-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VetkhINTA3YWBp3j3P3urHXwaVlNGVVQ59zgcddgtmEss4ier2exCAPUsjAr2oxT 5xF4ZoGpWe4sQhpJKNBygQ== 0000950134-03-016396.txt : 20031209 0000950134-03-016396.hdr.sgml : 20031209 20031209062238 ACCESSION NUMBER: 0000950134-03-016396 CONFORMED SUBMISSION TYPE: SC TO-T/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20031209 GROUP MEMBERS: AIMCO GP INC GROUP MEMBERS: APARTMENT INVESTMENT AND MANAGEMENT CO GROUP MEMBERS: NPI EQUITY INVESTMENT INC SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: NATIONAL PROPERTY INVESTORS 5 CENTRAL INDEX KEY: 0000355637 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 222385051 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC TO-T/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-46634 FILM NUMBER: 031043564 BUSINESS ADDRESS: STREET 1: 55 BEATTIE PLACE STREET 2: P O BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 BUSINESS PHONE: 8642391000 MAIL ADDRESS: STREET 1: 55 BEATTIE PLACE STREET 2: P O BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: NATIONAL PROPERTY INVESTORS 5 CENTRAL INDEX KEY: 0000355637 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 222385051 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13E3/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-46634 FILM NUMBER: 031043565 BUSINESS ADDRESS: STREET 1: 55 BEATTIE PLACE STREET 2: P O BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 BUSINESS PHONE: 8642391000 MAIL ADDRESS: STREET 1: 55 BEATTIE PLACE STREET 2: P O BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: AIMCO PROPERTIES LP CENTRAL INDEX KEY: 0000926660 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF APARTMENT BUILDINGS [6513] IRS NUMBER: 841275621 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC TO-T/A BUSINESS ADDRESS: STREET 1: 4582 S ULSTER ST PARKWAY STREET 2: SUITE 1100 CITY: DENVER STATE: CO ZIP: 80237 BUSINESS PHONE: 3037578101 MAIL ADDRESS: STREET 1: 4582 S ULSTER ST PARKWAY STREET 2: SUITE 1100 CITY: DENVER STATE: CO ZIP: 80237 SC TO-T/A 1 d07269a2sctovtza.txt AMENDMENT NO. 2 TO SC TO SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 SCHEDULE TO/A (AMENDMENT NO. 2) TENDER OFFER STATEMENT UNDER SECTION 14(D)(1) OR 13(E)(1) OF THE SECURITIES EXCHANGE ACT OF 1934 National Property Investors 5 - -------------------------------------------------------------------------------- (Name of Subject Company (Issuer)) Apartment Investment and Management Company AIMCO-GP, Inc. NPI Equity Investments, Inc. AIMCO Properties, L.P. - -------------------------------------------------------------------------------- (Names of Filing Persons - Offerors) Limited Partnership Units - -------------------------------------------------------------------------------- (Title of Class Securities) None - -------------------------------------------------------------------------------- (CUSIP Number of Class Securities) Patrick J. Foye Apartment Investment and Management Company Colorado Center, Tower Two 2000 South Colorado Boulevard, Suite 2-1000 Denver, Colorado 80222 (303) 757-8101 - -------------------------------------------------------------------------------- (Name, address, and telephone numbers of person authorized to receive notices and communications on behalf of filing persons) Copy to: Joseph A. Coco Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 (212) 735-3000 and Jonathan L. Friedman Skadden, Arps, Slate, Meagher & Flom LLP 300 South Grand Avenue Los Angeles, California 90071 (213) 687-5000 1 Calculation of Filing Fee
Transaction valuation* Amount of filing fee - ---------------------- -------------------- $136,377.94 $ 11.03
* For purposes of calculating the fee only. This amount assumes the purchase of 29,842 units of limited partnership interest of the subject partnership for $4.57 per unit. The amount of the filing fee, calculated in accordance with Section 14(g)(1)(B)(3) and Rule 0-11(d) under the Securities Exchange Act of 1934, as amended, equals $80.90 per million of the aggregate amount of cash offered by the bidder. [X] Check the box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount Previously Paid: $11.03 Filing Party: AIMCO Properties, L.P. Form or Registration No.: Schedule TO Date Filed: November 17, 2003 [ ] Check the box if the filing relates solely to preliminary communications made before the commencement of a tender offer. Check the appropriate boxes below to designate any transactions to which the statement relates: [X] third-party tender offer subject to Rule 14d-1 [ ] issuer tender offer subject to Rule 13e-4 [X] going-private transaction subject to Rule 13e-3 [ ] amendment to Schedule 13D under Rule 13d-2 Check the following box if the filing is a final amendment reporting the results of the tender offer: [ ] 2 AMENDMENT NO. 2 TO SCHEDULE TO This Amendment No. 2 amends and supplements the Tender Offer Statement and Rule 13e-3 Transaction Statement on Schedule TO, as amended by Amendment No. 1 thereto (the "Schedule TO"), relating to the offer by AIMCO Properties, L.P., a Delaware limited partnership, to purchase units of limited partnership interest ("Units") of National Property Investors 5, a California limited partnership (the "Partnership"), at a price of $4.57 per unit in cash, subject to the conditions set forth in the Offer to Purchase dated November 17, 2003, and in the related Letter of Transmittal (which, together with any supplements or amendments, collectively constitute the "Offer"). Copies of the Offer to Purchase and the Letter of Transmittal are filed as Exhibits (a)(1) and (a)(2), respectively, to the Schedule TO. The item numbers and responses thereto below are in accordance with the requirements of Schedule TO. Unless defined herein, capitalized terms used and not otherwise defined herein have the respective meanings ascribed to such terms in the Offer to Purchase. ITEM 1. SUMMARY TERM SHEET. Item 1 is amended and supplemented as follows: (1) The following paragraph under "THE SUMMARY TERM SHEET" is amended and restated as follows: "Covenant Not to Sue. If you requested exclusion from the settlement but tender your units in this offer, by signing the letter of transmittal, you agree not to bring any action, claim, suit or proceeding against us and those affiliates who were defendants in the class and derivative litigation concerning any of the matters that are the subject of the Stipulation of Settlement approved by the Court in connection with the settlement of such class and derivative litigation, including this Litigation Settlement Offer, other than for violations of federal or state securities laws. If you do not request exclusion from the settlement class, you will already have agreed not to bring any such action, you will already have agreed not to bring any such action, claim, suit or proceeding once the settlement." (2) The following paragraph under "THE SUMMARY TERM SHEET" is amended and restated as follows: "Conflicts of Interest. NHP Management Company (which is our affiliate) receives fees for managing your partnership's property and the general partner of your partnership (which is our affiliate) is entitled to receive asset management fees and reimbursement of certain expenses involving your partnership and its property. As a result, a conflict of interest exists between continuing the partnership and receiving these fees, and the liquidation of the partnership and the termination of these fees. See "The Litigation Settlement Offer -- Section 13. Conflicts of Interest and Transactions with Affiliates" and "-- Section 15. Certain Information Concerning Your Partnership." (3) The following paragraph is added as the eighteenth paragraph under "THE SUMMARY TERM SHEET": "Fairness of the Offer. Although we, Apartment Investment and Management Company ("AIMCO") and AIMCO-GP, Inc. (collectively, the "AIMCO Entities") and your general partner have interests that may conflict with those the partnership's unaffiliated limited partners, each of the AIMCO Entities believes that the offer price and the offer are fair to the unaffiliated limited partners of your partnership. This determination is based on the information and the factors set 3 forth under "The Litigation Settlement Offer -- Section 12. Position of Your General Partner of Your Partnership With Respect to the Offer." ITEM 2. SUBJECT COMPANY INFORMATION. Item 2(a) of the Schedule TO is amended and supplemented as follows: (1) The following paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 15. Certain Information Concerning Your Partnership" is amended and restated as follows: "Ownership and Voting. We, together with AIMCO IPLP, L.P. (which is our affiliate), own 52,671 units, or 63.83%, of the outstanding units of your partnership. Because we and our affiliates own a majority of the outstanding units, we have the ability to control most votes of the limited partners. See "The Litigation Settlement Offer -- Section 7. Effects of the Offer" and "-- Section 16. Voting Power."" (2) The chart under "THE LITIGATION SETTLEMENT OFFER - Section 15. Certain Information Concerning Your Partnership - Financial Data" is amended by adding the following line items:
FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, ---------------------------- -------------------------------------- 2003 2002 2002 2001 2000 ------------- ------------- ------------- ------------- --------- (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Income (loss) per unit from continuing operations $ .10 $ (13.61) $ (17.56) $ (10.14) $ (2.81) Ratio of earnings to fixed charges (deficit)....... 101.1% (90.1%) (16.2%) 29.9% 78.3% Book value per limited partnership unit............ (112.36) (108.50) (112.46) (94.89) (45.27)
ITEM 3. IDENTITY AND BACKGROUND OF FILING PERSON. Item 3(a) - (c) of the Schedule TO is amended and supplemented as follows: (1) The Rule 13e-3 Transaction Statement on Schedule TO is being filed by Apartment Investment and Management Company, a Maryland corporation ("AIMCO"), AIMCO Properties, L.P., a Delaware limited partnership ("AIMCO OP"), AIMCO-GP, Inc. a Delaware corporation ("AIMCO-GP"), and NPI Equity Investments, Inc. ("NPI Equity"). AIMCO-GP is the general partner of AIMCO OP and a wholly owned subsidiary of AIMCO. NPI Equity is the managing general partner of the Partnership and a wholly owned subsidiary of AIMCO. The principal business of AIMCO, AIMCO-GP, and AIMCO OP is the ownership, acquisition, development, expansion and management of multi-family apartment properties. The business address of AIMCO, AIMCO-GP and AIMCO OP is 4582 Ulster Street Parkway, Suite 1100, Denver, Colorado 80237, and their telephone number is (303) 757-8101. The principal address of NPI Equity is 55 Beattie Place, P.O. Box 1089, Greenville, South Carolina 29602, and its phone number is (864) 239-1000. During the last five years, none of AIMCO, AIMCO-GP, AIMCO OP or NPI Equity nor, to the best of their knowledge, any of the persons listed in Annex I to the Offer to Purchase (i) has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) was a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining further violations of or 4 prohibiting activities subject to federal or state securities laws or finding any violation with respect to such laws. (2) The fourth paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 10. Information Concerning Us and Certain of Our Affiliates" is amended and restated as follows: "We and AIMCO are both subject to the information and reporting requirements of the Exchange Act and, in accordance therewith, file reports and other information with the Securities and Exchange Commission relating to our business, financial condition and other matters, including the complete financial statements summarized below. Such reports and other information may be inspected at the public reference facilities maintained by the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such material can also be obtained from the Public Reference Room of the SEC in Washington, D.C. at prescribed rates. The SEC also maintains a site on the World Wide Web at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. In addition, information filed by AIMCO with the New York Stock Exchange may be inspected at the offices of the New York Stock Exchange at 20 Broad Street, New York, New York 10005." (3) The following chart under Annex I is amended and restated as follows:
NAME POSITION -------------------------- ------------------------------------- Terry Considine............ Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez......... Vice Chairman, President and Director Harry G. Alcock............ Executive Vice President and Chief Investment Officer Miles Cortez............... Executive Vice President, General Counsel and Secretary Joseph DeTuno.............. Executive Vice President -- Redevelopment Patti K. Fielding.......... Executive Vice President -- Securities and Debt Patrick J. Foye............ Executive Vice President Lance J. Graber............ Executive Vice President -- AIMCO Capital Paul J. McAuliffe.......... Executive Vice President and Chief Financial Officer Ronald D. Monson........... Executive Vice President and Head of Property Operations David Robertson............ Executive Vice President -- President and Chief Executive Officer of AIMCO Capital Jim Purvis................. Executive Vice President -- Human Resources Randall J. Fein............ Executive Vice President -- Student Housing James N. Bailey............ Director Richard S. Ellwood......... Director J. Landis Martin........... Director Thomas L. Rhodes........... Director
ITEM 4. TERMS OF THE TRANSACTION. Item 4(a) of the Schedule TO is amended and supplemented as follows: (1) The following paragraph under "RISK FACTORS" is amended and restated as follows: "THERE MAY BE A POSSIBLE REDUCTION OF AVAILABLE INFORMATION ABOUT YOUR PARTNERSHIP AS A RESULT OF THIS OFFER. 5 If there are less than 300 unitholders in your partnership upon consummation of the offer, your partnership would no longer be required to file periodic reports with the SEC, such as annual reports on Form 10-KSB containing annual audited financial statements, and quarterly reports on Form 10-QSB containing unaudited quarterly financial statements. Such reports are publicly available and can be obtained on the SEC's web site. The lack of such filings could adversely affect the already limited secondary market which currently exists for units in your partnership and may discourage offers to purchase your units. In such a case, you would regularly have access only to the information your partnership's agreement of limited partnership requires your general partner (which is our affiliate) to provide each year, which consists primarily of tax information. See "The Litigation Settlement Offer - Section 7. Effects of the Offer - Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act." (2) Section 1 under "THE LITIGATION SETTLEMENT OFFER" is amended and restated as follows: "1. TERMS OF THE OFFER; EXPIRATION DATE Upon the terms and subject to the conditions of the offer, we will accept (and thereby purchase) any and all units that are validly tendered on or prior to the expiration date and not withdrawn in accordance with the procedures set forth in "The Litigation Settlement Offer -- Section 4. Withdrawal Rights." For purposes of the offer, the term "expiration date" shall mean midnight, New York City time, on December 19, 2003, unless we in our sole discretion shall have extended the period of time for which the offer is open (which may not exceed 90 business days from the date of commencement, as provided in the settlement). See "The Litigation Settlement Offer -- Section 5. Extension of Tender Period; Termination; Amendment; No Subsequent Offering Period," for a description of our right to extend the period of time during which the offer is open and to amend or terminate the offer. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made or declared by your partnership on or after the commencement of our offer and prior to the date on which we acquire your units pursuant to our offer. If the offer price is reduced in this manner, we will notify you and, if necessary, we will extend the offer period so that you will have at least ten business days from the date of our notice to withdraw your units. If, prior to the expiration date, we increase the consideration offered pursuant to the offer, the increased consideration will be paid for all units accepted for payment pursuant to the offer, whether or not the units were tendered prior to the increase in consideration. The offer is conditioned on satisfaction of certain conditions. The offer is not conditioned upon any minimum number of units being tendered. See "The Litigation Settlement Offer -- Section 19. Conditions to the Offer," which sets forth in full the conditions of the offer. We reserve the right (but in no event shall we be obligated), in our reasonable discretion, to waive any or all of those conditions. If, on or prior to the expiration date, any or all of the conditions have not been satisfied or waived, we reserve the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units to tendering limited partners, (ii) waive all the unsatisfied conditions and purchase, subject to the terms of the offer, any and all units validly tendered, (iii) extend the offer and, subject to your withdrawal rights, retain the units that have been tendered during the period or periods for which the offer is extended, or (iv) amend the offer. If we are unable to accept the units tendered in this Litigation Settlement Offer due to a failure of any or all of the conditions of our offer to be satisfied, we will conduct another offer in 6 accordance with the terms of the settlement (which will occur no later than six months after the date of the commencement of this offer). We will continue this process until we have accepted for payment all units properly tendered in an offer conducted in accordance with the terms of the settlement. By executing the letter of transmittal, you will agree that the transfer of units will be deemed to take effect as of the first day of the calendar quarter in which the offer expires. Upon expiration of the offer, the books and records of the partnership will reflect the change in ownership as having occurred as of this date. For tax, accounting and financial reporting purposes, the transfer of tendered units will be deemed to take effect on the first day of the calendar quarter. Accordingly, all profits and losses relating to any tendered units will be allocated to us from and after this date. If we waive any material conditions to our offer (other than those relating to necessary governmental approvals), we will notify you and, if necessary, we will extend the offer period so that you will have at least five business days from the date of our notice to withdraw your units. This offer is being mailed on or about November 17, 2003 to the persons shown by your partnership's records to be limited partners or, in the case of units owned of record by Individual Retirement Accounts and qualified plans, beneficial owners of units." Section 2 under "THE LITIGATION SETTLEMENT OFFER" is amended and restated as follows: "2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, we will purchase, by accepting for payment, and will pay for, any and all units validly tendered promptly following the expiration date. A tendering beneficial owner of units whose units are owned of record by an Individual Retirement Account or other qualified plan will not receive direct payment of the offer price; rather, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed letter of transmittal and other documents required by the letter of transmittal. See "The Litigation Settlement Offer -- Section 3. Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, we will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units, if, as and when we give verbal or written notice to the Information Agent of our acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering limited partners for the purpose of receiving cash payments from us and transmitting cash payments to tendering limited partners. If any tendered units are not accepted for payment by us for any reason, the letter of transmittal with respect to such units not purchased may be destroyed by the Information Agent or us or returned to you. You may withdraw tendered units until the expiration date (including any extensions). In addition, if we have not accepted units for payment by January 16, 2004 you may then withdraw any tendered units. After the expiration date, the Information Agent may, on our behalf, retain tendered units, and those units may not be otherwise withdrawn, if, for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or we are unable to accept for payment, purchase or pay for units tendered pursuant to the offer. Any such action is subject, however, to our obligation under Rule 14e-1(c) under the Exchange Act, to pay you the offer price in respect of units tendered or return those units promptly after termination or withdrawal of the offer. 7 We reserve the right to transfer or assign, in whole or in part, to one or more of our affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve us of our obligations under the offer or prejudice your rights to receive payment for units validly tendered and accepted for payment pursuant to the offer." (3) The first paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 3. Procedure for Tendering Units - Release of Claims" is amended and restated as follows: "Release of Claims. By executing the letter of transmittal, effective upon acceptance for payment of the units tendered by you, you will, on behalf of yourself, your heirs, estate, executor, administrator, successors and assigns, and your partnership, fully, finally and forever release, relinquish and discharge us and our predecessors, successors and assigns and our present and former parents, subsidiaries, affiliates, investors, insurers, reinsurers, officers, directors, employees, agents, administrators, auditors, attorneys, accountants, information and solicitation agents, investment bankers, and other representatives, including but not limited to AIMCO Properties, L.P. (collectively, the "Releasees"), from any and all claims and causes of action, whether brought individually, on behalf of a class, or derivatively, demands, rights, or liabilities, including, but not limited to, claims for negligence, gross negligence, professional negligence, breach of duty of care or loyalty, or breach of duty of candor, fraud, breach of fiduciary duty, mismanagement, corporate waste, malpractice, misrepresentation, whether intentional or negligent, misstatements and omissions to disclose, breach of contract, violations of any state or federal statutes, rules or regulations, whether known claims or unknown claims that have been asserted or that could have been asserted against the Releasees, that arise out of or relate to (a) those matters and claims set forth in the class and derivative litigation described in this Litigation Settlement Offer, (b) the ownership of one or more units in your partnership, including but not limited to, any and all claims related to the management of your partnership or the properties owned by your partnership (whether currently or previously), the payment of management fees or other monies to the general partner of your partnership and its affiliates, prior acquisitions or tender offers and the prior settlement, (c) the purchase, acquisition, holding, sale, tender or voting of one or more units in your partnership, or (d) any of the facts, circumstances, allegations, claims, causes of action, representations, statements, reports, disclosures, transactions, events, occurrences, acts, omissions or failures to act, of whatever kind or character whatsoever, irrespective of the state of mind of the actor performing or omitting to perform the same, that have been or could have been alleged in any pleadings, amended pleading, argument, complaint, amended complaint, brief, motion, report or filing in the class and derivative litigation described in this Litigation Settlement Offer (collectively, the "Released Claims"); provided, however, that the Released Claims are not intended to include (i) any unrelated claims that are unique to a limited partner or settlement class member (e.g., a settlement class member slips and falls on property owned by one of the defendants in the class and derivative litigation, loses or did not receive a distribution check distributed to other limited partners in such partnership, or is an employee of one of the defendants and has an employee related claim) or (ii) any claim based upon violations of federal or state securities laws in connection with this offer." (4) The paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 3. Procedure for Tendering Units - Covenant Not to Sue" is amended and restated as follows: "Covenant Not to Sue. By executing the letter of transmittal, you agree not to bring any action, claim, suit or proceeding against us and those affiliates who were defendants in the class and derivative litigation concerning any of the matters that are the subject of the Stipulation of Settlement approved by the Court in connection with the settlement of such class and derivative litigation, including this Litigation Settlement Offer, other than for violations of federal or state securities laws." 8 (5) The paragraph under "THE LITIGATION SETTLEMENT OFFER -- Procedure for Tendering Units - Section 3. Procedure for Tendering Units -- Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects" is amended and restated as follows: "Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects. All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to our offer will be determined by us, in our reasonable discretion, which determination shall be final and binding on all parties. We reserve the absolute right to reject any or all tenders of any particular unit determined by us not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of our counsel, be unlawful. We also reserve the absolute right to waive or amend any of the conditions of the offer that we are legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit of any particular limited partner. If we waive any of the conditions to the offer with respect to the tender of a particular unit, we will waive such condition with respect to all other tenders of units in this offer as well. Our interpretation of the terms and conditions of the offer (including the letter of transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither we, the Information Agent, nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any unit or will incur any liability for failure to give any such notification." (6) The first paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 5. Extension of Tender Period; Termination; Amendment; No Subsequent Offering Period" is amended and restated as follows: "We expressly reserve the right, in our reasonable discretion, at any time and from time to time, (i) to extend the period of time during which our offer is open (but not beyond 90 business days from the date of commencement of the offer) and thereby delay acceptance for payment of, and the payment for, any unit, (ii) to terminate the offer and not accept any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "The Litigation Settlement Offer -- Section 19. Conditions of the Offer" relating to necessary governmental approvals, to delay the acceptance for payment of, or payment for, any units not already accepted for payment or paid for, and (iv) to amend our offer in any respect (including, without limitation, by increasing or decreasing the consideration offered, increasing or decreasing the units being sought, or both). We will not assert any of the conditions to the offer (other than those relating to necessary governmental approvals) subsequent to the expiration of the offer. Notice of any such extension, termination or amendment will promptly be disseminated to you in a manner reasonably designed to inform you of such change. In the case of an extension of the offer, the extension may be followed by a press release or public announcement which will be issued no later than 9:00 a.m., New York City time, on the next business day after the scheduled expiration date of our offer, in accordance with Rule 14e-1(d) under the Exchange Act." (7) The third paragraph under "THE LITIGATION SETTLEMENT OFFER--Section 8. Valuation of Units -- Determination of Offer Price" is amended and restated as follows: "We relied on the direct capitalization method because we believe this is the valuation methodology most often used by the real estate industry to value income producing property. The 9 court appointed independent appraiser also utilized the direct capitalization method as one its valuation methodologies. However, in comparison to our methodology, the independent appraiser relied on pro forma net operating income as opposed to the current property income of your partnership." (8) The first paragraph and the first bullet point under "THE LITIGATION SETTLEMENT OFFER - Section 19. Conditions to the Offer" are amended and restated as follows: "Notwithstanding any other provisions of our offer, we will not be required to accept for payment and pay for any units tendered pursuant to our offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend our offer if at any time on or after the date of this Litigation Settlement Offer and at or before the expiration of our offer (including any extension thereof), any of the following shall occur: o any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that is or could reasonably be expected to be materially adverse to your partnership or the value of your units to us, which change would, individually or in the aggregate, result in, or reasonably be expected to result in, an adverse effect on net operating income of your partnership of more than $10,000 per year, or a decrease in value of an asset of your partnership, or the incurrence of a liability with respect to your partnership, in an amount in excess of $100,000 (a "Material Adverse Effect"), or we shall have become aware of any facts relating to your partnership, its indebtedness or its operations which has had or could reasonably be expected to have a Material Adverse Effect; or" (9) The third bullet point under "THE LITIGATION SETTLEMENT OFFER - Section 19. Conditions to the Offer" is amended and restated as follows: "o there shall have been threatened in writing, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by us of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by us (or any of our affiliates) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in our ability to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by us or any of our affiliates of the entity serving as your general partner (which is our affiliate) or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on our ability or any of our affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on our ability or any of our affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by us on all matters properly presented to unitholders or (v) could reasonably be expected to result in a Material Adverse Effect; or 10 (10) The fifth bullet point under "THE LITIGATION SETTLEMENT OFFER - Section 19. Conditions to the Offer" is amended and restated as follows: "o your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, has or could reasonably be expected to have a Material Adverse Effect, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or" (11) The seventh bullet point of "THE LITIGATION SETTLEMENT OFFER - Section 19. Conditions to the Offer" is amended and restated as follows: "o there shall have occurred any event, circumstance, change, effect or development that, individually or in the aggregate with any other events, circumstances, changes, effects or developments, has had or would reasonably be expected to have an adverse effect on our financial condition in an amount in excess of $10,000,000; or" (12) The following bullet point under "THE LITIGATION SETTLEMENT OFFER - - Section 19. Conditions to the Offer" is deleted in its entirety: "o we shall not have adequate cash or financing commitments available to pay for the units validly tendered, which is the result of events or circumstances beyond our reasonable control." (13) The second paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 19. Conditions to the Offer" is amended and restated as follows: "The foregoing conditions are for our sole benefit and may be asserted by us regardless of the circumstances giving rise to such conditions or may be waived by us at any time in our reasonable discretion prior to the expiration of this offer. The failure by us at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances. All conditions to our offer will be satisfied or waived on or before the expiration of our offer." 11 (14) The first paragraph of the Letter of Transmittal is amended and restated as follows: "The undersigned hereto hereby acknowledges that he or she has received (i) the Purchaser's Litigation Settlement Offer, dated the date set forth above (the "Offer Date"), relating to the offer by AIMCO Properties, L.P. (the "Purchaser") to purchase Limited Partnership Interests (the "Units") in the Partnership and (ii) this Letter of Transmittal and the Instructions hereto, as each may be supplemented or amended from time to time (collectively, the "Offer")." (15) The fourth paragraph of the Letter of Transmittal is amended and restated as follows: "By executing this Letter of Transmittal, the undersigned hereby acknowledges that neither the court nor counsel for the parties in the class and derivative litigation make any recommendation regarding whether the undersigned should accept the Offer, and the undersigned hereto represents and warrants to the Purchaser that the undersigned (i) has received the Offer, including the executive summary of the independent appraiser's report attached to the Litigation Settlement Offer, and (ii) has had an opportunity to seek the advice of such undersigned's attorney, tax advisor and/or financial advisor before deciding whether or not to accept the Offer." (16) The sixth paragraph of the Letter of Transmittal is amended and restated as follows: "The undersigned hereto, on behalf of himself or herself, his or her heirs, estate, executor, administrator, successors and assigns, and the Partnership, fully, finally and forever releases, relinquishes and discharges the Purchaser and its predecessors, successors and assigns and its present and former parents, subsidiaries, affiliates, investors, insurers, reinsurers, officers, directors, employees, agents, administrators, auditors, attorneys, accountants, information and solicitation agents, investment bankers, and other representatives, including but not limited to Apartment Investment and Management Company and the general partner of the Partnership (collectively, the "Releasees"), from any and all claims and causes of action, whether brought individually, on behalf of a class, or derivatively, demands, rights, or liabilities, including, but not limited to, claims for negligence, gross negligence, professional negligence, breach of duty of care or loyalty, or breach of duty of candor, fraud, breach of fiduciary duty, mismanagement, corporate waste, malpractice, misrepresentation, whether intentional or negligent, misstatements and omissions to disclose, breach of contract, violations of any state or federal statutes, rules or regulations, whether known claims or unknown claims that have been asserted or that could have been asserted against the Releasees, that arise out of or relate to (a) those matters and claims set forth in the class and derivative litigation described in the Litigation Settlement Offer, (b) the ownership of one or more Units in the Partnership, including but not limited to, any and all claims related to the management of the Partnership or the properties owned by the Partnership (whether currently or previously), the payment of management fees or other monies to the general partner of the Partnership and its affiliates, prior acquisitions or tender offers and the prior settlement, (c) the purchase, acquisition, holding, sale, tender or voting of one or more Units in the Partnership, or (d) any of the facts, circumstances, allegations, claims, causes of action, representations, statements, reports, disclosures, transactions, events, occurrences, acts, omissions or failures to act, of whatever kind or character whatsoever, irrespective of the state of mind of the actor performing or omitting to perform the same, that have been or could have been alleged in any pleadings, amended pleading, argument, complaint, amended complaint, brief, motion, report or filing in the class and derivative litigation described in the Litigation Settlement Offer (collectively, the "Released Claims"); provided, however, that the Released Claims are not intended to include (i) any unrelated claims that are unique to a unitholder or settlement class member (e.g., a settlement class member slips and falls on property owned by one of the defendants in the class and derivative litigation, loses or did not receive a distribution check 12 distributed to other limited partners in such partnership, or is an employee of one of the defendants and has an employee related claim), or (ii) any claim based on violations of federal or state securities laws in connection with the Offer." (17) The tenth paragraph of the Letter of Transmittal is amended and restated as follows: "Subject to and effective upon acceptance for payment of any Unit tendered hereby in accordance with the terms of the Offer, the signatory agrees not to bring any action, claim, suit or proceeding against the Purchaser and its affiliates who were defendants in the class and derivative litigation described in the Litigation Settlement Offer concerning any of the matters that are the subject of the Stipulation of Settlement approved by the Court in connection with the settlement of such class and derivative litigation, including the Offer, other than for violations of federal or state securities laws." (18) The eleventh paragraph of the Letter of Transmittal is amended and restated as follows: "The undersigned hereto irrevocably appoints the Purchaser and its designees as his or her proxy, each with full power of substitution, to the fullest extent of the undersigned's rights with respect to the Units tendered by him or her and accepted for payment by the Purchaser. Such proxy shall be considered coupled with an interest in the tendered Units. Such appointment will be effective upon receipt of this Letter of Transmittal. Upon receipt of this Letter of Transmittal, all prior proxies and consents given by undersigned hereto with respect to the Units will, without further action, be revoked, and no subsequent proxies or consents may be given (and if given will not be effective). The Purchaser and its designees are, as to those Units, empowered to exercise all voting as a limited partner as the Purchaser, in its discretion, may deem proper at any meeting of limited partners, by written consent or otherwise. The Purchaser reserves the right to require that, in order for Units to be deemed validly tendered, immediately upon our acceptance for payment of the Units, the Purchaser must be able to exercise full voting rights with respect to the Units, including voting at any meeting of limited partners then scheduled or acting by written consent without a meeting. By executing this Letter of Transmittal, the undersigned agrees to execute all such documents and take such other actions as shall be reasonably required to enable the Units tendered to be voted in accordance with the Purchaser's directions. The proxy granted by the undersigned hereto to the Purchaser will remain effective and be irrevocable for a period of ten years following the Expiration Date of the Offer." (19) The following paragraph in the Letter of Transmittal is deleted in its entirety: "The undersigned hereto irrevocably constitutes and appoints the Purchaser and any designees of the Purchaser as the true and lawful agent and attorney-in-fact of the undersigned with respect to such Units, with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to withdraw any or all of such Units that have been previously tendered in response to any tender or exchange offer provided that the price per unit being offered by the Purchaser is equal to or higher than the price per unit being offered in the other tender or exchange offer. This appointment is effective upon execution and receipt of this Letter of Transmittal and shall continue to be effective unless and until such Units are withdrawn from the Offer by the undersigned prior to the Expiration Date." ITEM 5. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS. Item 5(a) and (b) of the Schedule TO is amended and supplemented as follows: 13 (1) The first, second and third paragraphs of "THE LITIGATION SETTLEMENT OFFER - Section 9. The Lawsuit and the Settlement - The Settlement of the Nuanes and Heller Complaints" is amended and restated as follows: "On December 20, 2002, the parties to the above-entitled litigation executed a Stipulation of Settlement of the two actions. That settlement was the result of over one year of negotiations and the involvement of two separate settlement judges. Class counsel and defendants' counsel first met with the Honorable William J. Cahill, Retired California Superior Court Judge, on two separate occasions. Counsel also met on four separate occasions with the Honorable Margaret J. Kemp, California Superior Court Judge, before reaching a settlement in principle. The parties initially met with Judge Cahill on two occasions in the fall of 2000, but were ultimately unsuccessful in reaching a definitive settlement agreement. At the Court's direction, they renewed formal settlement discussions before Judge Kemp. The parties first attended a settlement conference before Judge Kemp in September or October 2002 and then subsequently met with her on October 28, 2002, November 26, 2002 and December 2, 2002. The parties reached final agreement on the material terms of the settlement at the last settlement conference with Judge Kemp on December 2, 2002 and put the terms of that agreement on the record in open court. In each of the conferences described above, counsel from Lieff Cabraser Heimann & Bernstein LLP, Farella Braun & Martel LLP & Berman Devalerio Pease & Tobacco attended on behalf of the named plaintiffs and the putative settlement class; counsel from Skadden, Arps, Slate, Meagher & Flom LLP attended on behalf of AIMCO and its affiliated entities, including your general partner, and Orrick Herrington & Sutcliffe attended on behalf of the remaining defendants. AIMCO Executive Vice President Patrick Foye also attended each of these meetings. Mr. Vincent Gresham of the Law Offices of Vincent Gresham also participated on behalf of plaintiffs and the putative settlement class in those settlement discussions before the Hon. Cahill, Retired. At these meetings, discussions included possible transactions that could provide liquidity to investors and form the basis of a settlement, the use of a settlement fund and the amount of such fund, the timing and distribution of any settlement fund, selection and use of an appraiser and disclosures that would accompany any contemplated transaction(s). The participants considered but ultimately rejected a merger or roll-up of the various partnerships as possible alternatives to cash tender offers. The parties ultimately concluded, however, that a merger or roll-up could be potentially complicated and time consuming and that a cash tender offer would be a less coercive form of providing liquidity to those investors who desired it. The Settlement Agreement requires each tender offer to attach executive summaries of partnership property appraisals commissioned specifically for the settlement tender offers and to provide an explanation of how the appraised values of the properties compare to the per Unit price(s) being offered. It also requires the payment of an allocable portion of the settlement fund for each unit tendered pursuant to the settlement fund, details the scope of the release and covenants not to sue which will bind class members, requires that tender offers be made no more than one year after final approval of the settlement and imposes certain restrictions on the length of time in which the tender offers can remain open, as well as with regard to other disclosures made therein. On April 4, 2003, the Court preliminarily approved the settlement and, on June 13, 2003, entered an order finally approving the settlement and dismissing both the Heller and Nuanes litigation with prejudice. On August 12, 2003, an objector filed an appeal of the court's order approving the settlement and is seeking to reverse or vacate the Court's order and the judgment entered thereto. Although we reserve our right to terminate or amend our offer if final court approval of the settlement is reversed or vacated, we have nevertheless elected to proceed with this offer under the terms of the settlement. On November 24, 2003, the objector appealing the settlement and judgment entered thereto filed an application requesting the Court order AIMCO to withdraw the settlement tender offers, refrain from making further offers pending the appeal and auction any units tendered to third parties. The objector contends that this offer does not conform with the terms of the Settlement. Alternatively, counsel for the objector has requested the Court on behalf of a settlement class member order AIMCO to pay all non-tendering settlement class members their pro rata share of the Settlement Fund whether or not the settlement and judgment entered thereto is vacated on appeal and to notify settlement class members that the releases and covenant not to sue are not binding unless the settlement and judgment entered thereto is affirmed on appeal. AIMCO asserts that such applications are without merit and is opposing such applications." 14 (2) The second paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 11. Background and Reasons for the Offer - Alternatives Considered by Your General Partner -- Liquidation" is amended and restated as follows: "If your partnership was liquidated, and the properties sold at prices equal to the values recently determined by the independent appraiser (see Annex II), we estimate that your net liquidation proceeds would be $14.26 per unit. See "The Litigation Settlement Offer -- Section 8. Valuation of Units." However, in the opinion of your general partner, which is our affiliate, the present time may not be the most desirable time to sell the real estate assets of your partnership in a private transaction, and the proceeds realized from any such sale would be uncertain. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Although future operating results and sales prices are uncertain, your general partner believes that the operating performance of your partnership's property may improve in the future. This improvement, should it occur, may result in higher property values. Such values, however, are also a function of capitalization rates in the market and the interest rate environment at the time. However, because your general partner and property manager (which are our affiliates) receive fees for managing your partnership and its property, a conflict of interest exists between continuing the partnership and receiving such fees, on the one hand, and the liquidation of the partnership and the termination of such fees, on the other. See "The Litigation Settlement Offer -- Section 15. Certain Information Concerning Your Partnership -- Investment Objectives and Policies; Sale or Financing of Investments" and "--Section 13. Conflicts of Interest and Transactions with Affiliates." The term of the partnership will continue until December 31, 2005, unless the partnership is terminated sooner under the provisions of the partnership agreement." (3) The paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 11. Background and Reasons for the Offer - Alternative Transactions Considered by Us" is amended and restated as follows: "Alternative Transactions Considered by Us. At the present time, we have decided to proceed with this offer pursuant to the court approved settlement. From time to time in the past, we have considered proposing a number of alternative transactions, including the purchase of your partnership's property or a merger of your partnership in which you would receive cash in exchange for your units. We decided not to pursue these alternative transactions because, in each case, we determined that a tender offer would be a less expensive means of acquiring additional interests in your partnership, and would not require the consent or approval of any limited partners (other than those who elect to tender their units). In the future, however, we may consider purchasing your partnership's property or effecting such a merger. See "The Litigation Settlement Offer -- Section 14. Future Plans of the Purchaser." We also considered an offer to exchange units in your partnership for limited partnership interests in AIMCO Properties, L.P. However, because of the expense and delay associated with making such an exchange offer, we decided to make an offer for cash only. In addition, our historical experience has been that when we have offered limited partners an opportunity to receive cash or limited partnership interests in AIMCO Properties, L.P., the limited partners who tender usually prefer the cash option." (4) The first paragraph of "THE LITIGATION SETTLEMENT OFFER - Section 13. Conflicts of Interest and Transactions with Affiliates -- Transactions with Affiliates" is amended and restated as follows: "NHP Management Company (which is our affiliate) received fees of approximately $135,000 and $229,000 for the years ended December 31, 2002 and 2001, respectively, for 15 construction management services. The construction management service fees are calculated based on a percentage of current additions to investment properties." (5) The second paragraph of "THE LITIGATION SETTLEMENT OFFER - Section 13. Conflicts of Interest and Transactions with Affiliates -- Transactions with Affiliates" is amended and restated as follows: "In connection with the February 2001 refinancing of Oakwood Village at Lake Nan Apartments, the partnership paid approximately $70,000 to us, as allowed pursuant to the partnership agreement. This amount is recorded as loan costs and included in other assets on the balance sheet of the partnership." ITEM 6. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS. Item 6(a), (c)(1) - (7) of the Schedule TO is amended and supplemented as follows: (1) The first two paragraphs under "THE LITIGATION SETTLEMENT OFFER -- Section 7. Effects of the Offer" are amended and restated as follows: "Because the general partner of your partnership is our affiliate, we have control over the management of your partnership. In addition, we, together with AIMCO IPLP, L.P. (which is our affiliate), own 52,671, or 63.83%, of the outstanding units of your partnership. Because we and our affiliates own a majority of the outstanding units and control your partnership's general partner, we control the outcome of most voting decisions with respect to your partnership. In general, we will vote the units owned by us in whatever manner we deem to be in our best interests, which may not be in the interest of other limited partners. This could (1) prevent non-tendering limited partners from taking action that they desire but that we oppose and (2) enable us to take action desired by us but opposed by non-tendering limited partners. We are also affiliated with the company that currently manages, and has managed for some time, the property owned by your partnership. In the event that we acquire a substantial number of units pursuant to this offer, removal of the property manager may become more difficult or impossible. If we acquire all of the units that we are seeking in the offer, our interest in your partnership's net earnings ($8,000 for the nine months ended September 30, 2003) and net book value ($(9,271,000) as of September 30, 2003) will increase to 100%. AIMCO-GP owns a 1% interest in AIMCO Properties, L.P. and AIMCO, through its subsidiaries, owns an 89% in AIMCO Properties." (2) The second paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 7. Effects of the Offer - Effect on the Trading Market; Registration Under Section 12(g) of the Exchange Act" is amended and restated as follows: "The units are registered under Section 12(g) of the Exchange Act, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. We do not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Exchange Act. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Exchange Act. Your partnership currently has 1,945 unitholders. The lack of filing periodic 16 reports could affect the already limited secondary market which currently exists for units in your partnership and may result in others not tendering for such units. In such a case, you would regularly have access only to the limited information your partnership's agreement of limited partnership requires your general partner (which is our affiliate) to provide each year, which information consists primarily of tax information. In particular, you will continue to receive a Schedule K-1 each year as well as audited financial statements with respect to your partnership. See "The Litigation Settlement Offer -- Section 1. Terms of the Offer; Expiration Date."" (3) The first, second and third paragraphs of "THE LITIGATION SETTLEMENT OFFER - Section 9. The Lawsuit and the Settlement - The Settlement of the Nuanes and Heller Complaints" is amended and restated as follows: "On December 20, 2002, the parties to the above-entitled litigation executed a Stipulation of Settlement of the two actions. That settlement was the result of over one year of negotiations and the involvement of two separate settlement judges. Class counsel and defendants' counsel first met with the Honorable William J. Cahill, Retired California Superior Court Judge, on two separate occasions. Counsel also met on four separate occasions with the Honorable Margaret J. Kemp, California Superior Court Judge, before reaching a settlement in principle. The parties initially met with Judge Cahill on two occasions in the fall of 2000, but were ultimately unsuccessful in reaching a definitive settlement agreement. At the Court's direction, they renewed formal settlement discussions before Judge Kemp. The parties first attended a settlement conference before Judge Kemp in September or October 2002 and then subsequently met with her on October 28, 2002, November 26, 2002 and December 2, 2002. The parties reached final agreement on the material terms of the settlement at the last settlement conference with Judge Kemp on December 2, 2002 and put the terms of that agreement on the record in open court. In each of the conferences described above, counsel from Lieff Cabraser Heimann & Bernstein LLP, Farella Braun & Martel LLP & Berman Devalerio Pease & Tobacco attended on behalf of the named plaintiffs and the putative settlement class; counsel from Skadden, Arps, Slate, Meagher & Flom LLP attended on behalf of AIMCO and its affiliated entities, including your general partner, and Orrick Herrington & Sutcliffe attended on behalf of the remaining defendants. AIMCO Executive Vice President Patrick Foye also attended each of these meetings. Mr. Vincent Gresham of the Law Offices of Vincent Gresham also participated on behalf of plaintiffs and the putative settlement class in those settlement discussions before the Hon. Cahill, Retired. At these meetings, discussions included possible transactions that could provide liquidity to investors and form the basis of a settlement, the use of a settlement fund and the amount of such fund, the timing and distribution of any settlement fund, selection and use of an appraiser and disclosures that would accompany any contemplated transaction(s). The participants considered but ultimately rejected a merger or roll-up of the various partnerships as possible alternatives to cash tender offers. The parties ultimately concluded, however, that a merger or roll-up could be potentially complicated and time consuming and that a cash tender offer would be a less coercive form of providing liquidity to those investors who desired it. The Settlement Agreement requires each tender offer to attach executive summaries of partnership property appraisals commissioned specifically for the settlement tender offers and to provide an explanation of how the appraised values of the properties compare to the per Unit price(s) being offered. It also requires the payment of an allocable portion of the settlement fund for each unit tendered pursuant to the settlement fund, details the scope of the release and covenants not to sue which will bind class members, requires that tender offers be made no more than one year after final approval of the settlement and imposes certain restrictions on the length of time in which the tender offers can remain open, as well as with regard to other disclosures 17 made therein. On April 4, 2003, the Court preliminarily approved the settlement and, on June 13, 2003, entered an order finally approving the settlement and dismissing both the Heller and Nuanes litigation with prejudice. On August 12, 2003, an objector filed an appeal of the court's order approving the settlement and is seeking to reverse or vacate the Court's order and the judgment entered thereto. Although we reserve our right to terminate or amend our offer if final court approval of the settlement is reversed or vacated, we have nevertheless elected to proceed with this offer under the terms of the settlement. On November 24, 2003, the objector appealing the settlement and judgment entered thereto filed an application requesting the Court order AIMCO to withdraw the settlement tender offers, refrain from making further offers pending the appeal and auction any units tendered to third parties. The objector contends that this offer does not conform with the terms of the Settlement. Alternatively, counsel for the objector has requested the Court on behalf of a settlement class member order AIMCO to pay all non-tendering settlement class members their pro rata share of the Settlement Fund whether or not the settlement and judgment entered thereto is vacated on appeal and to notify settlement class members that the releases and covenant not to sue are not binding unless the settlement and judgment entered thereto is affirmed on appeal. AIMCO asserts that such applications are without merit and is opposing such applications." (4) The second paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 11. Background and Reasons for the Offer - Alternatives Considered by Your General Partner -- Liquidation" is amended and restated as follows: "If your partnership was liquidated, and the properties sold at prices equal to the values recently determined by the independent appraiser (see Annex II), we estimate that your net liquidation proceeds would be $14.26 per unit. See "The Litigation Settlement Offer -- Section 8. Valuation of Units." However, in the opinion of your general partner, which is our affiliate, the present time may not be the most desirable time to sell the real estate assets of your partnership in a private transaction, and the proceeds realized from any such sale would be uncertain. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Although future operating results and sales prices are uncertain, your general partner believes that the operating performance of your partnership's property may improve in the future. This improvement, should it occur, may result in higher property values. Such values, however, are also a function of capitalization rates in the market and the interest rate environment at the time. However, because your general partner and property manager (which are our affiliates) receive fees for managing your partnership and its property, a conflict of interest exists between continuing the partnership and receiving such fees, on the one hand, and the liquidation of the partnership and the termination of such fees, on the other. See "The Litigation Settlement Offer -- Section 15. Certain Information Concerning Your Partnership -- Investment Objectives and Policies; Sale or Financing of Investments" and "--Section 13. Conflicts of Interest and Transactions with Affiliates." The term of the partnership will continue until December 31, 2005, unless the partnership is terminated sooner under the provisions of the partnership agreement." (5) The paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 11. Background and Reasons for the Offer - Alternative Transactions Considered by Us" is amended and restated as follows: "Alternative Transactions Considered by Us. At the present time, we have decided to proceed with this offer pursuant to the court approved settlement. From time to time in the past, we have considered proposing a number of alternative transactions, including the purchase of your partnership's property or a merger of your partnership in which you would receive cash in exchange for your units. We decided not to pursue these alternative transactions because, in each case, we determined that a tender offer would be a less expensive means of acquiring additional interests in your partnership, and would not require the consent or approval of any limited partners (other than those who elect to tender their units). In the future, however, we may consider purchasing your partnership's property or effecting such a merger. See "The Litigation Settlement Offer -- Section 14. Future Plans of the Purchaser." We also considered an offer to exchange units in your partnership for limited partnership interests in AIMCO Properties, L.P. However, because of the expense and delay associated with making such an exchange offer, we decided to make an offer for cash only. In addition, our historical experience has been that when we have offered limited partners an opportunity to receive cash or limited partnership interests in AIMCO Properties, L.P., the limited partners who tender usually prefer the cash option." 18 (6) The fourth and fifth paragraphs under "THE LITIGATION SETTLEMENT OFFER - Section 14. Future Plans of the Purchaser" are amended and restated as follows: "We have been advised that the general partner does not currently expect to consider, on behalf of your partnership any of the following transactions: (i) payment of extraordinary distributions; (ii) refinancing, reducing or increasing existing indebtedness of the partnership; (iii) sales of assets, individually or as part of a complete liquidation; and (iv) mergers or other consolidation transactions involving the partnership. Any such merger or consolidation transaction could involve other limited partnerships in which your general partner or its affiliates serve as general partners, or a combination of the partnership with one or more existing, publicly traded entities (including, possibly, affiliates of AIMCO), in any of which limited partners might receive cash, common stock or other securities or consideration. As discussed under "The Litigation Settlement Offer - Section 15. Certain Information Concerning Your Partnership - Investment Objectives and Policies; Sale or Financing of Investments," the general partner regularly evaluates the real estate and capital markets. The general partner may consider refinancing the partnership's existing indebtedness to the extent that the general partner is able to obtain a lower interest rate or if such indebtedness is approaching maturity. Furthermore, in the event that the general partner receives an attractive offer for any of your partnership's properties, the general partner would give due consideration to such an offer. If any of the transactions referred to above occur, and financial benefits accrue to the limited partners, we will participate in those benefits to the extent of our ownership of units. The agreement of limited partnership prohibits limited partners from voting on actions taken by the partnership, unless otherwise specifically permitted therein. Limited partners may vote on a liquidation, and we will be able to significantly influence or control the outcome of any such vote. Our primary objective in seeking to acquire the units pursuant to the offer is not, however, to influence the vote on any particular transaction, but rather to generate a profit on the investment represented by those units." ITEM 7. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. Item 7(a), (b) and (d) of the Schedule TO is amended and supplemented as follows: (1) The following sentence is added to the end of the first paragraph under "THE LITIGATION SETTLEMENT OFFER -Section 21. Fees and Expenses": "The partnership will not be responsible for paying any of the fees or expenses incurred by us in connection with this offer." (2) The second paragraph under "THE LITIGATION SETTLEMENT OFFER -- Section 21. Fees and Expenses" is amended and restated as follows: "The following is an itemized statement of the aggregate estimated expenses incurred and to be incurred in this offer by us: Information Agent Fees............... $ 7,500 Legal Fees........................... 11,000 Printing Fees........................ 12,050 Tax and Accounting Fees.............. 1,500 Postage.............................. 500 Appraiser............................ 4,450 Depositary........................... 500 ------------ Total.............................. $ 37,500" =============
19 ITEM 8. INTEREST IN SECURITIES OF THE SUBJECT COMPANY. Item 8 of the Schedule TO is amended and supplemented as follows: The following paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 15. Certain Information Concerning Your Partnership" is amended and restated as follows: "Ownership and Voting. We, together with AIMCO IPLP, L.P. (which is our affiliate), own 52,671 units, or 63.83%, of the outstanding units of your partnership. Because we and our affiliates own a majority of the outstanding units, we have the ability to control most votes of the limited partners. See "The Litigation Settlement Offer -- Section 7. Effects of the Offer" and "-- Section 16. Voting Power."" ITEM 11. ADDITIONAL INFORMATION. Item 11(b) of the Schedule TO is amended and supplemented as follows: Section 16 under "THE LITIGATION SETTLEMENT OFFER" is amended and restated as follows: "16. VOTING POWER Decisions with respect to the day-to-day management of your partnership are the responsibility of the general partner. Because the general partner of your partnership is our affiliate, we control the management of your partnership. Under your partnership's agreement of limited partnership, limited partners holding a majority of the outstanding units must approve certain extraordinary transactions, including the removal of the general partner, most amendments to the partnership agreement and the sale of all or substantially all of your partnership's assets. We, together with AIMCO IPLP, L.P. (which is our affiliate) own 52,671 units, or 63.83%, of the outstanding units of your partnership. Because we and our affiliates own a majority of the outstanding units, we control most voting decisions made by limited partners. See "The Litigation Settlement Offer -- Section 7. Effects of the Offer."" ITEM 12. EXHIBITS. Item 12 of the Schedule TO is amended and supplemented as follows: (c)(1) Appraisal of Oakwood Village on Lake Nan (c)(2) Appraisal of Willow Park on Lake Adelaide 20 ITEM 13. INFORMATION REQUIRED BY SCHEDULE 13E-3. Item 13 of the Schedule TO is amended and supplemented as follows: (1) The thirteenth paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 6. Certain Federal Income Tax Matters" is amended and restated as follows: "Tax Consequences to Your Partnership of Our Offer. Section 708 of the Code provides that if there is a sale or exchange of 50% or more of the total interest in capital and profits of a partnership within any 12-month period, such partnership terminates for United States federal income tax purposes. It is possible that our acquisition of units pursuant to the offer alone or in combination with other transfers of interests in your partnership could result in such a termination of your partnership. If your partnership is not deemed to terminate for tax purposes, there will be no tax effect to your partnership. If your partnership is deemed to terminate for tax purposes, however, the following federal income tax events will be deemed to occur: the terminated partnership will be deemed to have contributed all of its assets (subject to its liabilities) to a new partnership in exchange for an interest in the new partnership and, immediately thereafter, the old partnership will be deemed to have distributed interests in the new partnership to the remaining limited partners in proportion to their respective interests in the old partnership in liquidation of the old partnership. A termination of your partnership for federal income tax purposes may also subject the assets of your partnership to longer depreciable lives than those currently applicable to the assets of your partnership. This would generally decrease the annual average depreciation deductions following our offer, but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Additionally, upon a termination of your partnership, the taxable year of your partnership will close for federal income tax purposes. Elections as to tax matters previously made by the old partnership will not be applicable to the new partnership unless the new partnership chooses to make the same elections. Tax Consequences to Non-Tending and Partially-Tendering Limited Partners. As described above, if 50% or more of such interests are sold or exchanged within a 12 month period, including as a result of our acquisition of units, a deemed tax termination of your partnership will occur for tax purposes. If less than 50% of the total interest in capital and profits of your partnership are sold or exchanged within any 12 month period, there will be no tax effect to you from the offer. You will not recognize any gain or loss upon a deemed tax termination of your partnership, and your capital account in your partnership will carry over to the new partnership. A termination of your partnership for federal income tax purposes may change (and possibly shorten) your holding period with respect to interests in your partnership that you choose to retain. Gain recognized by you on the disposition of retained units with a holding period of 12 months or less may be classified as short-term capital gain and subject to taxation at ordinary income tax rates. A deemed tax termination will also decrease the annual depreciation deductions (as a result of the longer partnership depreciation lives described above) allocable to you (thereby possibly increasing the taxable income allocable to your interests in the partnership each year)." 21 (2) The first two paragraphs under "THE LITIGATION SETTLEMENT OFFER -- Section 7. Effects of the Offer" are amended and restated as follows: "Because the general partner of your partnership is our affiliate, we have control over the management of your partnership. In addition, we, together with AIMCO IPLP, L.P. (which is our affiliate), own 52,671, or 63.83%, of the outstanding units of your partnership. Because we and our affiliates own a majority of the outstanding units and control your partnership's general partner, we control the outcome of most voting decisions with respect to your partnership. In general, we will vote the units owned by us in whatever manner we deem to be in our best interests, which may not be in the interest of other limited partners. This could (1) prevent non-tendering limited partners from taking action that they desire but that we oppose and (2) enable us to take action desired by us but opposed by non-tendering limited partners. We are also affiliated with the company that currently manages, and has managed for some time, the property owned by your partnership. In the event that we acquire a substantial number of units pursuant to this offer, removal of the property manager may become more difficult or impossible. If we acquire all of the units that we are seeking in the offer, our interest in your partnership's net earnings ($8,000 for the nine months ended September 30, 2003) and net book value ($(9,271,000) as of September 30, 2003) will increase to 100%. AIMCO-GP owns a 1% interest in AIMCO Properties, L.P. and AIMCO, through its subsidiaries, owns an 89% in AIMCO Properties." (3) The second paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 7. Effects of the Offer - Effect on the Trading Market; Registration Under Section 12(g) of the Exchange Act" is amended and restated as follows: "The units are registered under Section 12(g) of the Exchange Act, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. We do not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Exchange Act. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Exchange Act. Your partnership currently has 1,945 unitholders. The lack of filing periodic reports could affect the already limited secondary market which currently exists for units in your partnership and may result in others not tendering for such units. In such a case, you would regularly have access only to the limited information your partnership's agreement of limited partnership requires your general partner (which is our affiliate) to provide each year, which information consists primarily of tax information. In particular, you will continue to receive a Schedule K-1 each year as well as audited financial statements with respect to your partnership. See "The Litigation Settlement Offer -- Section 1. Terms of the Offer; Expiration Date."" (4) The following subsection under "THE LITIGATION SETTLEMENT OFFER - Section 8. Valuation of Units" is amended and restated as follows: 22 ESTIMATED LIQUIDATION PROCEEDS BASED ON INDEPENDENT APPRAISAL SELECTION AND QUALIFICATIONS OF INDEPENDENT APPRAISER. Under the terms of the settlement, your partnership's property was appraised by American Appraisal Associates, Inc. ("AAA"), an independent appraiser appointed by the court. The information set forth below was provided to us by AAA with respect to its appraisals. AAA is an experienced independent valuation consulting firm with more than 50 offices on four continents. AAA provides valuation and consulting services for the real estate industry through its specialized industry focus and operates through a team of professionals with different economical, financial, statistical, legal, architectural, urban and engineering knowledge and expertise. FACTORS CONSIDERED. AAA performed complete appraisals of all of your partnership's properties. AAA has represented that its report was prepared in conformity with the Uniform Standards of Professional Appraisal Practice and the Code of Professional Ethics and Standards of Professional Practice of the Appraisal Institute. We furnished the appraiser with all of the necessary information requested by AAA in connection with the appraisal. The information furnished to the appraiser was true, correct and complete in all material respects. No limitations were imposed on AAA by us or any of our affiliates. In preparing its valuation of your partnership property, AAA: o inspected and analyzed the exterior of all buildings and site improvements and a representative sample of units; o conducted neighborhood and area research, including major employers, demographics (population trends, number of households, and income trends), housing trends, surrounding uses, and general economic outlook of the area; o conducted market research of rental inventory, historical vacancy rates, historical average rental rates, occupancy trends, concessions, and marketing strategies in the submarket, and occupancy rates at competing properties; o reviewed leasing policy, concessions and history of recent occupancy; o reviewed the historical operating statements for your partnership's property and an operating budget forecast for 2003; o prepared an estimate of stabilized income and expense (for capitalization purposes); o conducted market inquiries into recent sales of similar properties to ascertain sales price per unit, effective gross income multipliers and capitalization rates; and o prepared sales comparison and income capitalization approaches to value. AAA was provided by us with the following management budgets for your partnership's property:
OAKWOOD VILLAGE WILLOW PARK FISCAL YEAR 2003 FISCAL YEAR 2003 MANAGEMENT BUDGET MANAGEMENT BUDGET DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT ---------- -------- ---------- -------- Revenues Rental Income $2,092,996 $ 7,529 $1,378,224 $ 7,450 Vacancy 104,648 376 66,578 360 Credit Loss/Concessions 57,876 208 71,040 384 Subtotal $ 162,524 $ 585 $ 137,618 $ 744 Laundry Income $ 21,996 $ 79 $ 19,344 $ 105 Garage Revenue 0 0 0 0 Other Misc. Revenue 150,540 542 89,136 482 Subtotal Other $ 172,536 $ 621 $ 108,480 $ 586 Income Effective Gross Income $2,103,008 $ 7,565 $1,349,086 $ 7,292 Operating Expenses Taxes $ 146,272 $ 526 $ 101,485 $ 549 Insurance 75,234 271 54,742 296 Utilities 137,844 496 117,600 636 Repair & Maintenance 134,022 482 146,700 793 Cleaning 0 0 0 0 Landscaping 0 0 0 0 Security 0 0 0 0 Marketing & Leasing 48,000 173 37,200 201 General Administrative 258,312 929 175,124 947 Management 105,960 381 68,254 369 Miscellaneous 0 0 0 0 Total Operating Expenses $ 905,644 $ 3,258 $ 701,105 $ 3,790 Reserves 0 0 0 0 Net Income $1,197,364 $ 4,307 $ 647,981 $ 3,503
THE ABOVE MANAGEMENT BUDGETS ARE INTERNALLY PREPARED OPERATING PROJECTIONS FOR THE PARTNERSHIP'S PROPERTIES. A MANAGEMENT BUDGET DOES NOT REFLECT A PROPERTY'S ACTUAL PERFORMANCE, OR CHANGES IN THE CONDITION OF A PROPERTY, IN THE LOCAL AREA SURROUNDING A PROPERTY OR IN THE ECONOMY IN GENERAL. 23 SUMMARY OF APPROACHES AND METHODOLOGIES EMPLOYED. The following summary describes the material approaches and analyses employed by AAA in preparing the appraisals. The partnership imposed no conditions or limitations on the scope of AAA's investigation or the methods and procedures to be followed in preparing the appraisal. AAA principally relied on two approaches to valuation: (1) the sales comparison approach and (2) the income capitalization approach. The sales comparison approach uses analysis techniques and sales of comparable improved properties in surrounding or competing areas to derive units of comparison that are then used to indicate a value for the subject property. Under this approach, the primary methods of analysis used by the appraiser were: (1) sales price per unit analysis; (2) net operating income analysis; and (3) effective gross income analysis. The purpose of the income capitalization approach is to value an income-producing property by analyzing likely future income and expenses of the property over a reasonable holding period. Under the income capitalization approach, AAA performed: (1) a direct capitalization analysis and (2) a discounted cash flow analysis to derive property value. The direct capitalization analysis determines the value of a property by applying a capitalization rate that takes into account all of the factors influencing the value of such property to the net operating income of such property for a single year. The direct capitalization method is normally more appropriate for properties with relatively stable operating histories and expectations. The discounted cash flow analysis determines the value of a property by discounting to present value the estimated operating cash flow of such property and the estimated proceeds of a hypothetical sale of such property at the end of an assumed holding period. The discounted cash flow method is more appropriate for the analysis of investment properties with multiple or long-term leases, particularly leases with cancellation clauses or renewal options. It is especially useful for multi-tenant properties in volatile markets. AAA relied principally on the income capitalization approach to valuation and secondarily on the sales comparison approach. Although the sales comparison approach is considered a reliable method for valuing property, the income capitalization approach is the primary approach used for valuing income producing property, such as your partnership's property. Summary of independent appraisals of your partnership's property. AAA performed complete appraisals of all of your partnership's properties. The summary set forth below describes the material conclusions reached by AAA based on the values determined under the valuation approaches and subject to the assumptions and limitations described below. The estimated total "as is" market value of the fee simple estate of your partnership's property is $17,700,000, which was determined by adding the estimated values determined by AAA for each of your partnership's properties and which is higher than our estimated total gross valuation of $13,400,000. OAKWOOD VILLAGE APARTMENTS Valuation Under Sales Comparison Approach. AAA compared five apartment complexes with Oakwood Village Apartments that were sold between May 2001 and September 2002 and located in the property's real estate market area. Based on its qualitative analysis, AAA rated the locations of two comparable properties as superior 24 and three comparable properties as comparable to the location of Oakwood Village on Lake Nan. AAA rated the quality/appeal of one comparable property as superior, three comparable properties as comparable and one comparable property as inferior to the quality/appeal of Oakwood Village Apartments. AAA rated the amenities of one comparable property as comparable and four comparable properties as inferior to the amenities of Oakwood Village Apartments. AAA made adjustments to the sales price per unit of each comparable property to reflect differences from Oakwood Village Apartments in location, number of units, quality/appeal, age/condition, occupancy at sale, amenities and average unit size. Based on the available data, AAA concluded a value range of $37,500 to $43,844 per unit with a mean or average adjusted price of $40,825 per unit and a median adjusted price of $40,865 per unit. Thus, the estimated value based on a $41,000 sales price per unit for the 278 units was approximately $11,200,000 after adjustment for present value of concessions. As part of the sales comparison approach, AAA also conducted a net operating income ("NOI") analysis. NOI effectively takes into account the various physical, location and operating aspects of the sale. AAA compared Oakwood Village Apartments' NOI to the NOI of the five comparable properties and arrived at a percentage adjustment. After applying the percentage adjustment to the sales price per unit of each comparable property, the range of value was between $37,868 and $43,540 per unit, with an average of $40,803 per unit. The appraiser concluded a value of $40,000 per unit for the 278 units of the property, resulting in an estimated "as is" market value of $10,900,000 using the NOI analysis after adjustment for present value of concessions. AAA also performed an effective gross income multiplier ("EGIM") analysis. The EGIM measures the relationship between the sales price of a property and its effective gross income, which is the total annual income that a property would produce after an allowance for vacancy and credit loss. AAA estimated the operating expense ratio ("OER") of Oakwood Village Apartments to be 44.84% before reserves, with the expense ratios of the five comparable properties ranging from 33.85% to 45.32%, resulting in EGIMs ranging from 5.27 to 7.05. Thus, AAA concluded an EGIM of 5.25 for Oakwood Village Apartments, and applied the EGIM to the stabilized effective gross income for the property (see Income Approach section below), resulting in a value conclusion of approximately $11,300,000 after adjustment for present value of concessions. AAA estimated the value using the price per unit analysis at $11,200,000, the value using the NOI analysis at $10,900,000 and the value using the EGIM analysis at $11,300,000 these three valuation methods, AAA concluded that the reconciled value for Oakwood Village Apartments under the sales comparison approach was $11,200,000. AAA assumed a marketing and exposure period of 6 to 12 months. Valuation Under Income Capitalization Approach. Under the income capitalization approach, AAA performed: (1) a direct capitalization analysis and (2) a discounted cash flow analysis to derive a value for Oakwood Village Apartments. AAA first utilized a discounted cash flow method to analyze the value of the property. Under this method, anticipated future cash flow and a reversionary value are discounted at an appropriate rate of return to arrive at an estimate of present value. AAA also employed a direct capitalization analysis on the property by dividing a forecast of net operating income ("NOI") by an appropriate capitalization rate. AAA performed a market rent analysis for the property to derive a projected rental income. The analysis included both a review of the subject's current asking and actual rent rates as well as a comparison with comparable apartment properties. AAA calculated Oakwood Village Apartments' effective gross income ("EGI") by adding apartment rental collections to other income and then making an adjustment for vacancy and collection loss. Under this analysis, AAA arrived at an EGI of $2,183,998. Once the EGI was established, operating expenses were deducted from the EGI in order to arrive at an NOI for Oakwood Village Apartments of approximately $1,135,158 performed a pro forma analysis of revenue and expenses for the property to derive the subject's stabilized NOI. AAA relied on the subject's historical and budgeted income and expenses for this estimate. AAA derived appropriate investment criteria, including an overall capitalization rate, terminal capitalization rate and a discount rate based upon analysis of comparable sales and a survey of real estate investors. 25 The assumptions employed by AAA to determine the value of Oakwood Village Apartments under the income approach included: (1) stabilized vacancy and collection loss rate of 10%; (2) replacement reserve of $250 per unit; (3) overall capitalization rate of 10.50%; (4) terminal capitalization rate of 11.50%; (5) discount rate of 13.00%; (6) 2.00% cost of sale at reversion; and (7) holding period of 10 years. No adjustment was made for lease-up costs because the property was near or at a stabilized condition. An adjustment was made for concessions due to soft market conditions, and AAA estimated the present value of concessions to be $209,000. Based on these assumptions, AAA's estimate of cash flows for a 10-year period resulted in an indicated value of $10,900,000 through the discounted cash flow method. The reversion value contributed approximately 35% of the value. Under the direct capitalization method, utilizing a capitalization rate of 10.50%, the projected NOI resulted in a value (after rounding) of $10,600,000 after adjustments for present value of concessions. Using the income capitalization approach, AAA determined on an as-is basis that the direct capitalization method and the discounted cash flow method indicated the value for Oakwood Village Apartments was $10,900,000. Reconciliation of Values and Conclusions of Appraisal. The final step in the appraisal process was to reconcile the sales comparison approach and the income capitalization approach values to arrive at a final value conclusion. The reconciliation of the two approaches involved weighing the valuation techniques in relation to their substantiation by market and other sources of data, the relativity and applicability of the approaches to the property type, and the purpose of the valuation. AAA concluded that the estimated market value under the sales comparison approach was $11,200,000 and the estimated market value under the income capitalization approach was $10,900,000. After reconciling the various factors, AAA determined a final "as is" market value for Oakwood Village Apartments of $10,900,000 as of May 28, 2003. WILLOW PARK APARTMENTS Valuation Under Sales Comparison Approach. AAA compared five apartment complexes with Willow Park Apartments that were sold between May 2001 and November 2002 and located in the property's real estate market area. Based on its qualitative analysis, AAA rated the locations of all five comparable properties as comparable to the location of Willow Park Apartments. AAA rated the quality/appeal of four comparable properties as superior and one comparable property as comparable to the quality/appeal of Willow Park Apartments. AAA rated the amenities of two comparable properties as superior and three comparable properties as comparable to the amenities of Willow Park Apartments. AAA made adjustments to the sales price per unit of each comparable property to reflect differences from Willow Park Apartments in location, number of units, quality/appeal, age/condition, occupancy at sale, amenities and average unit size. Based on the available data, AAA concluded a value range of $36,219 to $37,500 per unit with a mean or average adjusted price of $36,770 unit and a median adjusted price of $36,550 per unit. Thus, the estimated value based on a $37,000 sales price per unit for the 185 units was approximately $6,800,000 after adjustment for present value of concessions. As part of the sales comparison approach, AAA also conducted a net operating income ("NOI") analysis. NOI effectively takes into account the various physical, location and operating aspects of the sale. AAA compared 26 Willow Park Apartments' NOI to the NOI of the five comparable properties and arrived at a percentage adjustment. After applying the percentage adjustment to the sales price per unit of each comparable property, the range of value was between $32,193 and $37,015 per unit, with an average of $35,444 per unit. The appraiser concluded a value of $36,000 per unit for the 185 units of the property, resulting in an estimated "as is" market value of $6,600,000 using the NOI analysis after adjustment for present value of concessions. AAA also performed an effective gross income multiplier ("EGIM") analysis. The EGIM measures the relationship between the sales price of a property and its effective gross income, which is the total annual income that a property would produce after an allowance for vacancy and credit loss. AAA estimated the operating expense ratio ("OER") of Willow Park Apartments to be 49.50% before reserves, with the expense ratios of the five comparable properties ranging from 33.85% to 48.94%, resulting in EGIMs ranging from 5.27 to 7.05. Thus, AAA concluded an EGIM of 5.30 for Willow Park Apartments, and applied the EGIM to the stabilized effective gross income for the property (see Income Approach section below), resulting in a value conclusion of approximately $7,000,000 after adjustment for present value of concessions. AAA estimated the value using the price per unit analysis at $6,800,000, the value using the NOI analysis at $6,600,000 and the value using the EGIM analysis at $7,000,000. Based on these three valuation methods, AAA concluded that the reconciled value for Willow Park Apartments under the sales comparison approach was $6,800,000. AAA assumed a marketing and exposure period of 6 to 12 months. Valuation Under Income Capitalization Approach. Under the income capitalization approach, AAA performed: (1) a direct capitalization analysis and (2) a discounted cash flow analysis to derive a value for Willow Park Apartments. AAA first utilized a discounted cash flow method to analyze the value of the property. Under this method, anticipated future cash flow and a reversionary value are discounted at an appropriate rate of return to arrive at an estimate of present value. AAA also employed a direct capitalization analysis on the property by dividing a forecast of net operating income ("NOI") by an appropriate capitalization rate. AAA performed a market rent analysis for the property to derive a projected rental income. The analysis included both a review of the subject's current asking and actual rent rates as well as a comparison with comparable apartment properties. AAA calculated Willow Park Apartments' effective gross income ("EGI") by adding apartment rental collections to other income and then making an adjustment for vacancy and collection loss. Under this analysis, AAA arrived at an EGI of $1,344,919. Once the EGI was established, operating expenses were deducted from the EGI in order to arrive at an NOI for Willow Park Apartments of approximately $642,198. AAA performed a pro forma analysis of revenue and expenses for the property to derive the subject's stabilized NOI. AAA relied on the subject's historical and budgeted income and expenses for this estimate. AAA derived appropriate investment criteria, including an overall capitalization rate, terminal capitalization rate and a discount rate based upon analysis of comparable sales and a survey of real estate investors. The assumptions employed by AAA to determine the value of Willow Park Apartments under the income approach included: (1) stabilized vacancy and collection loss rate of 12%; (2) replacement reserve of $200 per unit; (3) overall capitalization rate of 9.50%; (4) terminal capitalization rate of 10.50%; (5) discount rate of 12.00%; (6) 2.00% cost of sale at reversion; and (7) holding period of 10 years. 27 No adjustment was made for lease-up costs because the property was near or at a stabilized condition. An adjustment was made for concessions due to soft market conditions, and AAA estimated the present value of concessions to be $90,000. Based on these assumptions, AAA's estimate of cash flows for a 10-year period resulted in an indicated value of $6,800,000 through the discounted cash flow method. The reversion value contributed approximately 38% of the value. Under the direct capitalization method, utilizing a capitalization rate of 9.50%, the projected NOI resulted in a value (after rounding) of $6,700,000 after adjustments for present value of concessions. Using the income capitalization approach, AAA determined on an as-is basis that the direct capitalization method and the discounted cash flow method indicated the value for Willow Park Apartments was $6,800,000. Reconciliation of Values and Conclusions of Appraisal. The final step in the appraisal process was to reconcile the sales comparison approach and the income capitalization approach values to arrive at a final value conclusion. The reconciliation of the two approaches involved weighing the valuation techniques in relation to their substantiation by market and other sources of data, the relativity and applicability of the approaches to the property type, and the purpose of the valuation. AAA concluded that the estimated market value under the sales comparison approach was $6,800,000 and the estimated market value under the income capitalization approach was $6,800,000. After reconciling the various factors, AAA determined a final "as is" market value for Willow Park Apartments of $6,800,000 as of May 28, 2003. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS OF AAA'S VALUATION. In preparing the appraisal, AAA relied, without independent verification, on the accuracy and completeness of all information supplied or otherwise made available to it by or on behalf of the partnership. In arriving at the appraisal, AAA assumed: o good and marketable title to the property; o validity of owner's claim to the property; o no encumbrances which could not be cleared through normal processes, unless otherwise stated; o accuracy of land areas and descriptions obtained from public records; o no subsurface mineral and use rights or conditions; o no substances such as asbestos, urea-formaldehyde foam insulation, other chemicals, toxic wastes, or other potentially hazardous materials in existence or present on or in the property; o full compliance with applicable federal, state and local environmental regulations and laws, unless otherwise stated, defined and considered; o possession of all required licenses, consents, or other legislative or administrative authority from any local, state, or national government or private entity organization and that the renewal of these items is possible; o compliance with all applicable zoning and use regulations and restrictions, unless a nonconformity has been stated, defined, and considered; o utilization of the land and improvements within property boundaries and no encroachment or trespass of the improvements, unless otherwise stated; o the structural integrity of the property including its conformity to specific governmental code requirements, such as fire, building and safety, earthquake, and occupancy, or any physical defects not readily apparent during inspection; and o compliance with the Americans with Disabilities Act of 1992. COMPENSATION OF APPRAISER. AAA was appointed by the court to perform all the real estate appraisals in connection with the settlement and this Litigation Settlement Offer. AAA was paid a fee of $619,100 for the appraisals. We have agreed to pay 50% of the costs of the appraisals, with the other 50% to be paid from the settlement fund. AAA has conducted other appraisals of property in connection with the other offers being made pursuant to the settlement agreement. Other than the appraisals performed in connection with the settlement agreement, during the prior two years, no material relationship has existed between AAA and your partnership or any of its affiliates, including the AIMCO Entities. 28 AVAILABILITY OF APPRAISAL REPORTS. You may obtain a full copy of AAA's appraisals upon request, without charge, by contacting the Information Agent at one of the addresses or the telephone number on the back cover of this Litigation Settlement Offer. Copies of the appraisal for the property are also available for inspection and copying at the principal executive offices of the partnership during regular business hours by any interested unitholder or his or her designated representative at his or her cost. In addition, a copy of the appraisals has been filed with the SEC as an exhibit to the Tender Offer Statement and Rule 13e-3 Transaction Statement on Schedule TO. In estimating the net liquidation proceeds that would be payable per unit based on the total appraised value of your partnership's properties, we applied the same basic methodology as described under "Valuation of Units", except that we did not deduct any amounts that were reflected in the total appraised value nor did we include any payment from the settlement fund. As indicated below, based on the total appraised value of the partnership properties, the estimated net liquidation proceeds per unit is $14.26, which is higher than our offer price of $4.57. 29 Appraised value of partnership properties................... $ 17,700,000 Plus: Cash and cash equivalents (net of tenant security deposits)................................................. 109,843 Plus: Other partnership assets, including any amounts payable by the general partner and its affiliates upon liquidation............................................... 177,504 Less: Mortgage debt, including accrued interest and any prepayment penalty........................................ (13,033,726) Less: Loans owed to general partner and affiliates.......... (2,995,353) Less: Accounts payable and accrued expenses................. (270,677) Less: Other liabilities..................................... (301,699) ------------ Partnership valuation before taxes and certain costs........ $ 1,385,891 Less: Disposition fees authorized by the partnership agreement................................................. (389,400) Plus: General partner contribution under deficit restoration provision................................................. 336,353 ------------ Estimated net liquidation proceeds of your partnership...... $ 1,332,845 Percentage of estimated net liquidation proceeds allocable to holders of units based on the partnership agreement.... 88% ------------ Estimated net liquidation proceeds of units................. $ 1,176,266 Total number of units..................................... 82,513.00 ------------ Estimated net liquidation proceeds per unit................. $ 14.26 ============
(5) The second paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 11. Background and Reasons for the Offer - Alternatives Considered by Your General Partner -- Liquidation" is amended and restated as follows: "If your partnership was liquidated, and the properties sold at prices equal to the values recently determined by the independent appraiser (see Annex II), we estimate that your net liquidation proceeds would be $14.26 per unit. See "The Litigation Settlement Offer -- Section 8. Valuation of Units." However, in the opinion of your general partner, which is our affiliate, the present time may not be the most desirable time to sell the real estate assets of your partnership in a private transaction, and the proceeds realized from any such sale would be uncertain. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Although future operating results and sales prices are uncertain, your general partner believes that the operating performance of your partnership's property may improve in the future. This improvement, should it occur, may result in higher property values. Such values, however, are also a function of capitalization rates in the market and the interest rate environment at the time. However, because your general partner and property manager (which are our affiliates) receive fees for managing your partnership and its property, a conflict of 30 interest exists between continuing the partnership and receiving such fees, on the one hand, and the liquidation of the partnership and the termination of such fees, on the other. See "The Litigation Settlement Offer -- Section 15. Certain Information Concerning Your Partnership -- Investment Objectives and Policies; Sale or Financing of Investments" and "--Section 13. Conflicts of Interest and Transactions with Affiliates." The term of the partnership will continue until December 31, 2005, unless the partnership is terminated sooner under the provisions of the partnership agreement." (6) The paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 11. Background and Reasons for the Offer - Alternative Transactions Considered by Us" is amended and restated as follows: "Alternative Transactions Considered by Us. At the present time, we have decided to proceed with this offer pursuant to the court approved settlement. From time to time in the past, we have considered proposing a number of alternative transactions, including the purchase of your partnership's property or a merger of your partnership in which you would receive cash in exchange for your units. We decided not to pursue these alternative transactions because, in each case, we determined that a tender offer would be a less expensive means of acquiring additional interests in your partnership, and would not require the consent or approval of any limited partners (other than those who elect to tender their units). In the future, however, we may consider purchasing your partnership's property or effecting such a merger. See "The Litigation Settlement Offer -- Section 14. Future Plans of the Purchaser." We also considered an offer to exchange units in your partnership for limited partnership interests in AIMCO Properties, L.P. However, because of the expense and delay associated with making such an exchange offer, we decided to make an offer for cash only. In addition, our historical experience has been that when we have offered limited partners an opportunity to receive cash or limited partnership interests in AIMCO Properties, L.P., the limited partners who tender usually prefer the cash option." (7) Section 12 under "THE LITIGATION SETTLEMENT OFFER" is amended and restated as follows: "12. POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER The partnership and the general partner of your partnership (which is our affiliate) have provided the following information for inclusion in this Litigation Settlement Offer: Factors in Favor of Fairness Determination. The general partner of your partnership believes the offer price and the structure of the transaction are fair to the unaffiliated limited partners. In support of such determination, the general partner considered the factors and information set forth below, but did not quantify or otherwise attach particular weight to any such factors or information: o the Court's approval of the settlement pursuant to which the offer is being made; o the fact that the interests of the unaffiliated limited partners were represented by counsel in the negotiation of the settlement agreement; o the method we used to determine our offer price is a method commonly relied upon by investors to value income producing property; o the offer gives limited partners an opportunity to make an individual decision on whether to tender their units or to continue to hold them; 31 o there is no established trading market for the limited partnership units, and the offer would provide immediate liquidity for tendering limited partners; o the uncertainty of the resulting proceeds from the possible alternative transactions, particularly a property sale or a liquidation of the partnership, o the fact that no unaffiliated limited partners would be able to participate in the future performance of the partnership following such alternative transactions; o the offer price exceeds the book value per unit of $(112.36) at September 30, 2003; o the fact that our offer price does not reflect any discount for minority interests; and o the absence of any other firm offers by third parties for all or substantially all of the partnership's assets, a merger or other extraordinary transaction during the past two years with which to compare the Litigation Settlement Offer. Factors Not in Favor of Fairness Determination. In addition to the foregoing factors, the general partner considered the following countervailing factors: o the recent valuation of your partnership's property by American Appraisal Associates, Inc., an independent appraiser appointed by the Court, which results in an estimate of net liquidation proceeds per unit of $14.26, which is higher than our offer price of $4.57; o the fact that offer prices in our prior tender offers were higher than our current offer price; and o prices at which the units have recently sold were higher than our current offer price. The general partner believes that consideration of the offer was procedurally fair because, among other things, (1) the Court approved the settlement agreement pursuant to which the offer is being made, (2) limited partners are provided the opportunity to retain their units, (3) the unaffiliated limited partners were represented by counsel in the negotiation of the settlement agreement, and (4) limited partners can evaluate our offer price by comparing it to the net liquidation proceeds per unit derived from the independent appraiser's property valuation. While the general partner believes our offer is fair, the general partner also believes that you must make your own decision whether or not to participate in any offer, based upon a number of factors, including several factors that may be personal to you, such as your financial position, your need or desire for liquidity, your preferences regarding the timing of when you might wish to sell your units, other financial opportunities available to you, and your tax position and the tax consequences to you of selling your units. Consequently, the general partner makes no recommendation as to whether or not you should tender or refrain from tendering your units in this offer. YOU ARE ENCOURAGED TO CAREFULLY REVIEW THIS LITIGATION SETTLEMENT OFFER, THE EXECUTIVE SUMMARY OF THE INDEPENDENT APPRAISER'S REPORT (ATTACHED AS ANNEX II) AND ANY OTHER INFORMATION AVAILABLE TO YOU AND TO SEEK ADVICE FROM YOUR INDEPENDENT LAWYER, TAX ADVISOR AND/OR FINANCIAL ADVISOR BEFORE DECIDING WHETHER OR NOT TO ACCEPT THIS LITIGATION SETTLEMENT OFFER. Neither the general partner of your partnership or its affiliates have any plans or arrangements to tender any units. Except as otherwise provided in "The Litigation Settlement Offer -- Section 14. 32 Future Plans of the Purchaser," the general partner does not have any present plans or proposals which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation, involving your partnership; a purchase or sale or transfer of a material amount of your partnership's assets; or any changes in your partnership's present capitalization, indebtedness or distribution policies. For information relating to certain relationships between your partnership and its general partner, on one hand, and AIMCO and its affiliates, on the other, and conflicts of interests with respect to the tender offer, see "The Litigation Settlement Offer -- Section 11. Background and Reasons for the Offer" and "-- Section 13. Conflicts of Interest and Transactions with Affiliates." See also "The Litigation Settlement Offer -- Section 8. Valuation of Units -- Comparison to Alternative Consideration" for certain information regarding transactions with respect to units of your partnership. Your partnership did not receive any report, opinion or appraisal with respect to the fairness of this Litigation Settlement Offer or the offer price being offered to limited partners. However, the partnership did receive the appraisals prepared by AAA, as described above. Although the AIMCO Entities have interests that may be in conflict with those of the partnership's unaffiliated limited partners, each of the AIMCO Entities believes that the offer price and the structure of the transaction are fair to the unaffiliated limited partners based on the information and factors considered by the general partner of your partnership. Each of AIMCO Entities expressly adopts the analysis, and the factors underlying such analysis, of the general partner of your partnership." (8) The first paragraph of "THE LITIGATION SETTLEMENT OFFER - Section 13. Conflicts of Interest and Transactions with Affiliates -- Transactions with Affiliates" is amended and restated as follows: "NHP Management Company (which is our affiliate) received fees of approximately $135,000 and $229,000 for the years ended December 31, 2002 and 2001, respectively, for construction management services. The construction management service fees are calculated based on a percentage of current additions to investment properties." (9) The second paragraph of "THE LITIGATION SETTLEMENT OFFER - Section 13. Conflicts of Interest and Transactions with Affiliates -- Transactions with Affiliates" is amended and restated as follows: "In connection with the February 2001 refinancing of Oakwood Village at Lake Nan Apartments, the partnership paid approximately $70,000 to us, as allowed pursuant to the partnership agreement. This amount is recorded as loan costs and included in other assets on the balance sheet of the partnership." (10) The fourth and fifth paragraphs under "THE LITIGATION SETTLEMENT OFFER - Section 14. Future Plans of the Purchaser" are amended and restated as follows: "We have been advised that the general partner does not currently expect to consider, on behalf of your partnership any of the following transactions: (i) payment of extraordinary distributions; (ii) refinancing, reducing or increasing existing indebtedness of the partnership; (iii) sales of assets, individually or as part of a complete liquidation; and (iv) mergers or other consolidation transactions involving the partnership. Any such merger or consolidation 33 transaction could involve other limited partnerships in which your general partner or its affiliates serve as general partners, or a combination of the partnership with one or more existing, publicly traded entities (including, possibly, affiliates of AIMCO), in any of which limited partners might receive cash, common stock or other securities or consideration. As discussed under "The Litigation Settlement Offer - Section 15. Certain Information Concerning Your Partnership - Investment Objectives and Policies; Sale or Financing of Investments," the general partner regularly evaluates the real estate and capital markets. The general partner may consider refinancing the partnership's existing indebtedness to the extent that the general partner is able to obtain a lower interest rate or if such indebtedness is approaching maturity. Furthermore, in the event that the general partner receives an attractive offer for any of your partnership's properties, the general partner would give due consideration to such an offer. If any of the transactions referred to above occur, and financial benefits accrue to the limited partners, we will participate in those benefits to the extent of our ownership of units. The agreement of limited partnership prohibits limited partners from voting on actions taken by the partnership, unless otherwise specifically permitted therein. Limited partners may vote on a liquidation, and we will be able to significantly influence or control the outcome of any such vote. Our primary objective in seeking to acquire the units pursuant to the offer is not, however, to influence the vote on any particular transaction, but rather to generate a profit on the investment represented by those units." (11) The chart under "THE LITIGATION SETTLEMENT OFFER - Section 15. Certain Information Concerning Your Partnership - Financial Data" is amended by adding the following line items:
FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, ---------------------------- -------------------------------------- 2003 2002 2002 2001 2000 ------------- ------------- ------------- ------------- --------- (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Income (loss) per unit from continuing operations $ .10 $ (13.61) $ (17.56) $ (10.14) $ (2.81) Ratio of earnings to fixed charges (deficit)....... 101.1% (90.1%) (16.2%) 29.9% 78.3% Book value per limited partnership unit............ (112.36) (108.50) (112.46) (94.89) (45.27)
(12) The following chart under Annex I is amended and restated as follows:
NAME POSITION - -------------------------- ------------------------------------------------------------------ Terry Considine............ Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez......... Vice Chairman, President and Director Harry G. Alcock............ Executive Vice President and Chief Investment Officer Miles Cortez............... Executive Vice President, General Counsel and Secretary Joseph DeTuno.............. Executive Vice President -- Redevelopment Patti K. Fielding.......... Executive Vice President -- Securities and Debt Patrick J. Foye............ Executive Vice President Lance J. Graber............ Executive Vice President -- AIMCO Capital Paul J. McAuliffe.......... Executive Vice President and Chief Financial Officer Ronald D. Monson........... Executive Vice President and Head of Property Operations David Robertson............ Executive Vice President -- President and Chief Executive Officer of AIMCO Capital Jim Purvis................. Executive Vice President -- Human Resources Randall J. Fein............ Executive Vice President -- Student Housing James N. Bailey............ Director Richard S. Ellwood......... Director J. Landis Martin........... Director Thomas L. Rhodes........... Director
34 SIGNATURE After due inquiry and to the best of its knowledge and belief, the undersigned hereby certify that the information set forth in this statement is true, complete and correct. Date: December 9, 2003 AIMCO PROPERTIES, L.P. By: AIMCO-GP, INC. Its General Partner By: /s/ Patrick J. Foye ------------------------------- Patrick J. Foye Executive Vice President 35 SCHEDULE 13E-3 After due inquiry and to the best of its knowledge and belief, the undersigned hereby certify that the information set forth in this statement is true, complete and correct. Date: December 9, 2003 AIMCO-GP, INC. By: /s/ Patrick J. Foye ------------------------------- Patrick J. Foye Executive Vice President APARTMENT INVESTMENT AND MANAGEMENT COMPANY By: /s/ Patrick J. Foye ------------------------------- Patrick J. Foye Executive Vice President NPI EQUITY INVESTMENTS, INC. By: /s/ Patrick J. Foye ------------------------------- Patrick J. Foye Executive Vice President 36 EXHIBIT INDEX
Exhibit No. Description - ----------- ----------- (c)(1) Appraisal of Oakwood Village on Lake Nan (c)(2) Appraisal of Willow Park on Lake Adelaide
37 EX-99.(C)(1) 3 d07269a2exv99wxcyx1y.txt APPRAISAL OF OAKWOOD VILLAGE ON LAKE NAN OAKWOOD VILLAGE ON LAKE NAN 4755 NORTH GOLDENROD ROAD WINTER PARK, FLORIDA MARKET VALUE - FEE SIMPLE ESTATE AS OF MAY 28,2003 PREPARED FOR: APARTMENT INVESTMENT AND MANAGEMENT COMPANY (AIMCO) C/O LINER YANKELEVITZ SUNSHINE & REGENSTREIF LLP & LIEFF CABRASER HEIMANN & BERNSTEIN ON BEHALF OF NUANES, ET. AL. [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LETTERHEAD] JULY 9, 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: OAKWOOD VILLAGE ON LAKE NAN 4755 NORTH GOLDENROD ROAD WINTER PARK, ORANGE COUNTY, FLORIDA In accordance with your authorization, we have completed the appraisal of the above-referenced property. This complete appraisal is intended to report our analysis and conclusions in a summary format. The subject property consists of an apartment project having 278 units with a total of 225,069 square feet of rentable area. The improvements were built in 1973. The improvements are situated on 10 acres. Overall, the improvements are in average condition. As of the date of this appraisal, the subject property is 93% occupied. It is our understanding the appraisal will be used by the clients to assist the San Mateo Superior Court in the settlement of litigation between the above mentioned clients. The appraisal is intended to conform to the Uniform Standards of Professional Appraisal Practice ("USPAP") as promulgated by the Appraisal Standards Board of the Appraisal Foundation and the Code of Professional Ethics and Standards of Professional Practice of the Appraisal Institute. The appraisal is presented in a summary report, and the Departure Provision of USPAP has not been invoked in this appraisal. It is entirely inappropriate to use this value conclusion or the report for any purpose other than the one stated. AMERICAN APPRAISAL ASSOCIATES, INC. LETTER OF TRANSMITTAL PAGE 2 OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA The opinions expressed in this appraisal cover letter can only be completely understood by reading the narrative report, addenda, and other data, which is attached. The appraisal is subject to the attached general assumptions and limiting conditions and general service conditions. As a result of our investigation, it is our opinion that the fee simple market value of the subject, effective May 28, 2003 is: ($10,900,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. -s- Alice MacQueen ------------------------------------- July 9, 2003 Alice MacQueen #053272 Vice President, Real Estate Group Florida Certified General Real Estate Appraiser #RZ0002202 Assisted By: Michael L. Kersten AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA TABLE OF CONTENTS Cover Letter of Transmittal Table of Contents APPRAISAL DATA Executive Summary............................................... 4 Introduction.................................................... 9 Area Analysis................................................... 11 Market Analysis................................................. 14 Site Analysis................................................... 16 Improvement Analysis............................................ 16 Highest and Best Use............................................ 17 VALUATION Valuation Procedure............................................. 18 Sales Comparison Approach....................................... 20 Income Capitalization Approach.................................. 26 Reconciliation and Conclusion................................... 37 ADDENDA Exhibit A - Photographs of Subject Property Exhibit B - Summary of Rent Comparables and Photograph of Comparables Exhibit C - Assumptions and Limiting Conditions Exhibit D - Certificate of Appraiser Exhibit E - Qualifications General Service Conditions
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 4 OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Oakwood Village on Lake Nan LOCATION: 4755 North Goldenrod Road Winter Park, Florida INTENDED USE OF ASSIGNMENT: Court Settlement PURPOSE OF APPRAISAL: "As Is" Market Value of the INTEREST APPRAISED: Fee Simple Estate Fee simple estate DATE OF VALUE: May 28, 2003 DATE OF REPORT: July 9, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 10 acres, or 435,600 square Assessor Parcel No.: feet 02-22-30-0000-00-023 Floodplain: Community Panel No. 12095C0260E (December 6, 2000) Flood Zone X, an area outside Zoning: the floodplain. R-3 (Medium Density Multiple-Family Residential District) BUILDING: No. of Units: 278 Units Total NRA: 225,069 Square Feet Average Unit Size: 810 Square Feet Apartment Density: 27.8 units per acre Year Built: 1973 UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
Square Market Rent Monthly Annual Unit Type Feet Per Unit Per SF Income Income - ------------------------------------------------------------------------------------------------ Studio - Mariner 500 $550 $1.10 $ 15,950 $ 191,400 Efficiency - Yacht 533 $575 $1.08 $ 16,675 $ 200,100 1Br/1Ba - Regatta 721 $625 $0.87 $ 58,125 $ 697,500 2Br/1Ba - Schooner 912 $695 $0.76 $ 45,870 $ 550,440 2Br/2Ba - Lakeshore 967 $730 $0.75 $ 15,330 $ 183,960 3Br/2Ba - Dockside 1,189 $825 $0.69 $ 33,000 $ 396,000 --------------------------------------------- Total $184,950 $2,219,400 =============================================
OCCUPANCY: 93% AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 20 Years REMAINING ECONOMIC LIFE: 25 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS EXTERIOR EXTERIOR - TYPICAL APARTMENT BUILDINGS [PICTURE] [PICTURE] AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA 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 OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
Amount $/Unit ------ ------ DIRECT CAPITALIZATION Potential Rental Income $2,219,400 $7,983 Effective Gross Income $2,183,998 $7,856 Operating Expenses $979,340 $3,523 44.8% of EGI Net Operating Income: $1,135,158 $4,083 Capitalization Rate 10.50% DIRECT CAPITALIZATION VALUE $10,600,000 * $38,129 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 11% Stabilized Vacancy & Collection Loss: 10% Lease-up / Stabilization Period N/A Terminal Capitalization Rate 11.50% Discount Rate 13.00% Selling Costs 2.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $10,900,000 * $39,209 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $10,900,000 $39,209 / UNIT SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $38,125 to $62,500 Range of Sales $/Unit (Adjusted) $37,500 to $43,844 VALUE INDICATION - PRICE PER UNIT $11,200,000 * $40,288 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 5.27 to 7.05 Selected EGIM for Subject 5.25 Subject's Projected EGI $2,183,998 EGIM ANALYSIS CONCLUSION $11,300,000 * $40,647 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $10,900,000 * $39,209 / UNIT RECONCILED SALES COMPARISON VALUE $11,200,000 $40,288 / 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 OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $ 11,200,000 NOI Per Unit $ 10,900,000 EGIM Multiplier $ 11,300,000 INDICATED VALUE BY SALES COMPARISON $ 11,200,000 $40,288 / UNIT INCOME APPROACH: Direct Capitalization Method: $ 10,600,000 Discounted Cash Flow Method: $ 10,900,000 INDICATED VALUE BY THE INCOME APPROACH $ 10,900,000 $39,209 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $ 10,900,000 $39,209 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 4755 North Goldenrod Road, Winter Park, Orange County, Florida. Winter Park identifies it as 02-22-30-0000-00-023. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Michael L. Kersten on May 28, 2003. Alice MacQueen has not made a personal inspection of the subject property. Michael L. Kersten assisted Alice MacQueen with the research, valuation analysis and writing the report. Alice MacQueen reviewed the report and concurs with the value. Alice MacQueen and Michael L. Kersten have extensive experience in appraising similar properties and meet the USPAP competency provision. The scope of this investigation comprises the inspection of the property and the collection, verification, and analysis of general and specific data pertinent to the subject property. We have researched current improved sales and leases of similar properties, analyzing them as to their comparability, and adjusting them accordingly. We completed the Sales Comparison and Income Capitalization Approaches to value. From these approaches to value, a concluded overall value was made. DATE OF VALUE AND REPORT This appraisal was made to express the opinion of value as of May 28, 2003. The date of the report is July 9, 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 OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA 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 NPI 5. 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 OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA AREA / NEIGHBORHOOD ANALYSIS NEIGHBORHOOD ANALYSIS A neighborhood is a group of complementary land uses. The function of the neighborhood analysis is to describe the immediate surrounding environs. The subject is located in the city of Winter Park, Florida. Overall, the neighborhood is characterized as a suburban setting with the predominant land use being residential. The subject's neighborhood is generally defined by the following boundaries. NEIGHBORHOOD BOUNDARIES East - Hall Road West - Semoran Boulevard South - University Boulevard North - Aloma Avenue MAJOR EMPLOYERS Major employers in the subject's area include Walt Disney Company (55,000), Florida Hospital (12,808), Universal Orlando (12,000), Orlando Regional Healthcare (12,000), Lockheed Martin (5,053), Central Florida Investments (5,000), University of Central Florida (4,808), Darden Restaurants (4,675), Sprint (4,295), and SeaWorld (4,000). 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 OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA NEIGHBORHOOD DEMOGRAPHICS
AREA -------------------------------------------- CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA - ----------------------------------------------------------------------------------------- POPULATION TRENDS Current Population 9,470 85,454 220,099 1,721,904 5-Year Population 9,764 90,504 237,596 1,921,950 % Change CY-5Y 3.1% 5.9% 7.9% 11.6% Annual Change CY-5Y 0.6% 1.2% 1.6% 2.3% HOUSEHOLDS Current Households 4,174 35,435 87,686 655,258 5-Year Projected Households 4,379 37,992 95,152 731,362 % Change CY - 5Y 4.9% 7.2% 8.5% 11.6% Annual Change CY-5Y 1.0% 1.4% 1.7% 2.3% INCOME TRENDS Median Household Income $ 39,090 $ 41,148 $ 43,936 $ 40,114 Per Capita Income $ 21,065 $ 22,795 $ 24,455 $ 21,799 Average Household Income $ 50,365 $ 54,766 $ 61,472 $ 57,283
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 47.98% 42.79% 36.33% 30.55% 5-Year Projected % Renting 48.46% 42.86% 36.46% 30.11% % of Households Owning 43.42% 50.53% 57.45% 60.90% 5-Year Projected % Owning 43.25% 50.72% 57.65% 61.87%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Goldenrod Park South - Single-family residences East - Lake Nan West - Goldenrod Road, across which is Perch Lake CONCLUSIONS The subject is well located within the city of Winter Park. 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 OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA MARKET ANALYSIS The subject property is located in the city of Winter Park in Orange County. The overall pace of development in the subject's market is more or less stable. New construction in the immediate area has been limited to several smaller retail projects. None of the apartment complexes in the area appear to be newer than 10 to 15 years old. With the exception of several 4 to 8-unit condominium complexes, there appears to have been no recent multi-family residential construction occurring in the subject neighborhood. The following table illustrates historical vacancy rates for the subject's market. HISTORICAL VACANCY RATE
Period Region Submarket - ------------------------------ 1Q03 9.3% 5.9% 4Q02 8.9% 4.8% 2002 7.6% 4.2% 3Q02 N/A 4.8% 2Q02 N/A 5.0% 1Q02 N/A 6.1% 4Q01 3.6% 3Q01 N/A 3.4% 2Q01 N/A 2.9%
Source: REIS Occupancy trends in the subject's market are decreasing. Historically speaking, the subject's submarket has outperformed the overall market. As illustrated above, vacancy rates for region and submarket are increasing. 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 - -------------------------------------------------------- 2Q01 N/A - $666 - 3Q01 N/A N/A $681 2.3% 4Q01 N/A N/A $669 -1.8% 1Q02 N/A N/A $668 -0.1% 2Q02 N/A N/A $667 -0.1% 3Q02 N/A N/A $665 -0.3% 4Q02 N/A N/A $665 0.0% 1Q03 N/A N/A $661 -0.6%
Source: REIS AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA The following table illustrates a summary of the subject's competitive set. COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject - ----------------------------------------------------------------------------------------------------------------- R-1 Waterside 346 85% 1973 1/4 mile northeast of the subject R-2 Tealewood Parke 108 87% 1986 Across Goldenrod Road from subject R-3 Emerald Bay at Winter Park 432 89% 1972 0.5 mile northwest of the subject R-4 Cranes Landing 252 94% 1990 0.5 mile south of the subject R-5 Sun Key 592 94% 1986 0.5 mile northeast of the subject Subject Oakwood Village on Lake Nan 278 93% 1973
There appears to be a dearth of three bedroom units. Many complexes are offering concessions on one- bedroom units. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA PROPERTY DESCRIPTION SITE ANALYSIS Site Area 10 acres, or 435,600 square feet Shape Generally rectangular Topography Slightly slope Utilities All necessary utilities are available to the site. Soil Conditions Stable Easements Affecting Site None other than typical utility easements Overall Site Appeal Good Flood Zone: Community Panel 12095C0260E, dated December 6, 2000 Flood Zone Zone X Zoning R-3, the subject improvements represent a legal conforming use of the site. REAL ESTATE TAXES
ASSESSED VALUE - 2003 --------------------------------- TAX RATE / PROPERTY PARCEL NUMBER LAND BUILDING TOTAL MILL RATE TAXES - ------------------------------------------------------------------------------------------- 02-22-30-0000-00-023 $1,946,000 $4,868,404 $6,814,404 0.01865 $127,093
IMPROVEMENT ANALYSIS Year Built 1973 Number of Units 278 Net Rentable Area 225,069 Square Feet Construction: Foundation Reinforced concrete slab Frame Heavy or light wood Exterior Walls Stucco wall Roof Composition shingle over a wood truss structure Project Amenities Amenities at the subject include a swimming pool, tennis court, gym room, car wash, barbeque equipment, laundry room, business office, picnic area, clubhouse, boat ramp, boat parking, and parking area. Unit Amenities Individual unit amenities include a balcony, cable TV connection, and washer dryer connection. Appliances available in each unit include a refrigerator, stove, dishwasher, water heater, garbage disposal, and oven. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) - ---------------------------------------------------------- Studio - Mariner 29 500 Efficiency - Yacht 29 533 1Br/1Ba - Regatta 93 721 2Br/1Ba - Schooner 66 912 2Br/2Ba - Lakeshore 21 967 3Br/2Ba - Dockside 40 1,189
Overall Condition Average Effective Age 20 years Economic Life 45 years Remaining Economic Life 25 years Deferred Maintenance None HIGHEST AND BEST USE ANALYSIS In accordance with the definition of highest and best use, an analysis of the site relating to its legal uses, physical possibilities, and financial feasibility is appropriate. The highest and best use as vacant is to hold for future multi-family development. The subject improvements were constructed in 1973 and consist of a 278-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 OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA THE VALUATION PROCEDURE There are three traditional approaches, which can be employed in establishing the market value of the subject property. These approaches and their applicability to the valuation of the subject are summarized as follows: THE COST APPROACH The application of the Cost Approach is based on the principle of substitution. This principle may be stated as follows: no one is justified in paying more for a property than that amount by which he or she can obtain, by purchase of a site and construction of a building, without undue delay, a property of equal desirability and utility. In the case of a new building, no deficiencies in the building should exist. In the case of income-producing real estate, the cost of construction plays a minor and relatively insignificant role in determining market value. The Cost Approach is typically only a reliable indicator of value for: (a) new properties; (b) special use properties; and (c) where the cost of reproducing the improvements is easily and accurately quantified and there is no economic obsolescence. In all instances, the issue of an appropriate entrepreneurial profit - the reward for undertaking the risk of construction, remains a highly subjective factor especially in a market lacking significant speculative development. THE SALES COMPARISON APPROACH The Sales Comparison Approach is an estimate of value based upon a process of comparing recent sales of similar properties in the surrounding or competing areas to the subject property. Inherent in this approach is the principle of substitution. The application of this approach consists of comparing the subject property with similar properties of the same general type, which have been sold recently or currently are available for sale in competing areas. This comparative process involves judgment as to the similarity of the subject property and the comparable sale with respect to many value factors such as location, contract rent levels, quality of construction, reputation and prestige, age and condition, among others. The estimated value through this approach represents the probable price at which a willing seller would sell the subject property to a willing and knowledgeable buyer as of the date of value. AMERICAN APPRAISAL ASSOCIATES, INC. VALUATION PROCEDURE PAGE 19 OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA THE INCOME CAPITALIZATION APPROACH The theory of the Income Capitalization Approach is based on the premise that present value is the value of the cash flow and reversionary value the property will produce over a reasonable holding (ownership) period. The Discounted Cash Flow Analysis will convert equity cash flows (including cash flows and equity reversion) into a present value utilizing an internal rate of return (or discount rate). The Internal Rate of Return (IRR) will be derived from a comparison of alternate investments, a comparative analysis of IRR's used by recent buyers of similar properties, and a review of published industry surveys. The Direct Capitalization Analysis converts one year of income into an overall value using overall capitalization rates from similar sales. The overall rates take into consideration buyers assumptions of the market over the long-term. The results of the Income Capitalization Analysis are usually the primary value indicator for income producing properties. Investors expect a reasonable rate of return on their equity investment based on the ownership risks involved; this approach closely parallels the investment decision process. RECONCILIATION In this instance, we have completed the Sales Comparison and Income Capitalization Approaches to value. As an income producing property, the income approach is a primary approach to value. The Sales Comparison Approach is also considered reliable as investors are buying similar buildings in the market. Our research indicates that market participants are generally not buying, selling, investing, or lending with reliance placed on the methodology of the Cost Approach to establish the value. Therefore, we have decided that the Cost Approach is not a reliable indicator of value for the subject, and this approach has not been utilized. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 20 OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA SALES COMPARISON APPROACH Use of market or comparable sales requires the collection and analysis of comparable sales data. Similar properties recently sold are compared to the subject and adjusted based on any perceived differences. This method is based on the premise that the costs of acquiring a substitute property would tend to establish a value for the subject property. The premise suggests that if a substitute is unavailable in the market, the reliability of the approach may be subordinate to the other approaches. The reliance on substitute properties produces shortcomings in the validity of this approach. Geographic and demographic characteristics from each submarket restrict which sales may be selected. Recent sales with a similar physical characteristics, income levels, and location are usually limited. The sales we have identified, however, do establish general valuation parameters as well as provide support to our conclusion derived through the income approach method. The standard unit of comparison among similar properties is the sales price per unit and price per square foot of net rentable area. To accurately adjust prices to satisfy the requirements of the sales comparison approach, numerous calculations and highly subjective judgments would be required including consideration of numerous income and expense details for which information may be unreliable or unknown. The sales price per unit and square foot are considered relevant to the investment decision, but primarily as a parameter against which value estimates derived through the income approach can be judged and compared. In examining the comparable sales, we have applied a subjective adjustment analysis, which includes specific adjustments derived from our experience and consulting with the market participants. SALES COMPARISON ANALYSIS Detailed on the following pages are sales transactions involving properties located in the subject's competitive investment market. Photographs of the sale transactions are located in the Addenda. Following the summary of sales is an adjustment grid that is used to arrive at a value. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 21 OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA SUMMARY OF COMPARABLE SALES - IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - ------------------------------------------------------------------------------------------------------------------------------ Property Name Oakwood Village on Lake Nan Courtyard at Winter Park La Aloma Apartments LOCATION: Address 4755 North Goldenrod Road 1695 Lee Road 3040 Aloma Avenue City, State Winter Park, Florida Winter Park, Florida Winter Park, Florida County Orange Orange Orange PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 225,069 143,360 176,800 Year Built 1973 1966 1967 Number of Units 278 160 164 Unit Mix: Type Total Type Total Type Total Studio - Mariner 29 1Br/1Ba 40 1Br/1Ba N/A Efficiency - Yacht 29 2Br/2Ba 80 2Br/2Ba N/A 1Br/1Ba - Regatta 93 3Br/2Ba 40 3Br/2Ba N/A 2Br/1Ba - Schooner 66 2Br/2Ba - Lakeshore 21 3Br/2Ba - Dockside 40 Average Unit Size (SF) 810 896 1,078 Land Area (Acre) 10.0000 9.5528 9.1000 Density (Units/Acre) 27.8 16.7 18.0 Parking Ratio (Spaces/Unit) 1.48 1.33 1.77 Parking Type (Gr., Cov., etc.) Garage, Open Covered Open Open CONDITION: Good Average Average APPEAL: Average Average Fair AMENITIES: Pool/Spa Yes/No Yes/No Yes/No Gym Room Yes Yes Yes Laundry Room Yes Yes No Secured Parking No No No Sport Courts No No Yes Washer/Dryer Connection Yes No No OCCUPANCY: 93% 90% 85% TRANSACTION DATA: Sale Date May, 2001 September, 2002 Sale Price ($) $6,100,000 $6,750,000 Grantor Miles-Courtyard-WP, LLC Veard-Winter Park, Ltd. Grantee PRG/Winter Park, LP Florida Investment Properties, LLC Sale Documentation Book 6258, Page 4812 Book 6629, Page 8177 Verification Comps, Inc. Comps, Inc. Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $1,286,400 $8,040 $8.97 $1,385,280 $8,447 $7.84 Vacancy/Credit Loss $ 128,640 $ 804 $0.90 $ 207,792 $1,267 $1.18 Effective Gross Income $1,157,760 $7,236 $8.08 $1,177,488 $7,180 $6.66 Operating Expenses $ 500,000 $3,125 $3.49 $ 533,600 $3,254 $3.02 Net Operating Income $ 657,760 $4,111 $4.59 $ 643,888 $3,926 $3.64 NOTES: This project is now Since, the sale, occupancy known as Legacy of has risen to 96%. Winter Park. PRICE PER UNIT $38,125 $41,159 PRICE PER SQUARE FOOT $ 42.55 $ 38.18 EXPENSE RATIO 43.2% 45.3% EGIM 5.27 5.73 OVERALL CAP RATE 10.78% 9.54% Cap Rate based on Pro Forma or Actual Income? ACTUAL ACTUAL COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 - ------------------------------------------------------------------------------------------------------------------------------- Property Name The Glen at Winter Park Kingston Village The Ashley of Spring Valley LOCATION: Address 3651 North Goldenrod 940 Douglas Avenue 693 South Wymore Road City, State Winter Park, Florida Altamonte Springs, FL Altamonte Springs, FL County Orange Seminole Seminole PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 98,447 129,468 280,000 Year Built 1990 1982 1974 Number of Units 104 120 260 Unit Mix: Type Total Type Total Type Total 2Br/2Ba 104 1Br/1Ba 36 1Br/1Ba N/A 2Br/2Ba 72 2Br/2Ba N/A 2Br/2Ba Twn 12 3Br/2Ba N/A Average Unit Size (SF) 947 1,079 1,077 Land Area (Acre) 4.9959 15.0000 15.8713 Density (Units/Acre) 20.8 8.0 16.4 Parking Ratio (Spaces/Unit) 1.91 2.00 4.80 Parking Type (Gr., Cov., etc.) Open Garage, Open Open CONDITION: Good Good Good APPEAL: Average Good Good AMENITIES: Pool/Spa Yes/No Yes/Yes Yes/Yes Gym Room Yes Yes Yes Laundry Room Yes Yes No Secured Parking No Yes Yes Sport Courts No Yes Yes Washer/Dryer Connection Yes Yes Yes OCCUPANCY: 95% 90% 92% TRANSACTION DATA: Sale Date July, 2001 October, 2001 August, 2001 Sale Price ($) $5,000,000 $7,500,000 $11,180,000 Grantor Glen of Winter Park Archstone Communities Partnership Grantee Dr. Eric H. Coe Kingston Village, LLC Altamonte Ashley, LLC Sale Documentation Book 6321, Page 1129 Book 4198, Page 0924 Book 4160, Page 0027 Verification Comps, Inc. Comps, Inc. & Seminole Seminole County Prop. Telephone Number County Property Appr Tax Appraiser's Off ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $892,320 $8,580 $9.06 $1,181,520 $9,846 $9.13 $2,100,000 $8,077 $7.50 Vacancy/Credit Loss $ 44,616 $ 429 $0.45 $ 118,152 $ 985 $0.91 $ 105,000 $ 404 $0.38 Effective Gross Income $847,704 $8,151 $8.61 $1,063,368 $8,861 $8.21 $1,995,000 $7,673 $7.13 Operating Expenses $312,000 $3,000 $3.17 $ 360,000 $3,000 $2.78 $ 900,000 $3,462 $3.21 Net Operating Income $535,704 $5,151 $5.44 $ 703,368 $5,861 $5.43 $1,095,000 $4,212 $3.91 NOTES: This projects comprises None None all 2-bedroom units. PRICE PER UNIT $48,077 $62,500 $43,000 PRICE PER SQUARE FOOT $ 50.79 $ 57.93 $ 39.93 EXPENSE RATIO 36.8% 33.9% 45.1% EGIM 5.90 7.05 5.60 OVERALL CAP RATE 10.71% 9.38% 9.79% Cap Rate based on Pro Forma or Actual Income? ACTUAL ACTUAL PRO FORMA
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA IMPROVED SALES [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $38,125 to $62,500 per unit. Adjustments have been made to the sales to reflect differences in location, age/condition and quality/appeal. Generally speaking, larger properties typically have a lower price per unit when compared to smaller properties, all else being equal. Similarly, those projects with a higher average unit size will generally have a higher price per unit. After appropriate adjustments are made, the improved sales demonstrate an adjusted range for the subject from $37,500 to $43,844 per unit with a mean or average adjusted price of $40,825 per unit. The median adjusted price is $40,865 per unit. Based on the following analysis, we have concluded to a value of $41,000 per unit, which results in an "as is" value of $11,200,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - --------------------------------------------------------------------------------------------------------------------- Property Name Oakwood Village on Lake Nan Courtyard at Winter Park La Aloma Apartments Address 4755 North Goldenrod Road 1695 Lee Road 3040 Aloma Avenue City Winter Park, Florida Winter Park, Florida Winter Park, Florida Sale Date May, 2001 September, 2002 Sale Price ($) $6,100,000 $6,750,000 Net Rentable Area (SF) 225,069 143,360 176,800 Number of Units 278 160 164 Price Per Unit $38,125 $41,159 Year Built 1973 1966 1967 Land Area (Acre) 10.0000 9.5528 9.1000 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 05-2001 0% 09-2002 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $38,125 $41,159 Location Comparable 0% Comparable 0% Number of Units 278 160 5% 164 5% Quality / Appeal Good Comparable 0% Superior -5% Age / Condition 1973 1966 / Average 10% 1967 / Average 10% Occupancy at Sale 93% 90% -10% 85% -10% Amenities Good Inferior 10% Inferior 10% Average Unit Size (SF) 810 896 0% 1,078 -5% PHYSICAL ADJUSTMENT 15% 5% FINAL ADJUSTED VALUE ($/UNIT) $43,844 $43,216 COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 - -------------------------------------------------------------------------------------------------------------------- Property Name The Glen at Winter Park Kingston Village The Ashley of Spring Valley Address 3651 North Goldenrod 940 Douglas Avenue 693 South Wymore Road City Winter Park, Florida Altamonte Springs, FL Altamonte Springs, FL Sale Date July, 2001 October, 2001 August, 2001 Sale Price ($) $5,000,000 $7,500,000 $11,180,000 Net Rentable Area (SF) 98,447 129,468 280,000 Number of Units 104 120 260 Price Per Unit $48,077 $62,500 $43,000 Year Built 1990 1982 1974 Land Area (Acre) 4.9959 15.0000 15.8713 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) 07-2001 0% 10-2001 0% 08-2001 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $48,077 $62,500 $43,000 Location Comparable 0% Superior -10% Superior -10% Number of Units 104 5% 120 5% 260 0% Quality / Appeal Comparable 0% Comparable 0% Inferior 5% Age / Condition 1990 / Good -20% 1982 / Good -20% 1974 / Good 0% Occupancy at Sale 95% -10% 90% -10% 92% -10% Amenities Inferior 10% Comparable 0% Inferior 10% Average Unit Size (SF) 947 0% 1,079 -5% 1,077 -5% PHYSICAL ADJUSTMENT -15% -40% -10% FINAL ADJUSTED VALUE ($/UNIT) $40,865 $37,500 $38,700
SUMMARY VALUE RANGE (PER UNIT) $37,500 TO $ 43,844 MEAN (PER UNIT) $40,825 MEDIAN (PER UNIT) $40,865 VALUE CONCLUSION (PER UNIT) $41,000
VALUE OF IMPROVEMENT & MAIN SITE $11,398,000 PV OF CONCESSIONS -$ 209,000 VALUE INDICATED BY SALES COMPARISON APPROACH $11,189,000 ROUNDED $11,200,000
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 OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA NOI PER UNIT COMPARISON
SALE PRICE COMPARABLE NO. OF ---------- NOI/ SUBJECT NOI ADJUSTMENT INDICATED NO. UNITS PRICE/UNIT OAR NOI/UNIT SUBJ. NOI/UNIT FACTOR VALUE/UNIT - ------------------------------------------------------------------------------------------------------------ I-1 160 $ 6,100,000 10.78% $ 657,760 $ 1,135,158 0.993 $ 37,868 $ 38,125 $ 4,111 $ 4,083 I-2 164 $ 6,750,000 9.54% $ 643,888 $ 1,135,158 1.040 $ 42,806 $ 41,159 $ 3,926 $ 4,083 I-3 104 $ 5,000,000 10.71% $ 535,704 $ 1,135,158 0.793 $ 38,112 $ 48,077 $ 5,151 $ 4,083 I-4 120 $ 7,500,000 9.38% $ 703,368 $ 1,135,158 0.697 $ 43,540 $ 62,500 $ 5,861 $ 4,083 I-5 260 $ 11,180,000 9.79% $1,095,000 $ 1,135,158 0.970 $ 41,691 $ 43,000 $ 4,212 $ 4,083
PRICE/UNIT
Low High Average Median $37,868 $43,540 $40,803 $ 41,691
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT Estimated Price Per Unit $ 40,000 Number of Units 278 Value $11,120,000 PV of Concessions -$ 209,000 ------------ Value Based on NOI Analysis $10,911,000 Rounded $10,900,000
The adjusted sales indicate a range of value between $37,868 and $43,540 per unit, with an average of $40,803 per unit. Based on the subject's competitive position within the improved sales, a value of $40,000 per unit is estimated. This indicates an "as is" market value of $10,900,000 (rounded after necessary adjustment, if any) for the NOI Per Unit Analysis. EFFECTIVE GROSS INCOME MULTIPLIER (EGIM) ANALYSIS The effective gross income multiplier (EGIM) is derived by dividing the sales price by the total effective gross income. The following table illustrates the EGIMs for the comparable improved sales. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 25 OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA EFFECTIVE GROSS INCOME MULTIPLIER COMPARISON
COMPARABLE NO. OF SALE PRICE EFFECTIVE OPERATING SUBJECT NO. UNITS PRICE/UNIT GROSS INCOME EXPENSE OER PROJECTED OER EGIM - ---------------------------------------------------------------------------------------------------------- I-1 160 $ 6,100,000 $1,157,760 $ 500,000 43.19% 5.27 $ 38,125 I-2 164 $ 6,750,000 $1,177,488 $ 533,600 45.32% 5.73 $ 41,159 I-3 104 $ 5,000,000 $ 847,704 $ 312,000 36.81% 44.84% 5.90 $ 48,077 I-4 120 $ 7,500,000 $1,063,368 $ 360,000 33.85% 7.05 $ 62,500 I-5 260 $ 11,180,000 $1,995,000 $ 900,000 45.11% 5.60 $ 43,000
EGIM
Low High Average Median - --- ---- ------- ------ 5.27 7.05 5.91 5.73
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES Estimate EGIM 5.25 Subject EGI $ 2,183,998 Value $11,465,990 PV of Concessions -$ 209,000 ------------ Value Based on EGIM Analysis $11,256,990 Rounded $11,300,000 Value Per Unit $ 40,647
There is an inverse relationship, which generally holds among EGIMs and operating expenses. Properties, which have higher expense ratios, typically sell for relatively less and therefore produce a lower EGIM. As will be illustrated in the Income Capitalization Approach of this report, the subject's operating expense ratio (OER) is estimated at 44.84% before reserves. The comparable sales indicate a range of expense ratios from 33.85% to 45.32%, while their EGIMs range from 5.27 to 7.05. Overall, we conclude to an EGIM of 5.25, which results in an "as is" value estimate in the EGIM Analysis of $11,300,000. SALES COMPARISON CONCLUSION The three valuation methods in the Sales Comparison Approach are shown below. The overall value via the Sales Comparison Approach is estimated at $11,200,000. Price Per Unit $11,200,000 NOI Per Unit $10,900,000 EGIM Analysis $11,300,000 Sales Comparison Conclusion $11,200,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA INCOME CAPITALIZATION APPROACH The income capitalization approach is based on the premise that value is created by the expectation of future benefits. We estimated the present value of those benefits to derive an indication of the amount that a prudent, informed purchaser-investor would pay for the right to receive them as of the date of value. This approach requires an estimate of the NOI of a property. The estimated NOI is then converted to a value indication by use of either the direct capitalization or the discounted cash flow analysis (yield capitalization). Direct capitalization uses a single year's stabilized NOI as a basis for a value indication by dividing the income by a capitalization rate. The rate chosen accounts for a recapture of the investment by the investor and should reflect all factors that influence the value of the property, such as tenant quality, property condition, neighborhood change, market trends, interest rates, and inflation. The rate may be extracted from local market transactions or, when transaction evidence is lacking, obtained from trade sources. A discounted cash flow analysis focuses on the operating cash flows expected from the property and the proceeds of a hypothetical sale at the end of a holding period (the reversion). The cash flows and reversion are discounted to their present values using a market-derived discount rate and are added together to obtain a value indication. Because benefits to be received in the future are worth less than the same benefits received in the present, this method weights income in the early years more heavily than the income and the sale proceeds to be received later. The strength of the discounted cash flow method is its ability to recognize variations in projected net income, such as those caused by inflation, stepped leases, neighborhood change, or tenant turnover. Its weakness is that it requires many judgments regarding the actions of likely buyers and sellers of the property in the future. In some situations, both methods yield a similar result. The discounted cash flow method is typically more appropriate for the analysis of investment properties with multiple or long-term leases, particularly leases with cancellation clauses or renewal options. It is especially useful for multi-tenant properties in volatile markets. The direct capitalization AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 27 OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA method is normally more appropriate for properties with relatively stable operating histories and expectations. A pro forma analysis for the first year of the investment is made to estimate a reasonable potential net operating income for the Subject Property. Such an analysis entails an estimate of the gross income the property should command in the marketplace. From this total gross income must be deducted an allowance for vacancy/collection loss and operating expenses as dictated by general market conditions and the overall character of the subject's tenancy and leased income to arrive at a projected estimate of net operating income. Conversion of the net operating income to an indication of value is accomplished by the process of capitalization, as derived primarily from market data. MARKET RENT ANALYSIS In order to determine a market rental rate for the subject, a survey of competing apartment communities was performed. This survey was displayed previously in the market analysis section of the report. Detailed information pertaining to each of the comparable rental communities, along with photographs, is presented in the Addenda of this report. The following charts display the subject's current asking and actual rent rates as well as a comparison with the previous referenced comparable rental properties. SUMMARY OF ACTUAL AVERAGE RENTS
Average Unit Area ------------------- Unit Type (Sq. Ft.) Per Unit Per SF %Occupied - ------------------------------------------------------------------------- Studio - Mariner 500 $550 $1.10 100.0% Efficiency - Yacht 533 $569 $1.07 93.1% 1Br/1Ba - Regatta 721 $618 $0.86 90.3% 2Br/1Ba - Schooner 912 $696 $0.76 98.5% 2Br/2Ba - Lakeshore 967 $830 $0.86 85.7% 3Br/2Ba - Dockside 1189 $859 $0.72 87.2%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA RENT ANALYSIS
COMPARABLE RENTS ---------------------------------------------------------- R-1 R-2 R-3 R-4 R-5 ---------------------------------------------------------- Emerald Talewood Bay at Cranes Waterside Parke Winter Park Landing Sun Key ---------------------------------------------------------- COMPARISON TO SUBJECT SUBJECT SUBJECT ---------------------------------------------------------- SUBJECT UNIT ACTUAL ASKING Slightly Slightly Slightly Slightly DESCRIPTION TYPE RENT RENT Inferior Superior Inferior Superior Inferior - ----------------------------------------------------------------------------------------------------------------------------- Monthly Rent STUDIO - MARINER $ 550 $ 823 Unit Area (SF) 500 500 Monthly Rent Per Sq. Ft. $ 1.10 $ 1.65 Monthly Rent EFFICIENCY - $ 569 $ 838 $ 605 $ 640 Unit Area (SF) YACHT 533 533 700 600 Monthly Rent Per Sq. Ft. $ 1.07 $ 1.57 $ 0.86 $ 1.07 Monthly Rent 1BR/1BA - $ 618 $ 885 $ 620 $ 665 $ 659 $ 695 Unit Area (SF) REGATTA 721 721 700 765 727 750 Monthly Rent Per Sq. Ft. $ 0.86 $ 1.23 $ 0.89 $ 0.87 $ 0.91 $ 0.93 Monthly Rent 2BR/1BA - $ 696 $ 1,108 $ 695 $ 740 $ 805 Unit Area (SF) SCHOONER 912 912 925 910 1,012 Monthly Rent Per Sq. Ft. $ 0.76 $ 1.21 $ 0.75 $ 0.81 $ 0.80 Monthly Rent 2BR/2BA - $ 830 $ 1,110 $ 750 $ 775 $ 890 $ 770 Unit Area (SF) LAKESHORE 967 967 1,040 958 881 900 Monthly Rent Per Sq. Ft. $ 0.86 $ 1.15 $ 0.72 $ 0.81 $ 1.01 $ 0.86 Monthly Rent 3BR/2BA - $ 859 $ 1,180 $ 745 $ 940 $ 835 Unit Area (SF) DOCKSIDE 1,189 1,189 944 1,200 1,030 Monthly Rent Per Sq. Ft. $ 0.72 $ 0.99 $ 0.79 $ 0.78 $ 0.81 DESCRIPTION MIN MAX MEDIAN AVERAGE - ---------------------------------------------------------------- Monthly Rent Unit Area (SF) Monthly Rent Per Sq. Ft. Monthly Rent $ 605 $ 640 $ 623 $ 623 Unit Area (SF) 600 700 650 650 Monthly Rent Per Sq. Ft. $ 0.86 $ 1.07 $ 0.97 $ 0.97 Monthly Rent $ 620 $ 695 $ 662 $ 660 Unit Area (SF) 700 765 739 736 Monthly Rent Per Sq. Ft. $ 0.87 $ 0.93 $ 0.90 $ 0.90 Monthly Rent $ 695 $ 805 $ 740 $ 747 Unit Area (SF) 910 1,012 925 949 Monthly Rent Per Sq. Ft. $ 0.75 $ 0.81 $ 0.80 $ 0.79 Monthly Rent $ 750 $ 890 $ 773 $ 796 Unit Area (SF) 881 1,040 929 945 Monthly Rent Per Sq. Ft. $ 0.72 $ 1.01 $ 0.83 $ 0.85 Monthly Rent $ 745 $ 940 $ 835 $ 840 Unit Area (SF) 944 1,200 1,030 1,058 Monthly Rent Per Sq. Ft. $ 0.78 $ 0.81 $ 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 - ------------------------------------------------------------------------------------------------------------- Studio - Mariner 29 500 $550 $1.10 $ 15,950 $ 191,400 Efficiency - Yacht 29 533 $575 $1.08 $ 16,675 $ 200,100 1Br/1Ba - Regatta 93 721 $625 $0.87 $ 58,125 $ 697,500 2Br/1Ba - Schooner 66 912 $695 $0.76 $ 45,870 $ 550,440 2Br/2Ba - Lakeshore 21 967 $730 $0.75 $ 15,330 $ 183,960 3Br/2Ba - Dockside 40 1,189 $825 $0.69 $ 33,000 $ 396,000 ----------------------- Total $184,950 $2,219,400
PRO FORMA ANALYSIS For purposes of this appraisal, we were provided with income and expense data for the subject property. A summary of this data is presented on the following page. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 29 OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA SUMMARY OF HISTORICAL INCOME & EXPENSES
FISCAL YEAR 2000 FISCAL YEAR 2001 FISCAL YEAR 2002 FISCAL YEAR 2003 ----------------------------------------------------------------------------------------------- ACTUAL ACTUAL ACTUAL MANAGEMENT BUDGET ----------------------------------------------------------------------------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT - ---------------------------------------------------------------------------------------------------------------------------- Revenues Rental Income $1,992,898 $ 7,169 $2,102,208 $ 7,562 $2,096,594 $ 7,542 $2,092,996 $ 7,529 Vacancy $ 113,460 $ 408 $ 131,994 $ 475 $ 161,751 $ 582 $ 104,648 $ 376 Credit Loss/Concessions $ 34,066 $ 123 $ 33,552 $ 121 $ 60,446 $ 217 $ 57,876 $ 208 ----------------------------------------------------------------------------------------------- Subtotal $ 147,526 $ 531 $ 165,546 $ 595 $ 222,197 $ 799 $ 162,524 $ 585 Laundry Income $ 22,698 $ 82 $ 16,033 $ 58 $ 21,288 $ 77 $ 21,996 $ 79 Garage Revenue $ 3,951 $ 14 $ 1,728 $ 6 $ 1,636 $ 6 $ 0 $ 0 Other Misc. Revenue $ 98,641 $ 355 $ 162,926 $ 586 $ 162,376 $ 584 $ 150,540 $ 542 ----------------------------------------------------------------------------------------------- Subtotal Other Income $ 125,290 $ 451 $ 180,687 $ 650 $ 185,300 $ 667 $ 172,536 $ 621 ----------------------------------------------------------------------------------------------- Effective Gross Income $1,970,662 $ 7,089 $2,117,349 $ 7,616 $2,059,697 $ 7,409 $2,103,008 $ 7,565 Operating Expenses Taxes $ 123,388 $ 444 $ 131,141 $ 472 $ 123,710 $ 445 $ 146,272 $ 526 Insurance $ 51,222 $ 184 $ 77,165 $ 278 $ 89,292 $ 321 $ 75,234 $ 271 Utilities $ 130,006 $ 468 $ 129,214 $ 465 $ 130,114 $ 468 $ 137,844 $ 496 Repair & Maintenance $ 200,011 $ 719 $ 210,102 $ 756 $ 221,116 $ 795 $ 134,022 $ 482 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 39,525 $ 142 $ 44,141 $ 159 $ 59,148 $ 213 $ 48,000 $ 173 General Administrative $ 233,231 $ 839 $ 233,389 $ 840 $ 154,452 $ 556 $ 258,312 $ 929 Management $ 99,368 $ 357 $ 109,346 $ 393 $ 103,486 $ 372 $ 105,960 $ 381 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ----------------------------------------------------------------------------------------------- Total Operating Expenses $ 876,751 $ 3,154 $ 934,498 $ 3,362 $ 881,318 $ 3,170 $ 905,644 $ 3,258 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ----------------------------------------------------------------------------------------------- Net Income $1,093,911 $ 3,935 $1,182,851 $ 4,255 $1,178,379 $ 4,239 $1,197,364 $ 4,307 ----------------------------------------------------------------------------------------------- ANNUALIZED 2003 --------------------------------------------------------- PROJECTION AAA PROJECTION --------------------------------------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT % - -------------------------------------------------------------------------------------- Revenues Rental Income $2,110,680 $ 7,592 $2,219,400 $ 7,983 100.0% Vacancy $ 254,172 $ 914 $ 133,164 $ 479 6.0% Credit Loss/Concessions $ 101,656 $ 366 $ 88,776 $ 319 4.0% ------------------------------------------------------- Subtotal $ 355,828 $ 1,280 $ 221,940 $ 798 10.0% Laundry Income $ 22,228 $ 80 $ 22,240 $ 80 1.0% Garage Revenue $ 0 $ 0 $ 1,668 $ 6 0.1% Other Misc. Revenue $ 196,144 $ 706 $ 162,630 $ 585 7.3% ------------------------------------------------------- Subtotal Other Income $ 218,372 $ 786 $ 186,538 $ 671 8.4% ------------------------------------------------------- Effective Gross Income $1,973,224 $ 7,098 $2,183,998 $ 7,856 100.0% Operating Expenses Taxes $ 147,844 $ 532 $ 147,340 $ 530 6.7% Insurance $ 73,092 $ 263 $ 83,400 $ 300 3.8% Utilities $ 129,712 $ 467 $ 132,050 $ 475 6.0% Repair & Maintenance $ 240,048 $ 863 $ 208,500 $ 750 9.5% Cleaning $ 0 $ 0 $ 0 $ 0 0.0% Landscaping $ 0 $ 0 $ 0 $ 0 0.0% Security $ 0 $ 0 $ 0 $ 0 0.0% Marketing & Leasing $ 40,660 $ 146 $ 48,650 $ 175 2.2% General Administrative $ 206,108 $ 741 $ 250,200 $ 900 11.5% Management $ 99,148 $ 357 $ 109,200 $ 393 5.0% Miscellaneous $ 0 $ 0 $ 0 $ 0 0.0% ------------------------------------------------------- Total Operating Expenses $ 936,612 $ 3,369 $ 979,340 $ 3,523 44.8% Reserves $ 0 $ 0 $ 69,500 $ 250 7.1% ------------------------------------------------------- Net Income $1,036,612 $ 3,729 $1,135,158 $ 4,083 52.0% -------------------------------------------------------
REVENUES AND EXPENSES The subject's revenue and expense projections are displayed on the previous chart. Rental income is based on the market analysis previously discussed. Other income consists of forfeited deposits, laundry income, late rent payments, month to month fees, pet fees, vending machine revenue, etc. We forecasted the property's annual operating expenses after reviewing its historical performance at the subject property. We analyzed each item of expense and attempted to forecast amounts a typical informed investor would consider reasonable. VACANCY AND COLLECTION LOSS An investor is primarily interested in the annual revenue an income property is likely to produce over a specified period of time, rather than the income it could produce if it were always 100% occupied and all tenants were paying their rent in full and on time. An investor normally expects some income loss as tenants vacate, fail to pay rent, or pay their rent late. We have projected a stabilized vacancy and collection loss rate of 10% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30 OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA RESERVES FOR REPLACEMENT "Reserves for replacements" is a contingency account allocated to the expenses of the property to provide for replacement of short-lived items and for unforeseen necessary capital expenditures. We have utilized the Korpacz Real Estate Investor Survey of the national apartment market, which reports a range of replacement reserves between $150 and $400 per unit. For purposes of this analysis, we have included an allowance of $250 per unit for reserves for replacement. CAPITAL EXPENDITURES Capital expenditures represent expenses for immediate repair or replacement of items that have average to long lives. Based on our inspection of the property as well as discussions with property management personnel, there are no major items remaining in need of repair or replacement that would require an expense beyond our reserves for replacement. Therefore an allowance of $250 per unit should be satisfactory in our reserves for replacement to cover future capital expenditures. DISCOUNTED CASH FLOW ANALYSIS As the subject is a multi-tenant income property, the Discounted Cash flow Method is considered appropriate. This method is especially meaningful in that it isolates the timing of the annual cash flows and discounts them, along with the expected equity reversion, to a present value. The present value of the cash flow is added to the present value of the reversion, resulting in a total property value. INVESTMENT CRITERIA Appropriate investment criteria will be derived for the subject based upon analysis of comparable sales and a survey of real estate investors. The following table summarizes the findings of Korpacz National Investor Survey for the most recent period. KORPACZ NATIONAL INVESTOR SURVEY 1ST QUARTER 2003 NATIONAL APARTMENT MARKET
CAPITALIZATION RATES --------------------------------------------------- GOING-IN TERMINAL --------------------------------------------------- LOW HIGH LOW HIGH - ------------------------------------------------------------------- RANGE 6.00% 10.00% 7.00% 10.00% AVERAGE 8.14% 8.47%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 31 OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR - -------------------------------------------------------- 1-1 May-01 90% $38,125 10.78% 1-2 Sep-02 85% $41,159 9.54% 1-3 Jul-01 95% $48,077 10.71% 1-4 Oct-01 90% $62,500 9.38% 1-5 Aug-01 92% $43,000 9.79% ----------------- High 10.78% ----------------- Low 9.38% ----------------- Average 10.04%
Based on this information, we have concluded the subject's overall capitalization rate should be 10.50%. 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 11.50%. Finally, the subject's discount rate or yield rate is estimated based on the previous investor survey and an examination of returns available on alternative investments in the market. Based on this analysis, the subject's discount rate is estimated to be 13.00%. HOLDING PERIOD The survey of investors indicates that most investors are completing either 10-year cash flows or extending the analysis to the end of the lease if it is more than 10-years. A 10-year period has been used in the analysis of the subject with the eleventh year stabilized NOI used to determine the reversion. SELLING COSTS Sales of similar size properties are typically accomplished with the aid of a broker and will also incur legal and other transaction related cost. Based on our survey of brokers and a review of institutional investor projections, an allowance of 2.00% of the sale amount is applied. DISCOUNTED CASH FLOW CONCLUSION Discounting the annual cash flows and the equity reversion at the selected rate of 13.00% indicates a value of $10,900,000. In this instance, the reversion figure contributes AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32 OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA approximately 35% 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 OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA DISCOUNTED CASH FLOW ANALYSIS OAKWOOD VILLAGE ON LAKE NAN
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 FISCAL YEAR 1 2 3 4 5 6 - ----------------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $2,219,400 $2,285,982 $2,354,561 $2,425,198 $2,497,954 $2,572,893 Vacancy $ 133,164 $ 137,159 $ 141,274 $ 145,512 $ 149,877 $ 154,374 Credit Loss $ 88,776 $ 91,439 $ 94,182 $ 97,008 $ 99,918 $ 102,916 Concessions $ 166,455 $ 68,579 $ 11,773 $ 0 $ 0 $ 0 -------------------------------------------------------------------------------- Subtotal $ 388,395 $ 297,178 $ 247,229 $ 242,520 $ 249,795 $ 257,289 Laundry Income $ 22,240 $ 22,907 $ 23,594 $ 24,302 $ 25,031 $ 25,782 Garage Revenue $ 1,668 $ 1,718 $ 1,770 $ 1,823 $ 1,877 $ 1,934 Other Misc. Revenue $ 162,630 $ 167,509 $ 172,534 $ 177,710 $ 183,041 $ 188,533 -------------------------------------------------------------------------------- Subtotal Other Income $ 186,538 $ 192,134 $ 197,898 $ 203,835 $ 209,950 $ 216,249 -------------------------------------------------------------------------------- EFFECTIVE GROSS INCOME $2,017,543 $2,180,938 $2,305,231 $2,386,514 $2,458,109 $2,531,852 OPERATING EXPENSES: Taxes $ 147,340 $ 151,760 $ 156,313 $ 161,002 $ 165,832 $ 170,807 Insurance $ 83,400 $ 85,902 $ 88,479 $ 91,133 $ 93,867 $ 96,683 Utilities $ 132,050 $ 136,012 $ 140,092 $ 144,295 $ 148,623 $ 153,082 Repair & Maintenance $ 208,500 $ 214,755 $ 221,198 $ 227,834 $ 234,669 $ 241,709 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 48,650 $ 50,110 $ 51,613 $ 53,161 $ 54,756 $ 56,399 General Administrative $ 250,200 $ 257,706 $ 265,437 $ 273,400 $ 281,602 $ 290,050 Management $ 100,877 $ 109,047 $ 115,262 $ 119,326 $ 122,905 $ 126,593 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $ 971,017 $1,005,291 $1,038,393 $1,070,151 $1,102,256 $1,135,323 Reserves $ 69,500 $ 71,585 $ 73,733 $ 75,945 $ 78,223 $ 80,570 -------------------------------------------------------------------------------- NET OPERATING INCOME $ 977,026 $1,104,062 $1,193,105 $1,240,418 $1,277,630 $1,315,959 ======================================================================================================================= Operating Expense Ratio (% of EGI) 48.1% 46.1% 45.0% 44.8% 44.8% 44.8% Operating Expense Per Unit $ 3,493 $ 3,616 $ 3,735 $ 3,849 $ 3,965 $ 4,084 YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 7 8 9 10 11 - --------------------------------------------------------------------------------------------------------- REVENUE Base Rent $2,650,080 $2,729,582 $2,811,470 $2,895,814 $2,982,688 Vacancy $ 159,005 $ 163,775 $ 168,688 $ 173,749 $ 178,961 Credit Loss $ 106,003 $ 109,183 $ 112,459 $ 115,833 $ 119,308 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------ Subtotal $ 265,008 $ 272,958 $ 281,147 $ 289,581 $ 298,269 Laundry Income $ 26,556 $ 27,352 $ 28,173 $ 29,018 $ 29,889 Garage Revenue $ 1,992 $ 2,051 $ 2,113 $ 2,176 $ 2,242 Other Misc. Revenue $ 194,189 $ 200,014 $ 206,015 $ 212,195 $ 218,561 ------------------------------------------------------------------ Subtotal Other Income $ 222,736 $ 229,418 $ 236,301 $ 243,390 $ 250,691 ------------------------------------------------------------------ EFFECTIVE GROSS INCOME $2,607,808 $2,686,042 $2,766,623 $2,849,622 $2,935,111 OPERATING EXPENSES: Taxes $ 175,932 $ 181,210 $ 186,646 $ 192,245 $ 198,013 Insurance $ 99,584 $ 102,571 $ 105,649 $ 108,818 $ 112,083 Utilities $ 157,675 $ 162,405 $ 167,277 $ 172,295 $ 177,464 Repair & Maintenance $ 248,960 $ 256,429 $ 264,122 $ 272,045 $ 280,207 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 Security $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 58,091 $ 59,833 $ 61,628 $ 63,477 $ 65,382 General Administrative $ 298,752 $ 307,714 $ 316,946 $ 326,454 $ 336,248 Management $ 130,390 $ 134,302 $ 138,331 $ 142,481 $ 146,756 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------ TOTAL OPERATING EXPENSES $1,169,383 $1,204,465 $1,240,598 $1,277,816 $1,316,151 Reserves $ 82,987 $ 85,476 $ 88,041 $ 90,682 $ 93,402 ------------------------------------------------------------------ NET OPERATING INCOME $1,355,438 $1,396,101 $1,437,984 $1,481,124 $1,525,558 ========================================================================================================= Operating Expense Ratio (% of EGI) 44.8% 44.8% 44.8% 44.8% 44.8% Operating Expense Per Unit $ 4,206 $ 4,333 $ 4,463 $ 4,596 $ 4,734
Estimated Stabilized NOI $1,135,158 Sales Expense Rate 2.00% Months to Stabilized 1 Discount Rate 13.00% Stabilized Occupancy 94.0% Terminal Cap Rate 11.50%
Gross Residual Sale Price $13,265,718 Deferred Maintenance $ 0 Less: Sales Expense $ 265,314 Add: Excess Land $ 0 ----------- Other Adjustments $ 0 Net Residual Sale Price $13,000,404 ------------ PV of Reversion $ 3,829,767 Value Indicated By "DCF" $ 10,886,229 Add: NPV of NOI $ 7,056,462 Rounded $ 10,900,000 ----------- PV Total $10,886,229
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE - ------------------------------------------------------------------------------------------------------------------------------- TOTAL VALUE 12.50% 12.75% 13.00% 13.25% 13.50% 11.00% $11,406,974 $11,231,802 $11,060,310 $10,892,408 $10,728,009 11.25% $11,313,965 $11,140,835 $10,971,335 $10,805,378 $10,642,877 TERMINAL CAP RATE 11.50% $11,225,000 $11,053,823 $10,886,229 $10,722,132 $10,561,447 11.75% $11,139,821 $10,970,513 $10,804,745 $10,642,429 $10,483,482 12.00% $11,058,191 $10,890,675 $10,726,656 $10,566,047 $10,408,765
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 34 OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA INCOME LOSS DURING LEASE-UP The subject is currently near or at a stabilized condition. Therefore, there is no income loss during lease-up at the subject property. CONCESSIONS 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 $209,000 (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 10.50% 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 OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA OAKWOOD VILLAGE ON LAKE NAN
TOTAL PER SQ. FT. PER UNIT %OF EGI - ------------------------------------------------------------------------------------------------------- REVENUE Base Rent $ 2,219,400 $ 9.86 $ 7,983 Less: Vacancy & Collection Loss 10.00% $ 221,940 $ 0.99 $ 798 Plus: Other Income Laundry Income $ 22,240 $ 0.10 $ 80 1.02% Garage Revenue $ 1,668 $ 0.01 $ 6 0.08% Other Misc. Revenue $ 162,630 $ 0.72 $ 585 7.45% ----------------------------------------------- Subtotal Other Income $ 186,538 $ 0.83 $ 671 8.54% EFFECTIVE GROSS INCOME $ 2,183,998 $ 9.70 $ 7,856 OPERATING EXPENSES: Taxes $ 147,340 $ 0.65 $ 530 6.75% Insurance $ 83,400 $ 0.37 $ 300 3.82% Utilities $ 132,050 $ 0.59 $ 475 6.05% Repair & Maintenance $ 208,500 $ 0.93 $ 750 9.55% Cleaning $ 0 $ 0.00 $ 0 0.00% Landscaping $ 0 $ 0.00 $ 0 0.00% Security $ 0 $ 0.00 $ 0 0.00% Marketing & Leasing $ 48,650 $ 0.22 $ 175 2.23% General Administrative $ 250,200 $ 1.11 $ 900 11.46% Management 5.00% $ 109,200 $ 0.49 $ 393 5.00% Miscellaneous $ 0 $ 0.00 $ 0 0.00% TOTAL OPERATING EXPENSES $ 979,340 $ 4.35 $3,523 44.84% Reserves $ 69,500 $ 0.31 $ 250 3.18% ----------------------------------------------- NET OPERATING INCOME $ 1,135,158 $ 5.04 $ 4,083 51.98% "GOING IN" CAPITALIZATION RATE 10.50% VALUE INDICATION $ 10,811,030 $ 48.03 $ 38,889 PV OF CONCESSIONS ($ 209,000) "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $ 10,602,030 ROUNDED $ 10,600,000 $ 47.10 $ 38,129
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 36 OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF - ------------------------------------------------------------------------ 9.75% $11,433,647 $11,400,000 $41,007 $50.65 10.00% $11,142,581 $11,100,000 $39,928 $49.32 10.25% $10,865,713 $10,900,000 $39,209 $48.43 10.50% $10,602,030 $10,600,000 $38,129 $47.10 10.75% $10,350,610 $10,400,000 $37,410 $46.21 11.00% $10,110,619 $10,100,000 $36,331 $44.88 11.25% $ 9,881,294 $ 9,900,000 $35,612 $43.99
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $10,600,000. CORRELATION AND CONCLUSION BY THE INCOME APPROACH The two methods used to estimate the market value of the subject property by the income approach resulted in the following indications of value: Discounted Cash Flow Analysis $10,900,000 Direct Capitalization Method $10,600,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $10,900,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 37 OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA RECONCILIATION AND CONCLUSION This appraisal was made to express an opinion as of the Market Value of the fee simple estate in the property. AS IS MARKET VALUE OF THE FEE SIMPLE ESTATE Cost Approach Not Utilized Sales Comparison Approach $ 11,200,000 Income Approach $ 10,900,000 Reconciled Value $ 10,900,000
The Income Capitalization Method is considered a reliable indicator of value. Income and expenses were estimated and projected based on historical operating statements and market oriented expenses. This method is primarily used by investors in their underwriting analysis. Furthermore, there was good support for an overall rate in the Direct Capitalization Method. The Sales Comparison Approach to value supported the value conclusion by the Income Approach and was given secondary consideration. Investment-grade, income-producing properties such as the subject are not typically traded based on cost. Therefore, the Cost Approach has not been considered in our valuation. FINAL VALUE - FEE SIMPLE ESTATE Based on the investigation and premise outlined, it is our opinion that as of May 28, 2003 the market value of the fee simple estate in the property is: $10,900,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR EXTERIOR - TYPICAL APARTMENT BUILDINGS [PICTURE] [PICTURE] EXTERIOR - APARTMENT BUILDING EXTERIOR - APARTMENT BUILDING [PICTURE] [PICTURE] EXTERIOR - FROM PIER EXTERIOR - SWIMMING POOL AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] INTERIOR - MODEL INTERIOR - MODEL [PICTURE] [PICTURE] INTERIOR - APARTMENT UNIT INTERIOR - APARTMENT UNIT [PICTURE] [PICTURE] EXTERIOR - PIER INTERIOR - COMMUNITY BUILDING AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 COURTYARD AT WINTER PARK LA ALOMA APARTMENTS THE GLEN AT WINTER PARK 1695 Lee Road 3040 Aloma Avenue 3651 North Goldenrod Winter Park, Florida Winter Park, Florida Winter Park, Florida [PICTURE] [PICTURE] [PICTURE] COMPARABLE I-4 COMPARABLE I-5 KINGSTON VILLAGE THE ASHLEY OF SPRING VALLEY 940 Douglas Avenue 693 South Wymore Road Altamonte Springs, Altamonte Springs, FL [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE COMPARABLE DESCRIPTION SUBJECT R - 1 R - 2 - -------------------------------------------------------------------------------------------------------------------------------- Property Name Oakwood Village Waterside Tealewood Parke on Lake Nan Management Company AIMCO Waterside Gables Residential Trust LOCATION: Address 4755 North Goldenrod Road 7950 Shoals Drive 4704 Lucier Court City, State Winter Park,Florida Winter Park, Florida Winter Park, Florida County Orange Orange Orange Proximity to subject 1/4 mile north east of Across Goldenrod Road the subject from subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 225,069 288,845 100,968 Year Built 1973 1973 1986 Effective Age 20 20 10 Building Structure type Stucco exterior walls; Stucco exterior walls; Siding walls; walls; asphalt shingle roof asphalt shingle roof asphalt shingle roof Parking Type (Gr., Open Open Open Cov., etc.) Number of Units 278 346 108 Unit Mix: Type Unit Qty.Mo.Rent Type Unit Qty. Mo. Type Unit Qty. Mo. 1 Studio - 500 29 $550 2 1Br/1Ba 700 139 $605 4 2Br/2Ba- 910 52 $740 Mariner Garden 2 Efficiency 533 29 $569 3 1Br/1Ba 700 37 $620 5 2Br/2Ba- 958 56 $775 - Yacht Twnhm 3 1Br/1Ba - 721 93 $618 4 2Br/1Ba 925 97 $695 Regatta 4 2Br/1Ba - 912 66 $696 5 2Br/2Ba 1,040 73 $750 Schooner 5 2Br/2Ba - 967 21 $830 Lakeshore 6 3Br/2Ba - 1,189 40 $859 Dockside Average Unit Size (SF) 810 835 935 Unit Breakdown: Efficiency 16% 2-Bedroom 42% Efficiency 0% 2-Bedroom 49% Efficiency 0% 2-Bedroom 100% 1-Bedroom 31% 3-Bedroom 10% 1-Bedroom 51% 3-Bedroom 0% 1-Bedroom 0% 3-Bedroom 0% CONDITION: Good Average Good APPEAL: Average Average Good AMENITIES: Unit Amenities Attach. Vaulted Attach. Vaulted Attach. X Vaulted Garage Ceiling Garage Ceiling Garage Ceiling X Balcony X W/D X Balcony X W/D X Balcony X W/D Connect. Connect. Connect. Fireplace Fireplace Fireplace X Cable X Cable X Cable TV Ready TV Ready TV Ready Project Amenities X Swimming X Swimming X Swimming Pool Pool Pool Spa/Jacuzzi X Car Wash Spa/Jacuzzi X Car Wash X Spa/Jacuzzi X Car Wash Basketball X BBQ Basketball X BBQ X Basketball X BBQ Court Equipment Court Equipment Court Equipment Volleyball Theater X Volleyball Theater Volleyball Theater Court Room Court Room Court Room Sand Meeting Sand Meeting X Sand Meeting Volley Ball Hall Volley Ball Hall Volley Ball Hall X Tennis Secured X Tennis Secured X Tennis Secured Court Parking Court Parking Court Parking Racquet X Laundry Racquet X Laundry Racquet X Laundry Ball Room Ball Room Ball Room Jogging X Business Jogging Business X Jogging X Business Track Office Track Office Track Office X Gym Room X Picnic Area X Gym Room Picnic Area X Gym Room Picnic Area X Clubhouse Clubhouse X Clubhouse X Boat Ramp X Boat Ramp Boat Ramp OCCUPANCY: 93% 85% 87% LEASING DATA: Available Leasing Terms 7 to 12 Months 7 to 16 Months 7 to 16 Months Concessions 1 Month Free on 1 Month Free on Select Units 1 Month Select Units Free Pet Deposit $150 to $250, plus $20 per $300 150 month Utilities Paid by Tenant X Electric Natural Gas X Electric Natural Gas X Electric Natural Gas Water Trash Water Trash Water Trash Confirmation May 27, 2003; Michelle May 27, 2003; May 27, 2003; Chapman (Community Leasing Agent Leasing Agent Telephone Number (407) 678-2662 (407) 678-2223 (407) 679-2555 NOTES: None None COMPARISON SUBJECT Slightly Inferior Slightly Superior COMPARABLE COMPARABLE COMPARABLE DESCRIPTION R - 3 R - 4 R - 5 - -------------------------------------------------------------------------------------------------------------------------------- Property Name Emerald Bay at Winter Park Cranes Landing Sun Key Management Company Equity Residential Epoch Management Picerne Management Company LOCATION: Address 5 Autumn Breeze Way 3440 Goldenrod Road 7502 Sun Key Boulevard City, State Winter Park, Florida Winter Park, Florida Winter Park, Florida County Orange Orange Orange Proximity to subject 0.5 mile northwest of 0.5 mile south of 0.5 mile northeast of the subject the subject the subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 373,000 239,000 207,554 Year Built 1972 1990 1986 Effective Age 20 10 10 Building Structure type Block & Stucco walls; Siding with stucco accents; Stucco exterior walls; asphalt shingle roof tile roof asphalt shingle roof Parking Type (Gr., Open, Covered Open Open Cov., etc.) Number of Units 432 252 592 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. Type Unit Qty. Mo. 3 1Br/1Ba 765 148 $665 3 1Br/1Ba 600 32 $640 2 1Br/1Ba 600 60 $640 5 2Br/2Ba 881 132 $890 3 1Br/1Ba 800 56 $670 3 1Br/1Ba 750 236 $695 6 3Br/2Ba 944 152 $745 4 2Br/1Ba 950 44 $780 5 2Br/2Ba 900 60 $770 4 2Br/2Ba 1,050 72 $820 6 3Br/2Ba 1,030 236 $835 6 3Br/2Ba 1,200 48 $940 Average Unit Size (SF) 863 948 862 Unit Breakdown Efficiency 0% 2-Bedroom 31% Efficiency 0% 2-Bedroom 46% Efficiency 0% 2-Bedroom 10% 1-Bedroom 34% 3-Bedroom 35% 1-Bedroom 35% 3-Bedroom 19% 1-Bedroom 50% 3-Bedroom 40% CONDITION: Good Average Average APPEAL: Good Good Good AMENITIES: Unit Amenities Attach. Vaulted Attach. X Vaulted Attach. X Vaulted Garage Ceiling Garage Ceiling Garage Ceiling X Balcony X W/D Connect. X Balcony X W/D Connect. X Balcony X W/D Connect. Fireplace Fireplace Fireplace X Cable TV X Cable TV X Cable Ready Ready TV Ready Project Amenities X Swimming Pool X Swimming Pool X Swimming Pool X Spa/Jacuzzi X Car Wash X Spa/Jacuzzi X Car Wash Spa/Jacuzzi X Car Wash X Basketball X BBQ X Basketball X BBQ Basketball BBQ Court Equipment Court Equipment Court Equipment Volleyball Theater Volleyball Theater Volleyball Theater Court Room Court Room Court Room X Sand Meeting Sand Meeting Sand Meeting Volley Ball Hall Volley Ball Hall Volley Ball Hall X Tennis Secured Tennis Secured X Tennis Secured Court Parking Court Parking Court Parking Racquet X Laundry Racquet X Laundry Racquet X Laundry Room Ball Room Ball Room Ball Jogging Business X Jogging Business Jogging Business Track Office Track Office Track Office X Gym Room Picnic Area X Gym Room Picnic Area X Gym Room Picnic Area Clubhouse X Clubhouse Clubhouse Boat Ramp Boat Ramp Boat Ramp OCCUPANCY: 89% 94% 94% LEASING DATA: Available Leasing Terms 7 to 13 Months 7 to 12 Months 6 to 15 Months Concessions $80 off 1Br, $96 off 2Br, None 1 Month Free $116 off 3Br Pet Deposit $200 $100 $250 Utilities Paid by Tenant X Electric Natural Gas X Electric Natural Gas X Electric Natural Gas Water Trash Water Trash Water Trash Confirmation May 27, 2003; Leasing Agent May 28, 2003;Property Manager May 28, 2003; Leasing Agent Telephone Number (407)671-7722 (407)671-5585 (407)677-8884 NOTES: None None None COMPARISON TO SUBJECT Slightly Inferior Superior Slightly Inferior
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 WATERSIDE TEALEWOOD PARKE EMERALD BAY AT WINTER PARK 7950 Shoals Drive 4704 Lucier Court 5 Autumn Breeze Way Winter Park, Florida Winter Park, Florida Winter Park, Florida [PICTURE] [PICTURE] [PICTURE] COMPARABLE R-4 COMPARABLE R-5 CRANES LANDING SUN KEY 3440 Goldenrod Road 7502 Sun Key Boulevard Winter Park, Florida Winter Park, Florida [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA No responsibility is assumed for matters legal in nature. No investigation has been made of the title to or any liabilities against the property appraised. In this appraisal, it is presumed that, unless otherwise noted, the owner's claim is valid, the property rights are good and marketable, and there are no encumbrances which cannot be cleared through normal processes. To the best of our knowledge, all data set forth in this report are true and accurate. Although gathered from reliable sources, no guarantee is made nor liability assumed for the accuracy of any data, opinions, or estimates identified as being furnished by others which have been used in formulating this analysis. Land areas and descriptions used in this appraisal were obtained from public records and have not been verified by legal counsel or a licensed surveyor. No soil analysis or geological studies were ordered or made in conjunction with this report, nor were any water, oil, gas, or other subsurface mineral and use rights or conditions investigated. Substances such as asbestos, urea-formaldehyde foam insulation, other chemicals, toxic wastes, or other potentially hazardous materials could, if present, adversely affect the value of the property. Unless otherwise stated in this report, the existence of hazardous substance, which may or may not be present on or in the property, was not considered by the appraiser in the development of the conclusion of value. The stated value estimate is predicated on the assumption that there is no material on or in the property that would cause such a loss in value. No responsibility is assumed for any such conditions, and the client has been advised that the appraiser is not qualified to detect such substances, quantify the impact on values, or develop the remedial cost. No environmental impact study has been ordered or made. Full compliance with applicable federal, state, and local environmental regulations and laws is assumed unless otherwise stated, defined, and considered in the report. It is also assumed that all required licenses, consents, or other legislative or administrative authority from any local, state, or national government or private entity organization either have been or can be obtained or renewed for any use which the report covers. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA It is assumed that all applicable zoning and use regulations and restrictions have been complied with unless a nonconformity has been stated, defined, and considered in the appraisal report. Further, it is assumed that the utilization of the land and improvements is within the boundaries of the property described and that no encroachment or trespass exists unless noted in the report. The Americans with Disabilities Act ("ADA") became effective January 26, 1992. We have not made a specific compliance survey and analysis of this property to determine whether or not it is in conformity with the various detailed requirements of the ADA. It is possible that a compliance survey of the property together with a detailed analysis of the requirements of the ADA could reveal that the property is not in compliance with one or more of the requirements of the act. If so, this fact could have a negative effect on the value of the property. Since we have no direct evidence relating to this issue, we did not consider the possible noncompliance with the requirements of ADA in estimating the value of the property. We have made a physical inspection of the property and noted visible physical defects, if any, in our report. This inspection was made by individuals generally familiar with real estate and building construction. However, these individuals are not architectural or structural engineers who would have detailed knowledge of building design and structural integrity. Accordingly, we do not opine on, nor are we responsible for, the structural integrity of the property including its conformity to specific governmental code requirements, such as fire, building and safety, earthquake, and occupancy, or any physical defects which were not readily apparent to the appraiser during the inspection. The value or values presented in this report are based upon the premises outlined herein and are valid only for the purpose or purposes stated. The date of value to which the conclusions and opinions expressed apply is set forth in this report. The value opinion herein rendered is based on the status of the national business economy and the purchasing power of the U.S. dollar as of that date. Testimony or attendance in court or at any other hearing is not required by reason of this appraisal unless arrangements are previously made within a reasonable time in advance for AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA such testimony, and then such testimony shall be at American Appraisal Associates, Inc.'s, prevailing per diem for the individuals involved. Possession of this report or any copy thereof does not carry with it the right of publication. No portion of this report (especially any conclusion to use, the identity of the appraiser or the firm with which the appraiser is connected, or any reference to the American Society of Appraisers or the 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 OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA EXHIBIT D CERTIFICATE OF APPRAISER (1 PAGE) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D CERTIFICATE OF APPRAISER I certify that, to the best of my knowledge and belief The statements of fact contained in this report are true and correct. The report analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and represent the impartial and 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 or bias with respect to the property that is the subject of this report and have no personal interest or bias with respect to the parties involved. The engagement of American Appraisal Associates, Inc., and myself personally in this assignment and compensation for American Appraisal Associates, Inc., are not contingent on the development or reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal. The analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice and the Principles of Appraisal Practice and Code of Ethics of the American Society of Appraisers. I personally did not inspect the subject property. Michael L. Kersten provided significant real property appraisal assistance in the preparation of this report. -s- Alice MacQueen ------------------------ Alice MacQueen Vice President, Real Estate Group Florida Certified General Real Estate Appraiser #RZ0002202 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA ALICE MACQUEEN VICE PRESIDENT AND PRINCIPAL, REAL ESTATE GROUP POSITION Alice MacQueen serves as a Vice President and Principal for the Dallas Real Estate Group of American Appraisal Associates, Inc. ("AAA"). EXPERIENCE Valuation Ms. MacQueen specializes in the appraisal of investment real estate and is annually involved in the valuation of several billion dollars of real property. The purposes of these valuations include allocation of purchase price, charitable donation, financing, purchase, sale, and syndication. She has also been involved in land planning analyses for major mixed-use developments. She has appraised various types of real estate including congregate care facilities, industrial properties, manufacturing facilities, office buildings, recreational subdivisions and planned unit developments, single- and multifamily residential properties, and shopping centers. Special-purpose properties she has appraised include campgrounds, churches, country clubs, golf courses, historic landmarks, proprietary cemeteries, and schools. In addition to market value opinions, Ms. MacQueen has provided feasibility and highest and best use studies. She has also been involved in several research projects, providing background studies involving major property tax appeal cases. These studies included the impact of inflation, rate of return considerations, sales-assessment ratio analyses, and the applicability of income capitalization to commercial and industrial properties. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA Ms. MacQueen has appraised real estate in 46 U.S. states, Mexico, and Puerto Rico. Business Ms. MacQueen joined AAA in 1983. She served as Regional Real Estate Director for the southeastern United States from 1987 to 1992 and as National Director of the Real Estate Valuation Group from 1992 through 1995, when she assumed her current position. Before joining the firm, she was involved in property management for five years and spent an additional five years as an appraiser, consultant, and research analyst. EDUCATION Realtors Institute of Virginia Greenbrier College for Women - Liberal Arts STATE CERTIFICATIONS State of Arizona, Certified General Real Estate Appraiser, #30987 State of Florida, Certified General Appraiser, #RZ0002202 State of Georgia, Certified General Real Property Appraiser, #239776 State of Minnesota, Certified General Real Property Appraiser, #AP-20144872 State of New Mexico, General Certified Appraiser, #001626-G State of Utah, State Certified General Appraiser, #CG00057001 PROFESSIONAL American Society of Appraisers, Candidate AFFILIATIONS AMERICAN APPRAISAL ASSOCIATES, INC. OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. OAKWOOD VILLAGE ON LAKE NAN, WINTER PARK, FLORIDA GENERAL SERVICE CONDITIONS The services(s) provided by AAA will be performed in accordance with professional appraisal standards. Our compensation is not contingent in any way upon our conclusions of value. We assume, without independent verification, the accuracy of all data provided to us. We will act as an independent contractor and reserve the right to use subcontractors. All files, workpapers or documents developed by us during the course of the engagement will be our property. We will retain this data for at least five years. Our report is to be used only for the specific purpose stated herein; and any other use is invalid. No reliance may be made by any third party without our prior written consent. You may show our report in its entirety to those third parties who need to review the information contained herein. No one should rely on our report as a substitute for their own due diligence. We understand that our reports will be described in public tender offer documents distributed to limited partners. We reserve the right to review the public tender offer documents prior to their issuance to confirm that disclosures of facts from the current appraisals are accurate. No reference to our name or our report, in whole or in part, in any other SEC filing or private placement memorandum you prepare and/or distribute to third parties may be made without our prior written consent. The Tender Offer Partnerships, as that term is defined in the Settlement Agreement, agree to indemnify and hold us harmless against and from any and all losses, claims, actions, damages, expenses or liabilities, including reasonable attorneys' fees, to which we may become subject in connection with this engagement except where such losses, claims, actions, damages, expenses or liabilities, including reasonable attorney's fees, arise or result from AAA's misconduct, bad faith or negligence. Co-Clients will not be liable for any of our acts or omissions. AAA is an equal opportunity employer. EX-99.(C)(2) 4 d07269a2exv99wxcyx2y.txt APPRAISAL OF WILLOW PARK ON LAKE ADELAIDE WILLOW PARK ON LAKE ADELAIDE 375 PALM SPRINGS DRIVE ALTAMONTE SPRINGS, FLORIDA MARKET VALUE - FEE SIMPLE ESTATE AS OF MAY 28, 2003 PREPARED FOR: APARTMENT INVESTMENT AND MANAGEMENT COMPANY (AIMCO) C/O LINER YANKELEVITZ SUNSHINE & REGENSTREIF LLP & LIEFF CABRASER HEIMANN & BERNSTEIN ON BEHALF OF NUANES, ET. AL. [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LETTERHEAD] JULY 9, 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: WILLOW PARK ON LAKE ADELAIDE 375 PALM SPRINGS DRIVE ALTAMONTE SPRINGS, SEMINOLE COUNTY, FLORIDA In accordance with your authorization, we have completed the appraisal of the above-referenced property. This complete appraisal is intended to report our analysis and conclusions in a summary format. The subject property consists of an apartment project having 185 units with a total of 153,995 square feet of rentable area. The improvements were built in 1972. The improvements are situated on 9.7 acres. Overall, the improvements are in average condition. As of the date of this appraisal, the subject property is 96% occupied. It is our understanding the appraisal will be used by the clients to assist the San Mateo Superior Court in the settlement of litigation between the above mentioned clients. The appraisal is intended to conform to the Uniform Standards of Professional Appraisal Practice ("USPAP") as promulgated by the Appraisal Standards Board of the Appraisal Foundation and the Code of Professional Ethics and Standards of Professional Practice of the Appraisal Institute. The appraisal is presented in a summary report, and the Departure Provision of USPAP has not been invoked in this appraisal. It is entirely inappropriate to use this value conclusion or the report for any purpose other than the one stated. AMERICAN APPRAISAL ASSOCIATES, INC. LETTER OF TRANSMITTAL PAGE 2 WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA The opinions expressed in this appraisal cover letter can only be completely understood by reading the narrative report, addenda, and other data, which is attached. The appraisal is subject to the attached general assumptions and limiting conditions and general service conditions. As a result of our investigation, it is our opinion that the fee simple market value of the subject, effective May 28, 2003 is: ($6,800,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. -s- Alice MacQueen July 9, 2003 Alice MacQueen #053272 Vice President, Real Estate Group Florida Certified General Real Estate Appraiser #RZ0002202 Assisted By: Michael L. Kersten AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA TABLE OF CONTENTS Cover Letter of Transmittal Table of Contents APPRAISAL DATA Executive Summary............................................................ 4 Introduction................................................................. 9 Area Analysis................................................................ 11 Market Analysis.............................................................. 14 Site Analysis................................................................ 16 Improvement Analysis......................................................... 16 Highest and Best Use......................................................... 17 VALUATION Valuation Procedure.......................................................... 18 Sales Comparison Approach.................................................... 20 Income Capitalization Approach............................................... 26 Reconciliation and Conclusion................................................ 37
ADDENDA Exhibit A - Photographs of Subject Property Exhibit B - Summary of Rent Comparables and Photograph of Comparables Exhibit C - Assumptions and Limiting Conditions Exhibit D - Certificate of Appraiser Exhibit E - Qualifications General Service Conditions AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 4 WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Willow Park on Lake Adelaide LOCATION: 375 Palm Springs Drive Altamonte Springs, Florida INTENDED USE OF ASSIGNMENT: Court Settlement PURPOSE OF APPRAISAL: "As Is" Market Value of the Fee Simple Estate INTEREST APPRAISED: Fee simple estate DATE OF VALUE: May 28, 2003 DATE OF REPORT: July 9, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 9.7 acres, or 422,532 square feet Assessor Parcel No.: 12-21-29-5BD-0000-0020 Floodplain: Community Panel No. 12117C0140E (April 17, 1995) Flood Zone X, Shaded X, & AE, an area inside the floodplain. Zoning: R-3 (Multiple-Family Residential District) BUILDING: No. of Units: 185 Units Total NRA: 153,995 Square Feet Average Unit Size: 832 Square Feet Apartment Density: 19.1 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 - ----------------------------------------------------------------------------------- Studio 478 $500 $1.05 $ 12,500 $ 150,000 1Br/1Ba 708 $570 $0.81 $ 33,060 $ 396,720 2Br/1Ba 900 $650 $0.72 $ 33,800 $ 405,600 2Br/2Ba 1,035 $700 $0.68 $ 23,100 $ 277,200 3Br/2Ba 1,178 $800 $0.68 $ 13,600 $ 163,200 Total $116,060 $1,392,720
OCCUPANCY: 96% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 20 Years AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA REMAINING ECONOMIC LIFE: 25 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] INTERIOR - COMMUNITY CENTER & OFFICE EXTERIOR - VIEW FROM PALM SPRINGS DRIVE AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA NEIGHBORHOOD MAP [MAP] HIGHEST AND BEST USE: As Vacant: Hold for future multi-family development As Improved: Continuation as its current use METHOD OF VALUATION: In this instance, the Sales Comparison and Income Approaches to value were utilized. AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 7 WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION Amount $/Unit --------------------- ------ ------ Potential Rental Income $1,392,720 $7,528 Effective Gross Income $1,344,919 $7,270 Operating Expenses $665,721 $3,598 49.5% of EGI Net Operating Income: $642,198 $3,471 Capitalization Rate 9.50% DIRECT CAPITALIZATION VALUE $6,700,000 * $36,216 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 12% Stabilized Vacancy & Collection Loss: 12% Lease-up / Stabilization Period N/A Terminal Capitalization Rate 10.50% Discount Rate 12.00% Selling Costs 2.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $6,800,000 * $36,757 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $6,800,000 $36,757 / UNIT
SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $34,797 to $62,500 Range of Sales $/Unit (Adjusted) $36,219 to $37,500 VALUE INDICATION - PRICE PER UNIT $6,800,000 * $36,757 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 5.27 to 7.05 Selected EGIM for Subject 5.30 Subject's Projected EGI $1,344,919 EGIM ANALYSIS CONCLUSION $7,000,000 * $37,838 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $6,600,000 * $35,676 / UNIT RECONCILED SALES COMPARISON VALUE $6,800,000 $36,757 / 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 WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $6,800,000 NOI Per Unit $6,600,000 EGIM Multiplier $7,000,000 INDICATED VALUE BY SALES COMPARISON $6,800,000 $36,757 / UNIT INCOME APPROACH: Direct Capitalization Method: $6,700,000 Discounted Cash Flow Method: $6,800,000 INDICATED VALUE BY THE INCOME APPROACH $6,800,000 $36,757 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $6,800,000 $36,757 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 375 Palm Springs Drive, Altamonte Springs, Seminole County, Florida. Altamonte Springs identifies it as 12-21-29-5BD-0000-0020. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Michael L. Kersten on May 28, 2003. Alice MacQueen has not made a personal inspection of the subject property. Michael L. Kersten assisted Alice MacQueen with the research, valuation analysis and writing the report. Alice MacQueen reviewed the report and concurs with the value. Alice MacQueen and Michael L. Kersten have extensive experience in appraising similar properties and meet the USPAP competency provision. The scope of this investigation comprises the inspection of the property and the collection, verification, and analysis of general and specific data pertinent to the subject property. We have researched current improved sales and leases of similar properties, analyzing them as to their comparability, and adjusting them accordingly. We completed the Sales Comparison and Income Capitalization Approaches to value. From these approaches to value, a concluded overall value was made. DATE OF VALUE AND REPORT This appraisal was made to express the opinion of value as of May 28, 2003. The date of the report is July 9, 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 WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA 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 NPI 5. 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 WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA AREA / NEIGHBORHOOD ANALYSIS NEIGHBORHOOD ANALYSIS A neighborhood is a group of complementary land uses. The function of the neighborhood analysis is to describe the immediate surrounding environs. The subject is located in the city of Altamonte Springs, Florida. Overall, the neighborhood is characterized as a suburban setting with the predominant land use being residential. The subject's neighborhood is generally defined by the following boundaries. NEIGHBORHOOD BOUNDARIES East - Longwood Avenue West - Interstate Highway 4 South - Altamonte Drive North - North Street MAJOR EMPLOYERS Major employers in the subject's area include Walt Disney Company (55,000), Florida Hospital (12,808), Universal Orlando (12,000), Orlando Regional Healthcare (12,000), Lockheed Martin (5,053), Central Florida Investments (5,000), University of Central Florida (4,808), Darden Restaurants (4,675), Sprint (4,295), and SeaWorld (4,000). 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 WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA NEIGHBORHOOD DEMOGRAPHICS
AREA -------------------------------------------- CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA - ------------------------------------------------------------------------------------------ POPULATION TRENDS Current Population 11,341 84,004 220,459 1,721,904 5-Year Population 11,775 85,965 228,504 1,921,950 % Change CY-5Y 3.8% 2.3% 3.6% 11.6% Annual Change CY-5Y 0.8% 0.5% 0.7% 2.3% HOUSEHOLDS Current Households 5,768 35,825 89,965 655,258 5-Year Projected Households 6,117 37,515 94,951 731,362 % Change CY - 5Y 6.1% 4.7% 5.5% 11.6% Annual Change CY-5Y 1.2% 0.9% 1.1% 2.3% INCOME TRENDS Median Household Income $ 40,814 $ 44,753 $ 47,741 $ 40,114 Per Capita Income $ 26,743 $ 25,642 $ 25,969 $ 21,799 Average Household Income $ 54,683 $ 60,447 $ 63,956 $ 57,283
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 42.37% 38.98% 33.81% 30.55% 5-Year Projected % Renting 41.50% 39.68% 33.94% 30.11% % of Households Owning 48.71% 52.89% 58.83% 60.90% 5-Year Projected % Owning 49.97% 52.48% 58.97% 61.87%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Lake Adelaide South - Windmeadow Residential Condominiums East - Windmeadow Residential Condominiums West - Palm Springs Drive and Altmonte Mall CONCLUSIONS The subject is well located within the city of Altamonte Springs. The neighborhood is characterized as being mostly suburban in nature and is currently in the stable stage of development. The economic outlook for the neighborhood is judged to be favorable with a good economic base. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 14 WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA MARKET ANALYSIS The subject property is located in the city of Altamonte Springs in Seminole County. The overall pace of development in the subject's market is more or less stable. New construction in the subject neighborhood has been limited to several smaller retail projects. None of the apartment complexes in the area appear to be newer than 15 years old. With the exception of several 4- to 8-unit condominium complexes, there appears to have been no recent multi family residential construction occurring in the subject neighborhood. The following table illustrates historical vacancy rates for the subject's market. HISTORICAL VACANCY RATE
Period Region Submarket - ------------------------------------------ 1Q03 9.3% 8.8% 4Q02 8.9% 6.3% 2002 7.6% 5.9% 3Q02 N/A 5.7% 2Q02 N/A 6.4% 1Q02 N/A 7.3% 4Q01 N/A 5.5% 3Q01 N/A 4.3% 2Q01 N/A 3.8%
Source: REIS Occupancy trends in the subject's market are decreasing. Historically speaking, the subject's submarket has outperformed the overall market. As illustrated on the table, vacancy rates for region and submarket are increasing. 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 - ----------------------------------------------------------------------------- 2Q01 N/A - $678 - 3Q01 N/A N/A $680 0.3% 4Q01 N/A N/A $656 -3.5% 1Q02 N/A N/A $657 0.2% 2Q02 N/A N/A $646 -1.7% 3Q02 N/A N/A $641 -0.8% 4Q02 N/A N/A $639 -0.3% 1Q03 N/A N/A $646 1.1%
669 AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA The following table illustrates a summary of the subject's competitive set. COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject - ----------------------------------------------------------------------------------------------------------------- R-1 LakePointe Apartments 502 88% 1986 I block south of the subject R-2 Altamonte Bay Club 224 93% 1987 Across Orange Drive from the subject R-3 Tiffany Oaks 288 96% 1985 0.5 mile west of the subject R-4 Lakeside North 360 89% 1987 0.5 mile north of the subject R-5 Village Green 164 99% 1970 0.5 mile southwest of the subject Subject Willow Park on Lake Adelaide 185 96% 1972
Many complexes are offering concessions on one-bedroom apartment units. There appears to be a dearth of three-bedroom units in the market area. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA PROPERTY DESCRIPTION SITE ANALYSIS Site Area 9.7 acres, or 422,532 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 Good Flood Zone: Community Panel 12117C0140E, dated April 17, 1995 Flood Zone Zone X, Shaded X, & AE Zoning R-3, the subject improvements represent a legal conforming use of the site. REAL ESTATE TAXES
ASSESSED VALUE - 2003 -------------------------------------- TAX RATE / PROPERTY PARCEL NUMBER LAND BUILDING TOTAL MILL RATE TAXES - ---------------------------------------------------------------------------------------------------- 12-21-29-5BD-0000-0020 NA $4,973,110 $4,973,110 0.01962 $97,570
IMPROVEMENT ANALYSIS Year Built 1972 Number of Units 185 Net Rentable Area 153,995 Square Feet Construction: Foundation Reinforced concrete slab Frame Reinforced concrete block Exterior Walls Stucco wall Roof Composition shingle over a wood truss structure Project Amenities Amenities at the subject include swimming pool, basketball court, tennis court,gym room, car wash, barbeque equipment, laundry room, clubhouse, playground, dock/pier, and parking area. Unit Amenities Individual unit amenities include a balcony, cable TV a connection, and washer dryer connection. Appliances available in each unit include a refrigerator, stove, AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA dishwasher, water heater, garbage disposal, and oven. Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) - --------------------------------------------------------- Studio 25 478 1Br/1Ba 58 708 2Br/1Ba 52 900 2Br/2Ba 33 1,035 3Br/2Ba 17 1,178
Overall Condition Average Effective Age 20 years Economic Life 45 years Remaining Economic Life 25 years Deferred Maintenance None HIGHEST AND BEST USE ANALYSIS In accordance with the definition of highest and best use, an analysis of the site relating to its legal uses, physical possibilities, and financial feasibility is appropriate. The highest and best use as vacant is to hold for future multi-family development. The subject improvements were constructed in 1972 and consist of a 185-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 WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA THE VALUATION PROCEDURE There are three traditional approaches, which can be employed in establishing the market value of the subject property. These approaches and their applicability to the valuation of the subject are summarized as follows: THE COST APPROACH The application of the Cost Approach is based on the principle of substitution. This principle may be stated as follows: no one is justified in paying more for a property than that amount by which he or she can obtain, by purchase of a site and construction of a building, without undue delay, a property of equal desirability and utility. In the case of a new building, no deficiencies in the building should exist. In the case of income-producing real estate, the cost of construction plays a minor and relatively insignificant role in determining market value. The Cost Approach is typically only a reliable indicator of value for: (a) new properties; (b) special use properties; and (c) where the cost of reproducing the improvements is easily and accurately quantified and there is no economic obsolescence. In all instances, the issue of an appropriate entrepreneurial profit - the reward for undertaking the risk of construction, remains a highly subjective factor especially in a market lacking significant speculative development. THE SALES COMPARISON APPROACH The Sales Comparison Approach is an estimate of value based upon a process of comparing recent sales of similar properties in the surrounding or competing areas to the subject property. Inherent in this approach is the principle of substitution. The application of this approach consists of comparing the subject property with similar properties of the same general type, which have been sold recently or currently are available for sale in competing areas. This comparative process involves judgment as to the similarity of the subject property and the comparable sale with respect to many value factors such as location, contract rent levels, quality of construction, reputation and prestige, age and condition, among others. The estimated value through this approach represents the probable price at which a willing seller would sell the subject property to a willing and knowledgeable buyer as of the date of value. AMERICAN APPRAISAL ASSOCIATES, INC. VALUATION PROCEDURE PAGE 19 WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA THE INCOME CAPITALIZATION APPROACH The theory of the Income Capitalization Approach is based on the premise that present value is the value of the cash flow and reversionary value the property will produce over a reasonable holding (ownership) period. The Discounted Cash Flow Analysis will convert equity cash flows (including cash flows and equity reversion) into a present value utilizing an internal rate of return (or discount rate). The Internal Rate of Return (IRR) will be derived from a comparison of alternate investments, a comparative analysis of IRR's used by recent buyers of similar properties, and a review of published industry surveys. The Direct Capitalization Analysis converts one year of income into an overall value using overall capitalization rates from similar sales. The overall rates take into consideration buyers assumptions of the market over the long-term. The results of the Income Capitalization Analysis are usually the primary value indicator for income producing properties. Investors expect a reasonable rate of return on their equity investment based on the ownership risks involved; this approach closely parallels the investment decision process. RECONCILIATION In this instance, we have completed the Sales Comparison and Income Capitalization Approaches to value. As an income producing property, the income approach is a primary approach to value. The Sales Comparison Approach is also considered reliable as investors are buying similar buildings in the market. Our research indicates that market participants are generally not buying, selling, investing, or lending with reliance placed on the methodology of the Cost Approach to establish the value. Therefore, we have decided that the Cost Approach is not a reliable indicator of value for the subject, and this approach has not been utilized. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 20 WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA SALES COMPARISON APPROACH Use of market or comparable sales requires the collection and analysis of comparable sales data. Similar properties recently sold are compared to the subject and adjusted based on any perceived differences. This method is based on the premise that the costs of acquiring a substitute property would tend to establish a value for the subject property. The premise suggests that if a substitute is unavailable in the market, the reliability of the approach may be subordinate to the other approaches. The reliance on substitute properties produces shortcomings in the validity of this approach. Geographic and demographic characteristics from each submarket restrict which sales may be selected. Recent sales with a similar physical characteristics, income levels, and location are usually limited. The sales we have identified, however, do establish general valuation parameters as well as provide support to our conclusion derived through the income approach method. The standard unit of comparison among similar properties is the sales price per unit and price per square foot of net rentable area. To accurately adjust prices to satisfy the requirements of the sales comparison approach, numerous calculations and highly subjective judgments would be required including consideration of numerous income and expense details for which information may be unreliable or unknown. The sales price per unit and square foot are considered relevant to the investment decision, but primarily as a parameter against which value estimates derived through the income approach can be judged and compared. In examining the comparable sales, we have applied a subjective adjustment analysis, which includes specific adjustments derived from our experience and consulting with the market participants. SALES COMPARISON ANALYSIS Detailed on the following pages are sales transactions involving properties located in the subject's competitive investment market. Photographs of the sale transactions are located in the Addenda. Following the summary of sales is an adjustment grid that is used to arrive at a value. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 21 WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - --------------------------------------------------------------------------------------------------------------------------------- Property Name Willow Park on Lake Adelaide Courtyard at Winter Park La Aloma Apartments LOCATION: Address 375 Palm Springs Drive 1695 Lee Road 3040 Aloma Avenue City, State Altamonte Springs, Florida Winter Park, Florida Winter Park, Florida County Seminole Orange Orange PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 153,995 143,360 176,800 Year Built 1972 1966 1967 Number of Units 185 160 164 Unit Mix: Type Total Type Total Type Total Studio 25 1Br/1Ba 40 1Br/1Ba N/A 1Br/1Ba 58 2Br/2Ba 80 2Br/2Ba N/A 2Br/1Ba 52 3Br/2Ba 40 3Br/2Ba N/A 2Br/2Ba 33 3Br/2Ba 17 Average Unit Size (SF) 832 896 1,078 Land Area (Acre) 9.7000 9.5528 9.1000 Density (Units/Acre) 19.1 16.7 18.0 Parking Ratio (Spaces/Unit) 1.82 1.33 1.77 Parking Type (Gr., Cov., etc.) Garage, Open Covered Open Open CONDITION: Good Average Average APPEAL: Average Average Fair AMENITIES: Pool/Spa Yes/No Yes/No Yes/No Gym Room Yes Yes Yes Laundry Room Yes Yes No Secured Parking No No No Sport Courts No No Yes Washer/Dryer Connection Yes No No Other Other OCCUPANCY: 96% 90% 85% TRANSACTION DATA: Sale Date May, 2001 September, 2002 Sale Price ($) $6,100,000 $6,750,000 Grantor Miles-Courtyard-WP, LLC Veard-Winter Park, Ltd. Grantee PRG/Winter Park, LP Florida Investment Properties, LLC Sale Documentation Book 6258, Page 4812 Book 6629, Page 8177 Verification Comps, Inc. Comps, Inc. Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $1,286,400 $8,040 $8.97 $1,385,280 $8,447 $7.84 Vacancy/Credit Loss $ 128,640 $ 804 $0.90 $ 207,792 $1,267 $1.18 Effective Gross Income $1,157,760 $7,236 $8.08 $1,177,488 $7,180 $6.66 Operating Expenses $ 500,000 $3,125 $3.49 $ 533,600 $3,254 $3.02 Net Operating Income $ 657,760 $4,111 $4.59 $ 643,888 $3,926 $3.64 NOTES: This project is now Since, the sale, occ- known as Legacy of upancy has risen to 96%. Winter Park. PRICE PER UNIT $38,125 $41,159 PRICE PER SQUARE FOOT $ 42.55 $ 38.18 EXPENSE RATIO 43.2% 45.3% EGIM 5.27 5.73 OVERALL CAP RATE 10.78% 9.54% Cap Rate based on Pro Forma or Actual Income? ACTUAL ACTUAL COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 - ----------------------------------------------------------------------------------------------------------------------------------- Property Name Sedgefield Apartments Kingston Village The Ashley of Spring Valley LOCATION: Address 110 Sedgefield Circle 940 Douglas Avenue 693 South Wymore Road City, State Winter Park, Florida Altamonte Springs, FL Altamonte Springs, FL County Seminole Seminole Seminole PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 93,800 129,468 280,000 Year Built 1973 1982 1974 Number of Units 111 120 260 Unit Mix: Type Total Type Total Type Total Efficiency 21 1Br/1Ba 36 1Br/1Ba N/A 1 Bedroom 10 2Br/2Ba 72 2Br/2Ba N/A 2 Bedroom 75 2Br/2Ba Twn 12 3Br/2Ba N/A 3 Bedroom 5 Average Unit Size (SF) 845 1,079 1,077 Land Area (Acre) 8.7000 15.0000 15.8713 Density (Units/Acre) 12.8 8.0 16.4 Parking Ratio (Spaces/Unit) 1.98 2.00 4.80 Parking Type (Gr., Cov., etc.) Open Garage, Open Open CONDITION: Average Very Good Good APPEAL: Average Good Good AMENITIES: Pool/Spa Yes/No Yes/Yes Yes/Yes Gym Room No Yes Yes Laundry Room Yes Yes No Secured Parking No Yes Yes Sport Courts No Yes Yes Washer/Dryer Connection No Yes Yes Other Other OCCUPANCY: 90% 90% 92% TRANSACTION DATA: Sale Date November, 2002 October, 2001 August, 2001 Sale Price ($) $3,862,500 $7,500,000 $11,180,000 Grantor Sedgefield Associates, Ltd. Archstone Communities Grantee S&L Enterprises, LLC Kingston Village, LLC Altamonte Ashley, LLC Sale Documentation Book 4611, Page 1975 Book 4198, Page 0924 Book 4160, Page 0027 Verification Comps, Inc. Comps, Inc. & Seminole Seminole County Prop. Telephone Number County Property Appr Tax Appraiser's Off ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $806,460 $7,265 $8.60 $1,181,520 $9,846 $9.13 $2,100,000 $8,077 $7.50 Vacancy/Credit Loss $ 80,646 $ 727 $0.86 $ 118,152 $ 985 $0.91 $ 105,000 $ 404 $0.38 Effective Gross Income $725,814 $6,539 $7.74 $1,063,368 $8,861 $8.21 $1,995,000 $7,673 $7.13 Operating Expenses $355,200 $3,200 $3.79 $ 360,000 $3,000 $2.78 $ 900,000 $3,462 $3.21 Net Operating Income $370,614 $3,339 $3.95 $ 703,368 $5,861 $5.43 $1,095,000 $4,212 $3.91 NOTES: This projects comprises None None 12 one-story buildings. PRICE PER UNIT $34,797 $62,500 $43,000 PRICE PER SQUARE FOOT $ 41.18 $ 57.93 $ 39.93 EXPENSE RATIO 48.9% 33.9% 45.1% EGIM 5.32 7.05 5.60 OVERALL CAP RATE 9.60% 9.38% 9.79% Cap Rate based on Pro Forma or Actual Income? ACTUAL ACTUAL PRO FORMA
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $34,797 to $62,500 per unit. Adjustments have been made to the sales to reflect differences in location, age/condition and quality/appeal. Generally speaking, larger properties typically have a lower price per unit when compared to smaller properties, all else being equal. Similarly, those projects with a higher average unit size will generally have a higher price per unit. After appropriate adjustments are made, the improved sales demonstrate an adjusted range for the subject from $36,219 to $37,500 per unit with a mean or average adjusted price of $36,770 per unit. The median adjusted price is $36,550 per unit. Based on the following analysis, we have concluded to a value of $37,000 per unit, which results in an "as is" value of $6,800,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - --------------------------------------------------------------------------------------------------------------------------- Property Name Willow Park on Lake Adelaide Courtyard at Winter Park La Aloma Apartments Address 375 Palm Springs Drive 1695 Lee Road 3040 Aloma Avenue City Altamonte Springs, Florida Winter Park, Florida Winter Park, Florida Sale Date May, 2001 September, 2002 Sale Price ($) $6,100,000 $6,750,000 Net Rentable Area (SF) 153,995 143,360 176,800 Number of Units 185 160 164 Price Per Unit $38,125 $41,159 Year Built 1972 1966 1967 Land Area (Acre) 9.7000 9.5528 9.1000 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 05-2001 0% 09-2002 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $38,125 $41,159 Location Comparable 0% Comparable 0% Number of Units 185 160 0% 164 0% Quality / Appeal Good Superior -5% Superior -5% Age / Condition 1972 1966 / Average 0% 1967 / Average 0% Occupancy at Sale 96% 90% 0% 85% 0% Amenities Good Comparable 0% Comparable 0% Average Unit Size (SF) 832 896 0% 1,078 -5% PHYSICAL ADJUSTMENT -5% -10% FINAL ADJUSTED VALUE ($/UNIT) $36,219 $37,043 COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 - ---------------------------------------------------------------------------------------------------------------------------- Property Name Sedgefield Apartments Kingston Village The Ashley of Spring Valley Address 110 Sedgefield Circle 940 Douglas Avenue 693 South Wymore Road City Winter Park, Florida Altamonte Springs, FL Altamonte Springs, FL Sale Date November, 2002 October, 2001 August, 2001 Sale Price ($) $3,862,500 $7,500,000 $11,180,000 Net Rentable Area (SF) 93,800 129,468 280,000 Number of Units 111 120 260 Price Per Unit $34,797 $62,500 $43,000 Year Built 1973 1982 1974 Land Area (Acre) 8.7000 15.0000 15.8713 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) 11-2002 0% 10-2001 0% 08-2001 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $34,797 $62,500 $43,000 Location Comparable 0% Comparable 0% Comparable 0% Number of Units 111 -5% 120 -5% 260 5% Quality / Appeal Comparable 0% Superior -5% Superior -5% Age / Condition 1973 / Average 10% 1982 / Very Good -15% 1974 / Good 0% Occupancy at Sale 90% 0% 90% 0% 92% 0% Amenities Comparable 0% Superior -10% Superior -10% Average Unit Size (SF) 845 0% 1,079 -5% 1,077 -5% PHYSICAL ADJUSTMENT 5% -40% -15% FINAL ADJUSTED VALUE ($/UNIT) $36,537 $37,500 $36,550
SUMMARY VALUE RANGE (PER UNIT) $ 36,219 TO $ 37,500 MEAN (PER UNIT) $ 36,770 MEDIAN (PER UNIT) $ 36,550 VALUE CONCLUSION (PER UNIT) $ 37,000
VALUE OF IMPROVEMENT & MAIN SITE $6,845,000 PV OF CONCESSIONS -$ 90,000 VALUE INDICATED BY SALES COMPARISON APPROACH $6,755,000 ROUNDED $6,800,000
NET OPERATING INCOME (NOI) ANALYSIS We have also conducted a net operating income (NOI) comparison analysis. The NOI effectively takes into account the various physical, location, and operating aspects of the sale. When the subject's NOI is compared to the sale NOI, a percent adjustment can be arrived at. The following table illustrates this analysis. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 24 WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA NOI PER UNIT COMPARISON
NOI/ SUBJECT NOI COMPARABLE NO. OF SALE PRICE -------- -------------- ADJUSTMENT INDICATED NO. UNITS PRICE/UNIT OAR NOI/UNIT SUBJ. NOI/UNIT FACTOR VALUE/UNIT - --------------------------------------------------------------------------------------------- I-1 160 $ 6,100,000 10.78% $ 657,760 $642,198 0.844 $32,193 $ 38,125 $ 4,111 $ 3,471 I-2 164 $ 6,750,000 9.54% $ 643,888 $642,198 0.884 $36,391 $ 41,159 $ 3,926 $ 3,471 I-3 111 $ 3,862,500 9.60% $ 370,614 $642,198 1.040 $36,178 $ 34,797 $ 3,339 $ 3,471 I-4 120 $ 7,500,000 9.38% $ 703,368 $642,198 0.592 $37,015 $ 62,500 $ 5,861 $ 3,471 I-5 260 $11,180,000 9.79% $1,095,000 $642,198 0.824 $35,443 $ 43,000 $ 4,212 $ 3,471
PRICE/UNIT
Low High Average Median $32,193 $37,015 $35,444 $36,178
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT Estimated Price Per Unit $ 36,000 ----------- Number of Units 185 Value $6,660,000 PV of Concessions -$ 90,000 Value Based on NOI Analysis $6,570,000 ----------- Rounded $6,600,000
The adjusted sales indicate a range of value between $32,193 and $37,015 per unit, with an average of $35,444 per unit. Based on the subject's competitive position within the improved sales, a value of $36,000 per unit is estimated. This indicates an "as is" market value of $6,600,000 (rounded after necessary adjustment, if any) for the NOI Per Unit Analysis. EFFECTIVE GROSS INCOME MULTIPLIER (EGIM) ANALYSIS The effective gross income multiplier (EGIM) is derived by dividing the sales price by the total effective gross income. The following table illustrates the EGIMs for the comparable improved sales. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 25 WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA EFFECTIVE GROSS INCOME MULTIPLIER COMPARISON
SALE PRICE COMPARABLE NO. OF ---------- EFFECTIVE OPERATING SUBJECT NO. UNITS PRICE/UNIT GROSS INCOME EXPENSE OER PROJECTED OER EGIM - ----------------------------------------------------------------------------------------- I-1 160 $ 6,100,000 $1,157,760 $500,000 43.19% 5.27 $ 38,125 I-2 164 $ 6,750,000 $1,177,488 $533,600 45.32% 5.73 $ 41,159 I-3 111 $ 3,862,500 $ 725,814 $355,200 48.94% 5.32 49.50% $ 34,797 I-4 120 $ 7,500,000 $1,063,368 $360,000 33.85% 7.05 $ 62,500 I-5 260 $11,180,000 $1,995,000 $900,000 45.11% 5.60 $ 43,000
EGIM
Low High Average Median - --- ---- ------- ------ 5.27 7.05 5.80 5.60
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES Estimate EGIM 5.30 Subject EGI $1,344,919 ----------- Value $7,128,069 PV of Concessions -$ 90,000 ----------- Value Based on EGIM Analysis $7,038,069 Rounded $7,000,000 Value Per Unit $ 37,838
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 49.50% before reserves. The comparable sales indicate a range of expense ratios from 33.85% to 48.94%, while their EGIMs range from 5.27 to 7.05. Overall, we conclude to an EGIM of 5.30, which results in an "as is" value estimate in the EGIM Analysis of $7,000,000. 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 $6,800,000. Price Per Unit $6,800,000 NOI Per Unit $6,600,000 EGIM Analysis $7,000,000 Sales Comparison Conclusion $6,800,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA INCOME CAPITALIZATION APPROACH The income capitalization approach is based on the premise that value is created by the expectation of future benefits. We estimated the present value of those benefits to derive an indication of the amount that a prudent, informed purchaser-investor would pay for the right to receive them as of the date of value. This approach requires an estimate of the NOI of a property. The estimated NOI is then converted to a value indication by use of either the direct capitalization or the discounted cash flow analysis (yield capitalization). Direct capitalization uses a single year's stabilized NOI as a basis for a value indication by dividing the income by a capitalization rate. The rate chosen accounts for a recapture of the investment by the investor and should reflect all factors that influence the value of the property, such as tenant quality, property condition, neighborhood change, market trends, interest rates, and inflation. The rate may be extracted from local market transactions or, when transaction evidence is lacking, obtained from trade sources. A discounted cash flow analysis focuses on the operating cash flows expected from the property and the proceeds of a hypothetical sale at the end of a holding period (the reversion). The cash flows and reversion are discounted to their present values using a market-derived discount rate and are added together to obtain a value indication. Because benefits to be received in the future are worth less than the same benefits received in the present, this method weights income in the early years more heavily than the income and the sale proceeds to be received later. The strength of the discounted cash flow method is its ability to recognize variations in projected net income, such as those caused by inflation, stepped leases, neighborhood change, or tenant turnover. Its weakness is that it requires many judgments regarding the actions of likely buyers and sellers of the property in the future. In some situations, both methods yield a similar result. The discounted cash flow method is typically more appropriate for the analysis of investment properties with multiple or long-term leases, particularly leases with cancellation clauses or renewal options. It is especially useful for multi-tenant properties in volatile markets. The direct capitalization AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 27 WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA method is normally more appropriate for properties with relatively stable operating histories and expectations. A pro forma analysis for the first year of the investment is made to estimate a reasonable potential net operating income for the Subject Property. Such an analysis entails an estimate of the gross income the property should command in the marketplace. From this total gross income must be deducted an allowance for vacancy/collection loss and operating expenses as dictated by general market conditions and the overall character of the subject's tenancy and leased income to arrive at a projected estimate of net operating income. Conversion of the net operating income to an indication of value is accomplished by the process of capitalization, as derived primarily from market data. MARKET RENT ANALYSIS In order to determine a market rental rate for the subject, a survey of competing apartment communities was performed. This survey was displayed previously in the market analysis section of the report. Detailed information pertaining to each of the comparable rental communities, along with photographs, is presented in the Addenda of this report. The following charts display the subject's current asking and actual rent rates as well as a comparison with the previous referenced comparable rental properties. SUMMARY OF ACTUAL AVERAGE RENTS
Average Unit Area ---------------- Unit Type (Sq. Ft.) Per Unit Per SF % Occupied - ------------------------------------------------------- Studio 478 $449 $0.94 96.0% 1Br/1Ba 708 $564 $0.80 98.3% 2Br/1Ba 900 $619 $0.69 92.3% 2Br/2Ba 1035 $676 $0.65 93.9% 3Br/2Ba 1178 $768 $0.65 100.0%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA RENT ANALYSIS
COMPARABLE RENTS -------------------------------------------------- R-1 R-2 R-3 R-4 R-5 -------------------------------------------------- LakePointe Altamonte Tiffany Lakeside Village Apartments Bay Club Oaks North Green -------------------------------------------------- COMPARISON TO SUBJECT SUBJECT SUBJECT -------------------------------------------------- SUBJECT UNIT ACTUAL ASKING Slightly Slightly DESCRIPTION TYPE RENT RENT Superior Superior Superior Superior Superior MIN MAX MEDIAN AVERAGE - ------------------------------------------------------------------------------------------------------------------------------------ Monthly Rent STUDIO $ 449 $ 559 $ 630 $ 589 $ 585 $ 494 $ 494 $ 630 $ 587 $ 575 Unit Area (SF) 478 478 650 608 570 670 570 670 629 625 Monthly Rent Per Sq. Ft. $ 0.94 $ 1.17 $ 0.97 $ 0.97 $ 1.03 $ 0.74 $ 0.74 $ 1.03 $ 0.97 $ 0.93 Monthly Rent 1Br/1Ba $ 564 $ 569 $ 660 $ 650 $ 667 $ 580 $ 589 $ 580 $ 667 $ 650 $ 629 Unit Area (SF) 708 708 750 891 816 760 950 750 950 816 833 Monthly Rent Per Sq. Ft. $ 0.80 $ 0.80 $ 0.88 $ 0.73 $ 0.82 $ 0.76 $ 0.62 $ 0.62 $ 0.88 $ 0.76 $ 0.76 Monthly Rent 2Br/1Ba $ 619 $ 649 $ 755 $ 705 $ 669 $ 669 $ 755 $ 705 $ 710 Unit Area (SF) 900 900 900 980 1,010 900 1,010 980 963 Monthly Rent Per Sq. Ft. $ 0.69 $ 0.72 $ 0.84 $ 0.72 $ 0.66 $ 0.66 $ 0.84 $ 0.72 $ 0.74 Monthly Rent 2Br/2Ba $ 676 $ 709 $ 820 $ 775 $ 775 $ 739 $ 739 $ 820 $ 775 $ 777 Unit Area (SF) 1,035 1,035 1,000 1,016 1,046 1,225 1,000 1,225 1,031 1,072 Monthly Rent Per Sq. Ft. $ 0.65 $ 0.69 $ 0.82 $ 0.76 $ 0.74 $ 0.60 $ 0.60 $ 0.82 $ 0.75 $ 0.73 Monthly Rent 3Br/2Ba $ 768 $ 799 $ 825 $ 825 $ 825 $ 825 $ 825 Unit Area (SF) 1,178 1,178 1,080 1,080 1,080 1,080 1,080 Monthly Rent Per Sq. Ft. $ 0.65 $ 0.68 $ 0.76 $ 0.76 $ 0.76 $ 0.76 $ 0.76
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 - ----------------------------------------------------------------------------- Studio 25 478 $500 $1.05 $ 12,500 $ 150,000 1Br/1Ba 58 708 $570 $0.81 $ 33,060 $ 396,720 2Br/1Ba 52 900 $650 $0.72 $ 33,800 $ 405,600 2Br/2Ba 33 1,035 $700 $0.68 $ 23,100 $ 277,200 3Br/2Ba 17 1,178 $800 $0.68 $ 13,600 $ 163,200 -------- ---------- Total $116,060 $1,392,720 ======== ==========
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 WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA SUMMARY OF HISTORICAL INCOME & EXPENSES
FISCAL YEAR 2000 FISCAL YEAR 2001 FISCAL YEAR 2002 ----------------------- ------------------------ ------------------------ ACTUAL ACTUAL ACTUAL ----------------------- ------------------------ ------------------------ DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT - ------------------------------------------------------------------------------------------------------------ Revenues Rental Income $1,379,688 $ 7,458 $1,199,960 $ 6,486 $1,397,574 $ 7,554 Vacancy $ 54,212 $ 293 $ 80,763 $ 437 $ 94,010 $ 508 Credit Loss/Concessions $ 22,393 $ 121 $ 44,631 $ 241 $ 73,671 $ 398 ----------------------------------------------------------------------------- Subtotal $ 76,605 $ 414 $ 125,394 $ 678 $ 167,681 $ 906 Laundry Income $ 15,136 $ 82 $ 10,113 $ 55 $ 16,123 $ 87 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 46,249 $ 250 $ 55,681 $ 301 $ 96,941 $ 524 ----------------------------------------------------------------------------- Subtotal Other Income $ 61,385 $ 332 $ 65,794 $ 356 $ 113,064 $ 611 ----------------------------------------------------------------------------- Effective Gross Income $1,364,468 $ 7,376 $1,140,360 $ 6,164 $1,342,957 $ 7,259 Operating Expenses Taxes $ 87,283 $ 472 $ 82,250 $ 445 $ 98,155 $ 531 Insurance $ 23,589 $ 128 $ 49,236 $ 266 $ 54,509 $ 295 Utilities $ 147,457 $ 797 $ 105,182 $ 569 $ 108,048 $ 584 Repair & Maintenance $ 141,900 $ 767 $ 132,363 $ 715 $ 153,249 $ 828 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 26,291 $ 142 $ 20,246 $ 109 $ 35,640 $ 193 General Administrative $ 160,158 $ 866 $ 135,289 $ 731 $ 137,801 $ 745 Management $ 68,931 $ 373 $ 58,242 $ 315 $ 67,175 $ 363 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ----------------------------------------------------------------------------- Total Operating Expenses $ 655,609 $ 3,544 $ 582,808 $ 3,150 $ 654,577 $ 3,538 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ----------------------------------------------------------------------------- Net Income $ 708,859 $ 3,832 $ 557,552 $ 3,014 $ 688,380 $ 3,721
FISCAL YEAR 2003 ANNUALIZED 2003 ------------------------ ------------------------ MANAGEMENT BUDGET PROJECTION AAA PROJECTION ------------------------ ------------------------ -------------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT % - ------------------------------------------------------------------------------------------------------------------ Revenues Rental Income $1,378,224 $ 7,450 $1,360,420 $ 7,354 $1,392,720 $ 7,528 100.0% Vacancy $ 66,578 $ 360 $ 90,288 $ 488 $ 111,418 $ 602 8.0% Credit Loss/Concessions $ 71,040 $ 384 $ 83,124 $ 449 $ 55,709 $ 301 4.0% ----------------------------------------------------------------------------------- Subtotal $ 137,618 $ 744 $ 173,412 $ 937 $ 167,126 $ 903 12.0% Laundry Income $ 19,344 $ 105 $ 16,992 $ 92 $ 17,575 $ 95 1.3% Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 89,136 $ 482 $ 102,428 $ 554 $ 101,750 $ 550 7.3% ----------------------------------------------------------------------------------- Subtotal Other Income $ 108,480 $ 586 $ 119,420 $ 646 $ 119,325 $ 645 8.6% ----------------------------------------------------------------------------------- Effective Gross Income $1,349,086 $ 7,292 $1,306,428 $ 7,062 $1,344,919 $ 7,270 100.0% Operating Expenses Taxes $ 101,485 $ 549 $ 102,008 $ 551 $ 108,225 $ 585 8.0% Insurance $ 54,742 $ 296 $ 53,784 $ 291 $ 55,500 $ 300 4.1% Utilities $ 117,600 $ 636 $ 103,012 $ 557 $ 101,750 $ 550 7.6% Repair & Maintenance $ 146,700 $ 793 $ 137,376 $ 743 $ 148,000 $ 800 11.0% Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Marketing & Leasing $ 37,200 $ 201 $ 36,608 $ 198 $ 37,000 $ 200 2.8% General Administrative $ 175,124 $ 947 $ 147,376 $ 797 $ 148,000 $ 800 11.0% Management $ 68,254 $ 369 $ 65,588 $ 355 $ 67,246 $ 363 5.0% Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% ----------------------------------------------------------------------------------- Total Operating Expenses $ 701,105 $ 3,790 $ 645,752 $ 3,491 $ 665,721 $ 3,598 49.5% Reserves $ 0 $ 0 $ 0 $ 0 $ 37,000 $ 200 5.6% ----------------------------------------------------------------------------------- Net Income $ 647,981 $ 3,503 $ 660,676 $ 3,571 $ 642,198 $ 3,471 47.7%
REVENUES AND EXPENSES The subject's revenue and expense projections are displayed on the previous chart. Rental income is based on the market analysis previously discussed. Other income consists of forfeited deposits, laundry income, late rent payments, month to month fees, pet fees, vending machine revenue, etc. We forecasted the property's annual operating expenses after reviewing its historical performance at the subject property. We analyzed each item of expense and attempted to forecast amounts a typical informed investor would consider reasonable. VACANCY AND COLLECTION LOSS An investor is primarily interested in the annual revenue an income property is likely to produce over a specified period of time, rather than the income it could produce if it were always 100% occupied and all tenants were paying their rent in full and on time. An investor normally expects some income loss as tenants vacate, fail to pay rent, or pay their rent late. We have projected a stabilized vacancy and collection loss rate of 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 WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA RESERVES FOR REPLACEMENT "Reserves for replacements" is a contingency account allocated to the expenses of the property to provide for replacement of short-lived items and for unforeseen necessary capital expenditures. We have utilized the Korpacz Real Estate Investor Survey of the national apartment market, which reports a range of replacement reserves between $150 and $400 per unit. For purposes of this analysis, we have included an allowance of $200 per unit for reserves for replacement. CAPITAL EXPENDITURES Capital expenditures represent expenses for immediate repair or replacement of items that have average to long lives. Based on our inspection of the property as well as discussions with property management personnel, there are no major items remaining in need of repair or replacement that would require an expense beyond our reserves for replacement. Therefore an allowance of $200 per unit should be satisfactory in our reserves for replacement to cover future capital expenditures. DISCOUNTED CASH FLOW ANALYSIS As the subject is a multi-tenant income property, the Discounted Cash Flow Method is considered appropriate. This method is especially meaningful in that it isolates the timing of the annual cash flows and discounts them, along with the expected equity reversion, to a present value. The present value of the cash flow is added to the present value of the reversion, resulting in a total property value. INVESTMENT CRITERIA Appropriate investment criteria will be derived for the subject based upon analysis of comparable sales and a survey of real estate investors. The following table summarizes the findings of Korpacz National Investor Survey for the most recent period. KORPACZ NATIONAL INVESTOR SURVEY 1ST QUARTER 2003 NATIONAL APARTMENT MARKET
CAPITALIZATION RATES -------------------------------------------- GOING-IN TERMINAL -------------------- -------------------- LOW HIGH LOW HIGH --- ---- --- ---- RANGE 6.00% 10.00% 7.00% 10.00% AVERAGE 8.14% 8.47%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 31 WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR - ----------------------------------------------------- I-1 May-01 90% $38,125 10.78% I-2 Sep-02 85% $41,159 9.54% I-3 Nov-02 90% $34,797 9.60% I-4 Oct-01 90% $62,500 9.38% I-5 Aug-01 92% $43,000 9.79% High 10.78% Low 9.38% Average 9.82%
Based on this information, we have concluded the subject's overall capitalization rate should be 9.50%. The terminal capitalization rate is applied to the net operating income estimated for the year following the end of the holding period. Based on the concluded overall capitalization rate, the age of the property and the surveyed information, we have concluded the subject's terminal capitalization rate to be 10.50%. Finally, the subject's discount rate or yield rate is estimated based on the previous investor survey and an examination of returns available on alternative investments in the market. Based on this analysis, the subject's discount rate is estimated to be 12.00%. HOLDING PERIOD The survey of investors indicates that most investors are completing either 10-year cash flows or extending the analysis to the end of the lease if it is more than 10-years. A 10-year period has been used in the analysis of the subject with the eleventh year stabilized NOI used to determine the reversion. SELLING COSTS Sales of similar size properties are typically accomplished with the aid of a broker and will also incur legal and other transaction related cost. Based on our survey of brokers and a review of institutional investor projections, an allowance of 2.00% of the sale amount is applied. DISCOUNTED CASH FLOW CONCLUSION Discounting the annual cash flows and the equity reversion at the selected rate of 12.00% indicates a value of $6,800,000. In this instance, the reversion figure contributes AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32 WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA approximately 38% of the total value. Investors surveyed for this assignment indicated they would prefer to have the cash flow contribute anywhere from 50% to 60%. Overall, the blend seems reasonable. The cash flow and pricing matrix are located on the following pages. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 33 WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA DISCOUNTED CASH FLOW ANALYSIS WILLOW PARK ON LAKE ADELAIDE
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 FISCAL YEAR 1 2 3 4 5 6 - ------------------------------------------------------------------------------------------------------------------ REVENUE Base Rent $1,392,720 $1,434,502 $1,477,537 $1,521,863 $1,567,519 $1,614,544 Vacancy $ 111,418 $ 114,760 $ 118,203 $ 121,749 $ 125,401 $ 129,164 Credit Loss $ 55,709 $ 57,380 $ 59,101 $ 60,875 $ 62,701 $ 64,582 Concessions $ 62,672 $ 35,863 $ 7,388 $ 0 $ 0 $ 0 --------------------------------------------------------------------------- Subtotal $ 229,799 $ 208,003 $ 184,692 $ 182,624 $ 188,102 $ 193,745 Laundry Income $ 17,575 $ 18,102 $ 18,645 $ 19,205 $ 19,781 $ 20,374 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 101,750 $ 104,803 $ 107,947 $ 111,185 $ 114,521 $ 117,956 --------------------------------------------------------------------------- Subtotal Other Income $ 119,325 $ 122,905 $ 126,592 $ 130,390 $ 134,301 $ 138,330 --------------------------------------------------------------------------- EFFECTIVE GROSS INCOME $1,282,246 $1,349,404 $1,419,436 $1,469,629 $1,513,718 $1,559,129 OPERATING EXPENSES: Taxes $ 108,225 $ 111,472 $ 114,816 $ 118,260 $ 121,808 $ 125,462 Insurance $ 55,500 $ 57,165 $ 58,880 $ 60,646 $ 62,466 $ 64,340 Utilities $ 101,750 $ 104,803 $ 107,947 $ 111,185 $ 114,521 $ 117,956 Repair & Maintenance $ 148,000 $ 152,440 $ 157,013 $ 161,724 $ 166,575 $ 171,573 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 37,000 $ 38,110 $ 39,253 $ 40,431 $ 41,644 $ 42,893 General Administrative $ 148,000 $ 152,440 $ 157,013 $ 161,724 $ 166,575 $ 171,573 Management $ 64,112 $ 67,470 $ 70,972 $ 73,481 $ 75,686 $ 77,956 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 --------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $ 662,587 $ 683,899 $ 705,894 $ 727,451 $ 749,275 $ 771,753 Reserves $ 37,000 $ 38,110 $ 39,253 $ 40,431 $ 41,644 $ 42,893 --------------------------------------------------------------------------- NET OPERATING INCOME $ 582,659 $ 627,394 $ 674,289 $ 701,747 $ 722,799 $ 744,483 Operating Expense Ratio (% of EGI) 51.7% 50.7% 49.7% 49.5% 49.5% 49.5% Operating Expense Per Unit $ 3,582 $ 3,697 $ 3,816 $ 3,932 $ 4,050 $ 4,172 YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 7 8 9 10 11 - ----------------------------------------------------------------------------------------------------- REVENUE Base Rent $1,662,981 $1,712,870 $1,764,256 $1,817,184 $1,871,699 Vacancy $ 133,038 $ 137,030 $ 141,140 $ 145,375 $ 149,736 Credit Loss $ 66,519 $ 68,515 $ 70,570 $ 72,687 $ 74,868 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------- Subtotal $ 199,558 $ 205,544 $ 211,711 $ 218,062 $ 224,604 Laundry Income $ 20,985 $ 21,615 $ 22,263 $ 22,931 $ 23,619 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 121,495 $ 125,140 $ 128,894 $ 132,761 $ 136,743 -------------------------------------------------------------- Subtotal Other Income $ 142,480 $ 146,755 $ 151,157 $ 155,692 $ 160,363 -------------------------------------------------------------- EFFECTIVE GROSS INCOME $1,605,903 $1,654,080 $1,703,703 $1,754,814 $1,807,458 OPERATING EXPENSES: Taxes $ 129,226 $ 133,103 $ 137,096 $ 141,209 $ 145,445 Insurance $ 66,270 $ 68,258 $ 70,306 $ 72,415 $ 74,587 Utilities $ 121,495 $ 125,140 $ 128,894 $ 132,761 $ 136,743 Repair & Maintenance $ 176,720 $ 182,021 $ 187,482 $ 193,106 $ 198,900 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 Security $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 44,180 $ 45,505 $ 46,870 $ 48,277 $ 49,725 General Administrative $ 176,720 $ 182,021 $ 187,482 $ 193,106 $ 198,900 Management $ 80,295 $ 82,704 $ 85,185 $ 87,741 $ 90,373 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------- TOTAL OPERATING EXPENSES $ 794,906 $ 818,753 $ 843,315 $ 868,615 $ 894,673 Reserves $ 44,180 $ 45,505 $ 46,870 $ 48,277 $ 49,725 -------------------------------------------------------------- NET OPERATING INCOME $ 766,818 $ 789,822 $ 813,517 $ 837,922 $ 863,060 Operating Expense Ratio (% of EGI) 49.5% 49.5% 49.5% 49.5% 49.5% Operating Expense Per Unit $ 4,297 $ 4,426 $ 4,558 $ 4,695 $ 4,836
Estimated Stabilized NOI $642,198 Sales Expense Rate 2.00% Months to Stabilized 1 Discount Rate 12.00% Stabilized Occupancy 92.0% Terminal Cap Rate 10.50%
Gross Residual Sale Price $8,219,619 Deferred Maintenance $ 0 Less: Sales Expense $ 164,392 Add: Excess Land $ 0 ---------- Net Residual Sale Price $8,055,226 Other Adjustments $ 0 ---------- PV of Reversion $2,593,567 Value Indicated By "DCF" $6,804,311 Add: NPV of NOI $4,210,744 Rounded $6,800,000 ---------- PV Total $6,804,311
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE -------------------------------------------------------------- TOTAL VALUE 11.50% 11.75% 12.00% 12.25% 12.50% - ----------------------------------------------------------------------------------------------- 10.00% $7,159,088 $7,045,318 $6,933,989 $6,825,040 $6,718,412 10.25% $7,089,628 $6,977,397 $6,867,569 $6,760,084 $6,654,885 TERMINAL CAP RATE 10.50% $7,023,476 $6,912,710 $6,804,311 $6,698,221 $6,594,383 10.75% $6,960,400 $6,851,031 $6,743,995 $6,639,236 $6,536,695 11.00% $6,900,192 $6,792,156 $6,686,422 $6,582,931 $6,481,630
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 34 WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA INCOME LOSS DURING LEASE-UP The subject is currently near or at a stabilized condition. Therefore, there is no income loss during lease-up at the subject property. CONCESSIONS 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 $90,000 (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 WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA WILLOW PARK ON LAKE ADELAIDE
TOTAL PER SQ. FT. PER UNIT % OF EGI - ------------------------------------------------------------------------------------------------------------------------------ REVENUE Base Rent $ 1,392,720 $ 9.04 $ 7,528 Less: Vacancy & Collection Loss 12.00% $ 167,126 $ 1.09 $ 903 Plus: Other Income Laundry Income $ 17,575 $ 0.11 $ 95 1.31% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 101,750 $ 0.66 $ 550 7.57% Subtotal Other Income $ 119,325 $ 0.77 $ 645 8.87% EFFECTIVE GROSS INCOME $ 1,344,919 $ 8.73 $ 7,270 OPERATING EXPENSES: Taxes $ 108,225 $ 0.70 $ 585 8.05% Insurance $ 55,500 $ 0.36 $ 300 4.13% Utilities $ 101,750 $ 0.66 $ 550 7.57% Repair & Maintenance $ 148,000 $ 0.96 $ 800 11.00% Cleaning $ 0 $ 0.00 $ 0 0.00% Landscaping $ 0 $ 0.00 $ 0 0.00% Security $ 0 $ 0.00 $ 0 0.00% Marketing & Leasing $ 37,000 $ 0.24 $ 200 2.75% General Administrative $ 148,000 $ 0.96 $ 800 11.00% Management 5.00% $ 67,246 $ 0.44 $ 363 5.00% Miscellaneous $ 0 $ 0.00 $ 0 0.00% TOTAL OPERATING EXPENSES $ 665,721 $ 4.32 $ 3,598 49.50% Reserves $ 37,000 $ 0.24 $ 200 2.75% NET OPERATING INCOME $ 642,198 $ 4.17 $ 3,471 47.75% "GOING IN" CAPITALIZATION RATE 9.50% VALUE INDICATION $ 6,759,975 $43.90 $36,540 PV OF CONCESSIONS ($ 90,000) "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $ 6,669,975 ROUNDED $ 6,700,000 $43.51 $36,216
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 36 WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF - ------------------------------------------------------ 8.75% $7,249,402 $7,200,000 $38,919 $46.75 9.00% $7,045,530 $7,000,000 $37,838 $45.46 9.25% $6,852,678 $6,900,000 $37,297 $44.81 9.50% $6,669,975 $6,700,000 $36,216 $43.51 9.75% $6,496,643 $6,500,000 $35,135 $42.21 10.00% $6,331,977 $6,300,000 $34,054 $40.91 10.25% $6,175,343 $6,200,000 $33,514 $40.26
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $6,700,000. CORRELATION AND CONCLUSION BY THE INCOME APPROACH The two methods used to estimate the market value of the subject property by the income approach resulted in the following indications of value: Discounted Cash Flow Analysis $6,800,000 Direct Capitalization Method $6,700,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $6,800,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 37 WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA RECONCILIATION AND CONCLUSION This appraisal was made to express an opinion as of the Market Value of the fee simple estate in the property. AS IS MARKET VALUE OF THE FEE SIMPLE ESTATE Cost Approach Not Utilized Sales Comparison Approach $ 6,800,000 Income Approach $ 6,800,000 Reconciled Value $ 6,800,000
The Income Capitalization Method is considered a reliable indicator of value. Income and expenses were estimated and projected based on historical operating statements and market oriented expenses. This method is primarily used by investors in their underwriting analysis. Furthermore, there was good support for an overall rate in the Direct Capitalization Method. The Sales Comparison Approach to value supported the value conclusion by the Income Approach and was given secondary consideration. Investment-grade, income-producing properties such as the subject are not typically traded based on cost. Therefore, the Cost Approach has not been considered in our valuation. FINAL VALUE - FEE SIMPLE ESTATE Based on the investigation and premise outlined, it is our opinion that as of May 28, 2003 the market value of the fee simple estate in the property is: $6,800,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] INTERIOR - COMMUNITY CENTER & OFFICE EXTERIOR - VIEW FROM PALM SPRINGS DRIVE [PICTURE] [PICTURE] EXTERIOR - APARTMENT BUILDING EXTERIOR - APARTMENT BUILDING [PICTURE] [PICTURE] EXTERIOR - APARTMENT BUILDING EXTERIOR - SWIMMING POOL AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] INTERIOR - APARTMENT UNIT INTERIOR - APARTMENT UNIT [PICTURE] [PICTURE] INTERIOR - APARTMENT UNIT EXTERIOR - LAKE & PIER [PICTURE] [PICTURE] INTERIOR - EXERCISE VIEW SOUTH ALONG PALM SPRINGS DRIVE AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 COURTYARD AT WINTER PARK LA ALOMA APARTMENTS SEDGEFIELD APARTMENTS 1695 Lee Road 3040 Aloma Avenue 110 Sedgefield Circle Winter Park, Florida Winter Park, Florida Winter Park, Florida [PICTURE] [PICTURE] [PICTURE] COMPARABLE I-4 COMPARABLE I-5 KINGSTON VILLAGE THE ASHLEY OF SPRING VALLEY 940 Douglas Avenue 693 South Wymore Road Altamonte Springs, FL Altamonte Springs, FL [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 - --------------------------------------------------------------------------------------------------------------------------------- Property Name Willow Park on Lake Adelaide LakePointe Apartments Management Company AIMCO Realty Investment Co. LOCATION: Address 375 Palm Springs Drive 250 LakePointe Drive City, State Altamonte Springs, Florida Altamonte Springs. Florida County Seminole Seminole Proximity to Subject I block south of the subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 153,995 N/A Year Built 1972 1986 Effective Age 20 10 Building Structure Type Brick exterior walls; asphalt shingle roof Siding exterior walls; asphalt shingle roof Parking Type (Gr., Cov., etc.) Open Open Number of Units 185 502 Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo. 1 Studio 478 25 $449 1 1Br/1Ba - Jib 650 N/A $630 2 1Br/1Ba 708 58 $564 2 1Br/1Ba - Schooner 750 N/A $660 3 2Br/1Ba 900 52 $619 3 2Br/1Ba - Catamaran 900 N/A $755 4 2Br/2Ba 1,035 33 $676 4 2Br/2Ba - Twinkeel 1,000 N/A $820 5 3Br/2Ba 1,178 17 $768 Average Unit Size (SF) 832 Unit Breakdown: Efficiency 34% 2-Bedroom 15% Efficiency N/A 2-Bedroom N/A 1-Bedroom 39% 3-Bedroom 12% 1-Bedroom N/A 3-Bedroom N/A CONDITION: Average Good APPEAL: Average Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage X Vaulted Ceiling X Balcony X Balcony X Fireplace X Fireplace X X Cable TV Ready X Cable TV Ready Boat Parking Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi X Car Wash X Spa/Jacuzzi X Car Wash X Basketball Court X BBQ Equipment Basketball Court X BBQ Equipment Volleyball Court Theater Room X Volleyball Court Theater Room Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall X Tennis Court Secured Parking X Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track Business Office Jogging Track Business Office X Gym Room X Clubhouse X Gym Room Clubhouse X Playground Playground X Dock/Pier Dock/Pier OCCUPANCY: 96% 88% LEASING DATA: Available Leasing Terms 7 to 12 Months 7 to 15 Months Concessions 1 Month Free on 1Br Approximately 15% off Select Units Pet Deposit $150, plus $20 per month $250 Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas Water Trash Water Trash Confirmation May 28, 2003; April Thompson (Community Manager) May 28, 2003; Leasing Agent Telephone Number (407) 834-2442 (407) 260-0808 NOTES: None COMPARISON TO SUBJECT: Superior COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 - --------------------------------------------------------------------------------------------------------------------------------- Property Name Altamonte Bay Club Tiffany Oaks Management Company Berkshire Realty Holdings Mid-America Apartment Communites LOCATION: Address 210 Altamonte Bay Club Circle 351 S. Northlake Boulevard City, State Altamonte Springs. Florida Altamonte Springs. Florida County Seminole Seminole Proximity to Subject Across Orange Drive from the subject 0.5 mile west of the subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) N/A 373,000 Year Built 1987 1985 Effective Age 20 10 Building Structure Type Stucco exterior; asphalt shingle roof Brick & Siding walls; asphalt shingle roof Parking Type (Gr., Cov., etc.) Open Open Number of Units 224 288 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 2 1Br/1Ba - Skiff 827 N/A $630 1 1Br/1Ba - Barclay 608 40 $589 2 1Br/1Ba - Ketch 955 N/A $670 2 1Br/1Ba - Claremont 776 88 $650 4 2Br/2Ba - Sloop 1,016 N/A $775 2 1Br/1Ba - Sandhurst 888 48 $699 4 2Br/2Ba - Stratford 1,046 64 $775 Average Unit Size (SF) 842 Unit Breakdown: Efficiency N/A 2-Bedroom N/A Efficiency 14% 2-Bedroom 22% 1-Bedroom N/A 3-Bedroom N/A 1-Bedroom 47% 3-Bedroom 0% CONDITION: Good Good APPEAL: Good Good AMENITIES: Unit Amenities Attach. Garage X Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X X Balcony X X Fireplace X Fireplace X X Cable TV Ready Boat Parking X Cable TV Ready Covered Parking Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi X Car Wash X Spa/Jacuzzi X Car Wash Basketball Court X BBQ Equipment X Basketball Court X BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall X Tennis Court Secured Parking X Tennis Court Secured Parking Racquet Ball X Laundry Room X Racquet Ball X Laundry Room X Jogging Track X Business Office Jogging Track Business Office X Gym Room Clubhouse X Gym Room X Clubhouse Playground Playground Dock/Pier Dock/Pier OCCUPANCY: 93% 96% LEASING DATA: Available Leasing Terms 7 to 12 Months 7 to 15 Months Concessions Approximately 10% off Select Units None. Pet Deposit Varies $300 Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas Water Trash Water Trash Confirmation May 28, 2003; Leasing Agent June 6, 2003; Leasing Agent Telephone Number (407) 260-2501 (407) 339-7899 NOTES: None None. COMPARISON TO SUBJECT: Superior Slightly Superior COMPARABLE COMPARABLE DESCRIPTION R - 4 R - 5 - -------------------------------------------------------------------------------------------------------------------------------- Property Name Lakeside North Village Green Management Company United Dominion AIMCO LOCATION: Address 275 East Central Parkway 112 Essex Avenue City, State Altamonte Springs. Florida Altamonte Springs. Florida County Seminole Seminole Proximity to Subject 0.5 mile north of the subject 0.5 mile southwest of the subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) N/A 128,120 Year Built 1987 1970 Effective Age 10 20 Building Structure Type Stucco exterior walls; asphalt shingle roof Brick exterior walls; asphalt shingle roof Parking Type (Gr., Cov., etc.) Open Open Number of Units 360 164 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1Br/1Ba - 1A 570 N/A $585 1 1Br/1Ba 590 56 $489 2 1Br/1Ba - 1B 760 N/A $580 1 1Br/1Ba 740 64 $499 3 1Br/1Ba - 1C 980 N/A $685 2 2Br/1Ba 950 16 $589 3 2Br/1Ba - 2A 980 N/A $725 3 2Br/2Ba 1,010 8 $669 5 2Br/2Ba - 2B 1,080 N/A $825 4 3Br/2Ba 1,225 20 $739 Average Unit Size (SF) 782 Unit Breakdown: Efficiency N/A 2-Bedroom N/A Efficiency 34% 2-Bedroom 15% 1-Bedroom N/A 3-Bedroom N/A 1-Bedroom 39% 3-Bedroom 12% CONDITION: Average Average APPEAL: Average Average AMENITIES: Unit Amenities Attach. Garage X Vaulted Ceiling Attach. Garage X Vaulted Ceiling X Balcony X X Balcony X Fireplace Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi X Car Wash Spa/Jacuzzi X Car Wash X Basketball Court X BBQ Equipment Basketball Court X BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room X Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall X Tennis Court Secured Parking X Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track Business Office Jogging Track Business Office X Gym Room X Clubhouse X Gym Room X Clubhouse X Playground X Playground Dock/Pier Dock/Pier OCCUPANCY: 89% 99% LEASING DATA: Available Leasing Terms 6 to 24 Months 7 to 12 Months Concessions None 1 Month Free on 1 Br Pet Deposit $300 $150, plus $20 per month Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas Water Trash Water Trash Confirmation May 28, 2003; Property Manager May 28, 2003; Community Manager Telephone Number (407) 834-8731 (407) 831-4848 NOTES: None None COMPARISON TO SUBJECT: Slightly Superior Similar
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 LAKEPOINTE APARTMENTS ALTAMONTE BAY CLUB TIFFANY OAKS 250 LakePointe Drive 210 Altamonte Bay Club Circle 351 S. Northlake Boulevard Altamonte Springs. Florida Altamonte Springs. Florida Altamonte Springs. Florida [PICTURE] [PICTURE] [PICTURE]
COMPARABLE R-4 COMPARABLE R-5 LAKESIDE NORTH VILLAGE GREEN 275 East Central Parkway 112 Essex Avenue Altamonte Springs. Florida Altamonte Springs. Florida [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA No responsibility is assumed for matters legal in nature. No investigation has been made of the title to or any liabilities against the property appraised. In this appraisal, it is presumed that, unless otherwise noted, the owner's claim is valid, the property rights are good and marketable, and there are no encumbrances which cannot be cleared through normal processes. To the best of our knowledge, all data set forth in this report are true and accurate. Although gathered from reliable sources, no guarantee is made nor liability assumed for the accuracy of any data, opinions, or estimates identified as being furnished by others which have been used in formulating this analysis. Land areas and descriptions used in this appraisal were obtained from public records and have not been verified by legal counsel or a licensed surveyor. No soil analysis or geological studies were ordered or made in conjunction with this report, nor were any water, oil, gas, or other subsurface mineral and use rights or conditions investigated. Substances such as asbestos, urea-formaldehyde foam insulation, other chemicals, toxic wastes, or other potentially hazardous materials could, if present, adversely affect the value of the property. Unless otherwise stated in this report, the existence of hazardous substance, which may or may not be present on or in the property, was not considered by the appraiser in the development of the conclusion of value. The stated value estimate is predicated on the assumption that there is no material on or in the property that would cause such a loss in value. No responsibility is assumed for any such conditions, and the client has been advised that the appraiser is not qualified to detect such substances, quantify the impact on values, or develop the remedial cost. No environmental impact study has been ordered or made. Full compliance with applicable federal, state, and local environmental regulations and laws is assumed unless otherwise stated, defined, and considered in the report. It is also assumed that all required licenses, consents, or other legislative or administrative authority from any local, state, or national government or private entity organization either have been or can be obtained or renewed for any use which the report covers. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA It is assumed that all applicable zoning and use regulations and restrictions have been complied with unless a nonconformity has been stated, defined, and considered in the appraisal report. Further, it is assumed that the utilization of the land and improvements is within the boundaries of the property described and that no encroachment or trespass exists unless noted in the report. The Americans with Disabilities Act ("ADA") became effective January 26, 1992. We have not made a specific compliance survey and analysis of this property to determine whether or not it is in conformity with the various detailed requirements of the ADA. It is possible that a compliance survey of the property together with a detailed analysis of the requirements of the ADA could reveal that the property is not in compliance with one or more of the requirements of the act. If so, this fact could have a negative effect on the value of the property. Since we have no direct evidence relating to this issue, we did not consider the possible noncompliance with the requirements of ADA in estimating the value of the property. We have made a physical inspection of the property and noted visible physical defects, if any, in our report. This inspection was made by individuals generally familiar with real estate and building construction. However, these individuals are not architectural or structural engineers who would have detailed knowledge of building design and structural integrity. Accordingly, we do not opine on, nor are we responsible for, the structural integrity of the property including its conformity to specific governmental code requirements, such as fire, building and safety, earthquake, and occupancy, or any physical defects which were not readily apparent to the appraiser during the inspection. The value or values presented in this report are based upon the premises outlined herein and are valid only for the purpose or purposes stated. The date of value to which the conclusions and opinions expressed apply is set forth in this report. The value opinion herein rendered is based on the status of the national business economy and the purchasing power of the U.S. dollar as of that date. Testimony or attendance in court or at any other hearing is not required by reason of this appraisal unless arrangements are previously made within a reasonable time in advance for AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA such testimony, and then such testimony shall be at American Appraisal Associates, Inc.'s, prevailing per diem for the individuals involved. Possession of this report or any copy thereof does not carry with it the right of publication. No portion of this report (especially any conclusion to use, the identity of the appraiser or the firm with which the appraiser is connected, or any reference to the American Society of Appraisers or the 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 WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA EXHIBIT D CERTIFICATE OF APPRAISER (1 PAGE) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D CERTIFICATE OF APPRAISER I certify that, to the best of my knowledge and belief The statements of fact contained in this report are true and correct. The report analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and represent the impartial and 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 or bias with respect to the property that is the subject of this report and have no personal interest or bias with respect to the parties involved. The engagement of American Appraisal Associates, Inc., and myself personally in this assignment and compensation for American Appraisal Associates, Inc., are not contingent on the development or reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal. The analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice and the Principles of Appraisal Practice and Code of Ethics of the American Society of Appraisers. I personally did not inspect the subject property. Michael L. Kersten provided significant real property appraisal assistance in the preparation of this report. -s- Alice MacQueen ---------------------- Alice MacQueen Vice President, Real Estate Group Florida Certified General Real Estate Appraiser #RZ0002202 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA ALICE MACQUEEN VICE PRESIDENT AND PRINCIPAL, REAL ESTATE GROUP POSITION Alice MacQueen serves as a Vice President and Principal for the Dallas Real Estate Group of American Appraisal Associates, Inc. ("AAA"). EXPERIENCE Valuation Ms. MacQueen specializes in the appraisal of investment real estate and is annually involved in the valuation of several billion dollars of real property. The purposes of these valuations include allocation of purchase price, charitable donation, financing, purchase, sale, and syndication. She has also been involved in land planning analyses for major mixed-use developments. She has appraised various types of real estate including congregate care facilities, industrial properties, manufacturing facilities, office buildings, recreational subdivisions and planned unit developments, single- and multifamily residential properties, and shopping centers. Special-purpose properties she has appraised include campgrounds, churches, country clubs, golf courses, historic landmarks, proprietary cemeteries, and schools. In addition to market value opinions, Ms. MacQueen has provided feasibility and highest and best use studies. She has also been involved in several research projects, providing background studies involving major property tax appeal cases. These studies included the impact of inflation, rate of return considerations, sales-assessment ratio analyses, and the applicability of income capitalization to commercial and industrial properties. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA Ms. MacQueen has appraised real estate in 46 U.S. states, Mexico, and Puerto Rico. Business Ms. MacQueen joined AAA in 1983. She served as Regional Real Estate Director for the southeastern United States from 1987 to 1992 and as National Director of the Real Estate Valuation Group from 1992 through 1995, when she assumed her current position. Before joining the firm, she was involved in property management for five years and spent an additional five years as an appraiser, consultant, and research analyst. EDUCATION Realtors Institute of Virginia Greenbrier College for Women - Liberal Arts STATE CERTIFICATIONS State of Arizona, Certified General Real Estate Appraiser, #30987 State of Florida, Certified General Appraiser, #RZ0002202 State of Georgia, Certified General Real Property Appraiser, #239776 State of Minnesota, Certified General Real Property Appraiser, #AP-20144872 State of New Mexico, General Certified Appraiser, #001626-G State of Utah, State Certified General Appraiser, #CG00057001 PROFESSIONAL American Society of Appraisers, Candidate AFFILIATIONS AMERICAN APPRAISAL ASSOCIATES, INC. WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. WILLOW PARK ON LAKE ADELAIDE, ALTAMONTE SPRINGS, FLORIDA GENERAL SERVICE CONDITIONS The services(s) provided by AAA will be performed in accordance with professional appraisal standards. Our compensation is not contingent in any way upon our conclusions of value. We assume, without independent verification, the accuracy of all data provided to us. We will act as an independent contractor and reserve the right to use subcontractors. All files, workpapers or documents developed by us during the course of the engagement will be our property. We will retain this data for at least five years. Our report is to be used only for the specific purpose stated herein; and any other use is invalid. No reliance may be made by any third party without our prior written consent. You may show our report in its entirety to those third parties who need to review the information contained herein. No one should rely on our report as a substitute for their own due diligence. We understand that our reports will be described in public tender offer documents distributed to limited partners. We reserve the right to review the public tender offer documents prior to their issuance to confirm that disclosures of facts from the current appraisals are accurate. No reference to our name or our report, in whole or in part, in any other SEC filing or private placement memorandum you prepare and/or distribute to third parties may be made without our prior written consent. The Tender Offer Partnerships, as that term is defined in the Settlement Agreement, agree to indemnify and hold us harmless against and from any and all losses, claims, actions, damages, expenses or liabilities, including reasonable attorneys' fees, to which we may become subject in connection with this engagement except where such losses, claims, actions, damages, expenses or liabilities, including reasonable attorney's fees, arise or result from AAA's misconduct, bad faith or negligence. Co-Clients will not be liable for any of our acts or omissions. AAA is an equal opportunity employer. -----END PRIVACY-ENHANCED MESSAGE-----