EX-99.(C)(1) 5 d16091exv99wxcyx1y.txt APPRAISAL OF BIG WALNUT BIG WALNUT 5280 GATEHOUSE DRIVE COLUMBUS, OHIO MARKET VALUE - FEE SIMPLE ESTATE AS OF APRIL 30, 2003 PREPARED FOR: APARTMENT INVESTMENT AND MANAGEMENT COMPANY (AIMCO) C/O LINER YANKELEVITZ SUNSHINE & REGENSTREIF LLP & LIEFF CABRASER HEIMANN & BERNSTEIN ON BEHALF OF NUANES, ET. AL. [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LETTERHEAD] JUNE 30, 2003 Apartment Investment and Management Company ("AIMCO") c/o Mr. Steven A. Velkei, Esq. Liner Yankelevitz Sunshine & Regenstreif LLP 1100 Glendon Avenue, 14th Floor Los Angeles, California 90024-3503 Nuanes, et al.( "Plaintiffs") c/o Ms. Joy Kruse Lieff Cabraser Heimann & Bernstein Embarcadero Center West 275 Battery Street, 30th Floor San Francisco, California 94111 RE: BIG WALNUT 5280 GATEHOUSE DRIVE COLUMBUS, FRANKLIN COUNTY, OHIO In accordance with your authorization, we have completed the appraisal of the above-referenced property. This complete appraisal is intended to report our analysis and conclusions in a summary format. The subject property consists of an apartment project having 251 units with a total of 303,703 square feet of rentable area. The improvements were built in 1968. The improvements are situated on 19.497 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 BIG WALNUT, COLUMBUS, OHIO The opinions expressed in this appraisal cover letter can only be completely understood by reading the narrative report, addenda, and other data, which is attached. The appraisal is subject to the attached general assumptions and limiting conditions and general service conditions. As a result of our investigation, it is our opinion that the fee simple market value of the subject, effective April 30, 2003 is: ($9,800,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. -s- Brian Johnson June 30, 2003 Brian Johnson, MAI #053272 Managing Principal, Real Estate Group Report By: Richard Mupo AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 BIG WALNUT, COLUMBUS, OHIO TABLE OF CONTENTS Cover Letter of Transmittal Table of Contents APPRAISAL DATA Executive Summary............................................... 4 Introduction.................................................... 9 Area Analysis................................................... 11 Market Analysis................................................. 14 Site Analysis................................................... 16 Improvement Analysis............................................ 16 Highest and Best Use............................................ 17 VALUATION Valuation Procedure............................................. 18 Sales Comparison Approach....................................... 20 Income Capitalization Approach.................................. 26 Reconciliation and Conclusion................................... 38
ADDENDA Exhibit A - Photographs of Subject Property Exhibit B - Summary of Rent Comparables and Photograph of Comparables Exhibit C - Assumptions and Limiting Conditions Exhibit D - Certificate of Appraiser Exhibit E - Qualifications General Service Conditions AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 4 BIG WALNUT, COLUMBUS, OHIO EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Big Walnut LOCATION: 5280 Gatehouse Drive Columbus, Ohio INTENDED USE OF ASSIGNMENT: Court Settlement PURPOSE OF APPRAISAL: "As Is" Market Value of the Fee Simple Estate INTEREST APPRAISED: Fee simple estate DATE OF VALUE: April 30, 2003 DATE OF REPORT: June 30, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 19.497 acres, or 849,289 square feet Assessor Parcel No.: 090-005526-00 Floodplain: Community Panel No. 390180-278G (August 2, 1995) Flood Zone X, an area outside the floodplain. Zoning: A2 (Apartment District) BUILDING: No. of Units: 251 Units Total NRA: 303,703 Square Feet Average Unit Size: 1,210 Square Feet Apartment Density: 12.9 units per acre Year Built: 1968
UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
Market Rent Square ------------------ Monthly Annual Unit Type Feet Per Unit Per SF Income Income ------------ ------ -------- ------ --------- --------- 1B/1B-1A10 694 $ 519 $ 0.75 $ 12,456 $ 149,472 1B/1B-1B10 705 $ 469 $ 0.67 $ 11,256 $ 135,072 1B/1B-1C10 975 $ 549 $ 0.56 $ 11,529 $ 138,348 1B/1.5B-1A15 733 $ 519 $ 0.71 $ 12,456 $ 149,472 2B/1.5B-2A15 1,282 $ 649 $ 0.51 $ 27,258 $ 327,096 2B/1.5B-2B15 1,395 $ 649 $ 0.47 $ 19,470 $ 233,640 2B/1.5B-2C15 1,649 $ 679 $ 0.41 $ 50,246 $ 602,952 2B/2B-2A20 1,195 $ 649 $ 0.54 $ 7,788 $ 93,456 Total $ 152,459 $1,829,508
OCCUPANCY: 94% AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 BIG WALNUT, COLUMBUS, OHIO ECONOMIC LIFE: 45 YEARS EFFECTIVE AGE: 20 YEARS REMAINING ECONOMIC LIFE: 25 YEARS SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [EXTERIOR - ENTRANCE PICTURE] [EXTERIOR - RESIDENTIAL UNITS PICTURE] AREA MAP [AREA MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 BIG WALNUT, COLUMBUS, OHIO NEIGHBORHOOD MAP [NEIGHBORHOOD MAP] HIGHEST AND BEST USE: As Vacant: Hold for future multi-family development As Improved: Continuation as its current use METHOD OF VALUATION: In this instance, the Sales Comparison and Income Approaches to value were utilized. AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 7 BIG WALNUT, COLUMBUS, OHIO PART TWO - ECONOMIC INDICATORS
Amount $/Unit ------ ------ INCOME CAPITALIZATION APPROACH DIRECT CAPITALIZATION Potential Rental Income $1,829,508 $ 7,289 Effective Gross Income $1,808,647 $ 7,206 Operating Expenses $ 780,682 $ 3,110 43.2% of EGI Net Operating Income: $ 965,215 $ 3,845 Capitalization Rate 10.00% DIRECT CAPITALIZATION VALUE $9,500,000 * $37,849 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 7% Stabilized Vacancy & Collection Loss: 8% Lease-up / Stabilization Period N/A Terminal Capitalization Rate 10.50% Discount Rate 11.75% Selling Costs 2.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $9,900,000 * $39,442 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $9,800,000 $39,044 / UNIT SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $29,377 to $35,814 Range of Sales $/Unit (Adjusted) $34,678 to $43,142 VALUE INDICATION - PRICE PER UNIT $9,600,000 * $38,247 / UNIT EGIM ANALYSIS Range of EGIMS from Improved Sales 5.39 to 6.37 Selected EGIM for Subject 5.50 Subject's Projected EGI $1,808,647 EGIM ANALYSIS CONCLUSION $9,800,000 * $39,044 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $9,600,000 * $38,247 / UNIT RECONCILED SALES COMPARISON VALUE $9,700,000 $38,645 / 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 BIG WALNUT, COLUMBUS, OHIO PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $9,600,000 NOI Per Unit $9,600,000 EGIM Multiplier $9,800,000 INDICATED VALUE BY SALES COMPARISON $9,700,000 $38,645 / UNIT INCOME APPROACH: Direct Capitalization Method: $9,500,000 Discounted Cash Flow Method: $9,900,000 INDICATED VALUE BY THE INCOME APPROACH $9,800,000 $39,044 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $9,800,000 $39,044 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 BIG WALNUT, COLUMBUS, OHIO INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 5280 Gatehouse Drive, Columbus, Franklin County, Ohio. Columbus identifies it as 090-005526-00. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Richard Mupo on April 30, 2003. Brian Johnson, MAI has not made a personal inspection of the subject property. Richard Mupo performed the research, valuation analysis and wrote the report. Brian Johnson, MAI reviewed the report and concurs with the value. Brian Johnson, MAI and Richard Mupo have extensive experience in appraising similar properties and meet the USPAP competency provision. The scope of this investigation comprises the inspection of the property and the collection, verification, and analysis of general and specific data pertinent to the subject property. We have researched current improved sales and leases of similar properties, analyzing them as to their comparability, and adjusting them accordingly. We completed the Sales Comparison and Income Capitalization Approaches to value. From these approaches to value, a concluded overall value was made. DATE OF VALUE AND REPORT This appraisal was made to express the opinion of value as of April 30, 2003. The date of the report is June 30, 2003. PURPOSE AND USE OF APPRAISAL The purpose of the appraisal is to estimate the market value of the fee simple interest in the subject property. It is understood that the appraisal is intended to assist the clients in litigation settlement proceedings. The appraisal was not based on a requested minimum valuation, a specific valuation, or the approval of a loan. PROPERTY RIGHTS APPRAISED We have appraised the Fee Simple Estate in the subject property (as applied in the Sales & Income Approaches), subject to the existing short-term leases. A Fee Simple Estate is AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 10 BIG WALNUT, COLUMBUS, OHIO defined in The Dictionary of Real Estate Appraisal, 3rd ed. (Chicago: Appraisal Institute, 1993), as: "Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat." MARKETING/EXPOSURE PERIOD MARKETING PERIOD: 6 to 12 months EXPOSURE PERIOD: 6 to 12 months HISTORY OF THE PROPERTY Ownership in the subject property is currently vested in Big Walnut 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 BIG WALNUT, COLUMBUS, OHIO AREA / NEIGHBORHOOD ANALYSIS NEIGHBORHOOD ANALYSIS A neighborhood is a group of complementary land uses. The function of the neighborhood analysis is to describe the immediate surrounding environs. The subject is located in the city of Columbus, Ohio. Overall, the neighborhood is characterized as a suburban setting with the predominant land uses being residential and retail. The subject's neighborhood is generally defined by the following boundaries. NEIGHBORHOOD BOUNDARIES East - 1-270 West - Route 317 South - East Livingston Avenue North - Columbus Country Club & Golf Course MAJOR EMPLOYERS Major employers in the subject's area include State of Ohio, Ohio State University, Federal Gov., Nationwide Insurance, and Bank One. The overall economic outlook for the area is considered favorable. DEMOGRAPHICS We have reviewed demographic data within the neighborhood. The following table summarizes the key data points. AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 12 BIG WALNUT, COLUMBUS, OHIO NEIGHBORHOOD DEMOGRAPHICS
AREA ------------------------------------------ CATEGORY 1-Mi. RADIUS 3-Mi. RADIUS 5-Mi. RADIUS MSA -------- ------------ ------------ ------------ ---------- POPULATION TRENDS Current Population 10,349 93,942 208,701 1,572,971 5-Year Population 10,156 93,556 219,352 1,660,843 % Change CY-5Y -1.9% -0.4% 5.1% 5.6% Annual Change CY-5Y -0.4% -0.1% 1.0% 1.1% HOUSEHOLDS Current Households 4,797 41,057 87,494 629,122 5-Year Projected Households 4,822 41,879 93,881 678,975 % Change CY-5Y 0.5% 2.0% 7.3% 7.9% Annual Change CY-5Y 0.1% 0.4% 1.5% 1.6% INCOME TRENDS Median Household Income $ 37,721 $ 35,898 $ 39,758 $ 45,736 Per Capita Income $ 24,563 $ 20,521 $ 22,739 $ 24,105 Average Household Income $ 52,393 $ 46,956 $ 54,232 $ 60,267
Source: Demographics Now The subject neighborhood's population is expected to show increases below that of the region. The immediate market offers inferior income levels as compared to the broader market. The following table illustrates the housing statistics in the subject's immediate area, as well as the MSA region. HOUSING TRENDS
AREA ------------------------------------------ CATEGORY 1-Mi. RADIUS 3-Mi. RADIUS 5-Mi. RADIUS MSA -------- ------------ ------------ ------------ ---------- HOUSING TRENDS % of Households Renting 49.98% 46.69% 41.67% 35.12% 5-Year Projected % Renting 49.90% 46.45% 41.29% 34.33% % of Households Owning 43.68% 47.32% 52.69% 59.14% 5-Year Projected % Owning 43.79% 47.65% 53.42% 60.33%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 BIG WALNUT, COLUMBUS, OHIO SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Country Club & Golf Course South - Retail Center / Parking Lot East - Big Walnut Creek / Residential West - Residential CONCLUSIONS The subject is well located within the city of Columbus. The neighborhood is characterized as being mostly suburban in nature and is currently in the stable stage of development. The economic outlook for the neighborhood is judged to be favorable with a good economic base. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 14 BIG WALNUT, COLUMBUS, OHIO MARKET ANALYSIS The subject property is located in the city of Columbus in Franklin County. The overall pace of development in the subject's market is more or less stable. The pace of multi-family development was strong over the past several years and well into 2002. As a result, occupancy levels have dropped over the past several months. The following table illustrates historical occupancy rates for the subject's market. HISTORICAL OCCUPANCY
Period Region Submarket ------ ------ --------- Apr-03 91.5% 90.2% Oct-02 92.2% 90.2% Apr-02 93.2% 92.2% Oct-01 94.0% 93.5%
Source - Apartment Realty Advisors Midwest, Inc. Occupancy trends in the subject's market have been decreasing. Historically speaking, the subject's submarket has underperformed the overall market. Occupancy has been on a general decline since early 2001 due to a weak and stagnant economy, increasing new development and declining absorption rates. New construction appears to have slowed and the market is likely to stabilize over the next 12 months. Rental concessions equal to one free month of rent are typical, and are likely to remain in place until the market recovers. The subject's submarket has slightly underperformed the overall market over the past few years due to competition from more desirable submarkets to the north. Occupancy for Class B properties tends to be higher than that of newer Class A product. Market rents in the subject's market have been following a stable trend. The following table illustrates historical rental rates for the subject's market. HISTORICAL AVERAGE RENT
Period Region % Change Submarket % Change ------ ------ -------- --------- -------- Apr-01 $610 - $546 - Apr-02 $620 1.6% $557 2.0% Apr-03 $630 1.6% $566 1.6%
Source - Apartment Realty Advisors Midwest, Inc. The following table illustrates a summary of the subject's competitive set. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 BIG WALNUT, COLUMBUS, OHIO COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject --- ------------- ----- ----- ---------- -------------------- R-1 Hibernia 348 85% 1986 1/4 Mile south of the subject R-2 Riding Club 405 96% 1968 1/4 Mile south of the subject R-3 Club at Eagle's Pointe 759 92% 1971 1/2 Mile south of the subject R-4 Shaker Square Apartments 194 83% 1970 1/2 Mile north of subject R-5 N/A 0 0% 0 $0 Subject Big Walnut 251 94% 1968
Rents have shown very modest increases over the past two years. Net effective rents have actually declined slightly in recent months due to concessions being offered by most property managers. Rent growth will likely be minimal over the next twelve months but should rebound to pace inflation as the market recovers. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 BIG WALNUT, COLUMBUS, OHIO PROPERTY DESCRIPTION SITE ANALYSIS Site Area 19.497 acres, or 849,289 square feet Shape Irregular Topography Rolling Utilities All necessary utilities are available to the site. Soil Conditions Stable Easements Affecting Site None other than typical utility easements Overall Site Appeal Average Flood Zone: Community Panel 390180-278G, dated August 2, 1995 Flood Zone Zone X Zoning A2, the subject improvements represent a legal conforming use of the site. REAL ESTATE TAXES
ASSESSED VALUE - 2002 ---------------------------------------------- TAX RATE / PROPERTY PARCEL NUMBER LAND BUILDING TOTAL MILL RATE TAXES ------------- -------- ---------- ----------- ---------- --------- 090-005526-00 $313,850 $1,973,620 $ 2,287,470 0.05891 $ 134,752
IMPROVEMENT ANALYSIS Year Built 1968 Number of Units 251 Net Rentable Area 303,703 Square Feet Construction: Foundation Reinforced concrete slab Frame Heavy or light wood Exterior Walls Brick or masonry Roof Built-up asphalt with or without gravel over a wood truss structure Project Amenities Amenities at the subject include a swimming pool, volleyball court, tennis court, laundry room, business office, and secured parking. Unit Amenities Individual unit amenities include a balcony, cable TV connection, and washer dryer connection Appliances available in each unit include a refrigerator, stove, dishwasher, water heater, garbage disposal, and oven. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 BIG WALNUT, COLUMBUS, OHIO Washer/dryer hook-ups are located in the 2-BR units only. Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) --------- --------------- --------- 1B/1B-1A10 24 694 1B/1B-1B10 24 705 1B/1B-1C10 21 975 1B/1.5B-1A15 24 733 2B/1.5B-2A15 42 1,282 2B/1.5B-2B15 30 1,395 2B/1.5B-2C15 74 1,649 2B/2B-2A20 12 1,195
Overall Condition Average Effective Age 20 years Economic Life 45 years Remaining Economic Life 25 years Deferred Maintenance The deferred maintenance at the subject property was estimated for a total amount of $50,000. 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 1968 and consist of a 251-unit multifamily project. The highest and best use as improved is for a continued multifamily use. Overall, the highest and best use of the subject property is the continued use of the existing apartment project. AMERICAN APPRAISAL ASSOCIATES, INC. VALUATION PROCEDURE PAGE 18 BIG WALNUT, COLUMBUS, OHIO THE VALUATION PROCEDURE There are three traditional approaches, which can be employed in establishing the market value of the subject property. These approaches and their applicability to the valuation of the subject are summarized as follows: THE COST APPROACH The application of the Cost Approach is based on the principle of substitution. This principle may be stated as follows: no one is justified in paying more for a property than that amount by which he or she can obtain, by purchase of a site and construction of a building, without undue delay, a property of equal desirability and utility. In the case of a new building, no deficiencies in the building should exist. In the case of income-producing real estate, the cost of construction plays a minor and relatively insignificant role in determining market value. The Cost Approach is typically only a reliable indicator of value for: (a) new properties; (b) special use properties; and (c) where the cost of reproducing the improvements is easily and accurately quantified and there is no economic obsolescence. In all instances, the issue of an appropriate entrepreneurial profit - the reward for undertaking the risk of construction, remains a highly subjective factor especially in a market lacking significant speculative development. THE SALES COMPARISON APPROACH The Sales Comparison Approach is an estimate of value based upon a process of comparing recent sales of similar properties in the surrounding or competing areas to the subject property. Inherent in this approach is the principle of substitution. The application of this approach consists of comparing the subject property with similar properties of the same general type, which have been sold recently or currently are available for sale in competing areas. This comparative process involves judgment as to the similarity of the subject property and the comparable sale with respect to many value factors such as location, contract rent levels, quality of construction, reputation and prestige, age and condition, among others. The estimated value through this approach represents the probable price at which a willing seller would sell the subject property to a willing and knowledgeable buyer as of the date of value. AMERICAN APPRAISAL ASSOCIATES, INC. VALUATION PROCEDURE PAGE 19 BIG WALNUT, COLUMBUS, OHIO THE INCOME CAPITALIZATION APPROACH The theory of the Income Capitalization Approach is based on the premise that present value is the value of the cash flow and reversionary value the property will produce over a reasonable holding (ownership) period. The Discounted Cash Flow Analysis will convert equity cash flows (including cash flows and equity reversion) into a present value utilizing an internal rate of return (or discount rate). The Internal Rate of Return (IRR) will be derived from a comparison of alternate investments, a comparative analysis of IRR's used by recent buyers of similar properties, and a review of published industry surveys. The Direct Capitalization Analysis converts one year of income into an overall value using overall capitalization rates from similar sales. The overall rates take into consideration buyers assumptions of the market over the long-term. The results of the Income Capitalization Analysis are usually the primary value indicator for income producing properties. Investors expect a reasonable rate of return on their equity investment based on the ownership risks involved; this approach closely parallels the investment decision process. RECONCILIATION In this instance, we have completed the Sales Comparison and Income Capitalization Approaches to value. As an income producing property, the income approach is a primary approach to value. The Sales Comparison Approach is also considered reliable as investors are buying similar buildings in the market. Our research indicates that market participants are generally not buying, selling, investing, or lending with reliance placed on the methodology of the Cost Approach to establish the value. Therefore, we have decided that the Cost Approach is not a reliable indicator of value for the subject, and this approach has not been utilized. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 20 BIG WALNUT, COLUMBUS, OHIO SALES COMPARISON APPROACH Use of market or comparable sales requires the collection and analysis of comparable sales data. Similar properties recently sold are compared to the subject and adjusted based on any perceived differences. This method is based on the premise that the costs of acquiring a substitute property would tend to establish a value for the subject property. The premise suggests that if a substitute is unavailable in the market, the reliability of the approach may be subordinate to the other approaches. The reliance on substitute properties produces shortcomings in the validity of this approach. Geographic and demographic characteristics from each submarket restrict which sales may be selected. Recent sales with a similar physical characteristics, income levels, and location are usually limited. The sales we have identified, however, do establish general valuation parameters as well as provide support to our conclusion derived through the income approach method. The standard unit of comparison among similar properties is the sales price per unit and price per square foot of net rentable area. To accurately adjust prices to satisfy the requirements of the sales comparison approach, numerous calculations and highly subjective judgments would be required including consideration of numerous income and expense details for which information may be unreliable or unknown. The sales price per unit and square foot are considered relevant to the investment decision, but primarily as a parameter against which value estimates derived through the income approach can be judged and compared. In examining the comparable sales, we have applied a subjective adjustment analysis, which includes specific adjustments derived from our experience and consulting with the market participants. SALES COMPARISON ANALYSIS Detailed on the following pages are sales transactions involving properties located in the subject's competitive investment market. Photographs of the sale transactions are located in the Addenda. Following the summary of sales is an adjustment grid that is used to arrive at a value. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 21 BIG WALNUT, COLUMBUS, OHIO SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 ----------- ------- ---------- ---------- Property Name Big Walnut The Club at Eagle's Pointe Bolton Estates LOCATION: Address 5280 Gatehouse Drive 6033 Lake Club Court 1150 Norton Road City, State Columbus, Ohio Columbus, Ohio Columbus, Ohio County Franklin Franklin Franklin PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 303,703 579,112 153,232 Year Built 1968 1971 1989 Number of Units 251 759 196 Unit Mix: Type Total Type Total Type Total 1B/1B-1A10 24 1Br/1Ba 306 1Br/1Ba 68 1B/1B-1B10 24 1Br/1.5Ba 32 2Br/1Ba 128 1B/1B-1C10 21 2Br/1Ba 306 1B/1.5B-1A15 24 2Br/1.5Ba 15 2B/1.5B-2A15 42 2Br/2Ba 34 2B/1.5B-2B15 30 Studio 66 2B/1.5B-2C15 74 2B/2B-2A20 12 Average Unit Size (SF) 1,210 763 782 Land Area (Acre) 19.4970 44.5810 12.7140 Density (Units/Acre) 12.9 17.0 15.4 Parking Ratio (Spaces/Unit) 1.14 1.48 1.82 Parking Type (Gr., Cov., etc.) Garage, Open Covered Open Open, Covered CONDITION: Average Average Average APPEAL: Average Average Average AMENITIES: Pool/Spa Yes/No Yes/No Yes/No Gym Room No No No Laundry Room Yes Yes No Secured Parking Yes No No Sport Courts No No No Washer/Dryer Connection No No Yes Tennis Court Yes Yes No Volleyball Court Yes Yes No OCCUPANCY: 94% 95% 87% TRANSACTION DATA: Sale Date August, 2002 November, 2002 Sale Price ($) $22,297,400 $6,400,000 Grantor W9/PHC Real Estate LP AERC Bolton Inc. Grantee Alliance BP LP Bolton Estates Apartments LLC Sale Documentation Doc # 200208290213585 Doc # 200211250301771 Verification Buyer Seller Telephone Number (410)962-0595 (800) 440-2372 ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $4,339,680 $5,718 $7.49 $1,154,640 $5,891 $7.54 Vacancy/Credit Loss $ 216,984 $ 286 $0.37 $ 150,103 $ 766 $0.98 Effective Gross Income $4,122,696 $5,432 $7.12 $1,004,537 $5,125 $6.56 Operating Expenses $1,752,597 $2,309 $3.03 $ 428,537 $2,186 $2.80 Net Operating Income $2,370,099 $3,123 $4.09 $ 576,000 $2,939 $3.76 NOTES: None NOI and OAR based on actual income and expenses provided by the seller. PRICE PER UNIT $29,377 $32,653 PRICE PER SQUARE FOOT $ 38.50 $ 41.77 EXPENSE RATIO 42.5% 42.7% EGIM 5.41 6.37 OVERALL CAP RATE 10.63% 9.00% Cap Rate based on Pro Forma or Actual Income? PRO FORMA ACTUAL COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 ----------- ---------- ---------- Property Name Northgate Apartments Spring Creek LOCATION: Address 6175 Northgate Road 5811 Spring Run Drive City, State Columbus, Ohio Columbus, Ohio County Franklin Franklin PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 375,960 208,491 Year Built 1970 1982 Number of Units 316 288 Unit Mix: Type Total Type Total 1Br/1Ba 48 1Br/1Ba 224 1Br/1.5Ba 48 2Br/2Ba 64 2Br/1.5Ba 164 2Br/2Ba 32 3Br/2.5Ba 24 Average Unit Size (SF) 1,190 724 Land Area (Acre) 19.4300 18.5900 Density (Units/Acre) 16.3 15.5 Parking Ratio (Spaces/Unit) 1.98 1.04 Parking Type (Gr., Cov., etc.) Open Open CONDITION: Average Average APPEAL: Average Average AMENITIES: Pool/Spa Yes/Yes Yes/No Gym Room No No Laundry Room Yes No Secured Parking Yes No Sport Courts No No Washer/Dryer Connection No Yes Tennis Court Yes Yes Volleyball Court No No OCCUPANCY: 95% 95% TRANSACTION DATA: Sale Date September, 2001 September, 2001 Sale Price ($) $11,011,986 $10,314,300 Grantor New Plan of Northgate New Plan Excel Realty Trust Grantee C-K Northgate LLC C-K Spring Creek LLC Sale Documentation Doc # 200110020227497 Doc # 200110110235193 Verification Seller Seller Telephone Number (212) 869-3000 (212) 869-3000 ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $2,150,184 $6,804 $5.72 $1,868,160 $6,487 $8.96 Vacancy/Credit Loss $ 107,509 $ 340 $0.29 $ 93,408 $ 324 $0.45 Effective Gross Income $2,042,675 $6,464 $5.43 $1,774,752 $6,162 $8.51 Operating Expenses $ 864,142 $2,735 $2.30 $ 708,690 $2,461 $3.40 Net Operating Income $1,178,533 $3,730 $3.13 $1,066,062 $3,702 $5.11 NOTES: The property also has a The property also has a clubhouse. clubhouse. PRICE PER UNIT $34,848 $35,814 PRICE PER SQUARE FOOT $ 29.29 $ 49.47 EXPENSE RATIO 42.3% 39.9% EGIM 5.39 5.81 OVERALL CAP RATE 10.70% 10.34% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 BIG WALNUT, COLUMBUS, OHIO IMPROVED SALES MAP [IMPROVED SALES MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $29,377 to $35,814 per unit. Adjustments have been made to the sales to reflect differences in location, age/condition and quality/appeal. Generally speaking, larger properties typically have a lower price per unit when compared to smaller properties, all else being equal. Similarly, those projects with a higher average unit size will generally have a higher price per unit. After appropriate adjustments are made, the improved sales demonstrate an adjusted range for the subject from $34,678 to $43,142 per unit with a mean or average adjusted price of $38,737 per unit. The median adjusted price is $38,565 per unit. Based on the following analysis, we have concluded to a value of $39,000 per unit, which results in an "as is" value of $9,600,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 BIG WALNUT, COLUMBUS, OHIO SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 ----------- ------- ---------- ---------- Property Name Big Walnut The Club at Eagle's Pointe Bolton Estates Address 5280 Gatehouse Drive 6033 Lake Club Court 1150 Norton Road City Columbus, Ohio Columbus, Ohio Columbus, Ohio Sale Date August, 2002 November, 2002 Sale Price ($) $22,297,400 $6,400,000 Net Rentable Area (SF) 303,703 579,112 153,232 Number of Units 251 759 196 Price Per Unit $29,377 $32,653 Year Built 1968 1971 1989 Land Area (Acre) 19.4970 44.5810 12.7140 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 08-2002 2% 11-2002 1% VALUE AFTER TRANS. ADJUST. ($/UNIT) $29,965 $33,061 Location Comparable 0% Comparable 0% Number of Units 251 759 15% 196 0% Quality / Appeal Good Comparable 0% Comparable 0% Age / Condition 1968 1971 / Average 0% 1989 / Average -5% Occupancy at Sale 94% 95% 0% 87% 10% Amenities Average Comparable 0% Comparable 0% Average Unit Size (SF) 1,210 763 10% 782 10% Parking Ratio 1.14 Comparable 0% Superior -5% Unit Mix Good Comparable 0% Inferior 10% PHYSICAL ADJUSTMENT 25% 20% FINAL ADJUSTED VALUE ($/UNIT) $37,456 $39,673 COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 ----------- ---------- ---------- Property Name Northgate Apartments Spring Creek Address 6175 Northgate Road 5811 Spring Run Drive City Columbus, Ohio Columbus, Ohio Sale Date September, 2001 September, 2001 Sale Price ($) $11,011,986 $10,314,300 Net Rentable Area (SF) 375,960 208,491 Number of Units 316 288 Price Per Unit $34,848 $35,814 Year Built 1970 1982 Land Area (Acre) 19.4300 18.5900 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 09-2001 5% 09-2001 5% VALUE AFTER TRANS. ADJUST. ($/UNIT) $36,503 $37,515 Location Comparable 0% Comparable 0% Number of Units 316 0% 288 0% Quality / Appeal Comparable 0% Comparable 0% Age / Condition 1970 / Average 0% 1982 / Average -5% Occupancy at Sale 95% 0% 95% 0% Amenities Comparable 0% Comparable 0% Average Unit Size (SF) 1,190 0% 724 10% Parking Ratio Superior -5% Comparable 0% Unit Mix Comparable 0% Inferior 10% PHYSICAL ADJUSTMENT -5% 15% FINAL ADJUSTED VALUE ($/UNIT) $34,678 $43,142
SUMMARY VALUE RANGE (PER UNIT) $34,678 TO $43,142 MEAN (PER UNIT) $38,737 MEDIAN (PER UNIT) $38,565 VALUE CONCLUSION (PER UNIT) $39,000
VALUE OF IMPROVEMENT & MAIN SITE $9,789,000 DEFERRED MAINTENANCE -$ 50,000 PV OF CONCESSIONS -$ 116,000 VALUE INDICATED BY SALES COMPARISON APPROACH $9,623,000 ROUNDED $9,600,000
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 BIG WALNUT, COLUMBUS, OHIO NOI PER UNIT COMPARISON
SALE PRICE NOI/ SUBJECT NOI COMPARABLE NO. OF ---------- -------- -------------- ADJUSTMENT INDICATED NO. UNITS PRICE/UNIT OAR NOI/UNIT SUBJ. NOI/UNIT FACTOR VALUE/UNIT ---------- ------ ---------- --- -------- -------------- ---------- ---------- I-1 759 $22,297,400 10.63% $2,370,099 $965,215 1.231 $36,177 $ 29,377 $ 3,123 $ 3,845 I-2 196 $ 6,400,000 9.00% $ 576,000 $965,215 1.309 $42,728 $ 32,653 $ 2,939 $ 3,845 I-3 316 $11,011,986 10.70% $1,178,533 $965,215 1.031 $35,931 $ 34,848 $ 3,730 $ 3,845 I-4 288 $10,314,300 10.34% $1,066,062 $965,215 1.039 $37,206 $ 35,814 $ 3,702 $ 3,845
PRICE/UNIT
Low High Average Median $35,931 $42,728 $38,010 $36,692
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT Estimated Price Per Unit $ 39,000 Number of Units 251 Value $9,789,000 Deferred Maintenance -$ 50,000 PV of Concessions -$ 116,000 ----------- Value Based on NOI Analysis $9,623,000 Rounded $9,600,000
The adjusted sales indicate a range of value between $35,931 and $42,728 per unit, with an average of $38,010 per unit. Based on the subject's competitive position within the improved sales, a value of $39,000 per unit is estimated. This indicates an "as is" market value of $9,600,000 (rounded after necessary adjustment, if any) for the NOI Per Unit Analysis. EFFECTIVE GROSS INCOME MULTIPLIER (EGIM) ANALYSIS The effective gross income multiplier (EGIM) is derived by dividing the sales price by the total effective gross income. The following table illustrates the EGIMs for the comparable improved sales. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 25 BIG WALNUT, COLUMBUS, OHIO EFFECTIVE GROSS INCOME MULTIPLIER COMPARISON
COMPARABLE NO. OF SALE PRICE EFFECTIVE OPERATING SUBJECT NO. UNITS PRICE/UNIT GROSS INCOME EXPENSE OER PROJECTED OER EGIM ---------- ------ ---------- ------------ ---------- --- ------------- ----- I-1 759 $22,297,400 $4,122,696 $1,752,597 42.51% 5.41 $ 29,377 I-2 196 $ 6,400,000 $1,004,537 $ 428,537 42.66% 6.37 $ 32,653 43.16% I-3 316 $11,011,986 $2,042,675 $ 864,142 42.30% 5.39 $ 34,848 I-4 288 $10,314,300 $1,774,752 $ 708,690 39.93% 5.81 $ 35,814
EGIM
Low High Average Median 5.39 6.37 5.75 5.61
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES Estimate EGIM 5.50 Subject EGI $1,808,647 Value $9,947,560 Deferred Maintenance -$ 50,000 PV of Concessions -$ 116,000 ----------- Value Based on EGIM Analysis $9,781,560 Rounded $9,800,000 Value Per Unit $ 39,044
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 43.16% before reserves. The comparable sales indicate a range of expense ratios from 39.93% to 42.66%, while their EGIMs range from 5.39 to 6.37. Overall, we conclude to an EGIM of 5.50, which results in an "as is" value estimate in the EGIM Analysis of $9,800,000. 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 $9,700,000. Price Per Unit $9,600,000 NOI Per Unit $9,600,000 EGIM Analysis $9,800,000 Sales Comparison Conclusion $9,700,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 BIG WALNUT, COLUMBUS, OHIO INCOME CAPITALIZATION APPROACH The income capitalization approach is based on the premise that value is created by the expectation of future benefits. We estimated the present value of those benefits to derive an indication of the amount that a prudent, informed purchaser-investor would pay for the right to receive them as of the date of value. This approach requires an estimate of the NOI of a property. The estimated NOI is then converted to a value indication by use of either the direct capitalization or the discounted cash flow analysis (yield capitalization). Direct capitalization uses a single year's stabilized NOI as a basis for a value indication by dividing the income by a capitalization rate. The rate chosen accounts for a recapture of the investment by the investor and should reflect all factors that influence the value of the property, such as tenant quality, property condition, neighborhood change, market trends, interest rates, and inflation. The rate may be extracted from local market transactions or, when transaction evidence is lacking, obtained from trade sources. A discounted cash flow analysis focuses on the operating cash flows expected from the property and the proceeds of a hypothetical sale at the end of a holding period (the reversion). The cash flows and reversion are discounted to their present values using a market-derived discount rate and are added together to obtain a value indication. Because benefits to be received in the future are worth less than the same benefits received in the present, this method weights income in the early years more heavily than the income and the sale proceeds to be received later. The strength of the discounted cash flow method is its ability to recognize variations in projected net income, such as those caused by inflation, stepped leases, neighborhood change, or tenant turnover. Its weakness is that it requires many judgments regarding the actions of likely buyers and sellers of the property in the future. In some situations, both methods yield a similar result. The discounted cash flow method is typically more appropriate for the analysis of investment properties with multiple or long-term leases, particularly leases with cancellation clauses or renewal options. It is especially useful for multi-tenant properties in volatile markets. The direct capitalization AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 27 BIG WALNUT, COLUMBUS, OHIO method is normally more appropriate for properties with relatively stable operating histories and expectations. A pro forma analysis for the first year of the investment is made to estimate a reasonable potential net operating income for the Subject Property. Such an analysis entails an estimate of the gross income the property should command in the marketplace. From this total gross income must be deducted an allowance for vacancy/collection loss and operating expenses as dictated by general market conditions and the overall character of the subject's tenancy and leased income to arrive at a projected estimate of net operating income. Conversion of the net operating income to an indication of value is accomplished by the process of capitalization, as derived primarily from market data. MARKET RENT ANALYSIS In order to determine a market rental rate for the subject, a survey of competing apartment communities was performed. This survey was displayed previously in the market analysis section of the report. Detailed information pertaining to each of the comparable rental communities, along with photographs, is presented in the Addenda of this report. The following charts display the subject's current asking and actual rent rates as well as a comparison with the previous referenced comparable rental properties. SUMMARY OF ACTUAL AVERAGE RENTS
Average Unit Area ------------------------ Unit Type (Sq. Ft.) Per Unit Per SF % Occupied --------- --------- -------- ------ ---------- 1B/1B-1A10 694 $ 503 $ 0.73 91.7% 1B/1B-1B10 705 $ 474 $ 0.67 91.7% 1B/1B-1C10 975 $ 520 $ 0.53 85.7% 1B/1.5B-1A15 733 $ 504 $ 0.69 87.5% 2B/1.5B-2A15 1282 $ 618 $ 0.48 100.0% 2B/1.5B-2B15 1395 $ 625 $ 0.45 96.7% 2B/1.5B-2C15 1649 $ 668 $ 0.41 95.9% 2B/2B-2A20 1195 $ 630 $ 0.53 91.7%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 BIG WALNUT, COLUMBUS, OHIO RENT ANALYSIS
COMPARABLE RENTS ----------------------------------------------------- R-1 R-2 R-3 R-4 R-5 -------- ----------- ------- ---------- --- Club at Shaker Eagle's Square Hibernia Riding Club Pointe Apartments N/A ----------------------------------------------------- COMPARISON TO SUBJECT SUBJECT SUBJECT ----------------------------------------------------- SUBJECT UNIT ACTUAL ASKING Slightly Slightly DESCRIPTION TYPE RENT RENT Superior Superior Similar Similar 0 ----------- ------------ ------- ------- -------- -------- ------- ------- --- Monthly Rent 1B/1B-1A10 $ 503 $ 529 $ 455 $ 410 Unit Area (SF) 694 694 689 626 Monthly Rent Per Sq. Ft. $0.73 $0.76 $0.66 $0.65 Monthly Rent 1B/1B-1B10 $ 474 $ 469 $ 571 Unit Area (SF) 705 705 910 Monthly Rent Per Sq. Ft. $0.67 $0.67 $0.63 Monthly Rent 1B/1B-1C10 $ 520 $ 559 $ 587 $525 Unit Area (SF) 975 975 918 864 Monthly Rent Per Sq. Ft. $0.53 $0.57 $0.64 $0.61 Monthly Rent 1B/1.5B-1A15 $ 504 $ 529 $ 563 $510 Unit Area (SF) 733 733 901 775 Monthly Rent Per Sq. Ft. $0.69 $0.72 $0.62 $0.66 Monthly Rent 2B/1.5B-2A15 $ 618 $649 $ 613 $ 545 $543 $ 635 Unit Area (SF) 1,282 1,282 1,052 925 878 1,072 Monthly Rent Per Sq. Ft. $0.48 $0.51 $0.58 $0.59 $0.62 $0.59 Monthly Rent 2B/1.5B-2B15 $ 625 $ 649 $ 703 Unit Area (SF) 1,395 1,395 1,180 Monthly Rent Per Sq. Ft. $0.45 $0.47 $0.60 Monthly Rent 2B/1.5B-2C15 $ 668 $ 679 Unit Area (SF) 1,649 1,649 Monthly Rent Per Sq. Ft. $0.41 $0.41 Monthly Rent 2B/2B-2A20 $ 630 $ 659 $650 Unit Area (SF) 1,195 1,195 1,104 Monthly Rent Per Sq. Ft. $0.53 $0.55 $0.59 DESCRIPTION MIN MAX MEDIAN AVERAGE ----------- --- --- ------ ------- Monthly Rent $ 410 $ 455 $ 433 $ 433 Unit Area (SF) 626 689 658 658 Monthly Rent Per Sq. Ft. $0.65 $0.66 $0.66 $0.66 Monthly Rent $ 571 $ 571 $ 571 $ 571 Unit Area (SF) 910 910 910 910 Monthly Rent Per Sq. Ft. $0.63 $0.63 $0.63 $0.63 Monthly Rent $ 525 $ 587 $ 556 $ 556 Unit Area (SF) 864 918 891 891 Monthly Rent Per Sq. Ft. $0.61 $0.64 $0.62 $0.62 Monthly Rent $ 510 $ 563 $ 536 $ 536 Unit Area (SF) 775 901 838 838 Monthly Rent Per Sq. Ft. $0.62 $0.66 $0.64 $0.64 Monthly Rent $ 543 $ 635 $ 579 $ 584 Unit Area (SF) 878 1,072 989 982 Monthly Rent Per Sq. Ft. $0.58 $0.62 $0.59 $0.60 Monthly Rent $ 703 $ 703 $ 703 $ 703 Unit Area (SF) 1,180 1,180 1,180 1,180 Monthly Rent Per Sq. Ft. $0.60 $0.60 $0.60 $0.60 Monthly Rent Unit Area (SF) Monthly Rent Per Sq. Ft. Monthly Rent $ 650 $ 650 $ 650 $ 650 Unit Area (SF) 1,104 1,104 1,104 1,104 Monthly Rent Per Sq. Ft. $0.59 $0.59 $0.59 $0.59
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 --------- --------------- --------- -------- ------ ------- ------ 1B/1B-1A10 24 694 $519 $0.75 $ 12,456 $ 149,472 1B/1B-1B10 24 705 $469 $0.67 $ 11,256 $ 135,072 1B/1B-1C10 21 975 $549 $0.56 $ 11,529 $ 138,348 1B/1.5B-1A15 24 733 $519 $0.71 $ 12,456 $ 149,472 2B/1.5B-2A15 42 1,282 $649 $0.51 $ 27,258 $ 327,096 2B/1.5B-2B15 30 1,395 $649 $0.47 $ 19,470 $ 233,640 2B/1.5B-2C15 74 1,649 $679 $0.41 $ 50,246 $ 602,952 2B/2B-2A20 12 1,195 $649 $0.54 $ 7,788 $ 93,456 Total $152,459 $1,829,508
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 29 BIG WALNUT, COLUMBUS, OHIO 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 30 BIG WALNUT, COLUMBUS, OHIO SUMMARY OF HISTORICAL INCOME & EXPENSES
FISCAL YEAR 2000 FISCAL YEAR 2001 FISCAL YEAR 2002 ACTUAL ACTUAL ACTUAL ----------------------- ----------------------- ----------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT ----------- ------------ -------- ------------ -------- ------------ -------- Revenues Rental Income $ 1,765,540 $ 7,034 $ 1,506,608 $ 6,002 $ 1,751,166 $ 6,977 Vacancy $ 173,284 $ 690 $ 247,226 $ 985 $ 82,191 $ 327 Credit Loss/Concessions $ 52,252 $ 208 $ 87,768 $ 350 $ 45,990 $ 183 ------------ -------- ------------ -------- ------------ -------- Subtotal $ 225,536 $ 899 $ 334,994 $ 1,335 $ 128,181 $ 511 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 81,810 $ 326 $ 90,924 $ 362 $ 156,164 $ 622 ------------ -------- ------------ -------- ------------ -------- Subtotal Other Income $ 81,810 $ 326 $ 90,924 $ 362 $ 156,164 $ 622 ------------ -------- ------------ -------- ------------ -------- Effective Gross Income $ 1,621,814 $ 6,461 $ 1,262,538 $ 5,030 $ 1,779,149 $ 7,088 Operating Expenses Taxes $ 156,041 $ 622 $ 93,421 $ 372 $ 149,415 $ 595 Insurance $ 31,387 $ 125 $ 41,781 $ 166 $ 50,821 $ 202 Utilities $ 91,303 $ 364 $ 79,077 $ 315 $ 87,639 $ 349 Repair & Maintenance $ 52,895 $ 211 $ 33,417 $ 133 $ 24,872 $ 99 Cleaning $ 77,888 $ 310 $ 48,082 $ 192 $ 61,880 $ 247 Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 43,239 $ 172 $ 42,216 $ 168 $ 20,405 $ 81 General Administrative $ 31,998 $ 127 $ 28,067 $ 112 $ 26,264 $ 105 Management $ 84,169 $ 335 $ 66,459 $ 265 $ 90,866 $ 362 Miscellaneous $ 222,211 $ 885 $ 193,569 $ 771 $ 249,812 $ 995 ------------ -------- ------------ -------- ------------ -------- Total Operating Expenses $ 791,131 $ 3,152 $ 626,089 $ 2,494 $ 761,974 $ 3,036 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ------------ -------- ------------ -------- ------------ -------- Net Income $ 830,683 $ 3,309 $ 636,449 $ 2,536 $ 1,017,175 $ 4,052 FISCAL YEAR 2003 ANNUALIZED 2003 MANAGEMENT BUDGET PROJECTION AAA PROJECTION ----------------------- ----------------------- ----------------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT % ----------- ------------ -------- ------------ -------- ------------ -------- ------ Revenues Rental Income $ 1,791,420 $ 7,137 $ 1,783,888 $ 7,107 $ 1,829,508 $ 7,289 100.0% Vacancy $ 74,000 $ 295 $ 148,620 $ 592 $ 91,475 $ 364 5.0% Credit Loss/Concessions $ 41,650 $ 166 $ 233,496 $ 930 $ 54,885 $ 219 3.0% ------------ -------- ------------ -------- ------------ -------- ----- Subtotal $ 115,650 $ 461 $ 382,116 $ 1,522 $ 146,361 $ 583 8.0% Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 131,863 $ 525 $ 458,860 $ 1,828 $ 125,500 $ 500 6.9% ------------ -------- ------------ -------- ------------ -------- ----- Subtotal Other Income $ 131,863 $ 525 $ 458,860 $ 1,828 $ 125,500 $ 500 6.9% ------------ -------- ------------ -------- ------------ -------- ----- Effective Gross Income $ 1,807,633 $ 7,202 $ 1,860,632 $ 7,413 $ 1,808,647 $ 7,206 100.0% Operating Expenses Taxes $ 153,096 $ 610 $ 140,456 $ 560 $ 153,110 $ 610 8.5% Insurance $ 55,680 $ 222 $ 54,816 $ 218 $ 55,220 $ 220 3.1% Utilities $ 84,788 $ 338 $ 129,308 $ 515 $ 87,850 $ 350 4.9% Repair & Maintenance $ 30,238 $ 120 $ 60,136 $ 240 $ 37,650 $ 150 2.1% Cleaning $ 57,990 $ 231 $ 80,444 $ 320 $ 61,495 $ 245 3.4% Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Marketing & Leasing $ 29,328 $ 117 $ 22,400 $ 89 $ 31,375 $ 125 1.7% General Administrative $ 24,828 $ 99 $ 46,824 $ 187 $ 25,100 $ 100 1.4% Management $ 90,882 $ 362 $ 79,840 $ 318 $ 90,432 $ 360 5.0% Miscellaneous $ 241,157 $ 961 $ 225,116 $ 897 $ 238,450 $ 950 13.2% ------------ -------- ------------ -------- ------------ -------- ----- Total Operating Expenses $ 767,987 $ 3,060 $ 839,340 $ 3,344 $ 780,682 $ 3,110 43.2% Reserves $ 0 $ 0 $ 0 $ 0 $ 62,750 $ 250 8.0% ------------ -------- ------------ -------- ------------ -------- ----- Net Income $ 1,039,646 $ 4,142 $ 1,021,292 $ 4,069 $ 965,215 $ 3,845 53.4%
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 8% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 31 BIG WALNUT, COLUMBUS, OHIO RESERVES FOR REPLACEMENT "Reserves for replacements" is a contingency account allocated to the expenses of the property to provide for replacement of short-lived items and for unforeseen necessary capital expenditures. We have utilized the Korpacz Real Estate Investor Survey of the national apartment market, which reports a range of replacement reserves between $150 and $400 per unit. For purposes of this analysis, we have included an allowance of $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 some major items remaining in need of repair or replacement that would require an expense beyond our reserves for replacement. Therefore an additional $50,000 has been deducted. 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 32 BIG WALNUT, COLUMBUS, OHIO SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR --------- --------- ------ ---------- --- I-1 Aug-02 95% $29,377 10.63% I-2 Nov-02 87% $32,653 9.00% I-3 Sep-01 95% $34,848 10.70% I-4 Sep-01 95% $35,814 10.34% I-5 Jan-00 0% N/A High 10.70% Low 9.00% Average 10.17%
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 11.75%. HOLDING PERIOD The survey of investors indicates that most investors are completing either 10-year cash flows or extending the analysis to the end of the lease if it is more than 10-years. A 10-year period has been used in the analysis of the subject with the eleventh year stabilized NOI used to determine the reversion. SELLING COSTS Sales of similar size properties are typically accomplished with the aid of a broker and will also incur legal and other transaction related cost. Based on our survey of brokers and a review of institutional investor projections, an allowance of 2.00% of the sale amount is applied. DISCOUNTED CASH FLOW CONCLUSION Discounting the annual cash flows and the equity reversion at the selected rate of 11.75% indicates a value of $9,900,000. In this instance, the reversion figure contributes approximately 38% of the total value. Investors surveyed for this assignment indicated they AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 33 BIG WALNUT, COLUMBUS, OHIO 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 34 BIG WALNUT, COLUMBUS, OHIO DISCOUNTED CASH FLOW ANALYSIS BIG WALNUT
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 FISCAL YEAR 1 2 3 4 5 6 ----------- ------------ ------------ ------------ ------------ ------------ ------------ REVENUE Base Rent $ 1,829,508 $ 1,829,508 $ 1,884,393 $ 1,940,925 $ 1,999,153 $ 2,059,127 Vacancy $ 91,475 $ 91,475 $ 94,220 $ 97,046 $ 99,958 $ 102,956 Credit Loss $ 54,885 $ 54,885 $ 56,532 $ 58,228 $ 59,975 $ 61,774 Concessions $ 112,789 $ 18,295 $ 0 $ 0 $ 0 $ 0 ------------ ------------ ------------ ------------ ------------ ------------ Subtotal $ 259,150 $ 164,656 $ 150,751 $ 155,274 $ 159,932 $ 164,730 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 125,500 $ 125,500 $ 129,265 $ 133,143 $ 137,137 $ 141,251 ------------ ------------ ------------ ------------ ------------ ------------ Subtotal Other Income $ 125,500 $ 125,500 $ 129,265 $ 133,143 $ 137,137 $ 141,251 ------------ ------------ ------------ ------------ ------------ ------------ EFFECTIVE GROSS INCOME $ 1,695,858 $ 1,790,352 $ 1,862,907 $ 1,918,794 $ 1,976,358 $ 2,035,649 OPERATING EXPENSES: Taxes $ 153,110 $ 157,703 $ 162,434 $ 167,307 $ 172,327 $ 177,496 Insurance $ 55,220 $ 56,877 $ 58,583 $ 60,340 $ 62,151 $ 64,015 Utilities $ 87,850 $ 90,486 $ 93,200 $ 95,996 $ 98,876 $ 101,842 Repair & Maintenance $ 37,650 $ 38,780 $ 39,943 $ 41,141 $ 42,375 $ 43,647 Cleaning $ 61,495 $ 63,340 $ 65,240 $ 67,197 $ 69,213 $ 71,290 Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 31,375 $ 32,316 $ 33,286 $ 34,284 $ 35,313 $ 36,372 General Administrative $ 25,100 $ 25,853 $ 26,629 $ 27,427 $ 28,250 $ 29,098 Management $ 84,793 $ 89,518 $ 93,145 $ 95,940 $ 98,818 $ 101,782 Miscellaneous $ 238,450 $ 245,604 $ 252,972 $ 260,561 $ 268,378 $ 276,429 ------------ ------------ ------------ ------------ ------------ ------------ TOTAL OPERATING EXPENSES $ 775,043 $ 800,475 $ 825,432 $ 850,195 $ 875,700 $ 901,971 Reserves $ 62,750 $ 64,633 $ 66,571 $ 68,569 $ 70,626 $ 72,744 ------------ ------------ ------------ ------------ ------------ ------------ NET OPERATING INCOME $ 858,065 $ 925,245 $ 970,904 $ 1,000,031 $ 1,030,032 $ 1,060,933 Operating Expense Ratio (% of EGI) 45.7% 44.7% 44.3% 44.3% 44.3% 44.3% Operating Expense Per Unit $ 3,088 $ 3,189 $ 3,289 $ 3,387 $ 3,489 $ 3,594 YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 7 8 9 10 11 ----------- ------------ ------------ ------------ ------------ ------------ REVENUE Base Rent $ 2,120,901 $ 2,184,528 $ 2,250,064 $ 2,317,566 $ 2,387,093 Vacancy $ 106,045 $ 109,226 $ 112,503 $ 115,878 $ 119,355 Credit Loss $ 63,627 $ 65,536 $ 67,502 $ 69,527 $ 71,613 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 ------------ ------------ ------------ ------------ ------------ Subtotal $ 169,672 $ 174,762 $ 180,005 $ 185,405 $ 190,967 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 145,489 $ 149,854 $ 154,349 $ 158,980 $ 163,749 ------------ ------------ ------------ ------------ ------------ Subtotal Other Income $ 145,489 $ 149,854 $ 154,349 $ 158,980 $ 163,749 ------------ ------------ ------------ ------------ ------------ EFFECTIVE GROSS INCOME $ 2,096,718 $ 2,159,620 $ 2,224,408 $ 2,291,140 $ 2,359,875 OPERATING EXPENSES: Taxes $ 182,821 $ 188,306 $ 193,955 $ 199,774 $ 205,767 Insurance $ 65,936 $ 67,914 $ 69,951 $ 72,050 $ 74,211 Utilities $ 104,897 $ 108,044 $ 111,286 $ 114,624 $ 118,063 Repair & Maintenance $ 44,956 $ 46,305 $ 47,694 $ 49,125 $ 50,598 Cleaning $ 73,428 $ 75,631 $ 77,900 $ 80,237 $ 82,644 Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 Security $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 37,463 $ 38,587 $ 39,745 $ 40,937 $ 42,165 General Administrative $ 29,971 $ 30,870 $ 31,796 $ 32,750 $ 33,732 Management $ 104,836 $ 107,981 $ 111,220 $ 114,557 $ 117,994 Miscellaneous $ 284,722 $ 293,263 $ 302,061 $ 311,123 $ 320,457 ------------ ------------ ------------ ------------ ------------ TOTAL OPERATING EXPENSES $ 929,030 $ 956,901 $ 985,608 $ 1,015,177 $ 1,045,632 Reserves $ 74,927 $ 77,175 $ 79,490 $ 81,875 $ 84,331 ------------ ------------ ------------ ------------ ------------ NET OPERATING INCOME $ 1,092,761 $ 1,125,544 $ 1,159,310 $ 1,194,089 $ 1,229,912 Operating Expense Ratio (% of EGI) 44.3% 44.3% 44.3% 44.3% 44.3% Operating Expense Per Unit $ 3,701 $ 3,812 $ 3,927 $ 4,045 $ 4,166 "DCF" Value Analysis Gross Residual Sale Deferred Maintenance -$ 50,000 Price $11,713,446 Estimated Stabilized NOI $965,215 Sales Expense Rate 2.00% Less: Sales Expense $ 234,269 Add: Excess Land $ 0 ----------- Months to Stabilized 1 Discount Rate 11.75% Net Residual Sale Price $11,479,177 Other Adjustments $ 0 ----------- Stabilized Occupancy 95.0% Terminal Cap Rate 10.50% PV of Reversion $ 3,779,509 Value Indicated By Add: NPV of NOI $ 6,128,465 "DCF" $9,857,974 ----------- PV Total $ 9,907,974 Rounded $9,900,000
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE ------------------------------------------------------------------------------ TOTAL VALUE 11.25% 11.50% 11.75% 12.00% 12.25% -------------------------- ----------- ----------- ----------- ---------- ---------- 10.00% $10,425,208 $10,259,295 $10,096,950 $9,938,085 $9,782,612 10.25% $10,323,977 $10,160,310 $10,000,158 $9,843,431 $9,690,046 TERMINAL CAP RATE 10.50% $10,227,565 $10,066,039 $ 9,907,974 $9,753,285 $9,601,888 10.75% $10,135,639 $ 9,976,153 $ 9,820,079 $9,667,332 $9,517,830 11.00% $10,047,890 $ 9,890,352 $ 9,736,179 $9,585,286 $9,437,593
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 35 BIG WALNUT, COLUMBUS, OHIO INCOME LOSS DURING LEASE-UP The subject is currently near or at a stabilized condition. Therefore, there is no income loss during lease-up at the subject property. CONCESSIONS Due to softness in the market, concessions have been utilized at the subject property and within the market. Based on our discussions with the subject's property manager and those at competing properties, these concessions are expected to continue in the near term until the market returns to a stabilized level. Concessions have been included as a line item deduction within the discounted cash flow analysis. The present value of these concessions equates to $116,000 (rounded). This amount has been deducted from the Direct Capitalization analysis, as well as the Sales Comparison Approach value. DIRECT CAPITALIZATION METHOD After having projected the income and expenses for the property, the next step in the valuation process is to capitalize the net income into an estimate of value. The selected overall capitalization rate ("OAR") covers both return on and return of capital. It is the overall rate of return an investor expects. After considering the market transactions and the investor surveys, we previously conclude that an overall rate of 10.00% percent is applicable to the subject. The results of our direct capitalization analysis are as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 36 BIG WALNUT, COLUMBUS, OHIO BIG WALNUT
TOTAL PER SQ. FT. PER UNIT %OF EGI ----------------------------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $1,829,508 $ 6.02 $ 7,289 Less: Vacancy & Collection Loss 8.00% $ 146,361 $ 0.48 $ 583 Plus: Other Income Laundry Income $ 0 $ 0.00 $ 0 0.00% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 125,500 $ 0.41 $ 500 6.94% -------------------------------------------------------------------------- Subtotal Other Income $ 125,500 $ 0.41 $ 500 6.94% EFFECTIVE GROSS INCOME $1,808,647 $ 5.96 $ 7,206 OPERATING EXPENSES: Taxes $ 153,110 $ 0.50 $ 610 8.47% Insurance $ 55,220 $ 0.18 $ 220 3.05% Utilities $ 87,850 $ 0.29 $ 350 4.86% Repair & Maintenance $ 37,650 $ 0.12 $ 150 2.08% Cleaning $ 61,495 $ 0.20 $ 245 3.40% Landscaping $ 0 $ 0.00 $ 0 0.00% Security $ 0 $ 0.00 $ 0 0.00% Marketing & Leasing $ 31,375 $ 0.10 $ 125 1.73% General Administrative $ 25,100 $ 0.08 $ 100 1.39% Management 5.00% $ 90,432 $ 0.30 $ 360 5.00% Miscellaneous $ 238,450 $ 0.79 $ 950 13.18% TOTAL OPERATING EXPENSES $ 780,682 $ 2.57 $ 3,110 43.16% Reserves $ 62,750 $ 0.21 $ 250 3.47% -------------------------------------------------------------------------- NET OPERATING INCOME $ 965,215 $ 3.18 $ 3,845 53.37% "GOING IN" CAPITALIZATION RATE 10.00% VALUE INDICATION $9,652,150 $31.78 $38,455 DEFERRED MAINTENANCE ($ 50,000) PV OF CONCESSIONS ($ 116,000) "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $9,486,150 ROUNDED $9,500,000 $31.28 $37,849
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 37 BIG WALNUT, COLUMBUS, OHIO DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF --------------------------------------------------------------------------------------------------------------------- 9.25% $10,268,757 $10,300,000 $41,036 $33.91 9.50% $ 9,994,158 $10,000,000 $39,841 $32.93 9.75% $ 9,733,641 $ 9,700,000 $38,645 $31.94 10.00% $ 9,486,150 $ 9,500,000 $37,849 $31.28 10.25% $ 9,250,732 $ 9,300,000 $37,052 $30.62 10.50% $ 9,026,524 $ 9,000,000 $35,857 $29.63 10.75% $ 8,812,744 $ 8,800,000 $35,060 $28.98
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $9,500,000. 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 $9,900,000 Direct Capitalization Method $9,500,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $9,800,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 38 BIG WALNUT, COLUMBUS, OHIO RECONCILIATION AND CONCLUSION This appraisal was made to express an opinion as of the Market Value of the fee simple estate in the property. AS IS MARKET VALUE OF THE FEE SIMPLE ESTATE Cost Approach Not Utilized Sales Comparison Approach $9,700,000 Income Approach $9,800,000 Reconciled Value $9,800,000
The Direct Capitalization Method is considered a reliable indicator of value. Income and expenses were estimated and projected based on historical operating statements and market oriented expenses. This method is primarily used by investors in their underwriting analysis. Furthermore, there was good support for an overall rate in the Direct Capitalization Method. The Sales Comparison Approach to value supported the value conclusion by the Income Approach and was given secondary consideration. Investment-grade, income-producing properties such as the subject are not typically traded based on cost. Therefore, the Cost Approach has not been considered in our valuation. FINAL VALUE - FEE SIMPLE ESTATE Based on the investigation and premise outlined, it is our opinion that as of April 30, 2003 the market value of the fee simple estate in the property is: $9,800,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA BIG WALNUT, COLUMBUS, OHIO ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A BIG WALNUT, COLUMBUS, OHIO EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A BIG WALNUT, COLUMBUS, OHIO SUBJECT PHOTOGRAPHS [EXTERIOR - ENTRANCE PICTURE] [EXTERIOR - RESIDENTIAL UNITS PICTURE] [EXTERIOR - POOL PICTURE] [EXTERIOR - TENNIS COURTS PICTURE] [INTERIOR - UNIT PICTURE] [INTERIOR - TYPICAL KITCHEN PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B BIG WALNUT, COLUMBUS, OHIO EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B BIG WALNUT, COLUMBUS, OHIO PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 THE CLUB AT EAGLE'S POINTE BOLTON ESTATES NORTHGATE APARTMENTS 6033 Lake Club Court 1150 Norton Road 6175 Northgate Road Columbus, Ohio Columbus, Ohio Columbus, Ohio N/A [PICTURE] [PICTURE] COMPARABLE I-4 SPRING CREEK 5811 Spring Run Drive Columbus, Ohio [PICTURE] N/A AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B BIG WALNUT, COLUMBUS, OHIO SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 ----------------------------------------------------------------------------------------------------------------------------- Property Name Big Walnut Hibernia Management Company Aimco Oakwood Management LOCATION: Address 5280 Gatehouse Drive 5680 Hibernia Drive City, State Columbus, Ohio Columbus, Ohio County Franklin Franklin Proximity to Subject 1/4 Mile south of the subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 303,703 353,220 Year Built 1968 1986 Effective Age 20 10 Building Structure Type Brick & wood siding walls; asphalt Wood siding; asphalt shingled shingle roof roofs Parking Type (Gr., Cov., etc.) Open, Covered Open, Covered Number of Units 251 348 Unit Mix: Type Unit Qty Mo Rent Type Unit Qty Mo 1 1B/1B-1A10 694 24 $503 2 1Br/1Ba - Type 1 910 87 $571 2 1B/1B-1B10 705 24 $474 3 1Br/1Ba - Type 2 918 87 $587 3 1B/1B-1C10 975 21 $520 5 2Br/1.5Ba - Type 1 1,052 87 $613 4 1B/1.5B-1A15 733 24 $504 6 2Br/1.5Ba - Type 2 1,180 87 $703 5 2B/1.5B-2A15 1,282 42 $618 6 2B/1.5B-2B15 1,395 30 $625 7 2B/1.5B-2C15 1,649 74 $668 8 2B/2B-2A20 1,195 12 $630 Average Unit Size (SF) 1,210 1,015 Unit Breakdown: Efficiency 0% 2-Bedroom 63% Efficiency 0% 2-Bedroom 0% 1-Bedroom 37% 3-Bedroom 0% 1-Bedroom 0% 3-Bedroom 0% CONDITION: Average Good APPEAL: Average Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X W/D Connect. X Balcony X W/D Connect. Fireplace Other X Fireplace Other 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 X Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball Meeting Hall Sand Volley Ball X Meeting Hall X Tennis Court X Secured Parking Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball Laundry Room Jogging Track X Business Office X Jogging Track X Business Office Gym Room Gym Room OCCUPANCY: 94% 85% LEASING DATA: Available Leasing Terms 6 to 15 Months 3 to 12 Months Concessions 1 Month Free 1 Month Free Pet Deposit $200 $200 Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water Trash X Water Trash Confirmation April 30, 2003; Carinne Blackwell April 30, 2003; Carinne Blackwell (PM) and Telephone Number (614) 863-3306 (614) 866-6282 NOTES: This is a younger complex located on the south side of Route 40. COMPARISON TO SUBJECT: Slightly Superior COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 ----------------------------------------------------------------------------------------------------------------------------- Property Name Riding Club Club at Eagle's Pointe Management Company Plaza Properties Alliance Residential LOCATION: Address 5198 Riding Club Lane 6033 Lake Club Street City, State Columbus, Ohio Columbus, Ohio County Franklin Franklin Proximity to Subject 1/4 Mile south of the subject 1/2 Mile south of the subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 414,528 579,112 Year Built 1968 1971 Effective Age 20 20 Building Structure Type Masonry veneer walls; composition Wood siding; asphalt shingle roof shingled roofs Parking Type (Gr., Cov., etc.) Open, Covered Open, Covered Number of Units 405 759 Unit Mix: Type Unit Qty Mo Type Unit Qty Mo 1 1Br/1Ba 689 64 $455 1 1Br/1Ba - Type 1 626 276 $410 4 1Br/1.5Ba 733 64 $525 3 1Br/1Ba - Type 2 864 30 $525 2Br/1Ba 965 76 $525 4 1Br/1.5Ba 775 32 $510 5 2Br/1.5Ba - Type 1 925 48 $545 5 2Br/1Ba 856 273 $535 4 2Br/1.5Ba - Type 1 1,045 75 $595 5 2Br/1Ba 1,000 33 $575 3Br/2Ba 1,405 38 $745 5 2Br/1.5Ba 1,000 15 $610 3Br/2.5Ba 1,260 40 $695 8 2Br/2Ba 1,104 34 $650 Studio 504 66 $400 Average Unit Size (SF) 965 759 Unit Breakdown: Efficiency 0% 2-Bedroom Efficiency 9% 2-Bedroom 46% 1-Bedroom 3-Bedroom 1-Bedroom 45% 3-Bedroom 0% CONDITION: Average Average APPEAL: Good Average AMENITIES: Unit Amenities Attach. Garage Vaulted Attach. Vaulted Ceiling Garage Ceiling X Balcony W/D Connect. X Balcony 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 Car Wash Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room X Volleyball Court Theater Room Sand Volley Ball X Meeting Hall Sand Volley Ball Meeting Hall X Tennis Court Secured Parking X Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track X Business Office Jogging Track X Business Office Gym Room Gym Room OCCUPANCY: 96% 92% LEASING DATA: Available Leasing Terms 6 to 15 Months 6 to 15 Months Concessions 1 Month Free 1 Month Free Pet Deposit $200 - $300 $200 Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water Trash X Water Trash Confirmation April 30, 2003; Carinne Blackwell April 30, 2003; Carinne (PM) and Plaza Blackwell (PM) and Telephone Number (614) 237-3726 (614) 863-3306 NOTES: Residents have free access to the pool None and tennis courts, and pay a discounted fee to use an adjacent state-of-the-art fitness center. COMPARISON TO SUBJECT: Slightly Superior Similar COMPARABLE COMPARABLE DESCRIPTION R - 4 R - 5 ----------------------------------------------------------------------------------------------------------------------------- Property Name Shaker Square Apartments N/A Management Company Buckingham Properties LOCATION: Address 280 Barkley Place W City, State Columbus, Ohio County Franklin Proximity to Subject 1/2 Mile north of subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 207,928 Year Built 1970 Effective Age 20 Building Structure Type Masonry siding walls; asphalt shingle roof Parking Type (Gr., Cov., etc.) Open, Covered Number of Units 194 Unit Mix: Type Unit Qty Mo Type Unit Qty Mo 5 2Br/1.5Ba 1,064 138 $625 5 2Br/1.5Ba 1,091 56 $660 Average Unit Size (SF) 1,072 Unit Breakdown: Efficiency 0% 2-Bedroom 100% Efficiency 2-Bedroom 1-Bedroom 0% 3-Bedroom 0% 1-Bedroom 3-Bedroom CONDITION: Slightly Superior Slightly Superior APPEAL: Good Good AMENITIES: Unit Amenities Attach. Garage Vaulted Attach. Garage Vaulted Ceiling Ceiling X Balcony X W/D Connect. Balcony W/D Connect. Fireplace Other Fireplace Other X Cable TV Ready Cable TV Ready Project Amenities X Swimming Pool Swimming Pool Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball X Meeting Hall Sand Volley Ball Meeting Hall Tennis Court Secured Parking Tennis Court Secured Parking Racquet Ball Laundry Room Racquet Ball Laundry Room Jogging Track X Business Office Jogging Track Business Office X Gym Room Gym Room OCCUPANCY: 83% LEASING DATA: Available Leasing Terms 6 to 15 Months Concessions 1 Month Free Pet Deposit $200 Utilities Paid by Tenant: X Electric X Natural Gas Electric Natural Gas X Water Trash Water Trash Confirmation April 30, 2003; Carinne Blackwell (PM) and Shaker Telephone Number (614) 863-3306 NOTES: None COMPARISON TO SUBJECT: Similar
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B BIG WALNUT, COLUMBUS, OHIO PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 HIBERNIA RIDING CLUB CLUB AT EAGLE'S POINTE 5680 Hibernia Drive 5198 Riding Club Lane 6033 Lake Club Street Columbus, Ohio Columbus, Ohio Columbus, Ohio [PICTURE] [PICTURE] N/A COMPARABLE R-4 COMPARABLE R-5 SHAKER SQUARE APARTMENTS N/A 280 Barkley Place W Columbus, Ohio [PICTURE] N/A AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C BIG WALNUT, COLUMBUS, OHIO EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C BIG WALNUT, COLUMBUS, OHIO No responsibility is assumed for matters legal in nature. No investigation has been made of the title to or any liabilities against the property appraised. In this appraisal, it is presumed that, unless otherwise noted, the owner's claim is valid, the property rights are good and marketable, and there are no encumbrances which cannot be cleared through normal processes. To the best of our knowledge, all data set forth in this report are true and accurate. Although gathered from reliable sources, no guarantee is made nor liability assumed for the accuracy of any data, opinions, or estimates identified as being furnished by others which have been used in formulating this analysis. Land areas and descriptions used in this appraisal were obtained from public records and have not been verified by legal counsel or a licensed surveyor. No soil analysis or geological studies were ordered or made in conjunction with this report, nor were any water, oil, gas, or other subsurface mineral and use rights or conditions investigated. Substances such as asbestos, urea-formaldehyde foam insulation, other chemicals, toxic wastes, or other potentially hazardous materials could, if present, adversely affect the value of the property. Unless otherwise stated in this report, the existence of hazardous substance, which may or may not be present on or in the property, was not considered by the appraiser in the development of the conclusion of value. The stated value estimate is predicated on the assumption that there is no material on or in the property that would cause such a loss in value. No responsibility is assumed for any such conditions, and the client has been advised that the appraiser is not qualified to detect such substances, quantify the impact on values, or develop the remedial cost. No environmental impact study has been ordered or made. Full compliance with applicable federal, state, and local environmental regulations and laws is assumed unless otherwise stated, defined, and considered in the report. It is also assumed that all required licenses, consents, or other legislative or administrative authority from any local, state, or national government or private entity organization either have been or can be obtained or renewed for any use which the report covers. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C BIG WALNUT, COLUMBUS, OHIO It is assumed that all applicable zoning and use regulations and restrictions have been complied with unless a nonconformity has been stated, defined, and considered in the appraisal report. Further, it is assumed that the utilization of the land and improvements is within the boundaries of the property described and that no encroachment or trespass exists unless noted in the report. The Americans with Disabilities Act ("ADA") became effective January 26, 1992. We have not made a specific compliance survey and analysis of this property to determine whether or not it is in conformity with the various detailed requirements of the ADA. It is possible that a compliance survey of the property together with a detailed analysis of the requirements of the ADA could reveal that the property is not in compliance with one or more of the requirements of the act. If so, this fact could have a negative effect on the value of the property. Since we have no direct evidence relating to this issue, we did not consider the possible noncompliance with the requirements of ADA in estimating the value of the property. We have made a physical inspection of the property and noted visible physical defects, if any, in our report. This inspection was made by individuals generally familiar with real estate and building construction. However, these individuals are not architectural or structural engineers who would have detailed knowledge of building design and structural integrity. Accordingly, we do not opine on, nor are we responsible for, the structural integrity of the property including its conformity to specific governmental code requirements, such as fire, building and safety, earthquake, and occupancy, or any physical defects which were not readily apparent to the appraiser during the inspection. The value or values presented in this report are based upon the premises outlined herein and are valid only for the purpose or purposes stated. The date of value to which the conclusions and opinions expressed apply is set forth in this report. The value opinion herein rendered is based on the status of the national business economy and the purchasing power of the U.S. dollar as of that date. Testimony or attendance in court or at any other hearing is not required by reason of this appraisal unless arrangements are previously made within a reasonable time in advance for AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C BIG WALNUT, COLUMBUS, OHIO such testimony, and then such testimony shall be at American Appraisal Associates, Inc.'s, prevailing per diem for the individuals involved. Possession of this report or any copy thereof does not carry with it the right of publication. No portion of this report (especially any conclusion to use, the identity of the appraiser or the firm with which the appraiser is connected, or any reference to the American Society of Appraisers or the designations awarded by this organization) shall be disseminated to the public through prospectus, advertising, public relations, news, or any other means of communication without the written consent and approval of American Appraisal Associates, Inc. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D BIG WALNUT, COLUMBUS, OHIO EXHIBIT D CERTIFICATE OF APPRAISER (1 PAGE) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D CERTIFICATE OF APPRAISER I certify that, to the best of my knowledge and belief: The statements of fact contained in this report are true and correct. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and represent the unbiased professional analyses, opinions, and conclusions of American Appraisal Associates, Inc. American Appraisal Associates, Inc. and I personally, have no present or prospective interest in the property that is the subject of this report and have no personal interest or bias with respect to the parties involved. Compensation for American Appraisal Associates, Inc. is not contingent on an action or event resulting from the analyses, opinions, or conclusions in, or the use of, this report. The analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Uniform Standards of Professional Appraisal Practice and the Code of Professional Ethics and the Standards of Professional Practice of the Appraisal Institute. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. I personally did not inspect the subject property. Richard Mupo provided significant real property appraisal assistance in the preparation of this report. I am currently in compliance with the Appraisal Institute's continuing education requirements. /s/ Brian Johnson, MAI --------------------------- Brian Johnson, MAI Managing Principal, Real Estate Group AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E BIG WALNUT, COLUMBUS, OHIO EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E BIG WALNUT, COLUMBUS, OHIO F. BRIAN JOHNSON, MAI MANAGING PRINCIPAL, REAL ESTATE ADVISORY GROUP POSITION F. Brian Johnson is the Managing Principal of the New York Real Estate Advisory Group of American Appraisal Associates, Inc. ("AAA"). EXPERIENCE Valuation Mr. Johnson has completed appraisals for securitization and pension funds/insurance industries. Analyses he has performed involve various types of investment-grade real estate throughout the continental United States including apartments, cooperatives, hotels, industrial and research and development parks, office buildings, regional shopping centers, and undeveloped acreage. Additional experience includes the valuation of existing and proposed investment-grade real estate, market and feasibility studies and offering memorandums for debt placement, equity investments and acquisitions, and disposition analysis. Court Mr. Johnson is qualified as an expert witness for the New Jersey Supreme Court. Business Mr. Johnson joined AAA in 1998 and was promoted to his current position in 1999. Prior to joining AAA, Mr. Johnson was a Senior Vice President at Koeppel Tener Real Estate Services and a Vice President at L. W. Ellwood & Co. EDUCATION Fairleigh Dickinson Bachelor of Science - Finance STATE CERTIFICATIONS State of New Jersey, General Appraiser, #42RG00158300 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E COLONY OF SPRINGDALE, SPRINGDALE, OHIO PROFESSIONAL Appraisal Institute, MAI Designated Member AFFILIATIONS VALUATION AND Several courses are completed on an annual basis as SPECIAL COURSES part of the continuing education requirements of the Appraisal Institute. In addition, Mr. Johnson attends real estate and financial industry-related conferences and seminars. PUBLICATIONS "Operational Items to Consider When Appraising a Regional Mall," Appraisal Journal, 1991 AMERICAN APPRAISAL ASSOCIATES, INC. BIG WALNUT, COLUMBUS, OHIO GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. BIG WALNUT, COLUMBUS, OHIO GENERAL SERVICE CONDITIONS The services(s) provided by AAA will be performed in accordance with professional appraisal standards. Our compensation is not contingent in any way upon our conclusions of value. We assume, without independent verification, the accuracy of all data provided to us. We will act as an independent contractor and reserve the right to use subcontractors. All files, workpapers or documents developed by us during the course of the engagement will be our property. We will retain this data for at least five years. Our report is to be used only for the specific purpose stated herein; and any other use is invalid. No reliance may be made by any third party without our prior written consent. You may show our report in its entirety to those third parties who need to review the information contained herein. No one should rely on our report as a substitute for their own due diligence. We understand that our reports will be described in public tender offer documents distributed to limited partners. We reserve the right to review the public tender offer documents prior to their issuance to confirm that disclosures of facts from the current appraisals are accurate. No reference to our name or our report, in whole or in part, in any other SEC filing or private placement memorandum you prepare and/or distribute to third parties may be made without our prior written consent. The Tender Offer Partnerships, as that term is defined in the Settlement Agreement, agree to indemnify and hold us harmless against and from any and all losses, claims, actions, damages, expenses or liabilities, including reasonable attorneys' fees, to which we may become subject in connection with this engagement except where such losses, claims, actions, damages, expenses or liabilities, including reasonable attorney's fees, arise or result from AAA's misconduct, bad faith or negligence. Co-Clients will not be liable for any of our acts or omissions. AAA is an equal opportunity employer.