EX-99.(C)(1) 3 d07277a2exv99wxcyx1y.txt APPRAISAL OF FOXFIRE APARTMENTS FOXFIRE APARTMENTS 6664 PEACHTREE INDUSTRIAL BLVD. DORAVILLE, GEORGIA MARKET VALUE - FEE SIMPLE ESTATE AS OF MAY 9, 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 17, 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: FOXFIRE APARTMENTS 6664 PEACHTREE INDUSTRIAL BLVD. DORAVILLE, DEKALB COUNTY, GEORGIA In accordance with your authorization, we have completed the appraisal of the above-referenced property. This complete appraisal is intended to report our analysis and conclusions in a summary format. The subject property consists of an apartment project having 266 units with a total of 280,700 square feet of rentable area. The improvements were built in 1972. The improvements are situated on 24 acres. Overall, the improvements are in average condition. As of the date of this appraisal, the subject property is 67% 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 FOXFIRE APARTMENTS, DORAVILLE, GEORGIA The opinions expressed in this appraisal cover letter can only be completely understood by reading the narrative report, addenda, and other data, which is attached. The appraisal is subject to the attached general assumptions and limiting conditions and general service conditions. As a result of our investigation, it is our opinion that the fee simple market value of the subject, effective May 9, 2003 is: ($10,300,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. -s- Michael Bates July 17, 2003 Michael Bates, MAI #053272 Assistant Manager, Real Estate Group State of Georgia, Certified General Real Property Appraiser #CG00685 Report By: Phillip McGinnis AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 FOXFIRE APARTMENTS, DORAVILLE, GEORGIA TABLE OF CONTENTS Cover Letter of Transmittal Table of Contents APPRAISAL DATA Executive Summary............................................................. 4 Introduction.................................................................. 9 Area Analysis................................................................. 11 Market Analysis............................................................... 14 Site Analysis................................................................. 16 Improvement Analysis.......................................................... 16 Highest and Best Use.......................................................... 17 VALUATION Valuation Procedure........................................................... 18 Sales Comparison Approach..................................................... 20 Income Capitalization Approach................................................ 26 Reconciliation and Conclusion................................................. 38 ADDENDA Exhibit A - Photographs of Subject Property Exhibit B - Summary of Rent Comparables and Photograph of Comparables Exhibit C - Assumptions and Limiting Conditions Exhibit D - Certificate of Appraiser Exhibit E - Qualifications General Service Conditions
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 4 FOXFIRE APARTMENTS, DORAVILLE, GEORGIA EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Foxfire Apartments LOCATION: 6664 Peachtree Industrial Blvd. Doraville, Georgia 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 9, 2003 DATE OF REPORT: July 17, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 24 acres, or 1,045,440 square feet Assessor Parcel No.: 18-356-01-025 Floodplain: Community Panel No. 1300650016H (May 7, 2001) Flood Zone X, an area outside the floodplain. Zoning: RM-100 (Multifamily Residential) BUILDING: No. of Units: 266 Units Total NRA: 280,700 Square Feet Average Unit Size: 1,055 Square Feet Apartment Density: 11.1 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 ---------------------------------------------------------------------------------------- 1BR/1BA-1A10 900 $630 $0.70 $ 90,720 $1,088,640 2BR/2BA-2A20 1,150 $750 $0.65 $ 37,500 $ 450,000 3BR/2BA-3A20 1,300 $900 $0.69 $ 64,800 $ 777,600 Total $193,020 $2,316,240
OCCUPANCY: 67% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 25 Years REMAINING ECONOMIC LIFE: 20 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 FOXFIRE APARTMENTS, DORAVILLE, GEORGIA SUBJECT PHOTOGRAPHS [VIEW OF ENTRANCE SIGNAGE PICTURE] [VIEW OF LEASING OFFICE PICTURE] AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 FOXFIRE APARTMENTS, DORAVILLE, GEORGIA 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 FOXFIRE APARTMENTS, DORAVILLE, GEORGIA PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
Amount $/Unit ------ ------ DIRECT CAPITALIZATION Potential Rental Income $2,316,240 $8,708 Effective Gross Income $2,198,116 $8,264 Operating Expenses $1,001,006 $3,763 45.5% of EGI Net Operating Income: $1,130,611 $4,250 Capitalization Rate 10.50% DIRECT CAPITALIZATION VALUE $10,400,000 * $39,098 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 18% Stabilized Vacancy & Collection Loss: 14% Lease-up / Stabilization Period 12 months Terminal Capitalization Rate 11.50% Discount Rate 12.00% Selling Costs 3.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $10,400,000 * $39,098 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $10,400,000 $39,098 / UNIT SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $35,473 to $49,847 Range of Sales $/Unit (Adjusted) $34,937 to $41,158 VALUE INDICATION - PRICE PER UNIT $10,200,000 * $38,346 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 4.23 to 6.38 Selected EGIM for Subject 4.75 Subject's Projected EGI $2,198,116 EGIM ANALYSIS CONCLUSION $10,100,000 * $37,970 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $10,200,000 * $38,346 / UNIT RECONCILED SALES COMPARISON VALUE $10,200,000 $38,346 / 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 FOXFIRE APARTMENTS, DORAVILLE, GEORGIA PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $10,200,000 NOI Per Unit $10,200,000 EGIM Multiplier $10,100,000 INDICATED VALUE BY SALES COMPARISON $10,200,000 $38,346 / UNIT INCOME APPROACH: Direct Capitalization Method: $10,400,000 Discounted Cash Flow Method: $10,400,000 INDICATED VALUE BY THE INCOME APPROACH $10,400,000 $39,098 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $10,300,000 $38,722 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 FOXFIRE APARTMENTS, DORAVILLE, GEORGIA INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 6664 Peachtree Industrial Blvd., Doraville, DeKalb County, Georgia. Doraville identifies it as 18-356-01-025. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Phillip McGinnis on May 9, 2003. Michael Bates, MAI has not made a personal inspection of the subject property. Phillip McGinnis performed the research, valuation analysis and wrote the report. Michael Bates, MAI reviewed the report and concurs with the value. Michael Bates, MAI and Phillip McGinnis have extensive experience in appraising similar properties and meet the USPAP competency provision. The scope of this investigation comprises the inspection of the property and the collection, verification, and analysis of general and specific data pertinent to the subject property. We have researched 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 9, 2003. The date of the report is July 17, 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 FOXFIRE APARTMENTS, DORAVILLE, GEORGIA 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 Shelter Properties V, LP. To the best of our knowledge, no transfers of ownership or offers to purchase the subject are known to have occurred during the past three years. AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 11 FOXFIRE APARTMENTS, DORAVILLE, GEORGIA AREA / NEIGHBORHOOD ANALYSIS NEIGHBORHOOD ANALYSIS A neighborhood is a group of complementary land uses. The function of the neighborhood analysis is to describe the immediate surrounding environs. The subject is located in the city of Doraville, Georgia. Overall, the neighborhood is characterized as a suburban setting with the predominant land use being multi-family residential. The subject's neighborhood is generally defined by the following boundaries. NEIGHBORHOOD BOUNDARIES East - Winters Chapel Road West - Peeler Road South - I-285 North - Jimmy Carter Blvd. MAJOR EMPLOYERS Major employers in the subject's area include Home Depot, Delta Air Lines, and United Parcel Service. Delta Air Lines continues to reduce their work force due to the downturn in the air transportation sector. The unemployment rate in Atlanta is up, but is still much lower than nationally. 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 FOXFIRE APARTMENTS, DORAVILLE, GEORGIA NEIGHBORHOOD DEMOGRAPHICS
AREA ------------------------------------------- CATEGORY 1-Mi. RADIUS 3-Mi. RADIUS 5-Mi. RADIUS MSA ------------------------------------------------------------------------------------------- POPULATION TRENDS Current Population 9,043 79,336 183,538 4,326,075 5-Year Population 10,284 85,147 196,525 4,877,672 % Change CY-5Y 13.7% 7.3% 7.1% 12.8% Annual Change CY-5Y 2.7% 1.5% 1.4% 2.6% HOUSEHOLDS Current Households 4,995 37,664 79,503 1,580,438 5-Year Projected Households 5,658 40,011 84,746 1,773,314 % Change CY - 5Y 13.3% 6.2% 6.6% 12.2% Annual Change CY-5Y 2.7% 1.2% 1.3% 2.4% INCOME TRENDS Median Household Income $ 53,019 $ 55,021 $ 59,653 $ 61,400 Per Capita Income $ 32,579 $ 34,473 $ 37,883 $ 25,922 Average Household Income $ 63,672 $ 73,622 $ 87,077 $ 70,955
Source: Demographics Now The subject neighborhood's population is expected to show increases above that of the region. The immediate market offers inferior income levels as compared to the broader market. The following table illustrates the housing statistics in the subject's immediate area, as well as the MSA region. HOUSING TRENDS
AREA ---------------------------------------------- CATEGORY 1-Mi. RADIUS 3-Mi. RADIUS 5-Mi. RADIUS MSA ------------------------------------------------------------------------------------------------ HOUSING TRENDS % of Households Renting 70.36% 57.37% 47.33% 30.54% 5-Year Projected % Renting 70.84% 56.67% 47.34% 29.71% % of Households Owning 14.23% 28.39% 40.99% 61.85% 5-Year Projected % Owning 14.74% 29.35% 41.40% 63.29%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 FOXFIRE APARTMENTS, DORAVILLE, GEORGIA SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Apartments South - Residential East - Office West - Apartments CONCLUSIONS The subject is well located within the city of Doraville. 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 FOXFIRE APARTMENTS, DORAVILLE, GEORGIA MARKET ANALYSIS The subject property is located in the city of Doraville in DeKalb County. The overall pace of development in the subject's market is more or less stable. There are currently no apartment complexes under construction in the submarket. The following table illustrates historical vacancy rates for the subject's market. HISTORICAL VACANCY RATE
Period Region Submarket -------------------------------------------------------------------------- 1Q03 11.3% 9.9% 4Q02 10.5% 9.2% 1 Year 9.4% 8.6% 3 Years 7.5% 7.2% 5 Years 7.3% 6.9% 5 Year Forecast 11.7% 10.4%
Source: Reis, Atlanta, Apartment: Sandy Springs/Dunwoody - 1st Quarter 2003 Occupancy trends in the subject's market are decreasing. Historically speaking, the subject's submarket has outperformed the overall market. Occupancy Rates have been decreasing over the past 5 years and are anticipated to continue to decline. Current economic conditions have made home ownership easier therefore many apartment residents are leaving to buy single-family residences. Market rents in the subject's market have been following a decreasing trend. The following table illustrates historical rental rates for the subject's market. HISTORICAL AVERAGE RENT
Period Region % Change Submarket % Change ---------------------------------------------------------------------------------- 1998 N/A - $866 - 1999 N/A N/A $894 3.2% 2000 N/A N/A $930 4.0% 2001 N/A N/A $894 -3.9% 2002 N/A N/A $851 -4.8% 2003 Forecast N/A N/A $831 -2.4% 2004 Forecast N/A N/A $838 0.8% 2005 Forecast N/A N/A $855 2.0% 2006 Forecast N/A N/A $876 2.5% 2007 Forecast N/A N/A $902 3.0%
The following table illustrates a summary of the subject's competitive set. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 FOXFIRE APARTMENTS, DORAVILLE, GEORGIA COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject ------------------------------------------------------------------------------------------- R-1 The Landings 490 90% 1980 Less than .5 mile. R-2 Kendal Creek 308 85% 1973 Less than .5 mile. R-3 North Chase 519 90% 1970 Less than .5 miles. R-4 Peachtree Place North 309 85% 1970 Less than .5 miles. Subject Foxfire Apartments 266 67% 1972
Since 2000, average rents have declined at nearly 4% per year. The market rate is forecast to begin a slow climb, however over the next five years is not expected to reach the high established in 2000. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 FOXFIRE APARTMENTS, DORAVILLE, GEORGIA PROPERTY DESCRIPTION SITE ANALYSIS Site Area 24 acres, or 1,045,440 square feet Shape Generally rectangular Topography Rolling Utilities All necessary utilities are available to the site. Soil Conditions Stable Easements Affecting Site None other than typical utility easements Overall Site Appeal Average Flood Zone: Community Panel 1300650016H, dated May 7, 2001 Flood Zone Zone X Zoning RM-100, the subject improvements represent a legal conforming use of the site. REAL ESTATE TAXES
ASSESSED VALUE - 2002 ----------------------------------------------- TAX RATE / PROPERTY PARCEL NUMBER LAND BUILDING TOTAL MILL RATE TAXES -------------------------------------------------------------------------------------------------------------- 18-356-01-025 $6,408,300 $4,168,800 $10,577,100 $0.04 $159,968
IMPROVEMENT ANALYSIS Year Built 1972 Number of Units 266 Net Rentable Area 280,700 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, meeting hall, business office, and parking area. Unit Amenities Individual unit amenities include a balcony, cable TV connection, and washer dryer connection. Appliances available in each unit include a refrigerator, stove, dishwasher, water heater, garbage disposal, washer/dryer and oven. Washer & Dryers are included in 1Br/1Ba units AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 FOXFIRE APARTMENTS, DORAVILLE, GEORGIA only. All other units have connections for washers & dryers. Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) --------------------------------------------------------- 1BR/1BA-1A10 144 900 2BR/2BA-2A20 50 1,150 3BR/2BA-3A20 72 1,300
Overall Condition Average Effective Age 25 years Economic Life 45 years Remaining Economic Life 20 years Deferred Maintenance None HIGHEST AND BEST USE ANALYSIS In accordance with the definition of highest and best use, an analysis of the site relating to its legal uses, physical possibilities, and financial feasibility is appropriate. The highest and best use as vacant is to hold for future multi-family development. The subject improvements were constructed in 1972 and consist of a 266-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 FOXFIRE APARTMENTS, DORAVILLE, GEORGIA THE VALUATION PROCEDURE There are three traditional approaches, which can be employed in establishing the market value of the subject property. These approaches and their applicability to the valuation of the subject are summarized as follows: THE COST APPROACH The application of the Cost Approach is based on the principle of substitution. This principle may be stated as follows: no one is justified in paying more for a property than that amount by which he or she can obtain, by purchase of a site and construction of a building, without undue delay, a property of equal desirability and utility. In the case of a new building, no deficiencies in the building should exist. In the case of income-producing real estate, the cost of construction plays a minor and relatively insignificant role in determining market value. The Cost Approach is typically only a reliable indicator of value for: (a) new properties; (b) special use properties; and (c) where the cost of reproducing the improvements is easily and accurately quantified and there is no economic obsolescence. In all instances, the issue of an appropriate entrepreneurial profit - the reward for undertaking the risk of construction, remains a highly subjective factor especially in a market lacking significant speculative development. THE SALES COMPARISON APPROACH The Sales Comparison Approach is an estimate of value based upon a process of comparing recent sales of similar properties in the surrounding or competing areas to the subject property. Inherent in this approach is the principle of substitution. The application of this approach consists of comparing the subject property with similar properties of the same general type, which have been sold recently or currently are available for sale in competing areas. This comparative process involves judgment as to the similarity of the subject property and the comparable sale with respect to many value factors such as location, contract rent levels, quality of construction, reputation and prestige, age and condition, among others. The estimated value through this approach represents the probable price at which a willing seller would sell the subject property to a willing and knowledgeable buyer as of the date of value. AMERICAN APPRAISAL ASSOCIATES, INC. VALUATION PROCEDURE PAGE 19 FOXFIRE APARTMENTS, DORAVILLE, GEORGIA THE INCOME CAPITALIZATION APPROACH The theory of the Income Capitalization Approach is based on the premise that present value is the value of the cash flow and reversionary value the property will produce over a reasonable holding (ownership) period. The Discounted Cash Flow Analysis will convert equity cash flows (including cash flows and equity reversion) into a present value utilizing an internal rate of return (or discount rate). The Internal Rate of Return (IRR) will be derived from a comparison of alternate investments, a comparative analysis of IRR's used by recent buyers of similar properties, and a review of published industry surveys. The Direct Capitalization Analysis converts one year of income into an overall value using overall capitalization rates from similar sales. The overall rates take into consideration buyers assumptions of the market over the long-term. The results of the Income Capitalization Analysis are usually the primary value indicator for income producing properties. Investors expect a reasonable rate of return on their equity investment based on the ownership risks involved; this approach closely parallels the investment decision process. RECONCILIATION In this instance, we have completed 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 FOXFIRE APARTMENTS, DORAVILLE, GEORGIA SALES COMPARISON APPROACH Use of market or comparable sales requires the collection and analysis of comparable sales data. Similar properties recently sold are compared to the subject and adjusted based on any perceived differences. This method is based on the premise that the costs of acquiring a substitute property would tend to establish a value for the subject property. The premise suggests that if a substitute is unavailable in the market, the reliability of the approach may be subordinate to the other approaches. The 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 FOXFIRE APARTMENTS, DORAVILLE, GEORGIA SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 ----------------------------------------------------------------------------------------------------------------------------------- Property Name Foxfire Apartments Concord Crossing Meadowrun Apartments LOCATION: Address 6664 Peachtree Industrial Blvd. 2935 Old Concord Rd, SE 3800 Brockett Trail City, State Doraville, Georgia Smyrna, GA Clarkston, Georgia County DeKalb Cobb DeKalb PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 280,700 207,460 328,050 Year Built 1972 1975 1973 Number of Units 266 190 276 Unit Mix: Type Total Type Total Type Total 1BR/1BA-1A10 144 1BR/1BA 30 1BR/1BA 42 2BR/2BA-2A20 50 2BR/2BA 127 2BR/2BA 138 3BR/2BA-3A20 72 3BR/2BA 33 3BR/2BA 96 Average Unit Size (SF) 1,055 1,092 1,189 Land Area (Acre) 24.0000 15.7800 19.1500 Density (Units/Acre) 11.1 12.0 14.4 Parking Ratio (Spaces/Unit) 2.07 N/A 2.78 Parking Type (Gr., Cov., etc.) Garage, Open Covered Open Open CONDITION: 0 Good Good APPEAL: 0 Fair Good AMENITIES: Pool/Spa Yes/No Yes/Yes Yes/Yes Gym Room Yes Yes No Laundry Room No No Yes Secured Parking No No No Sport Courts Yes Yes Yes Fireplace No No No Balcony Yes No Yes OCCUPANCY: 67% 91% 90% TRANSACTION DATA: Sale Date July, 2002 August, 2000 Sale Price ($) $9,200,000 $10,150,000 Grantor Garden Woodsong Thurman Dallas 1976 Grantee Woodsong Apartments Graoch Associates #69 Sale Documentation 13561/2533 11552/0794 Verification Public Records Public Records Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $1,601,328 $8,428 $7.72 N/A Vacancy/Credit Loss $ 160,133 $ 843 $0.77 N/A Effective Gross Income $1,441,195 $7,585 $6.95 $2,329,560 $8,440 $7.10 Operating Expenses $ 627,000 $3,300 $3.02 $ 966,000 $3,500 $2.94 Net Operating Income $ 814,195 $4,285 $3.92 $1,363,560 $4,940 $4.16 NOTES: PRICE PER UNIT $48,421 $36,775 PRICE PER SQUARE FOOT $ 44.35 $ 30.94 EXPENSE RATIO 43.5% 41.5% EGIM 6.38 4.36 OVERALL CAP RATE 8.85% 13.43% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 ------------------------------------------------------------------------------------------------------------------------------ Property Name Highland Heights Apartments Lincoln Parc Apartments Kenridge Apartments LOCATION: Address 3028 Chamblee Tucker Road 2100 Winters Park Drive 3893 Kensington Road City, State Chamblee, Georgia Atlanta, Georgia Decatur, Georgia County DeKalb DeKalb DeKalb PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 220,665 407,670 319,150 Year Built 1970 1986 1988 Number of Units 181 444 326 Unit Mix: Type Total Type Total Type Total 1BR/1BA 20 1BR/1BA 216 1BR/1BA 40 2BR/2BA 161 2BR/2BA 228 2BR/1BA 80 2BR/2BA 206 Average Unit Size (SF) 1,219 918 979 Land Area (Acre) 11.5000 27.7400 24.8500 Density (Units/Acre) 15.7 16.0 13.1 Parking Ratio (Spaces/Unit) 2.54 2.20 2.44 Parking Type (Gr., Cov., etc.) Open Open Open CONDITION: Good Good Good APPEAL: Good Good Good AMENITIES: Pool/Spa Yes/Yes Yes/Yes Gym Room Yes Yes Laundry Room Yes Yes Secured Parking no Yes Sport Courts Yes Yes Fireplace No No Balcony No No OCCUPANCY: 90% 90% 90% TRANSACTION DATA: Sale Date December, 2000 November, 2000 May, 2001 Sale Price ($) $8,568,000 $15,750,000 $16,250,000 Grantor Chapelwood Apartments, LP Park Associates, Ltd. Kenridge, Ltd. Grantee Miles - Barrington, LLC I.S. Lincoln Parc LP F.P.C./Kenridge Apartments, LP Sale Documentation 11728/0592 11693/0188 12094/0615 Verification Public Records Public Records Public Records Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income N/A N/A N/A Vacancy/Credit Loss N/A N/A N/A Effective Gross Income $1,751,016 $9,674 $7.94 $3,721,608 $8,382 $9.13 $2,629,560 $8,066 $8.24 Operating Expenses $ 579,200 $3,200 $2.62 $1,332,000 $3,000 $3.27 $ 910,568 $2,793 $2.85 Net Operating Income $1,171,816 $6,474 $5.31 $2,389,608 $5,382 $5.86 $1,718,992 $5,273 $5.39 NOTES: PRICE PER UNIT $47,337 $35,473 $49,847 PRICE PER SQUARE FOOT $ 38.83 $38.63 $ 50.92 EXPENSE RATIO 33.1% 35.8% 34.6% EGIM 4.89 4.23 6.18 OVERALL CAP RATE 13.68% 15.17% 10.58% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA PRO FORMA
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 FOXFIRE APARTMENTS, DORAVILLE, GEORGIA IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $35,473 to $49,847 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 $34,937 to $41,158 per unit with a mean or average adjusted price of $38,336 per unit. The median adjusted price is $39,877 per unit. Based on the following analysis, we have concluded to a value of $40,000 per unit, which results in an "as is" value of $10,200,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 FOXFIRE APARTMENTS, DORAVILLE, GEORGIA SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 -------------------------------------------------------------------------------------------------------------------- Property Name Foxfire Apartments Concord Crossing Meadowrun Apartments Address 6664 Peachtree 2935 Old Concord Rd, SE 3800 Brockett Trail Industrial Blvd. City Doraville, Georgia Smyrna, GA Clarkston, Georgia Sale Date July, 2002 August, 2000 Sale Price ($) $9,200,000 $10,150,000 Net Rentable Area (SF) 280,700 207,460 328,050 Number of Units 266 190 276 Price Per Unit $48,421 $36,775 Year Built 1972 1975 1973 Land Area (Acre) 24.0000 15.7800 19.1500 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 07-2002 0% 08-2000 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $48,421 $36,775 Location Superior -10% Comparable 0% Number of Units 266 190 0% 276 0% Quality / Appeal Good Comparable 0% Comparable 0% Age / Condition 1972 1975 / Good 0% 1973 / Good 0% Occupancy at Sale 67% 91% 0% 90% 0% Amenities Good Superior -5% Superior -5% Average Unit Size (SF) 1,055 1,092 0% 1,189 0% PHYSICAL ADJUSTMENT -15% -5% FINAL ADJUSTED VALUE ($/UNIT) $41,158 $34,937 COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 ---------------------------------------------------------------------------------------------------------------------------------- Property Name Highland Heights Lincoln Parc Apartments Kenridge Apartments Apartments Address 3028 Chamblee Tucker Road 2100 Winters Park 3893 Kensington Drive Road City Chamblee, Georgia Atlanta, Georgia Decatur, Georgia Sale Date December, 2000 November, 2000 May, 2001 Sale Price ($) $8,568,000 $15,750,000 $16,250,000 Net Rentable Area (SF) 220,665 407,670 319,150 Number of Units 181 444 326 Price Per Unit $47,337 $35,473 $49,847 Year Built 1970 1986 1988 Land Area (Acre) 11.5000 27.7400 24.8500 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) 12-2000 0% 11-2000 0% 05-2001 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $47,337 $35,473 $49,847 Location Superior -5% Comparable 0% Superior -5% Number of Units 181 0% 444 0% 326 0% Quality / Appeal Comparable 0% Comparable 0% Superior -5% Age / Condition 1970 / Good -5% 1986 / Good 0% 1988 / Good 0% Occupancy at Sale 90% 0% 90% 0% 90% 0% Amenities Superior -5% Comparable 0% Superior -10% Average Unit Size (SF) 1,219 0% 918 0% 979 0% PHYSICAL ADJUSTMENT -15% 0% -20% FINAL ADJUSTED VALUE ($/UNIT) $40,236 $35,473 $39,877
SUMMARY VALUE RANGE (PER UNIT) $34,937 TO $41,158 MEAN (PER UNIT) $38,336 MEDIAN (PER UNIT) $39,877 VALUE CONCLUSION (PER UNIT) $40,000
VALUE OF IMPROVEMENT & MAIN SITE $10,640,000 LESS: LEASE-UP COST -$ 239,000 PV OF CONCESSIONS -$ 152,000 VALUE INDICATED BY SALES COMPARISON APPROACH $10,249,000 ROUNDED $10,200,000
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 FOXFIRE APARTMENTS, DORAVILLE, GEORGIA NOI PER UNIT COMPARISON
SALE PRICE NOI/ SUBJECT NOI COMPARABLE NO. OF ---------- -------- ------------- ADJUSTMENT INDICATED NO. UNITS PRICE/UNIT OAR NOI/UNIT SUBJ. NOI/UNIT FACTOR VALUE/UNIT ----------------------------------------------------------------------------------------------------------------------- I-1 190 $ 9,200,000 8.85% $ 814,195 $1,130,611 0.992 $48,028 $ 48,421 $ 4,285 $ 4,250 I-2 276 $10,150,000 13.43% $1,363,560 $1,130,611 0.860 $31,639 $ 36,775 $ 4,940 $ 4,250 I-3 181 $ 8,568,000 13.68% $1,171,816 $1,130,611 0.657 $31,078 $ 47,337 $ 6,474 $ 4,250 I-4 444 $15,750,000 15.17% $2,389,608 $1,130,611 0.790 $28,015 $ 35,473 $ 5,382 $ 4,250 I-5 326 $16,250,000 10.58% $1,718,992 $1,130,611 0.806 $40,180 $ 49,847 $ 5,273 $ 4,250
PRICE/UNIT
Low High Average Median $28,015 $48,028 $35,788 $31,639
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT Estimated Price Per Unit $ 40,000 Number of Units 266 Value $10,640,000 Less: Lease-Up Cost -$ 239,000 PV of Concessions -$ 152,000 ----------- Value Based on NOI Analysis $10,249,000 Rounded $10,200,000
The adjusted sales indicate a range of value between $28,015 and $48,028 per unit, with an average of $35,788 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 $10,200,000 (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 FOXFIRE APARTMENTS, DORAVILLE, GEORGIA 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-1 190 $ 9,200,000 $ 1,441,195 $ 627,000 43.51% 6.38 $ 48,421 I-2 276 $10,150,000 $ 2,329,560 $ 966,000 41.47% 4.36 $ 36,775 I-3 181 $ 8,568,000 $ 1,751,016 $ 579,200 33.08% 4.89 45.54% $ 47,337 I-4 444 $15,750,000 $ 3,721,608 $1,332,000 35.79% 4.23 $ 35,473 I-5 326 $16,250,000 $ 2,629,560 $ 910,568 34.63% 6.18 $ 49,847
EGIM
Low High Average Median --- ---- ------- ------ 4.23 6.38 5.21 4.89
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES Estimate EGIM 4.75 Subject EGI $ 2,198,116 Value $10,441,053 Less: Lease-Up Cost -$ 239,000 PV of Concessions -$ 152,000 ------------ Value Based on EGIM Analysis $10,050,053 Rounded $10,100,000 Value Per Unit $ 37,970
There is an inverse relationship, which generally holds among EGIMs and operating expenses. Properties, which have higher expense ratios, typically sell for relatively less and therefore produce a lower EGIM. As will be illustrated in the Income Capitalization Approach of this report, the subject's operating expense ratio (OER) is estimated at 45.54% before reserves. The comparable sales indicate a range of expense ratios from 33.08% to 43.51%, while their EGIMs range from 4.23 to 6.38. Overall, we conclude to an EGIM of 4.75, which results in an "as is" value estimate in the EGIM Analysis of $10,100,000. 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 $10,200,000. Price Per Unit $10,200,000 NOI Per Unit $10,200,000 EGIM Analysis $10,100,000 Sales Comparison Conclusion $10,200,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 FOXFIRE APARTMENTS, DORAVILLE, GEORGIA 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 FOXFIRE APARTMENTS, DORAVILLE, GEORGIA method is normally more appropriate for properties with relatively stable operating histories and expectations. A pro forma analysis for the first year of the investment is made to estimate a reasonable potential net operating income for the Subject Property. Such an analysis entails an estimate of the gross income the property should command in the marketplace. From this total gross income must be deducted an allowance for vacancy/collection loss and operating expenses as dictated by general market conditions and the overall character of the subject's tenancy and leased income to arrive at a projected estimate of net operating income. Conversion of the net operating income to an indication of value is accomplished by the process of capitalization, as derived primarily from market data. MARKET RENT ANALYSIS In order to determine a market rental rate for the subject, a survey of competing apartment communities was performed. This survey was displayed previously in the market analysis section of the report. Detailed information pertaining to each of the comparable rental communities, along with photographs, is presented in the Addenda of this report. The following charts display the subject's current asking and actual rent rates as well as a comparison with the previous referenced comparable rental properties. SUMMARY OF ACTUAL AVERAGE RENTS
Average Unit Area -------------------- Unit Type (Sq. Ft.) Per Unit Per SF %Occupied ----------------------------------------------------------------- 1BR/1BA-1A10 900 $602 $0.67 62.5% 2BR/2BA-2A20 1150 $697 $0.61 74.0% 3BR/2BA-3A20 1300 $837 $0.64 69.4%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 FOXFIRE APARTMENTS, DORAVILLE, GEORGIA RENT ANALYSIS
COMPARABLE RENTS ------------------------------------------- R-1 R-2 R-3 R-4 ------------------------------------------- The Kendal Peachtree Landings Creek North Chase Place North ------------------------------------------- COMPARISON TO SUBJECT SUBJECT SUBJECT ------------------------------------------- SUBJECT UNIT ACTUAL ASKING Slightly DESCRIPTION TYPE RENT RENT Similar Similar Similar Superior ------------------------------------------------------------------------------------------------------ Monthly Rent 1BR/1BA-1A10 $ 602 $ 691 $ 635 $ 655 $ 625 $ 600 Unit Area (SF) 900 900 880 710 700 800 Monthly Rent Per Sq. Ft. $ 0.67 $ 0.77 $ 0.72 $ 0.92 $ 0.89 $ 0.75 Monthly Rent 2BR/2BA-2A20 $ 697 $ 801 $ 818 $ 790 $ 625 $ 755 Unit Area (SF) 1,150 1,150 1,215 880 775 1,152 Monthly Rent Per Sq. Ft. $ 0.61 $ 0.70 $ 0.67 $ 0.90 $ 0.81 $ 0.66 Monthly Rent 3BR/2BA-3A20 $ 837 $ 911 $ 958 $ 978 $ 690 $ 850 Unit Area (SF) 1,300 1,300 1,410 1,337 1,338 1,352 Monthly Rent Per Sq. Ft. $ 0.64 $ 0.70 $ 0.68 $ 0.73 $ 0.52 $ 0.63 DESCRIPTION MIN MAX MEDIAN AVERAGE --------------------------------------------------------------- Monthly Rent $ 600 $ 655 $ 630 $ 629 Unit Area (SF) 700 880 755 773 Monthly Rent Per Sq. Ft. $ 0.72 $ 0.92 $ 0.82 $ 0.82 Monthly Rent $ 625 $ 818 $ 773 $ 747 Unit Area (SF) 775 1,215 1,016 1,006 Monthly Rent Per Sq. Ft. $ 0.66 $ 0.90 $ 0.74 $ 0.76 Monthly Rent $ 690 $ 978 $ 904 $ 869 Unit Area (SF) 1,337 1,410 1,345 1,359 Monthly Rent Per Sq. Ft. $ 0.52 $ 0.73 $ 0.65 $ 0.64
CONCLUDED MARKET RENTAL RATES AND TERMS Based on this analysis above, the subject's concluded market rental rates and gross rental income is calculated as follows: GROSS RENTAL INCOME PROJECTION
Market Rent Unit Area ------------------ Monthly Annual Unit Type Number of Units (Sq. Ft.) Per Unit Per SF Income Income ----------------------------------------------------------------------------------------------- 1BR/1BA-1A10 144 900 $630 $0.70 $ 90,720 $1,088,640 2BR/2BA-2A20 50 1,150 $750 $0.65 $ 37,500 $ 450,000 3BR/2BA-3A20 72 1,300 $900 $0.69 $ 64,800 $ 777,600 -------- ---------- Total $193,020 $2,316,240 ======== ==========
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 FOXFIRE APARTMENTS, DORAVILLE, GEORGIA SUMMARY OF HISTORICAL INCOME & EXPENSES
FISCAL YEAR 2000 FISCAL YEAR 2001 FISCAL YEAR 2002 FISCAL YEAR 2003 ----------------------- ----------------------- ---------------------- ----------------------- ACTUAL ACTUAL ACTUAL MANAGEMENT BUDGET ----------------------- ----------------------- ---------------------- ----------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT ---------------------------------------------------------------------------------------------------------------------------------- Revenues Rental Income $2,268,475 $ 8,528 $2,357,095 $ 8,861 $2,301,640 $ 8,653 $2,280,000 $ 8,571 Vacancy $ 121,535 $ 457 $ 171,109 $ 643 $ 327,081 $ 1,230 $ 338,000 $ 1,271 Credit Loss/Concessions $ 49,442 $ 186 $ 87,275 $ 328 $ 98,007 $ 368 $ 63,300 $ 238 ----------------------------------------------------------------------------------------------------- Subtotal $ 170,977 $ 643 $ 258,384 $ 971 $ 425,088 $ 1,598 $ 401,300 $ 1,509 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 103,944 $ 391 $ 92,477 $ 348 $ 202,306 $ 761 $ 141,300 $ 531 ----------------------------------------------------------------------------------------------------- Subtotal Other Income $ 103,944 $ 391 $ 92,477 $ 348 $ 202,306 $ 761 $ 141,300 $ 531 ----------------------------------------------------------------------------------------------------- Effective Gross Income $2,201,442 $ 8,276 $2,191,188 $ 8,238 $2,078,858 $ 7,815 $2,020,000 $ 7,594 Operating Expenses Taxes $ 146,542 $ 551 $ 161,745 $ 608 $ 160,306 $ 603 $ 131,316 $ 494 Insurance $ 34,247 $ 129 $ 51,599 $ 194 $ 51,260 $ 193 $ 54,439 $ 205 Utilities $ 152,986 $ 575 $ 160,596 $ 604 $ 183,873 $ 691 $ 176,000 $ 662 Repair & Maintenance $ 61,568 $ 231 $ 75,015 $ 282 $ 142,884 $ 537 $ 172,960 $ 650 Cleaning $ 63,903 $ 240 $ 80,761 $ 304 $ 100,200 $ 377 $ 69,500 $ 261 Landscaping $ 30,120 $ 113 $ 29,100 $ 109 $ 45,125 $ 170 $ 0 $ 0 Security $ 27,801 $ 105 $ 24,960 $ 94 $ 6,648 $ 25 $ 0 $ 0 Marketing & Leasing $ 23,076 $ 87 $ 13,675 $ 51 $ 35,999 $ 135 $ 43,500 $ 164 General Administrative $ 285,032 $ 1,072 $ 293,831 $ 1,105 $ 269,050 $ 1,011 $ 220,892 $ 830 Management $ 110,452 $ 415 $ 115,767 $ 435 $ 106,588 $ 401 $ 103,500 $ 389 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ----------------------------------------------------------------------------------------------------- Total Operating Expenses $ 935,727 $ 3,518 $1,007,049 $ 3,786 $1,101,933 $ 4,143 $ 972,107 $ 3,655 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ----------------------------------------------------------------------------------------------------- Net Income $1,265,715 $ 4,758 $1,184,139 $ 4,452 $ 976,925 $ 3,673 $1,047,893 $ 3,939 ----------------------------------------------------------------------------------------------------- ANNUALIZED 2003 ----------------------- PROJECTION AAA PROJECTION ----------------------- -------------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT % --------------------------------------------------------------------------------------- Revenues Rental Income $2,277,552 $ 8,562 $2,316,240 $ 8,708 100.0% Vacancy $ 761,868 $ 2,864 $ 254,786 $ 958 11.0% Credit Loss/Concessions $ 59,524 $ 224 $ 69,487 $ 261 3.0% --------------------------------------------------------- Subtotal $ 821,392 $ 3,088 $ 324,274 $ 1,219 14.0% Laundry Income $ 0 $ 0 $ 0 $ 0 0.0% Garage Revenue $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 213,628 $ 803 $ 206,150 $ 775 8.9% --------------------------------------------------------- Subtotal Other Income $ 213,628 $ 803 $ 206,150 $ 775 8.9% --------------------------------------------------------- Effective Gross Income $1,669,788 $ 6,277 $2,198,116 $ 8,264 100.0% Operating Expenses Taxes $ 132,008 $ 496 $ 133,000 $ 500 6.1% Insurance $ 52,680 $ 198 $ 53,200 $ 200 2.4% Utilities $ 162,612 $ 611 $ 172,900 $ 650 7.9% Repair & Maintenance $ 115,240 $ 433 $ 133,000 $ 500 6.1% Cleaning $ 90,704 $ 341 $ 79,800 $ 300 3.6% Landscaping $ 35,932 $ 135 $ 34,580 $ 130 1.6% Security $ 8,292 $ 31 $ 7,980 $ 30 0.4% Marketing & Leasing $ 41,952 $ 158 $ 37,240 $ 140 1.7% General Administrative $ 262,636 $ 987 $ 239,400 $ 900 10.9% Management $ 78,588 $ 295 $ 109,906 $ 413 5.0% Miscellaneous $ 0 $ 0 $ 0 $ 0 0.0% --------------------------------------------------------- Total Operating Expenses $ 980,644 $ 3,687 $1,001,006 $ 3,763 45.5% Reserves $ 0 $ 0 $ 66,500 $ 250 6.6% --------------------------------------------------------- Net Income $ 689,144 $ 2,591 $1,130,611 $ 4,250 51.4% ----------------------------------------------------------
REVENUES AND EXPENSES The subject's revenue and expense projections are displayed on the previous chart. Rental income is based on the market analysis previously discussed. Other income consists of forfeited deposits, laundry income, late rent payments, month to month fees, pet fees, vending machine revenue, etc. We forecasted the property's annual operating expenses after reviewing its historical performance at the subject property. We analyzed each item of expense and attempted to forecast amounts a typical informed investor would consider reasonable. VACANCY AND COLLECTION LOSS An investor is primarily interested in the annual revenue an income property is likely to produce over a specified period of time, rather than the income it could produce if it were always 100% occupied and all tenants were paying their rent in full and on time. An investor normally expects some income loss as tenants vacate, fail to pay rent, or pay their rent late. We have projected a stabilized vacancy and collection loss rate of 14% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30 FOXFIRE APARTMENTS, DORAVILLE, GEORGIA 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 FOXFIRE APARTMENTS, DORAVILLE, GEORGIA SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR --------------------------------------------------------- I-1 Jul-02 91% $ 48,421 8.85% I-2 Aug-00 90% $ 36,775 13.43% I-3 Dec-00 90% $ 47,337 13.68% I-4 Nov-00 90% $ 35,473 15.17% I-5 May-01 90% $ 49,847 10.58% High 15.17% Low 8.85% Average 12.34%
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 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 3.00% 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 $10,400,000. In this instance, the reversion figure contributes AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32 FOXFIRE APARTMENTS, DORAVILLE, GEORGIA approximately 36% of the total value. Investors surveyed for this assignment indicated they would prefer to have the cash flow contribute anywhere from 50% to 60%. Overall, the blend seems reasonable. The cash flow and pricing matrix are located on the following pages. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 33 FOXFIRE APARTMENTS, DORAVILLE, GEORGIA DISCOUNTED CASH FLOW ANALYSIS FOXFIRE APARTMENTS
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 FISCAL YEAR 1 2 3 4 5 6 ------------------------------------------------------------------------------------------------------------------------ REVENUE Base Rent $2,316,240 $2,339,402 $2,374,493 $2,421,983 $2,482,533 $2,557,009 Vacancy $ 536,559 $ 257,334 $ 261,194 $ 266,418 $ 273,079 $ 281,271 Credit Loss $ 69,487 $ 70,182 $ 71,235 $ 72,659 $ 74,476 $ 76,710 Concessions $ 146,300 $ 26,600 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------------------------- Subtotal $ 752,347 $ 354,116 $ 332,429 $ 339,078 $ 347,555 $ 357,981 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 206,150 $ 208,212 $ 211,335 $ 215,561 $ 220,950 $ 227,579 -------------------------------------------------------------------------------- Subtotal Other Income $ 206,150 $ 208,212 $ 211,335 $ 215,561 $ 220,950 $ 227,579 -------------------------------------------------------------------------------- EFFECTIVE GROSS INCOME $1,770,043 $2,193,498 $2,253,399 $2,298,467 $2,355,929 $2,426,607 OPERATING EXPENSES: Taxes $ 133,000 $ 136,990 $ 141,100 $ 145,333 $ 149,693 $ 154,183 Insurance $ 53,200 $ 54,796 $ 56,440 $ 58,133 $ 59,877 $ 61,673 Utilities $ 172,900 $ 178,087 $ 183,430 $ 188,932 $ 194,600 $ 200,438 Repair & Maintenance $ 133,000 $ 136,990 $ 141,100 $ 145,333 $ 149,693 $ 154,183 Cleaning $ 79,800 $ 82,194 $ 84,660 $ 87,200 $ 89,816 $ 92,510 Landscaping $ 34,580 $ 35,617 $ 36,686 $ 37,786 $ 38,920 $ 40,088 Security $ 7,980 $ 8,219 $ 8,466 $ 8,720 $ 8,982 $ 9,251 Marketing & Leasing $ 37,240 $ 38,357 $ 39,508 $ 40,693 $ 41,914 $ 43,171 General Administrative $ 239,400 $ 246,582 $ 253,979 $ 261,599 $ 269,447 $ 277,530 Management $ 88,502 $ 109,675 $ 112,670 $ 114,923 $ 117,796 $ 121,330 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $ 979,602 $1,027,508 $1,058,038 $1,088,652 $1,120,737 $1,154,359 Reserves $ 66,500 $ 68,495 $ 70,550 $ 72,666 $ 74,846 $ 77,092 -------------------------------------------------------------------------------- NET OPERATING INCOME $ 723,941 $1,097,495 $1,124,811 $1,137,148 $1,160,345 $1,195,155 ================================================================================ Operating Expense Ratio (% of EGI) 55.3% 46.8% 47.0% 47.4% 47.6% 47.6% Operating Expense Per Unit $ 3,683 $ 3,863 $ 3,978 $ 4,093 $ 4,213 $ 4,340 YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 7 8 9 10 11 ---------------------------------------------------------------------------------------------------------- REVENUE Base Rent $2,633,719 $2,712,731 $2,794,113 $2,877,936 $2,964,274 Vacancy $ 289,709 $ 298,400 $ 307,352 $ 316,573 $ 326,070 Credit Loss $ 79,012 $ 81,382 $ 83,823 $ 86,338 $ 88,928 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------ Subtotal $ 368,721 $ 379,782 $ 391,176 $ 402,911 $ 414,998 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 234,406 $ 241,438 $ 248,682 $ 256,142 $ 263,826 ------------------------------------------------------------------ Subtotal Other Income $ 234,406 $ 241,438 $ 248,682 $ 256,142 $ 263,826 ------------------------------------------------------------------ EFFECTIVE GROSS INCOME $2,499,405 $2,574,387 $2,651,618 $2,731,167 $2,813,102 OPERATING EXPENSES: Taxes $ 158,809 $ 163,573 $ 168,480 $ 173,535 $ 178,741 Insurance $ 63,524 $ 65,429 $ 67,392 $ 69,414 $ 71,496 Utilities $ 206,452 $ 212,645 $ 219,025 $ 225,595 $ 232,363 Repair & Maintenance $ 158,809 $ 163,573 $ 168,480 $ 173,535 $ 178,741 Cleaning $ 95,285 $ 98,144 $ 101,088 $ 104,121 $ 107,245 Landscaping $ 41,290 $ 42,529 $ 43,805 $ 45,119 $ 46,473 Security $ 9,529 $ 9,814 $ 10,109 $ 10,412 $ 10,724 Marketing & Leasing $ 44,467 $ 45,801 $ 47,175 $ 48,590 $ 50,047 General Administrative $ 285,856 $ 294,432 $ 303,265 $ 312,363 $ 321,734 Management $ 124,970 $ 128,719 $ 132,581 $ 136,558 $ 140,655 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------ TOTAL OPERATING EXPENSES $1,188,990 $1,224,660 $1,261,400 $1,299,242 $1,338,219 Reserves $ 79,404 $ 81,787 $ 84,240 $ 86,767 $ 89,370 ------------------------------------------------------------------ NET OPERATING INCOME $1,231,010 $1,267,940 $1,305,979 $1,345,158 $1,385,513 ================================================================== Operating Expense Ratio (% of EGI) 47.6% 47.6% 47.6% 47.6% 47.6% Operating Expense Per Unit $ 4,470 $ 4,604 $ 4,742 $ 4,884 $ 5,031
Estimated Stabilized NOI $1,130,611 Sales Expense Rate 3.00% Months to Stabilized 12 Discount Rate 12.00% Stabilized Occupancy 89.0% Terminal Cap Rate 11.50%
Gross Residual Sale Price $12,047,936 Deferred Maintenance $ 0 Less: Sales Expense $ 361,438 Add: Excess Land $ 0 ----------- Net Residual Sale Price $11,686,498 Other Adjustments $ 0 ----------- PV of Reversion $ 3,762,740 Value Indicated By "DCF" $10,442,544 Add: NPV of NOI $ 6,679,805 Rounded $10,400,000 ----------- PV Total $10,442,544
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE --------------------------------------------------------------------------- TOTAL VALUE 11.50% 11.75% 12.00% 12.25% 12.50% ---------------------------------------------------------------------------------------------------------- 11.00% $10,955,228 $10,782,566 $10,613,578 $10,448,173 $10,286,264 11.25% $10,863,811 $10,693,173 $10,526,161 $10,362,684 $10,202,655 TERMINAL CAP RATE 11.50% $10,776,368 $10,607,667 $10,442,544 $10,280,911 $10,122,681 11.75% $10,692,646 $10,525,800 $10,362,486 $10,202,618 $10,046,111 12.00% $10,612,413 $10,447,343 $10,285,763 $10,127,587 $ 9,972,731
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 34 FOXFIRE APARTMENTS, DORAVILLE, GEORGIA INCOME LOSS DURING LEASE-UP The subject is currently 67% occupied, below our stabilized occupancy projection. We have estimated a 12-month lease-up period. An adjustment must be made to bring the subject to a stabilized operating level. To account for this income loss during lease-up, we have compared the current DCF analysis to an "as stabilized" DCF analysis assuming the subject's occupancy were stabilized. The difference in net operating income during the lease-up period is discounted to a present value figure of $239,000 as shown in the following table.
DESCRIPTION YEAR 1 -------------------------------------------------- "As Is" Net Operating Income $723,941 Stabilized Net Operating Income $991,626 -------- Difference $267,684 PV of Income Loss During Lease-Up $239,004 -------- Rounded $239,000 --------
CONCESSIONS Due to softness in the market, concessions have been utilized at the subject property and within the market. Based on our discussions with the subject's property manager and those at competing properties, these concessions are expected to continue in the near term until the market returns to a stabilized level. Concessions have been included as a line item deduction within the discounted cash flow analysis. The present value of these concessions equates to $152,000 (rounded). This amount has been deducted from the Direct Capitalization analysis, as well as the Sales Comparison Approach value. DIRECT CAPITALIZATION METHOD After having projected the income and expenses for the property, the next step in the valuation process is to capitalize the net income into an estimate of value. The selected overall capitalization rate ("OAR") covers both return on and return of capital. It is the overall rate of return an investor expects. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 35 FOXFIRE APARTMENTS, DORAVILLE, GEORGIA 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 36 FOXFIRE APARTMENTS, DORAVILLE, GEORGIA FOXFIRE APARTMENTS
TOTAL PER Sq. Ft. PER UNIT %OF EGI ------------------------------------------------------------------------------------------------------------------ REVENUE Base Rent $ 2,316,240 $ 8.25 $ 8,708 Less: Vacancy & Collection Loss 14.00% $ 324,274 $ 1.16 $ 1,219 Plus: Other Income Laundry Income $ 0 $ 0.00 $ 0 0.00% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 206,150 $ 0.73 $ 775 9.38% ----------------------------------------------------------- Subtotal Other Income $ 206,150 $ 0.73 $ 775 9.38% EFFECTIVE GROSS INCOME $ 2,198,116 $ 7.83 $ 8,264 OPERATING EXPENSES: Taxes $ 133,000 $ 0.47 $ 500 6.05% Insurance $ 53,200 $ 0.19 $ 200 2.42% Utilities $ 172,900 $ 0.62 $ 650 7.87% Repair & Maintenance $ 133,000 $ 0.47 $ 500 6.05% Cleaning $ 79,800 $ 0.28 $ 300 3.63% Landscaping $ 34,580 $ 0.12 $ 130 1.57% Security $ 7,980 $ 0.03 $ 30 0.36% Marketing & Leasing $ 37,240 $ 0.13 $ 140 1.69% General Administrative $ 239,400 $ 0.85 $ 900 10.89% Management 5.00% $ 109,906 $ 0.39 $ 413 5.00% Miscellaneous $ 0 $ 0.00 $ 0 0.00% TOTAL OPERATING EXPENSES $ 1,001,006 $ 3.57 $ 3,763 45.54% Reserves $ 66,500 $ 0.24 $ 250 3.03% ----------------------------------------------------------- NET OPERATING INCOME $ 1,130,611 $ 4.03 $ 4,250 51.44% =========================================================== "GOING IN" CAPITALIZATION RATE 10.50% VALUE INDICATION $ 10,767,720 $ 38.36 $ 40,480 LESS: LEASE-UP COST ($ 239,000) PV OF CONCESSIONS ($ 152,000) "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $ 10,376,720 ROUNDED $ 10,400,000 $ 37.05 $ 39,098
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 37 FOXFIRE APARTMENTS, DORAVILLE, GEORGIA DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF ----------------------------------------------------------------------- 9.75% $11,205,006 $11,200,000 $42,105 $39.90 10.00% $10,915,106 $10,900,000 $40,977 $38.83 10.25% $10,639,347 $10,600,000 $39,850 $37.76 10.50% $10,376,720 $10,400,000 $39,098 $37.05 10.75% $10,126,308 $10,100,000 $37,970 $35.98 11.00% $ 9,887,278 $ 9,900,000 $37,218 $35.27 11.25% $ 9,658,872 $ 9,700,000 $36,466 $34.56
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $10,400,000. CORRELATION AND CONCLUSION BY THE INCOME APPROACH The two methods used to estimate the market value of the subject property by the income approach resulted in the following indications of value: Discounted Cash Flow Analysis $10,400,000 Direct Capitalization Method $10,400,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $10,400,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 38 FOXFIRE APARTMENTS, DORAVILLE, GEORGIA 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 $10,200,000 Income Approach $10,400,000 Reconciled Value $10,300,000
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 9, 2003 the market value of the fee simple estate in the property is: $10,300,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA FOXFIRE APARTMENTS, DORAVILLE, GEORGIA ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A FOXFIRE APARTMENTS, DORAVILLE, GEORGIA EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A FOXFIRE APARTMENTS, DORAVILLE, GEORGIA SUBJECT PHOTOGRAPHS [VIEW OF ENTRANCE SIGNAGE PICTURE] [VIEW OF LEASING OFFICE PICTURE] [TYPICAL VIEW OF POOL & [EXTERIOR - APARTMENT BUILDING PICTURE] TENNIS COURT PICTURE] [TYPICAL VIEW OF CLUBHOUSE PICTURE] [EXTERIOR - APARTMENT BUILDING PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A FOXFIRE APARTMENTS, DORAVILLE, GEORGIA SUBJECT PHOTOGRAPHS [TYPICAL VIEW OF KITCHEN PICTURE] [TYPICAL VIEW OF BEDROOM PICTURE] [TYPICAL VIEW OF LIVING ROOM PICTURE] [TYPICAL VIEW OF BATHROOM PICTURE] [TYPICAL VIEW ALONG PEACHTREE INDUSTRIAL [TYPICAL VIEW OF PARKING AREAS PICTURE] BLVD. PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B FOXFIRE APARTMENTS, DORAVILLE, GEORGIA EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B FOXFIRE APARTMENTS, DORAVILLE, GEORGIA PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 CONCORD CROSSING MEADOWRUN APARTMENTS HIGHLAND HEIGHTS APARTMENTS 2935 Old Concord Rd, SE 3800 Brockett Trail 3028 Chamblee Tucker Road Smyrna, GA Clarkston, Georgia Chamblee, Georgia [PICTURE] [PICTURE] [PICTURE] COMPARABLE I-4 COMPARABLE I-5 LINCOLN PARC APARTMENTS KENRIDGE APARTMENTS 2100 Winters Park Drive 3893 Kensington Road Atlanta, Georgia Decatur, Georgia [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B FOXFIRE APARTMENTS, DORAVILLE, GEORGIA SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 ----------------------------------------------------------------------------------------------------------------------------------- Property Name Foxfire Apartments The Landings Management Company AIMCO LOCATION: Address 6664 Peachtree Industrial Blvd. 6520 Hillandal Drive City, State Doraville, Georgia Doraville, Georgia County DeKalb DeKalb Proximity to Subject Less than .5 mile. PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 280,700 537,685 Year Built 1972 1980 Effective Age 25 20 Building Structure Type Brick Brick Parking Type (Gr., Cov., etc.) Open Open Number of Units 266 490 Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo. 1 1BR/1BA-1A10 900 144 $602 1 1BR/1BA 880 235 $635 2 2BR/2BA-2A20 1,150 50 $697 2 2BR/2BA 1,215 147 $818 3 3BR/2BA-3A20 1,300 72 $837 3 3BR/2BA 1,410 108 $958 Average Unit Size (SF) 1,055 1,097 Unit Breakdown: Efficiency 2-Bedroom 19% Efficiency 2-Bedroom 30% 1-Bedroom 54% 3-Bedroom 27% 1-Bedroom 48% 3-Bedroom 22% CONDITION: Fair Average APPEAL: Average Average AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X Balcony Fireplace Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi X Car Wash Spa/Jacuzzi Car Wash Basketball Court X BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room X Volleyball Court Theater Room Sand Volley Ball X Meeting Hall Sand Volley Ball Meeting Hall X Tennis Court Secured Parking X Tennis Court Secured Parking Racquet Ball Laundry Room X Racquet Ball X Laundry Room Jogging Track X Business Office Jogging Track X Business Office X Gym Room X Gym Room OCCUPANCY: 67% 90% LEASING DATA: Available Leasing Terms 6, 9 & 12 Months 6, 9 & 12 Months Concessions 1 month free Pet Deposit $300/$100 Refundable $300/$100 Refundable Utilities Paid by Tenant: Electric Natural Gas Electric Natural Gas Water Trash Water Trash Confirmation Telephone Number 877-740-7145 NOTES: COMPARISON TO SUBJECT: Similar COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 ---------------------------------------------------------------------------------------------------------------------------------- Property Name Kendal Creek North Chase Management Company Waterton Property Management B&M Management LOCATION: Address 1700 Hunter Ridge Lane 6750 Peachtree Industrial Blvd. City, State Norcross, Georgia Doraville, Georgia County Gwinnett DeKalb Proximity to Subject Less than .5 mile. Less than .5 miles. PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 283,599 394,101 Year Built 1973 1970 Effective Age 25 25 Building Structure Type Frame/Siding Brick/Siding Parking Type (Gr., Cov., etc.) Open Open Number of Units 308 519 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1BR/1BA 710 160 $655 1 1BR/1BA 700 311 $625 2 2BR/2BA 880 61 $790 2 2BR/2BA 775 181 $625 3 3BR/2BA 1,337 87 $978 3 3BR/2BA 1,338 27 $690 Average Unit Size (SF) 921 759 Unit Breakdown: Efficiency 2-Bedroom 20% Efficiency 2-Bedroom 35% 1-Bedroom 52% 3-Bedroom 28% 1-Bedroom 60% 3-Bedroom 5% CONDITION: Fair Average APPEAL: Average Average AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling Balcony X Balcony Fireplace X Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash X Spa/Jacuzzi X Car Wash Basketball Court BBQ Equipment Basketball Court X BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball X Meeting Hall Sand Volley Ball Meeting Hall X Tennis Court Secured Parking Tennis Court X Secured Parking Racquet Ball X Laundry Room Racquet Ball Laundry Room Jogging Track X Business Office Jogging Track X Business Office X Gym Room Gym Room OCCUPANCY: 85% 90% LEASING DATA: Available Leasing Terms 6, 9 & 12 month leases 6, 9 & 12 month leases Concessions 1 month free 1 month free Pet Deposit None required N/A Utilities Paid by Tenant: Electric Natural Gas Electric Natural Gas Water Trash Water Trash Confirmation Telephone Number 866-361-2777 866-272-8117 NOTES: COMPARISON TO SUBJECT: Similar Similar COMPARABLE DESCRIPTION R - 4 ----------------------------------------------------------------------------------- Property Name Peachtree Place North Management Company Community Living Concepts LOCATION: Address 4600 Peachtree Place Parkway City, State Doraville, Georgia County DeKalb Proximity to Subject Less than .5 miles. PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 318,888 Year Built 1970 Effective Age 30 Building Structure Type Brick Parking Type (Gr., Cov., etc.) Open Number of Units 309 Unit Mix: Type Unit Qty. Mo. 1 1BR/1BA 800 140 $600 2 2BR/2BA 1,152 108 $755 3 3BR/2BA 1,352 61 $850 Average Unit Size (SF) 1,032 Unit Breakdown: Efficiency 2-Bedroom 35% 1-Bedroom 45% 3-Bedroom 20% CONDITION: APPEAL: AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling X Balcony X Fireplace X Cable TV Ready Project Amenities X Swimming Pool Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Volleyball Court Theater Room Sand Volley Ball X Meeting Hall X Tennis Court Secured Parking Racquet Ball X Laundry Room Jogging Track Business Office Gym Room OCCUPANCY: 85% LEASING DATA: Available Leasing Terms 12 month leases Concessions 1 month free Pet Deposit $200/$100 refundable Utilities Paid by Tenant: Electric Natural Gas Water Trash Confirmation Telephone Number 866-459-8419 NOTES: COMPARISON TO SUBJECT: Slightly Superior
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B FOXFIRE APARTMENTS, DORAVILLE, GEORGIA PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 THE LANDINGS KENDAL CREEK NORTH CHASE 6520 Hillandal Drive 1700 Hunter Ridge Lane 6750 Peachtree Industrial Blvd. Doraville, Georgia Norcross, Georgia Doraville, Georgia [PICTURE] [PICTURE] [PICTURE] COMPARABLE R-4 PEACHTREE PLACE NORTH N/A 4600 Peachtree Place Parkway Doraville, Georgia [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C FOXFIRE APARTMENTS, DORAVILLE, GEORGIA EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C FOXFIRE APARTMENTS, DORAVILLE, GEORGIA No responsibility is assumed for matters legal in nature. No investigation has been made of the title to or any liabilities against the property appraised. In this appraisal, it is presumed that, unless otherwise noted, the owner's claim is valid, the property rights are good and marketable, and there are no encumbrances which cannot be cleared through normal processes. To the best of our knowledge, all data set forth in this report are true and accurate. Although gathered from reliable sources, no guarantee is made nor liability assumed for the accuracy of any data, opinions, or estimates identified as being furnished by others which have been used in formulating this analysis. Land areas and descriptions used in this appraisal were obtained from public records and have not been verified by legal counsel or a licensed surveyor. No soil analysis or geological studies were ordered or made in conjunction with this report, nor were any water, oil, gas, or other subsurface mineral and use rights or conditions investigated. Substances such as asbestos, urea-formaldehyde foam insulation, other chemicals, toxic wastes, or other potentially hazardous materials could, if present, adversely affect the value of the property. Unless otherwise stated in this report, the existence of hazardous substance, which may or may not be present on or in the property, was not considered by the appraiser in the development of the conclusion of value. The stated value estimate is predicated on the assumption that there is no material on or in the property that would cause such a loss in value. No responsibility is assumed for any such conditions, and the client has been advised that the appraiser is not qualified to detect such substances, quantify the impact on values, or develop the remedial cost. No environmental impact study has been ordered or made. Full compliance with applicable federal, state, and local environmental regulations and laws is assumed unless otherwise stated, defined, and considered in the report. It is also assumed that all required licenses, consents, or other legislative or administrative authority from any local, state, or national government or private entity organization either have been or can be obtained or renewed for any use which the report covers. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C FOXFIRE APARTMENTS, DORAVILLE, GEORGIA It is assumed that all applicable zoning and use regulations and restrictions have been complied with unless a nonconformity has been stated, defined, and considered in the appraisal report. Further, it is assumed that the utilization of the land and improvements is within the boundaries of the property described and that no encroachment or trespass exists unless noted in the report. The Americans with Disabilities Act ("ADA") became effective January 26, 1992. We have not made a specific compliance survey and analysis of this property to determine whether or not it is in conformity with the various detailed requirements of the ADA. It is possible that a compliance survey of the property together with a detailed analysis of the requirements of the ADA could reveal that the property is not in compliance with one or more of the requirements of the act. If so, this fact could have a negative effect on the value of the property. Since we have no direct evidence relating to this issue, we did not consider the possible noncompliance with the requirements of ADA in estimating the value of the property. We have made a physical inspection of the property and noted visible physical defects, if any, in our report. This inspection was made by individuals generally familiar with real estate and building construction. However, these individuals are not architectural or structural engineers who would have detailed knowledge of building design and structural integrity. Accordingly, we do not opine on, nor are we responsible for, the structural integrity of the property including its conformity to specific governmental code requirements, such as fire, building and safety, earthquake, and occupancy, or any physical defects which were not readily apparent to the appraiser during the inspection. The value or values presented in this report are based upon the premises outlined herein and are valid only for the purpose or purposes stated. The date of value to which the conclusions and opinions expressed apply is set forth in this report. The value opinion herein rendered is based on the status of the national business economy and the purchasing power of the U.S. dollar as of that date. Testimony or attendance in court or at any other hearing is not required by reason of this appraisal unless arrangements are previously made within a reasonable time in advance for AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C FOXFIRE APARTMENTS, DORAVILLE, GEORGIA such testimony, and then such testimony shall be at American Appraisal Associates, Inc.'s, prevailing per diem for the individuals involved. Possession of this report or any copy thereof does not carry with it the right of publication. No portion of this report (especially any conclusion to use, the identity of the appraiser or the firm with which the appraiser is connected, or any reference to the Appraisal Institute or the designations awarded by this organization) shall be disseminated to the public through prospectus, advertising, public relations, news, or any other means of communication without the written consent and approval of American Appraisal Associates, Inc. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D FOXFIRE APARTMENTS, DORAVILLE, GEORGIA EXHIBIT D CERTIFICATE OF APPRAISER (1 PAGE) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D CERTIFICATE OF APPRAISER I certify that, to the best of my knowledge and belief: The statements of fact contained in this report are true and correct. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and represent the unbiased professional analyses, opinions, and conclusions of American Appraisal Associates, Inc. American Appraisal Associates, Inc. and I personally, have no present or prospective interest in the property that is the subject of this report and have no personal interest or bias with respect to the parties involved. Compensation for American Appraisal Associates, Inc. is not contingent on an action or event resulting from the analyses, opinions, or conclusions in, or the use of, this report. The analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Uniform Standards of Professional Appraisal Practice and the Code of Professional Ethics and the Standards of Professional Practice of the Appraisal Institute. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. I personally did not inspect the subject property. Phillip McGinnis provided significant real property appraisal assistance in the preparation of this report. I am currently in compliance with the Appraisal Institute's continuing education requirements. -s- Michael Bates ---------------------------- Michael Bates, MAI Assistant Manager, Real Estate Group State of Georgia, Certified General Real Property Appraiser #CG00685 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E FOXFIRE APARTMENTS, DORAVILLE, GEORGIA EXHIBIT E QUALIFICATIONS OF APPRAISER (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E FOXFIRE APARTMENTS, DORAVILLE, GEORGIA MICHAEL P. BATES, MAI DIRECTOR - HEALTHCARE REAL ESTATE AND ASSISTANT MANAGER, REAL ESTATE GROUP POSITION Michael P. Bates is the Assistant Manager of the Atlanta Real Estate Group of American Appraisal Associates, Inc. ("AAA"). He shares responsibility for the management, quality control, and review of commercial real estate assignments principally in the southeast United States. Mr. Bates is also the national Director - Healthcare Real Estate for AAA and is responsible for the management and valuation process for specialty health care facility assignments. EXPERIENCE Valuation Mr. Bates has 17 years of commercial appraisal experience. He has performed appraisals in 43 states and Canada, and he is currently a certified general appraiser in 21 states. Court Mr. Bates has been accepted as an expert witness and given testimony in federal bankruptcy court in Delaware. He has prepared many other appraisals that were submitted as expert evidence to federal bankruptcy court, but those cases were settled prior to testimony being required. Mr. Bates has testified in property tax appeal cases in California, Missouri, and Texas, and his hospital appraisals have been submitted in tax appeal cases in Pennsylvania, South Carolina, and South Dakota. Business Mr. Bates joined AAA in 1997. Prior to joining AAA, he was president of his own valuation company and was previously a vice president for both Gulf/Atlantic Valuation Services, Inc., and Valuation Counselors. Prior to gaining his appraisal experience, Mr. Bates worked seven years in commercial mortgage financing. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E FOXFIRE APARTMENTS, DORAVILLE, GEORGIA EDUCATION University of Tennessee - Knoxville Master of Business Administration - Finance and Management Bachelor of Science - Marketing STATE State of Alabama, Certified General Real Property CERTIFICATIONS Appraiser, #G00503 State of Arizona, Certified General Real Estate Appraiser, #31067 State of Arkansas, State Certified General Appraiser, #CG1414N State of California, Certified General Real Estate Appraiser, #AG026120 State of Colorado, Certified General Appraiser, #CG40023849 State of Delaware, Certified General Appraiser, #X1-0000352 State of Florida, Certified General Appraiser, #0002494 State of Georgia, Certified General Real Property Appraiser, #CG00685 State of Illinois, State Certified General Real Estate Appraiser, #153001243 State of Maryland, Certified General Real Estate Appraiser, #10814 State of Michigan, Certified General Appraiser, #1201069262 State of Mississippi, State Certified General Real Estate Appraiser, #GA-629 State of New Jersey, General Appraiser, #42KG00195600 State of New York, Real Estate General Appraiser, #46000041317 State of North Carolina, Certified General Real Estate Appraiser, #A4095 Commonwealth of Pennsylvania, Certified General Appraiser, #GA001817R State of South Carolina, Certified Real Estate Appraiser, #CG3059 State of Tennessee, Certified General Real Estate Appraiser, AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E FOXFIRE APARTMENTS, DORAVILLE, GEORGIA #00051881 State of Texas, State Certified General Real Estate Appraiser, #TX-1328483-G Commonwealth of Virginia, Certified General Real Estate Appraiser, #4001005254 State of Washington, Certified General Real Estate Appraiser, #1100998 PROFESSIONAL Appraisal Institute, MAI Designated Member AFFILIATIONS VALUATION AND Appraisal Institute SPECIAL COURSES All required courses Standards of Professional Practice, Parts A and B The Appraiser as an Expert Witness: Preparation and Testimony Litigation Appraising: Specialized Topics and Applications Separating Real and Personal Property from Intangible Business Assets Specialty Courses Hotel/Motel Valuation and Investment Seminar Valuation of Special-Purpose Properties PUBLICATIONS "Estimating Hospital Real Property Values for Ad Valorem Tax Purposes," Journal of Property Tax Management, Fall 1997, republished by Appraisal Institute in A Business Enterprise Value Anthology, 2001 Co-authored "Abnormal Investor Returns Resulting from the Burroughs and Memorex Merger," Mergers & Acquisitions, June 1984 AMERICAN APPRAISAL ASSOCIATES, INC. FOXFIRE APARTMENTS, DORAVILLE, GEORGIA GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. FOXFIRE APARTMENTS, DORAVILLE, GEORGIA GENERAL SERVICE CONDITIONS The services(s) provided by AAA will be performed in accordance with professional appraisal standards. Our compensation is not contingent in any way upon our conclusions of value. We assume, without independent verification, the accuracy of all data provided to us. We will act as an independent contractor and reserve the right to use subcontractors. All files, workpapers or documents developed by us during the course of the engagement will be our property. We will retain this data for at least five years. Our report is to be used only for the specific purpose stated herein; and any other use is invalid. No reliance may be made by any third party without our prior written consent. You may show our report in its entirety to those third parties who need to review the information contained herein. No one should rely on our report as a substitute for their own due diligence. We understand that our reports will be described in public tender offer documents distributed to limited partners. We reserve the right to review the public tender offer documents prior to their issuance to confirm that disclosures of facts from the current appraisals are accurate. No reference to our name or our report, in whole or in part, in any other SEC filing or private placement memorandum you prepare and/or distribute to third parties may be made without our prior written consent. The Tender Offer Partnerships, as that term is defined in the Settlement Agreement, agree to indemnify and hold us harmless against and from any and all losses, claims, actions, damages, expenses or liabilities, including reasonable attorneys' fees, to which we may become subject in connection with this engagement except where such losses, claims, actions, damages, expenses or liabilities, including reasonable attorney's fees, arise or result from AAA's misconduct, bad faith or negligence. Co-Clients will not be liable for any of our acts or omissions. AAA is an equal opportunity employer.