EX-99.(C)(5) 7 d07277a2exv99wxcyx5y.txt APPRAISAL OF TAR RIVER ESTATES TAR RIVER ESTATES 1725 EAST 1ST STREET GREENVILLE, NORTH CAROLINA MARKET VALUE - FEE SIMPLE ESTATE AS OF MAY 14, 2003 PREPARED FOR: APARTMENT INVESTMENT AND MANAGEMENT COMPANY (AIMCO) C/O LINER YANKELEVITZ SUNSHINE & REGENSTREIF LLP & LIEFF CABRASER HEIMANN & BERNSTEIN ON BEHALF OF NUANES, ET. AL. [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LETTERHEAD] JUNE 30, 2003 Apartment Investment and Management Company ("AIMCO") c/o Mr. Steven A. Velkei, Esq. Liner Yankelevitz Sunshine & Regenstreif LLP 1100 Glendon Avenue, 14th Floor Los Angeles, California 90024-3503 Nuanes, et al.( "Plaintiffs ") c/o Ms. Joy Kruse Lieff Cabraser Heimann & Bernstein Embarcadero Center West 275 Battery Street, 30th Floor San Francisco, California 94111 RE: TAR RIVER ESTATES 1725 EAST 1ST STREET GREENVILLE, PITT COUNTY, NORTH CAROLINA 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 220 units with a total of 210,769 square feet of rentable area. The improvements were built in 1969. The improvements are situated on 14.84 acres. Overall, the improvements are in average condition. As of the date of this appraisal, the subject property is 94% 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 TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA The opinions expressed in this appraisal cover letter can only be completely understood 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 14, 2003 is: ($6,400,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. -s- Frank Fehribach June 30, 2003 Frank Fehribach, MAI #053272 Managing Principal, Real Estate Group North Carolina Temporary Practice Permit #2578 Report By: Jimmy Pat James, MAI North Carolina Temporary Practice Permit #2603 Assisted by: J. Chad Walker AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA 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 .................................................................. 15 Improvement Analysis............................................................ 15 Highest and Best Use ........................................................... 16 VALUATION Valuation Procedure............................................................. 17 Sales Comparison Approach....................................................... 19 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 TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Tar River Estates LOCATION: 1725 East 1st Street Greenville, North Carolina 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 14, 2003 DATE OF REPORT: June 30, 2003
PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 14.84 acres, or 646,430 square feet Assessor Parcel No.: 22131 Floodplain: Community Panel No. 3701910010B (April 30, 1986) Flood Zone C, an area outside the floodplain. Zoning: R-6 (High Density Residential)
BUILDING: No. of Units: 220 Units Total NRA: 210,769 Square Feet Average Unit Size: 958 Square Feet Apartment Density: 14.8 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 ---------- ------ -------- ----------- --------- ---------- 1A10 700 $ 475 $0.68 $ 40,850 $ 490,200 2A15 1,067 $ 636 $0.60 $ 62,964 $ 755,568 2A20 1,067 $ 659 $0.62 $ 5,272 $ 63,264 3A15 1,200 $ 815 $0.68 $ 12,225 $ 146,700 3A20 1,500 $ 929 $0.62 $ 3,716 $ 44,592 4A25 1,550 $1,279 $0.83 $ 10,232 $ 122,784 ----------------------- Total $ 135,259 $1,623,108 =======================
OCCUPANCY: 94% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 25 Years AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA REMAINING ECONOMIC LIFE: 20 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [PROPERTY SIGN PICTURE] [EXTERIOR - OFFICE PICTURE] AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA 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 TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION Amount $/Unit --------------------- ------ ------ Potential Rental Income $1,623,108 $7,378 Effective Gross Income $1,469,304 $6,679 Operating Expenses $ 749,085 $ 3,405 51.0% of EGI Net Operating Income: $ 665,219 $ 3,024 Capitalization Rate 10.00% DIRECT CAPITALIZATION VALUE $6,700,000* $30,455 / UNIT
DISCOUNTED CASH FLOW ANALYSIS: ------------------------------ Holding Period 10 years 2002 Economic Vacancy 14% Stabilized Vacancy & Collection Loss: 13% Lease-up / Stabilization Period N/A Terminal Capitalization Rate 10.50% Discount Rate 12.00% Selling Costs 3.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $6,400,000* $29,091 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $6,400,000 $29,091 / UNIT
SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $19,028 to $40,058 Range of Sales $/Unit (Adjusted) $26,250 to $32,047 VALUE INDICATION - PRICE PER UNIT $6,400,000* $29,091 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 4.94 to 7.35 Selected EGIM for Subject 4.75 Subject's Projected EGI $ 1,469,304 EGIM ANALYSIS CONCLUSION $ 7,000,000* $31,818 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $ 6,800,000* $30,909 / UNIT RECONCILED SALES COMPARISON VALUE $ 6,600,000 $30,000 / 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 TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $6,400,000 NOI Per Unit $6,800,000 EGIM Multiplier $7,000,000 INDICATED VALUE BY SALES COMPARISON $6,600,000 $30,000 / UNIT INCOME APPROACH: Direct Capitalization Method: $6,700,000 Discounted Cash Flow Method: $6,400,000 INDICATED VALUE BY THE INCOME APPROACH $6,400,000 $29,091 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $6,400,000 $29,091 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 1725 East 1st Street, Greenville, Pitt County, North Carolina. Greenville identifies it as 22131. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by J. Chad Walker on May 14, 2003. Jimmy Pat James, MAI and Frank Fehribach, MAI have not made a personal inspection of the subject property. J. Chad Walker assisted Jimmy Pat James, MAI in the research, valuation analysis and writing the report. Frank Fehribach, MAI reviewed the report and concurs with the value. Jimmy Pat James, MAI, Frank Fehribach, MAI, and J. Chad Walker 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. The subject property lost eight of its 220 units to fire in January 2003. It is our understanding the city has approved the rebuilding of these units and demolition is currently occurring. The assumption that we used in valuing the subject, which has been approved by the clients, is to assume the cost of rebuilding the damaged units would be handled by the property's insurance. Therefore, we were only concern with the couple of months of down time caused by rebuilding the units. Since the subject is achieving a stabilized occupancy even considering the eight units that is not available, no additional lease up cost is needed. DATE OF VALUE AND REPORT This appraisal was made to express the opinion of value as of May 14, 2003. The date of the report is June 30, 2003. AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 10 TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA PURPOSE AND USE OF APPRAISAL The purpose of the appraisal is to estimate the market value of the fee simple interest in the subject property. It is understood that the appraisal is intended to assist the clients in litigation settlement proceedings. The appraisal was not based on a requested minimum valuation, a specific valuation, or the approval of a loan. PROPERTY RIGHTS APPRAISED We have appraised the Fee Simple Estate in the subject property (as applied in the Sales & Income Approaches), subject to the existing short-term leases. A Fee Simple Estate is defined in The Dictionary of Real Estate Appraisal, 3rd ed. (Chicago: Appraisal Institute, 1993), as: "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 New Shelter V Limited Partnership. 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 TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA 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 Greenville, North Carolina. Overall, the neighborhood is characterized as an urban setting with the predominant land use being single family residential. The subject's neighborhood is generally defined by the following boundaries. NEIGHBORHOOD BOUNDARIES East - Greenville Boulevard West - Evans Street/Green Street South - 10th Street North - Tar River MAJOR EMPLOYERS Major employers in the subject's area include DSM Pharmaceuticals, NACCO Materials Handling, Bank of America, Pitt County Schools, Sprint, East Carolina University, the city of Greenville, and Pitt County Memorial Hospital. 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 TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA NEIGHBORHOOD DEMOGRAPHICS
AREA -------------------------------------------- CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA -------- ------------ ------------ ------------ --- POPULATION TRENDS Current Population 10,576 45,521 79,490 138,438 5-Year Population 10,587 47,737 87,423 150,575 % Change CY-5Y 0.1% 4.9% 10.0% 8.8% Annual Change CY-5Y 0.0% 1.0% 2.0% 1.8% HOUSEHOLDS Current Households 3,623 18,394 32,592 54,912 5-Year Projected Households 3,847 19,947 36,886 61,050 % Change CY - 5Y 6.2% 8.4% 13.2% 11.2% Annual Change CY-5Y 1.2% 1.7% 2.6% 2.2% INCOME TRENDS Median Household Income $14,699 $23,835 $29,251 $ 30,963 Per Capita Income $ 8,710 $16,788 $19,221 $ 18,916 Average Household Income $26,584 $41,886 $47,395 $ 47,690
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 76.33% 57.87% 50.02% 39.81% 5-Year Projected % Renting 77.86% 58.44% 50.52% 39.97% % of Households Owning 17.25% 36.94% 45.49% 55.30% 5-Year Projected % Owning 16.04% 36.72% 45.41% 55.57%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Tar River South - East 1st Street and Apartments East - Single family residential West - Single family residential CONCLUSIONS The subject is well located within the city of Greenville. The neighborhood is characterized as being mostly urban 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 TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA MARKET ANALYSIS The subject property is located in the city of Greenville in Pitt County. The overall pace of development in the subject's market is more or less decreasing. At this time, Waterford Place Apartments is under construction, however, it is not expected to compete with the subject property. Occupancy trends in the subject's market are a stable. Historically speaking, the subject's submarket has equated the overall market. The subject property is located in an area where the apartment market is fueled by students attending East North Carolina State University. The majority of the complexes are locally or regionally owned. Therefore, the Greenville market is not a primary market for national investors. As a result, market information produced by real estate research groups such as REIS, Colliers, Carolina Real Data, etc., have not been performed. Market rents in the subject's market have been following a stable 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 Eastbrook Apartments 180 95% 1974 1.75 miles southeast of the subject R-2 Dogwood Hollow 99 98% 1998 0.50 mile south of the subject R-3 Pirates Place 144 80% 1997 1.00 mile southwest of the subject R-4 Wilson Acres 113 85% 1982 South across street from the subject R-5 Wesely Commons South 150 95% 1996 0.50 acre southeast of the subject Subject Tar River Estates 220 94% 1969
The following information regarding average rental rates in the Greenville, NC MSA has been obtained from www.universallivingwage.com. The rent for efficiency, 1 bedroom, 2 bedroom, 3 bedroom and 4 bedroom apartments is $441, $448, $580, $783 and $957 respectively. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 15 TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA PROPERTY DESCRIPTION SITE ANALYSIS Site Area 14.84 acres, or 646,430 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 Average Flood Zone: Community Panel 3701910010B, dated April 30, 1986 Flood Zone Zone C Zoning R-6, 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 ------------- ---- -------- ----- --------- ----- 22131 $445,200 $5,015,460 $5,460,660 0.01565 $85,461
IMPROVEMENT ANALYSIS Year Built 1969 Number of Units 220 Net Rentable Area 210,769 Square Feet Construction: Foundation Reinforced concrete slab Frame Heavy or light wood Exterior Walls Brick or masonry Roof Composition shingle over a wood truss structure Project Amenities Amenities at the subject include a swimming pool, sand volleyball, gym room, tanning bed, billiards room, laundry room, business office, and parking area. Unit Amenities Individual unit amenities include a cable TV connection, w/d included, and washer dryer connection. Appliances available in each unit include a refrigerator, stove, garbage disposal, and oven. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) --------- --------------- --------- 1A10 86 700 2A15 99 1,067 2A20 8 1,067 3A15 15 1,200 3A20 4 1,500 4A25 8 1,550
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 1969 and consist of a 220-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 17 TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA 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 18 TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA 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 19 TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA 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. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 20 TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA 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 TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 ----------- ------- ---------- ---------- Property Name Tar River Estates Signature Place Apartments Pinebrook LOCATION: Address 1725 East 1st Street 410 Beasley Drive 121 River Bluff Road City, State Greenville, North Carolina Greenville, North Carolina Greenville, North Carolina County Pitt Pitt Pitt PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 210,769 176,608 102,263 Year Built 1969 1980 1972 Number of Units 220 171 120 Unit Mix: Type Total Type Total Type Total 1A10 86 1Br/1Ba 48 1Br/1Ba 40 2A15 99 2Br/1Ba 8 2Br/1.5Ba 80 2A20 8 2Br/1.5Ba 76 3A15 15 3Br/1.5Ba - Type 1 16 3A20 4 3Br/1.5Ba - Type 2 23 4A25 8 Average Unit Size (SF) 958 1,033 852 Land Area (Acre) 14.8400 5.3700 9.1500 Density (Units/Acre) 14.8 31.8 13.1 Parking Ratio (Spaces/Unit) 1.50 N/A N/A Parking Type (Gr., Cov., etc.) Garage Open Open CONDITION: Average Average Average APPEAL: Average Good Average AMENITIES: Pool/Spa Yes/No Yes/No No/No Gym Room Yes Yes No Laundry Room Yes No Yes Secured Parking No No No Sport Courts No No No Washer/Dryer Connection Yes Yes No Basketball Court No No No Volleyball Yes No No OCCUPANCY: 94% 84% N/A TRANSACTION DATA: Sale Date March, 2003 March, 2000 Sale Price ($) $6,850,000 $2,425,000 Grantor Signature Place, LLC Pinebrook Associates LLC Grantee CRIT-NC, LLC Lambe Clarence R. Jr. and Katherine W. Sale Documentation Book 1470 Page 842 Book 1017 Page 51 Verification Pitt County Records Pitt County Records Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $0 $0 $0.00 $496,800 $4,140 $4.86 Vacancy/Credit Loss $0 $0 $0.00 $ 49,680 $ 414 $0.49 Effective Gross Income $0 $0 $0.00 $447,120 $3,726 $4.37 Operating Expenses $0 $0 $0.00 $223,560 $1,863 $2.19 Net Operating Income $0 $0 $0.00 $223,560 $1,863 $2.19 NOTES: PRICE PER UNIT $40,058 $20,208 PRICE PER SQUARE FOOT $ 38.79 $ 23.71 EXPENSE RATIO N/A 50.0% EGIM N/A 5.42 OVERALL CAP RATE 0.00% 9.22% 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 Kings Row Kingsarms Apartments Wellingham Park LOCATION: Address 200 Verdant Drive Charles Street 151 Wellingham Avenue City, State Greenville, North Carolina Greenville, North Carolina Greenville, North Carolina County Pitt Pitt Pitt PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 90,596 66,348 55,870 Year Built 1974 1984 1999 Number of Units 108 120 80 Unit Mix: Type Total Type Total Type Total 1Br/1Ba 36 1Br/1Ba N/A 1Br/1Ba 60 2Br/2Ba 72 2Br/2Ba N/A 2Br/2Ba 20 3Br/2Ba N/A Average Unit Size (SF) 839 553 698 Land Area (Acre) 5.7600 9.1200 4.6361 Density (Units/Acre) 18.8 13.2 17.3 Parking Ratio (Spaces/Unit) 2.19 N/A 1.73 Parking Type (Gr., Cov., etc.) Open Open Open CONDITION: Average Average Good APPEAL: Average Average Good AMENITIES: Pool/Spa No/No No/No No/No Gym Room No No Yes Laundry Room Yes Yes No Secured Parking No No No Sport Courts No No No Washer/Dryer Connection No Yes Yes Basketball Court Yes No No Volleyball No No No OCCUPANCY: N/A N/A 95% TRANSACTION DATA: Sale Date December, 1999 January, 1997 April, 2001 Sale Price ($) $2,054,990 $3,000,000 $2,850,000 Grantor Aima R. Wellons and John John L. Causey Jr. and Wellington LLC H. Wellons Sr. Susan P. Causey Grantee KR/O LLC Kings Arms of Greenville, Unistar Outdoor Advertising Inc. Sale Documentation Book 993 Page 98 Book 703 Page 756 Book 1137 Page 623 Verification Pitt County Records Pitt County Records Pitt County Records Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $462,240 $4,280 $5.10 $0 $0 $0.00 $408,000 $5,100 $7.30 Vacancy/Credit Loss $ 46,224 $ 428 $0.51 $0 $0 $0.00 $ 20,400 $ 255 $0.37 Effective Gross Income $416,016 $3,852 $4.59 $0 $0 $0.00 $387,600 $4,845 $6.94 Operating Expenses $208,008 $1,926 $2.30 $0 $0 $0.00 $116,280 $1,454 $2.08 Net Operating Income $208,008 $1,926 $2.30 $0 $0 $0.00 $271,320 $3,392 $4.86 NOTES: PRICE PER UNIT $19,028 $25,000 $35,625 PRICE PER SQUARE FOOT $ 22.68 $ 45.22 $ 51.01 EXPENSE RATIO 50.0% N/A 30.0% EGIM 4.94 N/A 7.35 OVERALL CAP RATE 10.12% 0.00% 9.52% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA ACTUAL
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $19,028 to $40,058 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 $26,250 to $32,047 per unit with a mean or average adjusted price of $28,702 per unit. The median adjusted price is $28,292 per unit. Based on the following analysis, we have concluded to a value of $29,000 per unit, which results in an "as is" value of $6,400,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 ----------------------------------- -------------------------- -------------------------- -------------------------- Property Name Tar River Estates Signature Place Apartments Pinebrook Address 1725 East 1st Street 410 Beasley Drive 121 River Bluff Road City Greenville, North Carolina Greenville, North Carolina Greenville, North Carolina Sale Date March, 2003 March, 2000 Sale Price ($) $6,850,000 $2,425,000 Net Rentable Area (SF) 210,769 176,608 102,263 Number of Units 220 171 120 Price Per Unit $40,058 $20,208 Year Built 1969 1980 1972 Land Area (Acre) 14.8400 5.3700 9.1500 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 03-2003 0% 03-2000 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $40,058 $20,208 Location Comparable 0% Inferior 10% Number of Units 220 171 -5% 120 -5% Quality / Appeal Good Superior -10% Inferior 15% Age / Condition 1969 1980 / Average -10% 1972 / Average 10% Occupancy at Sale 94% 84% 5% N/A 0% Amenities Good Comparable 0% Inferior 10% Average Unit Size (SF) 958 1,033 0% 852 0% PHYSICAL ADJUSTMENT -20% 40% FINAL ADJUSTED VALUE ($/UNIT) $32,047 $28,292
COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 ----------------------------------- -------------------------- -------------------------- -------------------------- Property Name Kings Row Kingsarms Apartments Wellingham Park Address 200 Verdant Drive Charles Street 151 Wellingham Avenue City Greenville, North Carolina Greenville, North Carolina Greenville, North Carolina Sale Date December, 1999 January, 1997 April, 2001 Sale Price ($) $2,054,990 $3,000,000 $2,850,000 Net Rentable Area (SF) 90,596 66,348 55,870 Number of Units 108 120 80 Price Per Unit $19,028 $25,000 $35,625 Year Built 1974 1984 1999 Land Area (Acre) 5.7600 9.1200 4.6361 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) 12-1999 0% 01-1997 0% 04-2001 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $19,028 $25,000 $35,625 Location Inferior 10% Inferior 10% Inferior 10% Number of Units 108 -5% 120 -5% 80 -10% Quality / Appeal Inferior 15% Inferior 5% Comparable 0% Age / Condition 1974 / Average 10% 1984 / Average -10% 1999 / Good -10% Occupancy at Sale N/A 0% N/A 0% 95% 0% Amenities Inferior 10% Inferior 10% Comparable 0% Average Unit Size (SF) 839 0% 553 -5% 698 -5% PHYSICAL ADJUSTMENT 40% 5% -15% FINAL ADJUSTED VALUE ($/UNIT) $26,639 $26,250 $30,281
SUMMARY VALUE RANGE (PER UNIT) $26,250 TO $ 32,047 MEAN (PER UNIT) $28,702 MEDIAN (PER UNIT) $28,292 VALUE CONCLUSION (PER UNIT) $29,000
VALUE INDICATED BY SALES COMPARISON APPROACH $6,380,000 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 TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA 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-1 171 $6,850,000 NA $665,219 $ 40,058 $ 3,024 I-2 120 $2,425,000 9.22% $223,560 $665,219 1.623 $ 32,799 $ 20,208 $ 1,863 $ 3,024 I-3 108 $2,054,990 10.12% $208,008 $665,219 1.570 $ 29,872 $ 19,028 $ 1,926 $ 3,024 I-4 120 $3,000,000 NA $665,219 $ 25,000 $ 3,024 I-5 80 $2,850,000 9.52% $271,320 $665,219 0.892 $ 31,762 $ 35,625 $ 3,392 $ 3,024
PRICE/UNIT
Low High Average Median --- ---- ------- ------ $ 29,872 $ 32,799 $ 31,478 $ 31,762
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT Estimated Price Per Unit $ 31,000 Number of Units 220 ---------- Value Based on NOI Analysis $6,820,000 Rounded $6,800,000
The adjusted sales indicate a range of value between $29,872 and $32,799 per unit, with an average of $31,478 per unit. Based on the subject's competitive position within the improved sales, a value of $31,000 per unit is estimated. This indicates an "as is" market value of $6,800,000 (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 TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA 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-1 171 $6,850,000 $ 40,058 I-2 120 $2,425,000 $ 447,120 $ 223,560 50.00% 5.42 $ 20,208 I-3 108 $2,054,990 $ 416,016 $ 208,008 50.00% 4.94 $ 19,028 50.98% I-4 120 $3,000,000 $ 25,000 I-5 80 $2,850,000 $ 387,600 $ 116,280 30.00% 7.35 $ 35,625
EGIM
Low High Average Median 4.94 7.35 5.91 5.42
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES Estimate EGIM 4.75 Subject EGI $1,469,304 ---------- Value Based on EGIM Analysis $6,979,194 Rounded $7,000,000 Value Per Unit $ 31,818
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 50.98% before reserves. The comparable sales indicate a range of expense ratios from 30.00% to 50.00%, while their EGIMs range from 4.94 to 7.35. Overall, we conclude to an EGIM of 4.75, which results in an "as is" value estimate in the EGIM Analysis of $7,000,000. SALES COMPARISON CONCLUSION The three valuation methods in the Sales Comparison Approach are shown below. The overall value via the Sales Comparison Approach is estimated at $6,600,000. Price Per Unit $6,400,000 NOI Per Unit $6,800,000 EGIM Analysis $7,000,000 Sales Comparison Conclusion $6,600,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA 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 TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA 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 --------- --------- -------- ------ --------- 1A10 700 $ 475 $ 0.68 100.0% 2A15 1067 $ 636 $ 0.60 94.9% 2A20 1067 $ 659 $ 0.62 100.0% 3A15 1200 $ 815 $ 0.68 60.0% 3A20 1500 $ 929 $ 0.62 100.0% 4A25 1550 $1,279 $ 0.83 75.0%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA RENT ANALYSIS
COMPARABLE RENTS --------------------------------------------------- R-1 R-2 R-3 R-4 R-5 ---------- -------- -------- -------- -------- Wesely Eastbrook Dogwood Pirates Wilson Commons Apartments Hollow Place Acres South ---------- -------- -------- -------- -------- COMPARISON TO SUBJECT SUBJECT SUBJECT --------------------------------------------------- SUBJECT UNIT ACTUAL ASKING Slightly DESCRIPTION TYPE RENT RENT Inferior Inferior Superior Inferior Inferior ------------------------ ------------ ------- ------- ---------- -------- -------- -------- -------- Monthly Rent 1A10 $ 475 $ 459 $ 380 Unit Area (SF) 700 700 600 Monthly Rent Per Sq. Ft. $ 0.68 $ 0.66 $ 0.63 Monthly Rent 2A15 $ 636 $ 629 $ 490 $ 525 $ 640 $ 465 Unit Area (SF) 1,067 1,067 890 928 1,050 760 Monthly Rent Per Sq. Ft. $ 0.60 $ 0.59 $ 0.55 $ 0.57 $ 0.61 $ 0.61 Monthly Rent 2A20 $ 659 $ 669 $ 560 Unit Area (SF) 1,067 1,067 814 Monthly Rent Per Sq. Ft. $ 0.62 $ 0.63 $ 0.69 Monthly Rent 3A15 $ 815 $ 839 $ 840 Unit Area (SF) 1,200 1,200 1,350 Monthly Rent Per Sq. Ft. $ 0.68 $ 0.70 $ 0.62 Monthly Rent 3A20 $ 929 $ 939 $ 595 $ 865 Unit Area (SF) 1,500 1,500 1,050 1,200 Monthly Rent Per Sq. Ft. $ 0.62 $ 0.63 $ 0.57 $ 0.72 Monthly Rent 4A25 $ 1,279 $ 1,279 $1,105 Unit Area (SF) 1,550 1,550 1,200 Monthly Rent Per Sq. Ft. $ 0.83 $ 0.83 $ 0.92
DESCRIPTION MIN MAX MEDIAN AVERAGE ------------------------ -------- --------- ------ ------- Monthly Rent $ 380 $ 380 $ 380 $ 380 Unit Area (SF) 600 600 600 600 Monthly Rent Per Sq. Ft. $ 0.63 $ 0.63 $ 0.63 $ 0.63 Monthly Rent $ 465 $ 640 $ 508 $ 530 Unit Area (SF) 760 1,050 909 907 Monthly Rent Per Sq. Ft. $ 0.55 $ 0.61 $ 0.59 $ 0.58 Monthly Rent $ 560 $ 560 $ 560 $ 560 Unit Area (SF) 814 814 814 814 Monthly Rent Per Sq. Ft. $ 0.69 $ 0.69 $ 0.69 $ 0.69 Monthly Rent $ 840 $ 840 $ 840 $ 840 Unit Area (SF) 1,350 1,350 1,350 1,350 Monthly Rent Per Sq. Ft. $ 0.62 $ 0.62 $ 0.62 $ 0.62 Monthly Rent $ 595 $ 865 $ 730 $ 730 Unit Area (SF) 1,050 1,200 1,125 1,125 Monthly Rent Per Sq. Ft. $ 0.57 $ 0.72 $ 0.64 $ 0.64 Monthly Rent $ 1,105 $ 1,105 $1,105 $ 1,105 Unit Area (SF) 1,200 1,200 1,200 1,200 Monthly Rent Per Sq. Ft. $ 0.92 $ 0.92 $ 0.92 $ 0.92
CONCLUDED MARKET RENTAL RATES AND TERMS Based on this analysis above, the subject's concluded market rental rates and gross rental income is calculated as follows: GROSS RENTAL INCOME PROJECTION
Market Rent Unit Area ------------------ Monthly Annual Unit Type Number of Units (Sq. Ft.) Per Unit Per SF Income Income --------- --------------- --------- ---------- ------ -------- ---------- 1A10 86 700 $ 475 $ 0.68 $ 40,850 $ 490,200 2A15 99 1,067 $ 636 $ 0.60 $ 62,964 $ 755,568 2A20 8 1,067 $ 659 $ 0.62 $ 5,272 $ 63,264 3A15 15 1,200 $ 815 $ 0.68 $ 12,225 $ 146,700 3A20 4 1,500 $ 929 $ 0.62 $ 3,716 $ 44,592 4A25 8 1,550 $ 1,279 $ 0.83 $ 10,232 $ 122,784 -------- ---------- Total $135,259 $1,623,108
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 TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA 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 $ 2,674,900 $ 12,159 $ 1,668,252 $ 7,583 $ 1,623,734 $ 7,381 $ 1,630,608 $ 7,412 Vacancy $ 1,742,581 $ 7,921 $ 463,052 $ 2,105 $ 175,361 $ 797 $ 164,825 $ 749 Credit Loss/Concessions $ 28,998 $ 132 $ 33,839 $ 154 $ 48,802 $ 222 $ 49,000 $ 223 ----------------------------------------------------------------------------------------------------- Subtotal $ 1,771,579 $ 8,053 $ 496,891 $ 2,259 $ 224,163 $ 1,019 $ 213,825 $ 972 Laundry Income $ 3,498 $ 16 $ 2,614 $ 12 $ 689 $ 3 $ 2,280 $ 10 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 41,255 $ 188 $ 93,725 $ 426 $ 95,045 $ 432 $ 42,471 $ 193 ----------------------------------------------------------------------------------------------------- Subtotal Other Income $ 44,753 $ 203 $ 96,339 $ 438 $ 95,734 $ 435 $ 44,751 $ 203 ----------------------------------------------------------------------------------------------------- Effective Gross Income $ 948,074 $ 4,309 $ 1,267,700 $ 5,762 $ 1,495,305 $ 6,797 $ 1,461,534 $ 6,643 Operating Expenses Taxes $ 66,239 $ 301 $ 78,362 $ 356 $ 87,688 $ 399 $ 84,619 $ 385 Insurance ($ 566,852) -$ 2,577 $ 83,887 $ 381 $ 67,325 $ 306 $ 40,169 $ 183 Utilities $ 78,576 $ 357 $ 91,905 $ 418 $ 118,616 $ 539 $ 91,224 $ 415 Repair & Maintenance $ 107,209 $ 487 $ 85,853 $ 390 $ 147,365 $ 670 $ 132,144 $ 601 Cleaning $ 1,935 $ 9 $ 1,605 $ 7 $ 720 $ 3 $ 0 $ 0 Landscaping $ 36,456 $ 166 $ 48,826 $ 222 $ 36,418 $ 166 $ 74,400 $ 338 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 11,605 $ 53 $ 11,737 $ 53 $ 17,483 $ 79 $ 17,196 $ 78 General Administrative $ 1,076,901 $ 4,895 $ 320,999 $ 1,459 $ 262,405 $ 1,193 $ 247,968 $ 1,127 Management $ 88,607 $ 403 $ 71,879 $ 327 $ 77,241 $ 351 $ 78,100 $ 355 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ----------------------------------------------------------------------------------------------------- Total Operating Expenses $ 900,676 $ 4,094 $ 795,053 $ 3,614 $ 815,261 $ 3,706 $ 765,820 $ 3,481 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ----------------------------------------------------------------------------------------------------- Net Income $ 47,398 $ 215 $ 472,647 $ 2,148 $ 680,044 $ 3,091 $ 695,714 $ 3,162
ANNUALIZED 2003 --------------------- PROJECTION AAA PROJECTION --------------------- --------------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT % --------------------------- ---------- -------- ----------- ----------- ------ Revenues Rental Income $1,628,616 $ 7,403 $ 1,623,108 $ 7,378 100.0% Vacancy $ 180,000 $ 818 $ 162,311 $ 738 10.0% Credit Loss/Concessions $ 48,000 $ 218 $ 48,693 $ 221 3.0% -------------------------------------------------------- Subtotal $ 228,000 $ 1,036 $ 211,004 $ 959 13.0% Laundry Income $ 2,400 $ 11 $ 2,200 $ 10 0.1% Garage Revenue $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 60,000 $ 273 $ 55,000 $ 250 3.4% -------------------------------------------------------- Subtotal Other Income $ 62,400 $ 284 $ 57,200 $ 260 3.5% -------------------------------------------------------- Effective Gross Income $1,463,016 $ 6,650 $ 1,469,304 $ 6,679 100.0% Operating Expenses Taxes $ 84,096 $ 382 $ 85,360 $ 388 5.8% Insurance $ 41,748 $ 190 $ 42,900 $ 195 2.9% Utilities $ 129,248 $ 587 $ 99,000 $ 450 6.7% Repair & Maintenance $ 107,428 $ 488 $ 132,000 $ 600 9.0% Cleaning $ 1,280 $ 6 $ 660 $ 3 0.0% Landscaping $ 39,076 $ 178 $ 39,600 $ 180 2.7% Security $ 0 $ 0 $ 0 $ 0 0.0% Marketing & Leasing $ 10,976 $ 50 $ 17,600 $ 80 1.2% General Administrative $ 274,352 $ 1,247 $ 258,500 $ 1,175 17.6% Management $ 1,420 $ 6 $ 73,465 $ 334 5.0% Miscellaneous $ 0 $ 0 $ 0 $ 0 0.0% -------------------------------------------------------- Total Operating Expenses $ 689,624 $ 3,135 $ 749,085 $ 3,405 51.0% Reserves $ 0 $ 0 $ 55,000 $ 250 7.3% -------------------------------------------------------- Net Income $ 773,392 $ 3,515 $ 665,219 $ 3,024 45.3%
REVENUES AND EXPENSES The subject's revenue and expense projections are displayed on the previous chart. Rental income is based on the market analysis previously discussed. Other income consists of forfeited deposits, laundry income, late rent payments, month to month fees, pet fees, vending machine revenue, etc. We forecasted the property's annual operating expenses after reviewing its historical performance at the subject property. We analyzed each item of expense and attempted to forecast amounts a typical informed investor would consider reasonable. VACANCY AND COLLECTION LOSS An investor is primarily interested in the annual revenue an income property is likely to produce over a specified period of time, rather than the income it could produce if it were always 100% occupied and all tenants were paying their rent in full and on time. An investor normally expects some income loss as tenants vacate, fail to pay rent, or pay their rent late. We have projected a stabilized vacancy and collection loss rate of 13% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30 TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA 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 TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA SUMMARY OF OVERALL CAPITALIZATION RATES
------------------------------------------------- COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR -------- --------- ------ ---------- ------ I-1 Mar-03 84% $40,058 NA I-2 Mar-00 N/A $20,208 9.22% I-3 Dec-99 N/A $19,028 10.12% I-4 Jan-97 N/A $25,000 NA I-5 Apr-01 95% $35,625 9.52% High 10.12% Low 9.22% Average 9.62%
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 10.50%. Finally, the subject's discount rate or yield rate is estimated based on the previous investor survey and an examination of returns available on alternative investments in the market. Based on this analysis, the subject's discount rate is estimated to be 12.00%. HOLDING PERIOD The survey of investors indicates that most investors are completing either 10-year cash flows or extending the analysis to the end of the lease if it is more than 10-years. A 10-year period has been used in the analysis of the subject with the eleventh year stabilized NOI used to determine the reversion. SELLING COSTS Sales of similar size properties are typically accomplished with the aid of a broker and will also incur legal and other transaction related cost. Based on our survey of brokers and a review of institutional investor projections, an allowance of 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 $6,400,000. In this instance, the reversion figure contributes AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32 TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA approximately 37% 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 TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA DISCOUNTED CASH FLOW ANALYSIS TAR RIVER ESTATES
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 FISCAL YEAR 1 2 3 4 5 6 ------------------------------------------------------------------------------------------------------------------------------ REVENUE Base Rent $1,623,108 $1,623,108 $1,647,455 $1,680,404 $1,730,816 $1,782,740 Vacancy $ 162,311 $ 162,311 $ 164,745 $ 168,040 $ 173,082 $ 178,274 Credit Loss $ 48,693 $ 48,693 $ 49,424 $ 50,412 $ 51,924 $ 53,482 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------------------------------- Subtotal $ 211,004 $ 211,004 $ 214,169 $ 218,452 $ 225,006 $ 231,756 Laundry Income $ 2,200 $ 2,200 $ 2,233 $ 2,278 $ 2,346 $ 2,416 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 55,000 $ 55,000 $ 55,825 $ 56,942 $ 58,650 $ 60,409 -------------------------------------------------------------------------------------- Subtotal Other Income $ 57,200 $ 57,200 $ 58,058 $ 59,219 $ 60,996 $ 62,826 -------------------------------------------------------------------------------------- EFFECTIVE GROSS INCOME $1,469,304 $1,469,304 $1,491,344 $1,521,170 $1,566,806 $1,613,810 OPERATING EXPENSES: Taxes $ 85,360 $ 87,921 $ 90,558 $ 93,275 $ 96,073 $ 98,956 Insurance $ 42,900 $ 44,187 $ 45,513 $ 46,878 $ 48,284 $ 49,733 Utilities $ 99,000 $ 101,970 $ 105,029 $ 108,180 $ 111,425 $ 114,768 Repair & Maintenance $ 132,000 $ 135,960 $ 140,039 $ 144,240 $ 148,567 $ 153,024 Cleaning $ 660 $ 680 $ 700 $ 721 $ 743 $ 765 Landscaping $ 39,600 $ 40,788 $ 42,012 $ 43,272 $ 44,570 $ 45,907 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 17,600 $ 18,128 $ 18,672 $ 19,232 $ 19,809 $ 20,403 General Administrative $ 258,500 $ 266,255 $ 274,243 $ 282,470 $ 290,944 $ 299,672 Management $ 73,465 $ 73,465 $ 74,567 $ 76,059 $ 78,340 $ 80,690 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $ 749,085 $ 769,354 $ 791,332 $ 814,327 $ 838,757 $ 863,919 Reserves $ 55,000 $ 56,650 $ 58,350 $ 60,100 $ 61,903 $ 63,760 -------------------------------------------------------------------------------------- NET OPERATING INCOME $ 665,219 $ 643,300 $ 641,662 $ 646,744 $ 666,146 $ 686,130 ====================================================================================== Operating Expense Ratio (% of EGI) 51.0% 52.4% 53.1% 53.5% 53.5% 53.5% Operating Expense Per Unit $ 3,405 $ 3,497 $ 3,597 $ 3,701 $ 3,813 $ 3,927 YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 7 8 9 10 11 --------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $1,836,223 $1,891,309 $1,948,048 $2,006,490 $2,066,685 Vacancy $ 183,622 $ 189,131 $ 194,805 $ 200,649 $ 206,668 Credit Loss $ 55,087 $ 56,739 $ 58,441 $ 60,195 $ 62,001 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 ----------------------------------------------------------------------- Subtotal $ 238,709 $ 245,870 $ 253,246 $ 260,844 $ 268,669 Laundry Income $ 2,489 $ 2,564 $ 2,640 $ 2,720 $ 2,801 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 62,222 $ 64,088 $ 66,011 $ 67,991 $ 70,031 ----------------------------------------------------------------------- Subtotal Other Income $ 64,710 $ 66,652 $ 68,651 $ 70,711 $ 72,832 ----------------------------------------------------------------------- EFFECTIVE GROSS INCOME $1,662,224 $1,712,091 $1,763,453 $1,816,357 $1,870,848 OPERATING EXPENSES: Taxes $ 101,924 $ 104,982 $ 108,131 $ 111,375 $ 114,717 Insurance $ 51,225 $ 52,762 $ 54,344 $ 55,975 $ 57,654 Utilities $ 118,211 $ 121,758 $ 125,410 $ 129,173 $ 133,048 Repair & Maintenance $ 157,615 $ 162,343 $ 167,214 $ 172,230 $ 177,397 Cleaning $ 788 $ 812 $ 836 $ 861 $ 887 Landscaping $ 47,284 $ 48,703 $ 50,164 $ 51,669 $ 53,219 Security $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 21,015 $ 21,646 $ 22,295 $ 22,964 $ 23,653 General Administrative $ 308,663 $ 317,922 $ 327,460 $ 337,284 $ 347,402 Management $ 83,111 $ 85,605 $ 88,173 $ 90,818 $ 93,542 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 ----------------------------------------------------------------------- TOTAL OPERATING EXPENSES $ 889,837 $ 916,532 $ 944,028 $ 972,349 $1,001,519 Reserves $ 65,673 $ 67,643 $ 69,672 $ 71,763 $ 73,915 ----------------------------------------------------------------------- NET OPERATING INCOME $ 706,714 $ 727,916 $ 749,753 $ 772,246 $ 795,413 ======================================================================= Operating Expense Ratio (% of EGI) 53.5% 53.5% 53.5% 53.5% 53.5% Operating Expense Per Unit $ 4,045 $ 4,166 $ 4,291 $ 4,420 $ 4,552
Estimated Stabilized NOI $665,219 Sales Expense Rate 3.00% Months to Stabilized 1 Discount Rate 12.00% Stabilized Occupancy 90.0% Terminal Cap Rate 10.50%
Gross Residual Sale Price $7,575,363 Deferred Maintenance $ 0 Less: Sales Expense $ 227,261 Add: Excess Land $ 0 ---------- Net Residual Sale Price $7,348,102 Other Adjustments $ 0 ---------- PV of Reversion $2,365,892 Value Indicated By "DCF" $6,427,364 Add: NPV of NOI $4,061,472 Rounded $6,400,000 ---------- PV Total $6,427,364
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE ---------------------------------------------------------------------- TOTAL VALUE 11.50% 11.75% 12.00% 12.25% 12.50% ------------------------------------------------------------------------------------------------------ 10.00% $6,753,117 $6,648,268 $6,545,658 $6,445,232 $6,346,934 10.25% $6,689,754 $6,586,309 $6,485,069 $6,385,978 $6,288,983 TERMINAL CAP RATE 10.50% $6,629,409 $6,527,300 $6,427,364 $6,329,545 $6,233,793 10.75% $6,571,870 $6,471,036 $6,372,343 $6,275,738 $6,181,169 11.00% $6,516,947 $6,417,330 $6,319,823 $6,224,376 $6,130,937
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 34 TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA 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 TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA TAR RIVER ESTATES
TOTAL PER SQ. FT. PER UNIT %OF EGI ---------- ----------- -------- ------- REVENUE Base Rent $1,623,108 $ 7.70 $ 7,378 Less: Vacancy & Collection Loss 13.00% $ 211,004 $ 1.00 $ 959 Plus: Other Income Laundry Income $ 2,200 $ 0.01 $ 10 0.15% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 55,000 $ 0.26 $ 250 3.74% -------------------------------------------------- Subtotal Other Income $ 57,200 $ 0.27 $ 260 3.89% EFFECTIVE GROSS INCOME $1,469,304 $ 6.97 $ 6,679 OPERATING EXPENSES: Taxes $ 85,360 $ 0.40 $ 388 5.81% Insurance $ 42,900 $ 0.20 $ 195 2.92% Utilities $ 99,000 $ 0.47 $ 450 6.74% Repair & Maintenance $ 132,000 $ 0.63 $ 600 8.98% Cleaning $ 660 $ 0.00 $ 3 0.04% Landscaping $ 39,600 $ 0.19 $ 180 2.70% Security $ 0 $ 0.00 $ 0 0.00% Marketing & Leasing $ 17,600 $ 0.08 $ 80 1.20% General Administrative $ 258,500 $ 1.23 $ 1,175 17.59% Management 5.00% $ 73,465 $ 0.35 $ 334 5.00% Miscellaneous $ 0 $ 0.00 $ 0 0.00% TOTAL OPERATING EXPENSES $ 749,085 $ 3.55 $ 3,405 50.98% Reserves $ 55,000 $ 0.26 $ 250 3.74% -------------------------------------------------- NET OPERATING INCOME $ 665,219 $ 3.16 $ 3,024 45.27% ================================================== "GOING IN" CAPITALIZATION RATE 10.00% VALUE INDICATION $6,652,188 $31.56 $30,237 "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $6,652,188 ROUNDED $6,700,000 $31.79 $30,455
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 36 TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF -------------------------------------------------------------- 9.25% $7,191,554 $7,200,000 $32,727 $34.16 9.50% $7,002,303 $7,000,000 $31,818 $33.21 9.75% $6,822,757 $6,800,000 $30,909 $32.26 10.00% $6,652,188 $6,700,000 $30,455 $31.79 10.25% $6,489,939 $6,500,000 $29,545 $30.84 10.50% $6,335,417 $6,300,000 $28,636 $29.89 10.75% $6,188,082 $6,200,000 $28,182 $29.42
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $6,700,000. CORRELATION AND CONCLUSION BY THE INCOME APPROACH The two methods used to estimate the market value of the subject property by the income approach resulted in the following indications of value: Discounted Cash Flow Analysis $6,400,000 Direct Capitalization Method $6,700,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $6,400,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 37 TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA 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 $6,600,000 Income Approach $6,400,000 Reconciled Value $6,400,000
The Direct Capitalization Method is considered a reliable indicator of value. Income and expenses were estimated and projected based on historical operating statements and market oriented expenses. This method is primarily used by investors in their underwriting analysis. Furthermore, there was good support for an overall rate in the Direct Capitalization Method. The Sales Comparison Approach to value supported the value conclusion by the Income Approach and was given secondary consideration. Investment-grade, income-producing properties such as the subject are not typically traded based on cost. Therefore, the Cost Approach has not been considered in our valuation. FINAL VALUE - FEE SIMPLE ESTATE Based on the investigation and premise outlined, it is our opinion that as of May 14, 2003 the market value of the fee simple estate in the property is: $6,400,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA SUBJECT PHOTOGRAPHS [PICTURE] PROPERTY SIGN [PICTURE] EXTERIOR - OFFICE [PICTURE] INTERIOR - OFFICE [PICTURE] INTERIOR - OFFICE/BUSINESS CENTER [PICTURE] EXTERIOR - APARTMENT UNIT [PICTURE] EXTERIOR - APARTMENT UNIT AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA SUBJECT PHOTOGRAPHS [PICTURE] INTERIOR - TYPICAL UNIT [PICTURE] INTERIOR - TYPICAL KITCHEN [PICTURE] EXTERIOR - SAND VOLLEYBALL COURT [PICTURE] EXTERIOR - POOL AREA [PICTURE] INTERIOR - FITNESS ROOM [PICTURE] EXTERIOR - BUILDING WITH FIRE DAMAGE AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 SIGNATURE PLACE APARTMENTS 410 Beasley Drive Greenville, North Carolina [PICTURE] COMPARABLE I-2 PINEBROOK 121 River Bluff Road Greenville, North Carolina [PICTURE] COMPARABLE I-3 KINGS ROW 200 Verdant Drive Greenville, North Carolina [PICTURE] COMPARABLE I-4 KINGSARMS APARTMENTS Charles Street Greenville, North Carolina [PICTURE] COMPARABLE I-5 WELLINGHAM PARK 151 Wellingham Avenue Greenville, North Carolina [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 ------------------------------ ---------------------------------------------- --------------------------------------------- Property Name Tar River Estates Eastbrook Apartments Management Company AIMCO Fountain, Inc. LOCATION: Address 1725 East 1st Street 204 Eastbrook City, State Greenville, North Carolina Greenville, North Carolina County Pitt Pitt Proximity to Subject 1.75 miles southeast of the Subject PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 210,769 167,400 Year Built 1969 1974 Effective Age 25 29 Building Structure Type Brick; composition shingle Brick; composition shingle Parking Type (Gr.,Cov., etc.) Open Open Number of Units 220 180 Unit Mix: Type Unit Qty Mo Rent Type Unit Qty Mo 1 1A10 700 86 $ 475 2 2 BR / 1.5 Bath 890 135 $490 2 2A15 1,067 99 $ 636 5 3 BR / 2.5 Bath 1,050 45 $595 3 2A20 1,067 8 $ 659 4 3A15 1,200 15 $ 815 5 3A20 1,500 4 $ 929 6 4A25 1,550 8 $1,279 Average Unit Size (SF) 958 930 Unit Breakdown: Efficiency 0% 2-Bedroom 49% Efficiency 0% 2-Bedroom 75% 1-Bedroom 39% 3-Bedroom 9% 1-Bedroom 25% 3-Bedroom 0% CONDITION: Average Average APPEAL: Average Average AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling Balcony X W/D Connect. Balcony X W/D Connect. Fireplace X W/D Included. Fireplace X W/D Included. X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room X Volleyball Court Theater Room X Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall Tennis Court Secured Parking X Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track X Business Office Jogging Track Business Office X Gym Room Tanning Facility Gym Room Tanning facility X Tanning Bed Tanning Bed X Billards Room Billards Room OCCUPANCY: 94% 95% LEASING DATA: Available Leasing Terms 6 to 12 months Typically 6 to 12 months Concessions None 1/2 of 1 months rent Pet Deposit $100 to $100 fee, $100 deposit and $20 pet rent $400 Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas Water Trash Water Trash Confirmation Allan Tugwell Angela Telephone Number 252-752-4225 252-752-5100 NOTES: COMPARISON TO SUBJECT: Inferior
COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 ------------------------------ ---------------------------------------------- --------------------------------------------- Property Name Dogwood Hollow Pirates Place Management Company Max R. Joyner, Owner The Barrett Group LOCATION: Address 1110 E 10th 1500 South Charles City, State Greenville, North Carolina Greenville, North Carolina County Pitt Pitt Proximity to Subject 0.50 mile south of the subject 1.00 mile southwest of the subject PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 102,858 172,800 Year Built 1998 1997 Effective Age 5 6 Building Structure Type Brick & wood/vinyl siding; composition shingle Brick; composition shingle Open Open Parking Type (Gr.,Cov., etc.) 99 144 Number of Units Unit Mix: Type Unit Qty Mo Type Unit Qty Mo 2 2 BR / 1 Bath 928 24 $525 5 3 BR / 3 Bath TH 1,200 48 $ 865 3 2 BR / 2 Bath 814 99 $560 6 4 BR / 2 Bath Flat 1,200 48 $1,100 6 4 BR / 3 Bath TH 1,200 48 $1,110 Average Unit Size (SF) 836 1,200 Unit Breakdown: Efficiency 0% 2-Bedroom 100% Efficiency 0% 2-Bedroom 33% 1-Bedroom 0% 3-Bedroom 0% 1-Bedroom 0% 3-Bedroom 67% CONDITION: Average Slightly Superior APPEAL: Average Slightly Superior AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling Balcony X W/D Connect. Balcony W/D Connect. Fireplace X W/D Included Fireplace X W/D Included X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash x Basketball Court BBQ Equipment X Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room x Sand Volley Ball Meeting Hall X Sand Volley Ball Meeting Hall x Tennis Court Secured Parking X Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball Laundry Room Jogging Track Business Office Jogging Track Business Office Gym Room Tanning facility X Gym Room Tanning facility Tanning Bed Tanning Bed Billards Room X Billards Room OCCUPANCY: 98% 80% LEASING DATA: Available Leasing Terms 12 months 12 months Concessions None N/A Pet Deposit No pets allowed None Utilities Paid by Tenant: X Electric Natural Gas Electric Natural Gas Water Trash Water Trash Confirmation Diane Leasing Agent Telephone Number 252-752-8900 252-321-7613 NOTES: COMPARISON TO SUBJECT: Inferior Slightly Superior
COMPARABLE COMPARABLE DESCRIPTION R - 4 R - 5 ------------------------------ -------------------------------------------- --------------------------------------------- Property Name Wilson Acres Wesely Commons South Management Company Tom Taft, Owner Pitt Properties LOCATION: Address 1806 E 1st 108 Brownlea City, State Greenville, North Carolina Greenville, North Carolina County Pitt Pitt Proximity to Subject South across street from the subject 0.50 acre southeast of the subject PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 127,350 N/A Year Built 1982 1996 Effective Age 21 7 Building Structure Type Brick; composition shingle Brick; composition shingle Parking Type (Gr.,Cov., etc.) Open Open Number of Units 113 150 Unit Mix: Type Unit Qty Mo Type Unit Qty Mo 2 2 BR / 1.5 Bath 1,050 84 $640 1 1 BR / 1 Bath 600 $380 4 3 BR / 1.5 Bath 1,350 29 $840 2 2 Br / 1.5 Bath 760 $465 Average Unit Size (SF) 1,127 Unit Breakdown: Efficiency 0% 2-Bedroom 74% Efficiency N/A 2-Bedroom N/A 1-Bedroom 0% 3-Bedroom 26% 1-Bedroom N/A 3-Bedroom N/A CONDITION: Average Average APPEAL: Average Average AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling Balcony X W/D Connect. X Balcony X W/D Connect. Fireplace W/D Included Fireplace W/D Included X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool Swimming Pool Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash X Basketball Court BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball Meeting Hall X Sand Volley Ball Meeting Hall X Tennis Court Secured Parking Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball Laundry Room Jogging Track Business Office Jogging Track Business Office Gym Room Tanning facility Gym Room Tanning facility Tanning Bed Tanning Bed Billards Room Billards Room OCCUPANCY: 85% 95% LEASING DATA: Available Leasing Terms 12 months 6 or 12 months Concessions 1 month off a 13 month lease N/A Pet Deposit $300 Non-refundable pet fee $200 non-refundable Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas Water Trash Water Trash Confirmation Leasing Agent Leasing Agent Telephone Number 252-752-0277 252-758-1921 NOTES: The total property has 146 units however 33 are HUD and are not considered in this analysis. COMPARISON TO SUBJECT: Inferior Inferior
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 EASTBROOK APARTMENTS 204 Eastbrook Greenville, North Carolina [PICTURE] COMPARABLE R-2 DOGWOOD HOLLOW 1110 E 10th Greenville, North Carolina [PICTURE] COMPARABLE R-3 PIRATES PLACE 1500 South Charles Greenville, North Carolina [PICTURE] COMPARABLE R-4 WILSON ACRES 1806 E 1st Greenville, North Carolina [PICTURE] COMPARABLE R-5 WESELY COMMONS SOUTH 108 Brownlea Greenville, North Carolina [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA 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 TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA 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 TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA 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 TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA 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. Jimmy Pat James, MAI and J. Chad Walker 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- Frank Fehribach Frank Fehribach, MAI Managing Principal, Real Estate Group North Carolina Temporary Practice Permit #2578 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA FRANK A. FEHRIBACH, MAI MANAGING PRINCIPAL, REAL ESTATE GROUP POSITION Frank A. Fehribach is a Managing Principal for the Dallas Real Estate Group of American Appraisal Associates, Inc. ("AAA"). EXPERIENCE Valuation Mr. Fehribach has experience in valuations for resort hotels; Class A office buildings; Class A multifamily complexes; industrial buildings and distribution warehousing; multitract mixed-use vacant land; regional malls; residential subdivision development; and special-purpose properties such as athletic clubs, golf courses, manufacturing facilities, nursing homes, and medical buildings. Consulting assignments include development and feasibility studies, economic model creation and maintenance, and market studies. Mr. Fehribach also has been involved in overseeing appraisal and consulting assignments in Mexico and South America. Business Mr. Fehribach joined AAA as an engagement director in 1998. He was promoted to his current position in 1999. Prior to that, he was a manager at Arthur Andersen LLP. Mr. Fehribach has been in the business of real estate appraisal for over ten years. EDUCATION University of Texas - Arlington Master of Science - Real Estate University of Dallas Master of Business Administration - Industrial Management Bachelor of Arts - Economics AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA STATE CERTIFICATIONS State of Arizona, Certified General Real Estate Appraiser, #30828 State of Arkansas, State Certified General Appraiser, #CG1387N State of Colorado, Certified General Appraiser, #CG40000445 State of Georgia, Certified General Real Property Appraiser, #218487 State of Michigan, Certified General Appraiser, #1201008081 State of Texas, Real Estate Salesman License, #407158 (Inactive) State of Texas, State Certified General Real Estate Appraiser, #TX-1323954-G PROFESSIONAL Appraisal Institute, MAI Designated Member AFFILIATIONS Candidate Member of the CCIM Institute pursuing Certified Commercial Investment Member (CCIM) designation PUBLICATIONS "An Analysis of the Determinants of Industrial Property -authored with Dr. Ronald C. Rutherford and Dr. Mark Eakin, The Journal of Real Estate Research, Vol. 8, No. 3, Summer 1993, p. 365. AMERICAN APPRAISAL ASSOCIATES, INC. TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. TAR RIVER ESTATES, GREENVILLE, NORTH CAROLINA 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.