EX-99.(C)(3) 5 d07277a2exv99wxcyx3y.txt APPRAISAL OF MILLHOPPER VILLAGE MILLHOPPER VILLAGE 507 NW 39TH ROAD GAINESVILLE, FLORIDA MARKET VALUE - FEE SIMPLE ESTATE AS OF MAY 27, 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: MILLHOPPER VILLAGE 507 NW 39TH ROAD GAINESVILLE, ALACHUA 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 136 units with a total of 156,950 square feet of rentable area. The improvements were built in 1969. The improvements are situated on 8.35 acres. Overall, the improvements are in average condition. As of the date of this appraisal, the subject property is 92% 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 MILLHOPPER VILLAGE, GAINESVILLE, 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 27, 2003 is: ($6,100,000) 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 MILLHOPPER VILLAGE, GAINESVILLE, 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 MILLHOPPER VILLAGE, GAINESVILLE, FLORIDA EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Millhopper Village LOCATION: 507 NW 39th Road Gainesville, 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 27, 2003 DATE OF REPORT: July 9, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 8.35 acres, or 363,726 square feet Assessor Parcel No.: 06498-000-00 Floodplain: Community Panel No. 1251070004B (January 19, 1983) Flood Zone X, an area outside the floodplain. Zoning: RMF-7 (Multiple-family medium density residential district) BUILDING: No. of Units: 136 Units Total NRA: 156,950 Square Feet Average Unit Size: 1,154 Square Feet Apartment Density: 16.3 units per acre Year Built: 1969 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 750 $ 590 $ 0.79 $18,880 $ 226,560 2 Br/1.5 Ba - 2A15 1,400 $ 800 $ 0.57 $ 4,000 $ 48,000 2Br/2Ba - 2A20 1,000 $ 710 $ 0.71 $36,920 $ 443,040 3Br/2.5Ba - 3A25 1,550 $ 810 $ 0.52 $20,250 $ 243,000 3Br/2.5Ba - 3B25 1,600 $ 840 $ 0.53 $18,480 $ 221,760 Total $98,530 $1,182,360
OCCUPANCY: 92% ECONOMIC LIFE: 45 Years AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 MILLHOPPER VILLAGE, GAINESVILLE, FLORIDA EFFECTIVE AGE: 20 Years REMAINING ECONOMIC LIFE: 25 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [EXTERIOR - OFFICE PICTURE] [EXTERIOR - PROJECT PICTURE] AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 MILLHOPPER VILLAGE, GAINESVILLE, 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 MILLHOPPER VILLAGE, GAINESVILLE, FLORIDA PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION Amount $/Unit --------------------- ------ ------ Potential Rental Income $ 1,182,360 $ 8,694 Effective Gross Income $ 1,166,124 $ 8,574 Operating Expenses $ 544,506 $ 4,004 46.7% of EGI Net Operating Income: $ 587,618 $ 4,321 Capitalization Rate 10.00% DIRECT CAPITALIZATION VALUE $ 5,900,000 * $ 43,382 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 10% Stabilized Vacancy & Collection Loss: 10% Lease-up / Stabilization Period N/A Terminal Capitalization Rate 11.00% Discount Rate 12.50% Selling Costs 2.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $ 6,000,000 * $ 44,118 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $ 6,000,000 $ 44,118 / UNIT SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $36,869 to $74,906 Range of Sales $/Unit (Adjusted) $44,242 to $49,375 VALUE INDICATION - PRICE PER UNIT $ 6,400,000 * $ 47,059 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 5.27 to 7.19 Selected EGIM for Subject 5.50 Subject's Projected EGI $ 1,166,124 EGIM ANALYSIS CONCLUSION $ 6,400,000 * $ 47,059 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $ 6,300,000 * $ 46,324 / UNIT RECONCILED SALES COMPARISON VALUE $ 6,400,000 $ 47,059 / 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 MILLHOPPER VILLAGE, GAINESVILLE, FLORIDA PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $ 6,400,000 NOI Per Unit $ 6,300,000 EGIM Multiplier $ 6,400,000 INDICATED VALUE BY SALES COMPARISON $ 6,400,000 $ 47,059 / UNIT INCOME APPROACH: Direct Capitalization Method: $ 5,900,000 Discounted Cash Flow Method: $ 6,000,000 INDICATED VALUE BY THE INCOME APPROACH $ 6,000,000 $ 44,853 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $ 6,100,000 $ 44,853 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 MILLHOPPER VILLAGE, GAINESVILLE, FLORIDA INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 507 NW 39th Road, Gainesville, Alachua County, Florida. Gainesville identifies it as 06498-000-00. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Michael L. Kersten on May 27, 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 27, 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 MILLHOPPER VILLAGE, GAINESVILLE, 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 SP 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 MILLHOPPER VILLAGE, GAINESVILLE, 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 Gainesville, 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 - NW 34th Street West - Newberry Street (SR 26) South - Newberry Street (SR 26) North - NW 8th Avenue MAJOR EMPLOYERS Major employers in the subject's area include Shands Hospital (9,600), Nationwide Insurance, Alachua County School Board, Energizer, and North Florida Regional Hospital. The University of Florida is Gainesville's largest employer (11,500 employees) and the State's second largest. 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 MILLHOPPER VILLAGE, GAINESVILLE, FLORIDA NEIGHBORHOOD DEMOGRAPHICS
AREA ------------------------------------------------- CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA -------- ------------ ------------ ------------ --- POPULATION TRENDS Current Population 8,188 79,869 149,464 224,369 5-Year Population 8,378 83,813 160,961 241,244 % Change CY-5Y 2.3% 4.9% 7.7% 7.5% Annual Change CY-5Y 0.5% 1.0% 1.5% 1.5% HOUSEHOLDS Current Households 3,639 33,212 62,844 90,722 5-Year Projected Households 3,796 35,725 68,743 99,112 % Change CY - 5Y 4.3% 7.6% 9.4% 9.2% Annual Change CY-5Y 0.9% 1.5% 1.9% 1.8% INCOME TRENDS Median Household Income $ 34,450 $ 26,098 $ 26,952 $ 29,514 Per Capita Income $ 22,332 $ 18,407 $ 18,880 $ 18,899 Average Household Income $ 49,986 $ 44,769 $ 44,796 $ 46,739
Source: Demographics Now The subject neighborhood's population is expected to show increases above 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 42.93% 55.33% 51.40% 41.01% 5-Year Projected % Renting 43.72% 56.11% 51.74% 41.03% % of Households Owning 51.81% 36.72% 40.29% 50.29% 5-Year Projected % Owning 51.19% 36.38% 40.58% 50.92%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 MILLHOPPER VILLAGE, GAINESVILLE, FLORIDA SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Single-Family Subdivision - Bartram Woods South - Concordia Condominiums East - Vacant Land West - NW 39th Road, a retail project, and a small multi-family project CONCLUSIONS The subject is well located within the city of Gainesville. 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 MILLHOPPER VILLAGE, GAINESVILLE, FLORIDA MARKET ANALYSIS The subject property is located in the city of Gainesville in Alachua County. The overall pace of development in the subject's market is more or less decreasing. There has not been any new apartment construction in proximity to the subject property over the past several years. The following table illustrates historical vacancy rates for the subject's market. HISTORICAL VACANCY RATE
Period Region Submarket ------ ------ --------- 4Q01 5.0% 6.0% 1Q02 6.0% 7.0% 2Q02 4.6% 8.0% 3Q02 7.2% 5.3% 4Q02 8.0% 6.7% 1Q03 7.0% 7.3%
Occupancy trends in the subject's market are stable. Historically speaking, the subject's submarket has equated the overall market. Market rents in the subject's market have been following a decreasing trend. The following table illustrates a summary of the subject's competitive set. COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject --- ------------- ----- ----- ---------- -------------------- R-1 The Oaks Apartments 152 97% 1972 1.5 miles west of subject R-2 Brookwood Terrace 132 97% 1975 1.5 miles northeast of the subject R-3 Covered Bridge 174 97% 1973 1.5 miles northeast of the subject R-4 Madison Pointe 170 96% 1973 1.5 mile northeast of the subject R-5 Creekwood 120 91% 1978 2 miles northeast of the subject Subject Millhopper Village 136 92% 1969
Within Alachua County, there are reportedly more than 165 apartment communities. Rental rates in the area range from $350 to $500 per month for Studio apartments, $350 to $600 for 1 Bedroom units, $550 to $800 per month for 2 Bedroom apartments, $750 to $1,000 per month for 3 Bedroom apartments, and from $900 to $2,000 for 4 Bedroom units. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 MILLHOPPER VILLAGE, GAINESVILLE, FLORIDA Gainesville is one of the few places that have 4-Bedroom, 4-Bathroom apartments. The area has more than 21,000 apartment units. Gainesville is a strong apartment due mainly to the University of Florida. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 MILLHOPPER VILLAGE, GAINESVILLE, FLORIDA PROPERTY DESCRIPTION SITE ANALYSIS Site Area 8.35 acres, or 363,726 square feet Shape Irregular Topography Level Utilities All necessary utilities are available to the site. Soil Conditions Stable Easements Affecting Site None other than typical utility easements Overall Site Appeal Good Flood Zone: Community Panel 1251070004B, dated January 19, 1983 Flood Zone Zone X Zoning RMF-7, 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 ------------- ---- -------- ----- ---------- ----- 06498-000-00 $292,300 $2,090,600 $2,382,900 0.02715 $64,699
IMPROVEMENT ANALYSIS Year Built 1969 Number of Units 136 Net Rentable Area 156,950 Square Feet Construction: Foundation Reinforced concrete slab Frame Heavy or light wood Exterior Walls Wood or vinyl siding Roof Composition shingle over a wood truss structure Project Amenities Amenities at the subject include a swimming pool, basketball court, tennis court, gym room, car wash, barbeque equipment, meeting hall, laundry room, and parking area. Unit Amenities Individual unit amenities include a balcony, cable TV connection, and washer dryer connection. Appliances available in each unit include refrigerator, stove, dishwasher, water heater, garbage disposal, and oven. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 MILLHOPPER VILLAGE, GAINESVILLE, FLORIDA Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) --------- --------------- --------- 1Br/1Ba - 1A10 32 750 2 Br/1.5 Ba - 2A15 5 1,400 2Br/2Ba - 2A20 52 1,000 3Br/2.5Ba - 3A25 25 1,550 3Br/2.5Ba - 3B25 22 1,600
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 1969 and consist of a 136-unit multifamily project. The highest and best use as improved is for 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 MILLHOPPER VILLAGE, GAINESVILLE, 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 MILLHOPPER VILLAGE, GAINESVILLE, 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 MILLHOPPER VILLAGE, GAINESVILLE, 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 MILLHOPPER VILLAGE, GAINESVILLE, FLORIDA SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 ------------------------------------------------------------------------------------------------------------------- Property Name Millhopper Village Regency Oaks Country Garden LOCATION: Address 507 NW 39th Road 3230 SW Archer Road 2001 SW 16th Street City, State Gainesville, Florida Gainesville, Florida Gainesville, Florida County Alachua Alachua Alachua PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 156,950 155,844 95,000 Year Built 1969 1972 1971 Number of Units 136 148 99 Unit Mix: Type Total Type Total Type Total 1Br/1Ba - 1A10 32 1Br/1Ba N/A 1Br/1Ba N/A 2Br/1.5 Ba - 2A15 5 2Br/2Ba N/A 2Br/2Ba N/A 2Br/2Ba - 2A20 52 3Br/2Ba N/A 3Br/2.5Ba - 3A25 25 3Br/2.5Ba - 3B25 22 Average Unit Size (SF) 1,154 1,053 960 Land Area (Acre) 8.3500 8.4600 4.0200 Density (Units/Acre) 16.3 17.5 24.6 Parking Ratio (Spaces/Unit) 1.90 1.90 1.90 Parking Type (Gr., Cov., etc.) Garage, Open Covered Open Open CONDITION: Good Average Average APPEAL: Good Fair Average 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 Yes Yes Yes Washer/Dryer Connection Yes No Yes Other Other OCCUPANCY: 92% 90% 92% TRANSACTION DATA: Sale Date January, 2003 January, 2003 Sale Price ($) $6,000,000 $3,650,000 Grantor Regency Oaks Apartments, Country Gardens LLC Apartments, LLC Grantee Saul and Netty Silber Saul and Netty Silber Sale Documentation Book 2587, Page 267 Book 2587, Page 130 Verification Smith Equities Smith Equities Telephone Number (407) 422-0704 (407) 422-0704 ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF ------------------------------------------------------- Potential Gross Income $1,185,000 $8,007 $7.60 $745,000 $7,525 $7.84 Vacancy/Credit Loss $ 82,950 $ 560 $0.53 $ 52,150 $ 527 $0.55 Effective Gross Income $1,102,050 $7,446 $7.07 $692,850 $6,998 $7.29 Operating Expenses $ 525,000 $3,547 $3.37 $332,500 $3,359 $3.50 Net Operating Income $ 577,050 $3,899 $3.70 $360,350 $3,640 $3.79 NOTES: None None PRICE PER UNIT $ 40,541 $36,869 PRICE PER SQUARE FOOT $ 38.50 $ 38.42 EXPENSE RATIO 47.6% 48.0% EGIM 5.44 5.27 OVERALL CAP RATE 9.62% 9.87% ------------------------------------------------------------------------------------------------------------------- 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 Covered Bridge Oxford Manor Cobblestone LOCATION: Address 1810 NW 23rd Boulevard 2801 NW 23rd Boulevard 1810 NW 23rd Boulevard City, State Gainesville, Florida Gainesville, Florida Gainesville, Florida County Alachua Alachua Alachua PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 169,276 376,885 225,120 Year Built 1973 1985 1994 Number of Units 176 366 168 Unit Mix: Type Total Type Total Type Total 1Br/1Ba 76 1Br/1Ba N/A 2Br/2Ba 66 2Br/2Ba N/A 2Br/2Ba 84 3Br/2Ba 32 3Br/2Ba N/A 3Br/3Ba 84 Average Unit Size (SF) 962 1,030 1,340 Land Area (Acre) 21.4400 28.8600 15.1200 Density (Units/Acre) 8.2 12.7 11.1 Parking Ratio (Spaces/Unit) 1.85 2.00 2.09 Parking Type (Gr., Cov., etc.) Open Open Open, Covered CONDITION: Average Very Good Very Good APPEAL: Average Very Good Very Good AMENITIES: Pool/Spa Yes/Yes Yes/Yes Yes/Yes Gym Room Yes Yes Yes Laundry Room Yes Yes Yes Secured Parking No No Yes Sport Courts No Yes Yes Washer/Dryer Connection Yes Yes Yes Other Other OCCUPANCY: 95% 92% 94% TRANSACTION DATA: Sale Date August, 2001 January, 2002 January, 2002 Sale Price ($) $7,900,000 $27,415,730 $12,584,270 Grantor NLP Covered Bridge National Oxford Manor Apartments of Cobblestone Apartments of Associates Gainesville, Ltd. Gainesville, Ltd. Grantee Covered Bridge Apartments, Paradigm Properties Paradigm Properties LLC Sale Documentation Book 2380, Page 198 Verification Smith Equities Smith Equities Smith Equities Telephone Number (407) 422-0704 (407) 422-0704 (407) 422-0704 ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF ------------------------------------------------------------------------------------------ Potential Gross Income $1,382,500 $7,855 $8.17 $4,100,000 $11,202 $10.88 $2,065,000 $12,292 $9.17 Vacancy/Credit Loss $ 96,775 $ 550 $0.57 $ 287,000 $ 784 $ 0.76 $ 144,550 $ 860 $0.64 Effective Gross Income $1,285,725 $7,305 $7.60 $3,813,000 $10,418 $10.12 $1,920,450 $11,431 $8.53 Operating Expenses $ 600,000 $3,409 $3.54 $1,280,000 $ 3,497 $ 3.40 $ 737,500 $ 4,390 $3.28 Net Operating Income $ 685,725 $3,896 $4.05 $2,533,000 $ 6,921 $ 6.72 $1,182,950 $ 7,041 $5.25 NOTES: This property, at the time None None of sale, had 176 units. It now has 174. PRICE PER UNIT $44,886 $74,906 $74,906 PRICE PER SQUARE FOOT $ 46.67 $ 72.74 $ 55.90 EXPENSE RATIO 46.7% 33.6% 38.4% EGIM 6.14 7.19 6.55 OVERALL CAP RATE 8.68% 9.24% 9.40% ---------------------------------------------------------------------------------------------------------------------------- Cap Rate based on Pro Forma or PRO FORMA PRO FORMA PRO FORMA Actual Income? ----------------------------------------------------------------------------------------------------------------------------
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 MILLHOPPER VILLAGE, GAINESVILLE, FLORIDA IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $36,869 to $74,906 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 $44,242 to $49,375 per unit with a mean or average adjusted price of $46,774 per unit. The median adjusted price is $46,622 per unit. Based on the following analysis, we have concluded to a value of $47,000 per unit, which results in an "as is" value of $6,400,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 MILLHOPPER VILLAGE, GAINESVILLE, FLORIDA SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 ----------- ------- ---------- ---------- Property Name Millhopper Village Regency Oaks Country Garden Address 507 NW 39th Road 3230 SW Archer Road 2001 SW 16th Street City Gainesville, Florida Gainesville, Florida Gainesville, Florida Sale Date January, 2003 January, 2003 Sale Price ($) $6,000,000 $3,650,000 Net Rentable Area (SF) 156,950 155,844 95,000 Number of Units 136 148 99 Price Per Unit $40,541 $36,869 Year Built 1969 1972 1971 Land Area (Acre) 8.3500 8.4600 4.0200 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 01-2003 0% 01-2003 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $40,541 $36,869 Location Inferior 15% Comparable 0% Number of Units 136 148 0% 99 0% Quality / Appeal Good Comparable 0% Inferior 15% Age / Condition 1969 1972 / Average 0% 1971 / Average 0% Occupancy at Sale 92% 90% -10% 92% -10% Amenities Good Inferior 10% Inferior 10% Average Unit Size (SF) 1,154 1,053 0% 960 5% PHYSICAL ADJUSTMENT 15% 20% FINAL ADJUSTED VALUE ($/UNIT) $46,622 $44,242 COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 ----------- ---------- ---------- ---------- Property Name Covered Bridge Oxford Manor Cobblestone Address 1810 NW 23rd Boulevard 2801 NW 23rd Boulevard 1810 NW 23rd Boulevard City Gainesville, Florida Gainesville, Florida Gainesville, Florida Sale Date August, 2001 January, 2002 January, 2002 Sale Price ($) $7,900,000 $27,415,730 $12,584,270 Net Rentable Area (SF) 169,276 376,885 225,120 Number of Units 176 366 168 Price Per Unit $44,886 $74,906 $74,906 Year Built 1973 1985 1994 Land Area (Acre) 21.4400 28.8600 15.1200 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) 08-2001 0% 01-2002 0% 01-2002 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $44,886 $74,906 $74,906 Location Comparable 0% Comparable 0% Comparable 0% Number of Units 176 0% 366 10% 168 0% Quality / Appeal Inferior 15% Superior -10% Superior -5% Age / Condition 1973 / Average 0% 1985 / Very Good -15% 1994 / Very Good -20% Occupancy at Sale 95% -10% 92% -10% 94% -10% Amenities Comparable 0% Superior -10% Comparable 0% Average Unit Size (SF) 962 5% 1,030 0% 1,340 -5% PHYSICAL ADJUSTMENT 10% -35% -40% FINAL ADJUSTED VALUE ($/UNIT) $49,375 $48,689 $44,944
SUMMARY VALUE RANGE (PER UNIT) $44,242 TO $49,375 MEAN (PER UNIT) $46,774 MEDIAN (PER UNIT) $46,622 VALUE CONCLUSION (PER UNIT) $47,000
VALUE INDICATED BY SALES COMPARISON APPROACH $6,392,000 ROUNDED $6,400,000
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 MILLHOPPER VILLAGE, GAINESVILLE, FLORIDA 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-1 148 $ 6,000,000 9.62% $ 577,050 $ 587,618 1.108 $ 44,926 $ 40,541 $ 3,899 $ 4,321 I-2 99 $ 3,650,000 9.87% $ 360,350 $ 587,618 1.187 $ 43,765 $ 36,869 $ 3,640 $ 4,321 I-3 176 $ 7,900,000 8.68% $ 685,725 $ 587,618 1.109 $ 49,778 $ 44,886 $ 3,896 $ 4,321 I-4 366 $27,415,730 9.24% $ 2,533,000 $ 587,618 0.624 $ 46,765 $ 74,906 $ 6,921 $ 4,321 I-5 168 $12,584,270 9.40% $ 1,182,950 $ 587,618 0.614 $ 45,964 $ 74,906 $ 7,041 $ 4,321
PRICE/UNIT
Low High Average Median ------- ------- ------- ------- $43,765 $49,778 $46,239 $45,964
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT Estimated Price Per Unit $ 46,000 Number of Units 136 ---------- Value Based on NOI Analysis $6,256,000 Rounded $6,300,000
The adjusted sales indicate a range of value between $43,765 and $49,778 per unit, with an average of $46,239 per unit. Based on the subject's competitive position within the improved sales, a value of $46,000 per unit is estimated. This indicates an "as is" market value of $6,300,000 (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 MILLHOPPER VILLAGE, GAINESVILLE, 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-1 148 $ 6,000,000 $ 1,102,050 $ 525,000 47.64% 5.44 $ 40,541 I-2 99 $ 3,650,000 $ 692,850 $ 332,500 47.99% 5.27 $ 36,869 I-3 176 $ 7,900,000 $ 1,285,725 $ 600,000 46.67% 6.14 $ 44,886 46.69% I-4 366 $27,415,730 $ 3,813,000 $1,280,000 33.57% 7.19 $ 74,906 I-5 168 $12,584,270 $ 1,920,450 $ 737,500 38.40% 6.55 $ 74,906
EGIM
Low High Average Median ---- ---- ------- ------ 5.27 7.19 6.12 6.14
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES Estimate EGIM 5.50 Subject EGI $1,166,124 ---------- Value Based on EGIM Analysis $6,413,682 Rounded $6,400,000 Value Per Unit $ 47,059
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 46.69% before reserves. The comparable sales indicate a range of expense ratios from 33.57% to 47.99%, while their EGIMs range from 5.27 to 7.19. Overall, we conclude to an EGIM of 5.50, which results in an "as is" value estimate in the EGIM Analysis of $6,400,000. 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 $6,400,000. Price Per Unit $6,400,000 NOI Per Unit $6,300,000 EGIM Analysis $6,400,000 Sales Comparison Conclusion $6,400,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 MILLHOPPER VILLAGE, GAINESVILLE, 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 MILLHOPPER VILLAGE, GAINESVILLE, 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 ------------------ --------- -------- ------ --------- 1Br/1Ba - 1A10 750 $589 $ 0.79 93.8% 2 Br/1.5 Ba - 2A15 1400 $811 $ 0.58 60.0% 2Br/2Ba - 2A20 1000 $699 $ 0.70 86.5% 3Br/2.5Ba - 3A25 1550 $820 $ 0.53 100.0% 3Br/2.5Ba - 3B25 1600 $833 $ 0.52 100.0%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 MILLHOPPER VILLAGE, GAINESVILLE, FLORIDA RENT ANALYSIS
COMPARABLE RENTS ------------------------------------------------------ R-1 R-2 R-3 R-4 R-5 ------------------------------------------------------ The Oaks Brookwood Covered Madison Apartment Terrace Bridge Pointe Creekwood ------------------------------------------------------ COMPARISON TO SUBJECT SUBJECT SUBJECT ------------------------------------------------------ SUBJECT UNIT ACTUAL ASKING Slightly Slightly DESCRIPTION TYPE RENT RENT Inferior Superior Superior Superior Inferior -------------------------------------------------------------------------------------------------------------------------- Monthly Rent 1Br/1Ba - 1A10 $ 589 $ 823 $ 570 $ 525 $ 620 $ 610 $ 535 Unit Area (SF) 750 750 750 740 760 729 760 Monthly Rent Per Sq. Ft. $ 0.79 $ 1.10 $ 0.76 $ 0.71 $ 0.82 $ 0.84 $ 0.70 Monthly Rent 2 Br/1.5 Ba - $ 811 $ 838 $ 650 Unit Area (SF) 2A15 1,400 1,400 1,044 Monthly Rent Per Sq. Ft. $ 0.58 $ 0.60 $ 0.62 Monthly Rent 2Br/2Ba - 2A20 $ 699 $ 885 $ 682 $ 720 $ 799 $ 640 Unit Area (SF) 1,000 1,000 1,035 1,070 1,053 1,100 Monthly Rent Per Sq. Ft. $ 0.70 $ 0.89 $ 0.66 $ 0.67 $ 0.76 $ 0.58 Monthly Rent 3Br/2.5Ba - $ 820 $ 1,108 $ 810 $ 800 $ 899 $ 720 Unit Area (SF) 3A25 1,550 1,550 1,389 1,533 1,269 1,300 Monthly Rent Per Sq. Ft. $ 0.53 $ 0.71 $ 0.58 $ 0.52 $ 0.71 $ 0.55 Monthly Rent 3Br/2.5Ba - $ 833 $ 1,110 $ 810 $ 840 3B25 Unit Area (SF) 1,600 1,600 1,389 1,278 Monthly Rent Per Sq. Ft. $ 0.52 $ 0.69 $ 0.58 $ 0.66 DESCRIPTION MIN MAX MEDIAN AVERAGE -------------------------------------------------------------- Monthly Rent $ 525 $ 620 $ 570 $ 572 Unit Area (SF) 729 760 750 748 Monthly Rent Per Sq. Ft. $ 0.70 $ 0.84 $ 0.76 $ 0.77 Monthly Rent $ 650 $ 650 $ 650 $ 650 Unit Area (SF) 1,044 1,044 1,044 1,044 Monthly Rent Per Sq. Ft. $ 0.62 $ 0.62 $ 0.62 $ 0.62 Monthly Rent $ 640 $ 799 $ 701 $ 710 Unit Area (SF) 1,035 1,100 1,062 1,065 Monthly Rent Per Sq. Ft. $ 0.58 $ 0.76 $ 0.67 $ 0.67 Monthly Rent $ 720 $ 899 $ 805 $ 807 Unit Area (SF) 1,269 1,533 1,345 1,373 Monthly Rent Per Sq. Ft. $ 0.52 $ 0.71 $ 0.57 $ 0.59 Monthly Rent $ 810 $ 840 $ 825 $ 825 Unit Area (SF) 1,278 1,389 1,334 1,334 Monthly Rent Per Sq. Ft. $ 0.58 $ 0.66 $ 0.62 $ 0.62
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 32 750 $590 $0.79 $18,880 $ 226,560 2 Br/1.5 Ba - 2A15 5 1,400 $800 $0.57 $ 4,000 $ 48,000 2Br/2Ba - 2A20 52 1,000 $710 $0.71 $36,920 $ 443,040 3Br/2.5Ba - 3A25 25 1,550 $810 $0.52 $20,250 $ 243,000 3Br/2.5Ba - 3B25 22 1,600 $840 $0.53 $18,480 $ 221,760 ------- ---------- Total $98,530 $1,182,360 ------- ----------
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 MILLHOPPER VILLAGE, GAINESVILLE, 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 $1,197,529 $ 8,805 $1,243,953 $ 9,147 $1,172,115 $ 8,618 $1,183,588 $ 8,703 Vacancy $ 65,301 $ 480 $ 72,946 $ 536 $ 44,223 $ 325 $ 47,344 $ 348 Credit Loss/Concessions $ 49,455 $ 364 $ 63,406 $ 466 $ 72,984 $ 537 $ 60,536 $ 445 ---------- -------- ---------- -------- ---------- -------- ---------- -------- Subtotal $ 114,756 $ 844 $ 136,352 $ 1,003 $ 117,207 $ 862 $ 107,880 $ 793 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 55,303 $ 407 $ 55,184 $ 406 $ 110,618 $ 813 $ 122,400 $ 900 ---------- -------- ---------- -------- ---------- -------- ---------- -------- Subtotal Other Income $ 55,303 $ 407 $ 55,184 $ 406 $ 110,618 $ 813 $ 122,400 $ 900 ---------- -------- ---------- -------- ---------- -------- ---------- -------- Effective Gross Income $1,138,076 $ 8,368 $1,162,785 $ 8,550 $1,165,526 $ 8,570 $1,198,108 $ 8,810 Operating Expenses Taxes $ 89,267 $ 656 $ 75,555 $ 556 $ 87,609 $ 644 $ 95,354 $ 701 Insurance $ 23,082 $ 170 $ 75,630 $ 556 $ 45,997 $ 338 $ 45,345 $ 333 Utilities $ 40,676 $ 299 $ 40,734 $ 300 $ 32,590 $ 240 $ 36,553 $ 269 Repair & Maintenance $ 70,064 $ 515 $ 101,231 $ 744 $ 87,929 $ 647 $ 101,039 $ 743 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 $ 33,769 $ 248 $ 30,011 $ 221 $ 33,827 $ 249 $ 39,300 $ 289 General Administrative $ 142,195 $ 1,046 $ 163,701 $ 1,204 $ 131,842 $ 969 $ 178,830 $ 1,315 Management $ 59,187 $ 435 $ 61,819 $ 455 $ 57,917 $ 426 $ 60,632 $ 446 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------- -------- ---------- -------- ---------- -------- ---------- -------- Total Operating Expenses $ 458,240 $ 3,369 $ 548,681 $ 4,034 $ 477,711 $ 3,513 $ 557,053 $ 4,096 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------- -------- ---------- -------- ---------- -------- ---------- -------- Net Income $ 679,836 $ 4,999 $ 614,104 $ 4,515 $ 687,815 $ 5,057 $ 641,055 $ 4,714 ANNUALIZED 2003 --------------------- PROJECTION AAA PROJECTION ---------------------- ------------------------------ DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT % --------------------------------------------------------------------------------- Revenues Rental Income $1,163,952 $ 8,558 $1,182,360 $ 8,694 100.0% Vacancy $ 43,052 $ 317 $ 82,765 $ 609 7.0% Credit Loss/Concessions $ 46,932 $ 345 $ 35,471 $ 261 3.0% ---------- -------- ---------- -------- --- Subtotal $ 89,984 $ 662 $ 118,236 $ 869 10.0% Laundry Income $ 0 $ 0 $ 0 $ 0 0.0% Garage Revenue $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 72,428 $ 533 $ 102,000 $ 750 8.6% ---------- -------- ---------- -------- --- Subtotal Other Income $ 72,428 $ 533 $ 102,000 $ 750 8.6% ---------- -------- ---------- -------- --- Effective Gross Income $1,146,396 $ 8,429 $1,166,124 $ 8,574 100.0% Operating Expenses Taxes $ 94,808 $ 697 $ 119,000 $ 875 10.2% Insurance $ 63,228 $ 465 $ 47,600 $ 350 4.1% Utilities $ 57,700 $ 424 $ 40,800 $ 300 3.5% Repair & Maintenance $ 79,324 $ 583 $ 95,200 $ 700 8.2% Cleaning $ 0 $ 0 $ 0 $ 0 0.0% Landscaping $ 0 $ 0 $ 0 $ 0 0.0% Security $ 0 $ 0 $ 0 $ 0 0.0% Marketing & Leasing $ 18,608 $ 137 $ 34,000 $ 250 2.9% General Administrative $ 143,824 $ 1,058 $ 149,600 $ 1,100 12.8% Management $ 57,768 $ 425 $ 58,306 $ 429 5.0% Miscellaneous $ 0 $ 0 $ 0 $ 0 0.0% ---------- -------- ---------- -------- --- Total Operating Expenses $ 515,260 $ 3,789 $ 544,506 $ 4,004 46.7% Reserves $ 0 $ 0 $ 34,000 $ 250 6.2% ---------- -------- ---------- -------- --- Net Income $ 631,136 $ 4,641 $ 587,618 $ 4,321 50.4%
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 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 MILLHOPPER VILLAGE, GAINESVILLE, 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 MILLHOPPER VILLAGE, GAINESVILLE, FLORIDA SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR ------------------------------------------------ I-1 Jan-03 90% $40,541 9.62% I-2 Jan-03 92% $36,869 9.87% I-3 Aug-01 95% $44,886 8.68% I-4 Jan-02 92% $74,906 9.24% I-5 Jan-02 94% $74,906 9.40% High 9.87% Low 8.68% Average 9.36%
Based on this information, we have concluded the subject's overall capitalization rate should be 10.00%. The terminal capitalization rate is applied to the net operating income estimated for the year following the end of the holding period. Based on the concluded overall capitalization rate, the age of the property and the surveyed information, we have concluded the subject's terminal capitalization rate to be 11.00%. Finally, the subject's discount rate or yield rate is estimated based on the previous investor survey and an examination of returns available on alternative investments in the market. Based on this analysis, the subject's discount rate is estimated to be 12.50%. HOLDING PERIOD The survey of investors indicates that most investors are completing either 10-year cash flows or extending the analysis to the end of the lease if it is more than 10-years. A 10-year period has been used in the analysis of the subject with the eleventh year stabilized NOI used to determine the reversion. SELLING COSTS Sales of similar size properties are typically accomplished with the aid of a broker and will also incur legal and other transaction related cost. Based on our survey of brokers and a review of institutional investor projections, an allowance of 2.00% of the sale amount is applied. DISCOUNTED CASH FLOW CONCLUSION Discounting the annual cash flows and the equity reversion at the selected rate of 12.50% indicates a value of $6,000,000. In this instance, the reversion figure contributes AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32 MILLHOPPER VILLAGE, GAINESVILLE, FLORIDA 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 MILLHOPPER VILLAGE, GAINESVILLE, FLORIDA DISCOUNTED CASH FLOW ANALYSIS MILLHOPPER VILLAGE
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 FISCAL YEAR 1 2 3 4 5 6 ----------------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $1,182,360 $1,217,831 $1,254,366 $1,291,997 $1,330,757 $1,370,679 Vacancy $ 82,765 $ 85,248 $ 87,806 $ 90,440 $ 93,153 $ 95,948 Credit Loss $ 35,471 $ 36,535 $ 37,631 $ 38,760 $ 39,923 $ 41,120 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- ---------- Subtotal $ 118,236 $ 121,783 $ 125,437 $ 129,200 $ 133,076 $ 137,068 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 102,000 $ 105,060 $ 108,212 $ 111,458 $ 114,802 $ 118,246 ---------- ---------- ---------- ---------- ---------- ---------- Subtotal Other Income $ 102,000 $ 105,060 $ 108,212 $ 111,458 $ 114,802 $ 118,246 EFFECTIVE GROSS INCOME $1,166,124 $1,201,108 $1,237,141 $1,274,255 $1,312,483 $1,351,857 OPERATING EXPENSES: Taxes $ 119,000 $ 122,570 $ 126,247 $ 130,035 $ 133,936 $ 137,954 Insurance $ 47,600 $ 49,028 $ 50,499 $ 52,014 $ 53,574 $ 55,181 Utilities $ 40,800 $ 42,024 $ 43,285 $ 44,583 $ 45,921 $ 47,298 Repair & Maintenance $ 95,200 $ 98,056 $ 100,998 $ 104,028 $ 107,148 $ 110,363 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 34,000 $ 35,020 $ 36,071 $ 37,153 $ 38,267 $ 39,415 General Administrative $ 149,600 $ 154,088 $ 158,711 $ 163,472 $ 168,376 $ 173,427 Management $ 58,306 $ 60,055 $ 61,857 $ 63,713 $ 65,624 $ 67,593 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- ---------- TOTAL OPERATING EXPENSES $ 544,506 $ 560,841 $ 577,667 $ 594,997 $ 612,847 $ 631,232 Reserves $ 34,000 $ 35,020 $ 36,071 $ 37,153 $ 38,267 $ 39,415 ---------- ---------- ---------- ---------- ---------- ---------- NET OPERATING INCOME $ 587,618 $ 605,246 $ 623,404 $ 642,106 $ 661,369 $ 681,210 Operating Expense Ratio (% of EGI) 46.7% 46.7% 46.7% 46.7% 46.7% 46.7% Operating Expense Per Unit $ 4,004 $ 4,124 $ 4,248 $ 4,375 $ 4,506 $ 4,641 YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 7 8 9 10 11 --------------------------------------------------------------------------------------------------------- REVENUE Base Rent $1,411,800 $1,454,154 $1,497,778 $1,542,712 $1,588,993 Vacancy $ 98,826 $ 101,791 $ 104,844 $ 107,990 $ 111,230 Credit Loss $ 42,354 $ 43,625 $ 44,933 $ 46,281 $ 47,670 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- Subtotal $ 141,180 $ 145,415 $ 149,778 $ 154,271 $ 158,899 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 121,793 $ 125,447 $ 129,211 $ 133,087 $ 137,079 ---------- ---------- ---------- ---------- ---------- Subtotal Other Income $ 121,793 $ 125,447 $ 129,211 $ 133,087 $ 137,079 EFFECTIVE GROSS INCOME $1,392,413 $1,434,185 $1,477,211 $1,521,527 $1,567,173 OPERATING EXPENSES: Taxes $ 142,092 $ 146,355 $ 150,746 $ 155,268 $ 159,926 Insurance $ 56,837 $ 58,542 $ 60,298 $ 62,107 $ 63,970 Utilities $ 48,717 $ 50,179 $ 51,684 $ 53,235 $ 54,832 Repair & Maintenance $ 113,674 $ 117,084 $ 120,597 $ 124,214 $ 127,941 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 Security $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 40,598 $ 41,816 $ 43,070 $ 44,362 $ 45,693 General Administrative $ 178,630 $ 183,989 $ 189,509 $ 195,194 $ 201,050 Management $ 69,621 $ 71,709 $ 73,861 $ 76,076 $ 78,359 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- TOTAL OPERATING EXPENSES $ 650,169 $ 669,674 $ 689,764 $ 710,457 $ 731,771 Reserves $ 40,598 $ 41,816 $ 43,070 $ 44,362 $ 45,693 ---------- ---------- ---------- ---------- ---------- NET OPERATING INCOME $ 701,646 $ 722,696 $ 744,377 $ 766,708 $ 789,709 Operating Expense Ratio (% of EGI) 46.7% 46.7% 46.7% 46.7% 46.7% Operating Expense Per Unit $ 4,781 $ 4,924 $ 5,072 $ 5,224 $ 5,381
Estimated Stabilized NOI $587,618 Sales Expense Rate 2.00% Months to Stabilized 1 Discount Rate 12.50% Stabilized Occupancy 93.0% Terminal Cap Rate 11.00%
Gross Residual Sale Price $7,179,174 Deferred Maintenance $ 0 Less: Sales Expense $ 143,583 Add: Excess Land $ 0 ---------- Net Residual Sale Price $7,035,591 Other Adjustments $ 0 ---------- PV of Reversion $2,166,583 Value Indicated By "DCF" $6,008,328 Add: NPV of NOI $3,841,745 Rounded $6,000,000 ---------- PV Total $6,008,328
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE -------------------------------------------------------------- TOTAL VALUE 12.00% 12.25% 12.50% 12.75% 13.00% ------------------------------------------------------------------------------------------ 10.50% $6,304,082 $6,206,759 $6,111,499 $6,018,249 $5,926,961 10.75% $6,248,893 $6,152,787 $6,058,714 $5,966,623 $5,876,465 TERMINAL CAPRATE 11.00% $6,196,212 $6,101,268 $6,008,328 $5,917,343 $5,828,265 11.25% $6,145,873 $6,052,038 $5,960,182 $5,870,254 $5,782,207 11.50% $6,097,722 $6,004,949 $5,914,129 $5,825,212 $5,738,152
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 34 MILLHOPPER VILLAGE, GAINESVILLE, 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 Concessions have historically not been utilized at the subject property or in the subject's market. Therefore, no adjustment was included for concessions. DIRECT CAPITALIZATION METHOD After having projected the income and expenses for the property, the next step in the valuation process is to capitalize the net income into an estimate of value. The selected overall capitalization rate ("OAR") covers both return on and return of capital. It is the overall rate of return an investor expects. After considering the market transactions and the investor surveys, we previously conclude that an overall rate of 10.00% percent is applicable to the subject. The results of our direct capitalization analysis are as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 35 MILLHOPPER VILLAGE, GAINESVILLE, FLORIDA MILLHOPPER VILLAGE
TOTAL PER SQ. FT. PER UNIT %OF EGI ---------------------------------------------------------------------------------------------- REVENUE Base Rent $ 1,182,360 $ 7.53 $ 8,694 Less: Vacancy & Collection Loss 10.00% $ 118,236 $ 0.75 $ 869 Plus: Other Income Laundry Income $ 0 $ 0.00 $ 0 0.00% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 102,000 $ 0.65 $ 750 8.75% --------------------------------------------- Subtotal Other Income $ 102,000 $ 0.65 $ 750 8.75% EFFECTIVE GROSS INCOME $ 1,166,124 $ 7.43 $ 8,574 OPERATING EXPENSES: Taxes $ 119,000 $ 0.76 $ 875 10.20% Insurance $ 47,600 $ 0.30 $ 350 4.08% Utilities $ 40,800 $ 0.26 $ 300 3.50% Repair & Maintenance $ 95,200 $ 0.61 $ 700 8.16% Cleaning $ 0 $ 0.00 $ 0 0.00% Landscaping $ 0 $ 0.00 $ 0 0.00% Security $ 0 $ 0.00 $ 0 0.00% Marketing & Leasing $ 34,000 $ 0.22 $ 250 2.92% General Administrative $ 149,600 $ 0.95 $ 1,100 12.83% Management 5.00% $ 58,306 $ 0.37 $ 429 5.00% Miscellaneous $ 0 $ 0.00 $ 0 0.00% TOTAL OPERATING EXPENSES $ 544,506 $ 3.47 $ 4,004 46.69% Reserves $ 34,000 $ 0.22 $ 250 2.92% --------------------------------------------- NET OPERATING INCOME $ 587,618 $ 3.74 $ 4,321 50.39% "GOING IN" CAPITALIZATION RATE 10.00% VALUE INDICATION $ 5,876,178 $ 37.44 $ 43,207 DEFERRED MAINTENANCE "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $ 5,876,178 ROUNDED $ 5,900,000 $ 37.59 $ 43,382
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 36 MILLHOPPER VILLAGE, GAINESVILLE, FLORIDA DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF ------------------------------------------------- 9.25% $6,352,625 $6,400,000 $47,059 $40.78 9.50% $6,185,451 $6,200,000 $45,588 $39.50 9.75% $6,026,849 $6,000,000 $44,118 $38.23 10.00% $5,876,178 $5,900,000 $43,382 $37.59 10.25% $5,732,857 $5,700,000 $41,912 $36.32 10.50% $5,596,360 $5,600,000 $41,176 $35.68 10.75% $5,466,212 $5,500,000 $40,441 $35.04
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $5,900,000. 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 $6,000,000 Direct Capitalization Method $5,900,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $6,000,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 37 MILLHOPPER VILLAGE, GAINESVILLE, 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 $ 6,400,000 Income Approach $ 6,000,000 Reconciled Value $ 6,100,000
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 27, 2003 the market value of the fee simple estate in the property is: $6,100,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA MILLHOPPER VILLAGE, GAINESVILLE, FLORIDA ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A MILLHOPPER VILLAGE, GAINESVILLE, FLORIDA EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A MILLHOPPER VILLAGE, GAINESVILLE, FLORIDA SUBJECT PHOTOGRAPHS [EXTERIOR - OFFICE PICTURE] [EXTERIOR - PROJECT PICTURE] [EXTERIOR - TYPICAL APARTMENT BUILDING PICTURE] [INTERIOR - TYPICAL APARTMENT UNIT PICTURE] [EXTERIOR - SWIMMING POOL PICTURE] [EXTERIOR - MAIN ENTRANCE PICTURE]
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A MILLHOPPER VILLAGE, GAINESVILLE, FLORIDA SUBJECT PHOTOGRAPHS [INTERIOR - COMMUNITY CENTER PICTURE] [EXTERIOR - LANDSCAPE PICTURE] [EXTERIOR - APARTMENT BUILDING PICTURE] [INTERIOR - APARTMENT UNIT PICTURE] [INTERIOR - APARTMENT UNIT PICTURE] [LOOKING NORTHWEST ALONG NW 39TH ROAD PICTURE]
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B MILLHOPPER VILLAGE, GAINESVILLE, FLORIDA EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B MILLHOPPER VILLAGE, GAINESVILLE, FLORIDA PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 REGENCY OAKS COUNTRY GARDEN COVERED BRIDGE 3230 SW Archer Road 2001 SW 16th Street 1810 NW 23rd Boulevard Gainesville, Florida Gainesville, Florida Gainesville, Florida [PICTURE] [PICTURE] [PICTURE] COMPARABLE I-4 COMPARABLE I-5 OXFORD MANOR COBBLESTONE 2801 NW 23rd Boulevard 1810 NW 23rd Boulevard Gainesville, Florida Gainesville, Florida [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B MILLHOPPER VILLAGE, GAINESVILLE, FLORIDA SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 ------------------------------------------------------------------------------------------------------------------------------------ Property Name Millhopper Village The Oaks Apartments Management Company AIMCO Silverwing Management LOCATION: Address 507 NW 39th Road 6519 Newberry Road City, State Gainesville, Florida Gainesville, Florida County Alachua Alachua Proximity to Subject 1.5 miles west of subject PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 156,950 157,399 Year Built 1969 1972 Effective Age 20 20 Building Structure Type Brick & wood siding walls; asphalt shingle roof Stucco exterior walls; asphalt shingle roof Parking Type (Gr., Cov., etc.) Open Spaces, Covered Open Number of Units 136 152 Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo. 1 1Br/1Ba - 1A10 750 32 $589 1 1Br/1Ba - 1B 750 42 $570 2 2Br/1.5 Ba - 2A15 1,400 5 $811 3 2Br/1Ba - 2A 984 27 $650 3 2Br/2Ba - 2A20 1,000 52 $699 3 2Br/1Ba - 2B 1,064 48 $700 4 3Br/2.5Ba - 3A25 1,550 25 $820 4 3Br/2Ba - 3A 1,389 31 $810 5 3Br/2.5Ba - 3B25 1,600 22 $833 5 3Br/2Ba - 3A 1,389 $810 Effeciency 650 8 $490 Average Unit Size (SF) 1,154 1,009 Unit Breakdown: Efficiency 0% 2-Bedroom 60% Efficiency 6% 2-Bedroom 49% 1-Bedroom 24% 3-Bedroom 16% 1-Bedroom 28% 3-Bedroom 20% CONDITION: Good Good APPEAL: Average Average AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage X Vaulted Ceiling X Balcony W/D Connect. X Balcony X W/D Connect. Fireplace Other Fireplace Other 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 Sand Volley Ball X Meeting Hall X Sand Volley Ball X Meeting Hall X Tennis Court Secured Parking X Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track Business Office Jogging Track X Business Office X Gym Room X Gym Room OCCUPANCY: 92% 97% LEASING DATA: Available Leasing Terms 7, 9 and 12 Months 3 to 12 Months Concessions None None Pet Deposit 250 150 Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas Water Trash Water Trash Confirmation May 27, 2003; Property Manager May 27, 2003; Property Manager Telephone Number (352) 373-2965 (352) 331-8836 NOTES: None COMPARISON TO SUBJECT: Slightly Inferior COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 ------------------------------------------------------------------------------------------------------------------------------------ Property Name Brookwood Terrace CoveredBridge Management Company Good Neighbor LOCATION: Address 2601 NW 23rd Boulevard 1810 NW 23rd Boulevard City, State Gainesville, Florida Gainesville, Florida County Alachua Alachua Proximity to Subject 1.5 miles northeast of the subject 1.5 miles northeast of the subject PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 156,526 169,276 Year Built 1975 1973 Effective Age 20 20 Building Structure Type Stucco & wood siding walls; asphalt shingle roof Stucco exterior walls; asphalt shingle roof Parking Type (Gr., Cov., etc.) Open Open Number of Units 132 174 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1Br/1Ba 740 8 $525 1 1Br/1Ba 760 76 $620 2 2Br/1.5Ba 1,044 84 $650 3 2Br/2Ba 1,070 66 $720 4 3Br/2.5Ba 1,533 25 $800 5 3Br/2Ba 1,278 32 $840 4Br/2.5Ba 1,639 15 $875 Average Unit Size (SF) 1,186 973 Unit Breakdown: Efficiency 0% 2-Bedroom 64% Efficiency 0% 2-Bedroom 38% 1-Bedroom 6% 3-Bedroom 19% 1-Bedroom 44% 3-Bedroom 18% CONDITION: Average Average APPEAL: Average Good AMENITIES: Unit Amenities Attach. Garage X Vaulted Ceiling Attach. Garage X Vaulted Ceiling X Balcony X W/D Connect. X Balcony X W/D Connect. Fireplace Other Fireplace Other X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool X 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 Volleyball Court Theater Room Sand Volley Ball X Meeting Hall Sand Volley Ball X Meeting Hall X Tennis Court Secured Parking X Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track X Business Office Jogging Track Business Office X Gym Room X Gym Room OCCUPANCY: 97% 97% LEASING DATA: Available Leasing Terms 7 to 12 Months 7 to 12 months Concessions None None Pet Deposit 200 200 Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas Water Trash Water Trash Confirmation May 27, 2003; Property Manager May 27, 2003; Property Manager Telephone Number (352) 378-9052 (352) 372-2225 NOTES: None None COMPARISON TO SUBJECT: Superior Slightly Superior COMPARABLE COMPARABLE DESCRIPTION R - 4 R - 5 ------------------------------------------------------------------------------------------------------------------------------------ Property Name Madison Pointe Creekwood Management Company Paradigm Properties Southern Development Management Company LOCATION: Address 2701 NW 23rd Boulevard 2056 NW 55th Boulevard City, State Gainesville, Florida Gainesville, Florida County Alachua Alachua Proximity to Subject 1.5 mile northeast of the subject 2 miles northeast of the subject PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 161,298 207,554 Year Built 1973 1978 Effective Age 20 15 Building Structure Type Stucco & wood siding walls; asphalt shingle roof Stucco & wood siding walls; asphalt shingle roof Parking Type (Gr., Cov., etc.) Garage, Open Open Number of Units 170 120 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1Br/1Ba 729 84 $610 1 1Br/1Ba 760 32 $535 3 2Br/2Ba 1,053 42 $799 3 2Br/2Ba 1,100 72 $640 4 3Br/2Ba 1,269 44 $899 4 3Br/2Ba 1,300 16 $720 Average Unit Size (SF) 949 1,036 Unit Breakdown: Efficiency 0% 2-Bedroom 25% Efficiency 0% 2-Bedroom 60% 1-Bedroom 49% 3-Bedroom 26% 1-Bedroom 27% 3-Bedroom 13% CONDITION: Average Average APPEAL: Average Average AMENITIES: Unit Amenities X Attach. Garage X Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X W/D Connect. X Balcony X W/D Connect. Fireplace X Other Fireplace Other X Cable TV Ready Access Gates X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool X 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 Sand Volley Ball X Meeting Hall Sand Volley Ball X Meeting Hall X Tennis Court Secured Parking X Tennis Court Secured Parking X Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track X Business Office Jogging Track X Business Office X Gym Room X Gym Room OCCUPANCY: 96% 91% LEASING DATA: Available Leasing Terms 12 Months 7 to 12 Months Concessions None None Pet Deposit 100, plus $25 per month No Pets Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas X Water Trash Water Trash Confirmation May 27, 2003; Property Manager May 27, 2003; Property Manager Telephone Number (352) 372-0400 (352) 378-8379 NOTES: None None COMPARISON TO SUBJECT: Superior Inferior
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B MILLHOPPER VILLAGE, GAINESVILLE, FLORIDA PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 THE OAKS APARTMENTS BROOKWOOD TERRACE COVERED BRIDGE 6519 Newberry Road 2601 NW 23rd Boulevard 1810 NW 23rd Boulevard Gainesville, Florida Gainesville, Florida Gainesville, Florida [PICTURE] [PICTURE] [PICTURE] COMPARABLE R-4 COMPARABLE R-5 MADISON POINTE CREEKWOOD 2701 NW 23rd Boulevard 2056 NW 55th Boulevard N.A Gainesville, Florida Gainesville, Florida [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C MILLHOPPER VILLAGE, GAINESVILLE, FLORIDA EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C MILLHOPPER VILLAGE, GAINESVILLE, 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 MILLHOPPER VILLAGE, GAINESVILLE, 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 MILLHOPPER VILLAGE, GAINESVILLE, 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 MILLHOPPER VILLAGE, GAINESVILLE, 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 MILLHOPPER VILLAGE, GAINESVILLE, FLORIDA EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E MILLHOPPER VILLAGE, GAINESVILLE, 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 MILLHOPPER VILLAGE, GAINESVILLE, 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 AFFILIATIONS American Society of Appraisers, Candidate AMERICAN APPRAISAL ASSOCIATES, INC. MILLHOPPER VILLAGE, GAINESVILLE, FLORIDA GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. MILLHOPPER VILLAGE, GAINESVILLE, 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.