 10.25%. Finally, the subject's discount rate or yield rate is estimated based on the previous investor survey and an examination of returns available on alternative investments in the market. Based on this analysis, the subject's discount rate is estimated to be 11.50%. 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 $4,400,000. In this instance, the reversion figure contributes AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32 BEXLEY HOUSE, COLUMBUS, OHIO approximately 39% of the total value. Investors surveyed for this assignment indicated they would prefer to have the cash flow contribute anywhere from 50% to 60%. Overall, the blend seems reasonable. The cash flow and pricing matrix are located on the following pages. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 33 BEXLEY HOUSE, COLUMBUS, OHIO DISCOUNTED CASH FLOW ANALYSIS BEXLEY HOUSE
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 FISCAL YEAR 1 2 3 4 5 6 ======================================================================================== REVENUE Base Rent $843,792 $869,106 $895,179 $922,034 $ 949,65 $978,186 Vacancy $ 42,190 $ 43,455 $ 44,759 $ 46,102 $ 47,485 $ 48,909 Credit Loss $ 8,438 $ 8,691 $ 8,952 $ 9,220 $ 9,497 $ 9,782 Concessions $ 52,032 $ 17,382 $ 0 $ 0 $ 0 $ 0 ----------------------------------------------------------- Subtotal $102,660 $ 69,528 $ 53,711 $ 55,322 $ 56,982 $ 58,691 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 GarageRevenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 67,200 $ 69,216 $ 71,292 $ 73,431 $ 75,634 $ 77,903 ----------------------------------------------------------- Subtotal Other Income $ 67,200 $ 69,216 $ 71,292 $ 73,431 $ 75,634 $ 77,903 EFFECTIVE GROSS INCOME $808,332 $868,793 $912,761 $940,143 $968,348 $997,398 OPERATING EXPENSES: Taxes $108,800 $112,064 $ 115,42 $118,889 $122,455 $126,129 Insurance $ 14,720 $ 15,162 $ 15,616 $ 16,085 $ 16,567 $ 17,065 Utilities $ 84,800 $ 87,344 $ 89,964 $ 92,663 $ 95,443 $ 98,306 Repair & Maintenance $ 14,400 $ 14,832 $ 15,277 $ 15,735 $ 16,207 $ 16,694 Cleaning $ 33,920 $ 34,938 $ 35,986 $ 37,065 $ 38,177 $ 39,323 Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 11,200 $ 11,536 $ 11,882 $ 12,239 $ 12,606 $ 12,984 GeneralAdministrative $ 16,000 $ 16,480 $ 16,974 $ 17,484 $ 18,008 $ 18,548 Management $ 40,417 $ 43,440 $ 45,638 $ 47,007 $ 48,417 $ 49,870 Miscellaneous $115,200 $ 118,65 $ 122,21 $125,882 $129,659 $ 133,54 ----------------------------------------------------------- TOTAL OPERATING EXPENSES $439,457 $454,451 $468,980 $483,049 $497,540 $512,467 Reserves $19,200 $ 19,776 $ 20,369 $ 20,980 $ 21,610 $ 22,258 ----------------------------------------------------------- NET OPERATING INCOME $349,675 $394,566 $423,412 $436,114 $449,198 $462,674 =========================================================== Operating Expense Ratio (% of EGI) 54.4% 52.3% 51.4% 51.4% 51.4% 51.4% Operating Expense Per Unit $ 6,867 $ 7,101 $ 7,328 $ 7,548 $ 7,774 $ 8,007 YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 7 8 9 10 11 ======================================================================================= REVENUE Base Rent $1,007,532 $1,037,758 $1,068,890 $1,100,957 $1,133,986 Vacancy $ 50,377 $ 51,888 $ 53,445 $ 55,048 $ 56,699 Credit Loss $ 10,075 $ 10,378 $ 10,689 $ 11,010 $ 11,340 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 ---------------------------------------------------------- Subtotal $ 60,452 $ 62,265 $ 64,133 $ 66,057 $ 68,039 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 GarageRevenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 80,240 $ 82,648 $ 85,127 $ 87,681 $ 90,311 ---------------------------------------------------------- Subtotal Other Income $ 80,240 $ 82,648 $ 85,127 $ 87,681 $ 90,311 ---------------------------------------------------------- EFFECTIVE GROSS INCOME $1,027,320 $1,058,140 $1,089,884 $1,122,581 $1,156,258 OPERATING EXPENSES: Taxes $ 129,913 $ 133,810 $ 137,825 $ 141,959 $ 146,218 Insurance $ 17,576 $ 18,104 $ 18,647 $ 19,206 $ 19,782 Utilities $ 101,256 $ 104,293 $ 107,422 $ 110,645 $ 113,964 Repair & Maintenance $ 17,194 $ 17,710 $ 18,241 $ 18,789 $ 19,352 Cleaning $ 40,502 $ 41,717 $ 42,969 $ 44,258 $ 45,586 Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 Security $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 13,373 $ 13,775 $ 14,188 $ 14,613 $ 15,052 GeneralAdministrative $ 19,105 $ 19,678 $ 20,268 $ 20,876 $ 21,503 Management $ 51,366 $ 52,907 $ 54,494 $ 56,129 $ 57,813 Miscellaneous $ 137,555 $ 141,681 $ 145,932 $ 150,310 $ 154,819 ---------------------------------------------------------- TOTAL OPERATING EXPENSES $ 527,841 $ 543,676 $ 559,986 $ 576,786 $ 594,089 Reserves $ 22,926 $ 23,614 $ 24,322 $ 25,052 $ 25,803 ---------------------------------------------------------- NET OPERATING INCOME $ 476,554 $ 490,850 $ 505,576 $ 520,743 $ 536,365 ========================================================== Operating Expense Ratio (% of EGI) 51.4% 51.4% 51.4% 51.4% 51.4% Operating Expense Per Unit $ 8,248 $ 8,495 $ 8,750 $ 9,012 $ 9,283
Estimated Stabilized NOI $399,106 Sales Expense Rate 2.00% Months to Stabilized 12 Discount Rate 11.50% Stabilized Occupancy 95.0% Terminal Cap Rate 10.25%
Gross Residual Sale Price $5,232,834 Deferred Maintenance $ 0 Less: Sales Expense $ 104,657 Add: Excess $ 0 ---------- Net Residual Sale Price $5,128,177 Other Adjustments $ 0 ---------- PV of Reversion $1,726,690 Value Indicated By "DCF" $4,401,735 Add: NPV of NOI $2,675,045 Rounded $4,400,000 ---------- PV Total $4,401,735
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE ----------------------------------------------------------------- TOTAL VALUE 11.00% 11.25% 11.50% 11.75% 12.00% ========================================================================================== 9.75% $4,638,512 $4,563,587 $4,490,283 $4,418,561 $4,348,380 10.00% $4,591,045 $4,517,176 $4,444,902 $4,374,185 $4,304,985 10.25% $4,545,893 $4,473,028 $4,401,735 $4,331,974 $4,263,706 TERMINAL 10.50% $4,502,891 $4,430,984 $4,360,624 $4,291,773 $4,224,394 CAP RATE 10.75% $4,461,890 $4,390,894 $4,321,424 $4,253,441 $4,186,909
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 34 BEXLEY HOUSE, COLUMBUS, OHIO INCOME LOSS DURING LEASE-UP The subject is currently near or at a stabilized condition. Therefore, there is no income loss during lease-up at the subject property. CONCESSIONS Due to softness in the market, concessions have been utilized at the subject property and within the market. Based on our discussions with the subject's property manager and those at competing properties, these concessions are expected to continue in the near term until the market returns to a stabilized level. Concessions have been included as a line item deduction within the discounted cash flow analysis. The present value of these concessions equates to $61,000 (rounded). This amount has been deducted from the Direct Capitalization analysis, as well as the Sales Comparison Approach value. DIRECT CAPITALIZATION METHOD After having projected the income and expenses for the property, the next step in the valuation process is to capitalize the net income into an estimate of value. The selected overall capitalization rate ("OAR") covers both return on and return of capital. It is the overall rate of return an investor expects. After considering the market transactions and the investor surveys, we previously conclude that an overall rate of 9.50% percent is applicable to the subject. The results of our direct capitalization analysis are as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 35 BEXLEY HOUSE, COLUMBUS, OHIO BEXLEY HOUSE
TOTAL PER SQ. FT. PER UNIT %OF EGI ======================================================================================================= REVENUE Base Rent $ 843,792 $ 11.69 $13,184 Less: Vacancy & Collection Loss 6.00% $ 50,628 $ 0.70 $ 791 Plus: Other Income Laundry Income $ 0 $ 0.00 $ 0 0.00% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 67,200 $ 0.93 $ 1,050 7.81% -------------------------------------------- Subtotal Other Income $ 67,200 $ 0.93 $ 1,050 7.81% EFFECTIVE GROSS INCOME $ 860,364 $ 11.92 $13,443 OPERATING EXPENSES: Taxes $ 108,800 $ 1.51 $ 1,700 12.65% Insurance $ 14,720 $ 0.20 $ 230 1.71% Utilities $ 84,800 $ 1.18 $ 1,325 9.86% Repair & Maintenance $ 14,400 $ 0.20 $ 225 1.67% Cleaning $ 33,920 $ 0.47 $ 530 3.94% Landscaping $ 0 $ 0.00 $ 0 0.00% Security $ 0 $ 0.00 $ 0 0.00% Marketing & Leasing $ 11,200 $ 0.16 $ 175 1.30% General Administrative $ 16,000 $ 0.22 $ 250 1.86% Management 5.00% $ 43,018 $ 0.60 $ 672 5.00% Miscellaneous $ 115,200 $ 1.60 $ 1,800 13.39% TOTAL OPERATING EXPENSES $ 442,058 $ 6.13 $ 6,907 51.38% Reserves $ 19,200 $ 0.27 $ 300 2.23% -------------------------------------------- NET OPERATING INCOME $ 399,106 $ 5.53 $ 6,236 46.39% ============================================ "GOING IN" CAPITALIZATION RATE 9.50% VALUE INDICATION $4,201,118 $ 58.22 $65,642 PV OF CONCESSIONS ($ 61,000) "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $4,140,118 ROUNDED $4,100,000 $ 56.82 $64,063
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 36 BEXLEY HOUSE, COLUMBUS, OHIO DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF ========================================================================== 8.75% $4,500,214 $4,500,000 $70,313 $62.37 9.00% $4,373,514 $4,400,000 $68,750 $60.98 9.25% $4,253,662 $4,300,000 $67,188 $59.59 9.50% $4,140,118 $4,100,000 $64,063 $56.82 9.75% $4,032,397 $4,000,000 $62,500 $55.44 10.00% $3,930,063 $3,900,000 $60,938 $54.05 10.25% $3,832,720 $3,800,000 $59,375 $52.67
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $4,100,000. CORRELATION AND CONCLUSION BY THE INCOME APPROACH The two methods used to estimate the market value of the subject property by the income approach resulted in the following indications of value: Discounted Cash Flow Analysis $4,400,000 Direct Capitalization Method $4,100,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $4,400,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 37 BEXLEY HOUSE, COLUMBUS, OHIO RECONCILIATION AND CONCLUSION This appraisal was made to express an opinion as of the Market Value of the fee simple estate in the property. AS IS MARKET VALUE OF THE FEE SIMPLE ESTATE Cost Approach Not Utilized Sales Comparison Approach $ 4,400,000 Income Approach $ 4,400,000 Reconciled Value $ 4,400,000
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 April 30, 2003 the market value of the fee simple estate in the property is: $4,400,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA BEXLEY HOUSE, COLUMBUS, OHIO ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A BEXLEY HOUSE, COLUMBUS, OHIO EXHIBIT A SUBJECT PHOTOGRAPH AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A BEXLEY HOUSE, COLUMBUS, OHIO EXHIBIT A SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR-VIEW FROM STREET EXTERIOR-WEST BUILDING [PICTURE] [PICTURE] EAST BROAD STRRET- EASTBOUND INTERIOR-TYPICAL BATH [PICTURE] [PICTURE] INTERIOR-TYPICAL KITCHEN INTERIOR-TYPICAL LOVING ROOM AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B BEXLEY HOUSE, COLUMBUS, OHIO EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B BEXLEY HOUSE, COLUMBUS, OHIO PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 SHAKER SQUARE APTS RIVER OAKS WOODSIDE PLACE 280 Barkley Place West 2299 River Oaks Drive 3280 Tivoli Court Columbus, Ohio Columbus, Ohio Columbus, Ohio [PICTURE] [PICTURE] [PICTURE] N/A N/A AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B BEXLEY HOUSE, COLUMBUS, OHIO SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 =================================================================================================================== Property Name Bexley House Parkview Arms Management Company Aimco N/A LOCATION: Address 2877 East Broad Street 485 Parkview Street City, State Columbus, Ohio Columbus, Ohio County Franklin Franklin Proximity to Subject 1 Mile to the Southwest PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 72,154 107,816 Year Built 1972 1966 - 1976 Effective Age 12 15 Building Structure Type Brick siding, built-up roofs Masonry siding, composition built-up roofs Parking Type (Gr., Cov., etc.) Open, Covered Open, Covered Number of Units 64 103 Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo. Rent 1 1Br/1Ba - 1A10 728 18 $745 1 1Br/1Ba 819 24 $695 2 2Br/2Ba - 2A20 1,060 8 $750 3 2 Br/2Ba 1,157 1 $885 3 2Br/2Ba - 2B20 1,222 24 $810 1Br/1.5Ba 796 8 $740 4 3Br/2Ba - 3A20 1,367 6 $955 5 3B/2.5Ba- 3A25 1,630 8 $920 Average Unit Size (SF) 1,127 1,047 Unit Breakdown: Efficiency 0% 2-Bedroom 50% Efficiency 0% 2-Bedroom 69% 1-Bedroom 28% 3-Bedroom 22% 1-Bedroom 31% 3-Bedroom 0% CONDITION: Average Average APPEAL: Good Average AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling Balcony X W/D Connect. X Balcony X W/D Connect. Fireplace Other Fireplace Other X Cable TV Ready X Cable TV Ready Project Amenities Swimming Pool Car Wash Swimming Pool Car Wash Spa/Jacuzzi Car BBQ Equipment Spa/Jacuzzi Car BBQ Equipment Basketball Court Theater Room Basketball Court Theater Room Volleyball Court Meeting Hall Volleyball Court Meeting Hall Sand Volley Ball Secured Parking Sand Volley Ball Secured Parking Tennis Court X Laundry Room Tennis Court Laundry Room Racquet Ball X Business Office Racquet Ball X Business Office Jogging Track Jogging Track Gym Room Gym Room OCCUPANCY: 82% 100% LEASING DATA: Available Leasing Terms 6 to 15 Months 6 to 18 Months Concessions 1 Month Free None Pet Deposit $200 - $300 $200 Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water Trash X Water Trash Confirmation April 29, 2003; Mary Ann Straty (PM) April 29, 2003; Mary Ann Straty (PM) Telephone Number (614) 237-8004 (614) 237-8004 NOTES: None COMPARISON TO SUBJECT: Slightly Inferior COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 ================================================================================================================ Property Name Parkhill The Meridian Management Company N/A Fairfield Properties LOCATION: Address 1245 Park Plaza Drive 1401 Aschinger Boulevard City, State Columbus, Ohio Columbus, Ohio County Franklin Franklin Proximity to Subject 2+ Miles to the Southeast 2+ Miles to the West PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 247,774 478,000 Year Built 1990 2000 Effective Age 5 3 Building Structure Type Brick veneer, fiberglass siding; roofs Masonry shingle tile roofs Parking Type (Gr., Cov., etc.) Open, Covered garages Open, Covered garages Number of Units 137 480 Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo. Rent 3 2Br/2Ba 1,483 18 $1,245 1 1Br/1Ba 702 96 $ 840 5 3Br/2Ba 1,699 20 $1,345 1 1Br/1Ba 817 96 $ 915 2 2Br/2Ba 1,022 96 $1,010 3 2Br/2Ba 1,164 96 $1,185 4 3Br/2Ba 1,273 96 $1,450 Average Unit Size (SF) 1,597 996 Unit Breakdown: Efficiency 0% 2-Bedroom 50% Efficiency 0% 2-Bedroom 40% 1-Bedroom 0% 3-Bedroom 50% 1-Bedroom 40% 3-Bedroom 20% CONDITION: Good Good APPEAL: Very Good Very Good AMENITIES: Unit Amenities X Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X W/D Connect. X Balcony X W/D Connect. X Fireplace Other X Fireplace Other X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool Car Wash X Swimming Pool Car Wash Spa/Jacuzzi Car BBQ Equipment X Spa/Jacuzzi Car BBQ Equipment Basketball Court Theater Room Basketball Court Theater Room Volleyball Court X Meeting Hall Volleyball CourtX Meeting Hall Sand Volley Ball Secured Parking Sand Volley Ball Secured Parking X Tennis Court Laundry Room Tennis Court Laundry Room Racquet Ball X Business Office Racquet Ball X Business Office Jogging Track Jogging Track Gym Room X Gym Room OCCUPANCY: 95% 95% LEASING DATA: Available Leasing Terms 6 to 15 Months 6 to 15 Months Concessions None $100 off each month for 1 year Pet Deposit $300 $200-$300 Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water Trash X Water Trash Confirmation April 29, 2003; Mary Ann Straty (PM) April 29, 2003, Fairfield Properties Telephone Number (614) 237-8004 (614) 291-0027 NOTES: None None COMPARISON TO SUBJECT: Superior Superior
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B BEXLEY HOUSE, COLUMBUS, OHIO PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 PARKVIEW ARMS PARKHILL THE MERIDIAN 485 Parkview Street 1245 Park Plaza Drive 1401 Aschinger Boulevard Columbus, Ohio Columbus, Ohio Columbus, Ohio [PICTURE] [PICTURE] N/A N/A N/A AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C BEXLEY HOUSE, COLUMBUS, OHIO EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C BEXLEY HOUSE, COLUMBUS, OHIO 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 BEXLEY HOUSE, COLUMBUS, OHIO 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 BEXLEY HOUSE, COLUMBUS, OHIO 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 BEXLEY HOUSE, COLUMBUS, OHIO 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. Richard Mupo 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/ F. Brian Johnson --------------------------------- Brian Johnson, MAI Managing Principal, Real Estate Group AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E BEXLEY HOUSE, COLUMBUS, OHIO EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E BEXLEY HOUSE, COLUMBUS, OHIO F. BRIAN JOHNSON, MAI MANAGING PRINCIPAL, REAL ESTATE ADVISORY GROUP POSITION F. Brian Johnson is the Managing Principal of the New York Real Estate Advisory Group of American Appraisal Associates, Inc. ("AAA"). EXPERIENCE Valuation Mr. Johnson has completed appraisals for securitization and pension funds/insurance industries. Analyses he 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. Additional experience includes the valuation of existing and proposed investment-grade real estate, market and feasibility studies and offering memorandums for debt placement, equity investments and acquisitions, and disposition analysis. Court Mr. Johnson is qualified as an expert witness for the New Jersey Supreme Court. Business Mr. Johnson joined AAA in 1998 and was promoted to his current position in 1999. Prior to joining AAA, Mr. Johnson was a Senior Vice President at Koeppel Tener Real Estate Services and a Vice President at L. W. Ellwood & Co. EDUCATION Fairleigh Dickinson Bachelor of Science - Finance STATE CERTIFICATIONS State of New Jersey, General Appraiser, #42RG00158300 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E BEXLEY HOUSE, COLUMBUS, OHIO PROFESSIONAL Appraisal Institute, MAI Designated Member AFFILIATIONS VALUATION AND Several courses are completed on an annual basis as SPECIAL COURSES part of the continuing education requirements of the Appraisal Institute. In addition, Mr. Johnson attends real estate and financial industry-related conferences and seminars. PUBLICATIONS "Operational Items to Consider When Appraising a Regional Mall," Appraisal Journal, 1991 AMERICAN APPRAISAL ASSOCIATES, INC. BEXLEY HOUSE, COLUMBUS, OHIO GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. BEXLEY HOUSE, COLUMBUS, OHIO 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.