EX-99.(C)(2) 6 d16091exv99wxcyx2y.txt APPRAISAL OF REFLECTIONS REFLECTIONS (GREENSPRING MANOR) 7999 SILVERLEAF DRIVE INDIANAPOLIS, INDIANA MARKET VALUE - FEE SIMPLE ESTATE AS OF MAY 7, 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 LOGO] [AMERICAN APPRAISAL ASSOCIATES LOGO] 9441 LBJ Freeway Suite 114 Dallas, Texas 75243 Telephone: (972) 994-9100 Fax: (972) 994-0516 UNITED STATES INTERNATIONAL Atlanta Brazil Boston Canada Buffalo China Charlotte Croatia Chicago Czech Republic Cincinnati England Dallas Germany Denver Greece Detroit Hong Kong Houston Hungary Irvine Italy Jacksonville Japan Los Angeles Mexico Milwaukee Morocco Minneapolis Peru New Orleans Philippines New York Poland Oak Lawn Portugal Philadelphia Russia Pittsburgh Spain Princeton Taiwan Schaumburg Thailand St. Louis Turkey San Francisco Venezuela Seattle JULY 9, 2003 Apartment Investment and Management Company ("AIMCO") c/o Mr. Steven A. Velkei, Esq. Liner Yankelevitz Sunshine & Regenstreif LLP 1100 Glendon Avenue, 14th Floor Los Angeles, California 90024-3503 Nuanes, et al.("Plaintiffs") c/o Ms. Joy Kruse Lieff Cabraser Heimann & Bernstein Embarcadero Center West 275 Battery Street, 30th Floor San Francisco, California 94111 RE: REFLECTIONS (GREENSPRING MANOR) 7999 SILVERLEAF DRIVE INDIANAPOLIS, MARION COUNTY, INDIANA 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 582 units with a total of 459,080 square feet of rentable area. The improvements were built in 1972. The improvements are situated on 37.749 acres. Overall, the improvements are in average condition. As of the date of this appraisal, the subject property is 61% 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 REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA The opinions expressed in this appraisal cover letter can only be completely understood by reading the narrative report, addenda, and other data, which is attached. The appraisal is subject to the attached general assumptions and limiting conditions and general service conditions. As a result of our investigation, it is our opinion that the fee simple market value of the subject, effective May 7, 2003 is: ($25,700,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. /s/ Kenneth W. Kapecki ---------------------- July 9, 2003 Ken Kapecki, MAI #053272 Managing Principal, Real Estate Group State of Indiana, Certified General Appraiser, #CG49600008 Report By: John Nolan AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA 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 REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Reflections (Greenspring Manor) LOCATION: 7999 Silverleaf Drive Indianapolis, Indiana 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 7, 2003 DATE OF REPORT: July 9, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 37.749 acres, or 1,644,346 square feet Assessor Parcel No.: 000651 Floodplain: Community Panel No. 18097C0039E (January 5, 2001) Flood Zone X, an area outside the floodplain. Zoning: D-6II (Low Density Multifamily District) BUILDING: No. of Units: 582 Units Total NRA: 459,080 Square Feet Average Unit Size: 789 Square Feet Apartment Density: 15.4 units per acre Year Built: 1972
UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
Market Rent Square ----------------------- Monthly Annual Unit Type Feet Per Unit Per SF Income Income ------------------------------------------------ ---------- ----------- ---------- ---------- ---------- Eff/1Ba - EA10 450 $ 420 $ 0.93 $ 100,800 $1,209,600 1Br/1Ba - 1A10 770 $ 580 $ 0.75 $ 60,320 $ 723,840 1Br/1Ba - 2A15 950 $ 660 $ 0.69 $ 66,000 $ 792,000 2Br/2Ba - 2A25 1,200 $ 770 $ 0.64 $ 66,220 $ 794,640 2Br/2Ba - 3A25 1,400 $ 880 $ 0.63 $ 45,760 $ 549,120 ----- ---------- ---------- ---------- ---------- Total $ 339,100 $4,069,200 ========== ==========
OCCUPANCY: 61% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 15 Years REMAINING ECONOMIC LIFE: 30 Years
\ AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - APARTMENT BUILDING EXTERIOR - APARTMENT BUILDING AREA MAP [AREA MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA 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 REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION Amount $/Unit -------------------------------------- ----------- ------- Potential Rental Income $ 4,069,200 $ 6,992 Effective Gross Income $ 3,904,798 $ 6,709 Operating Expenses $ 1,793,535 $ 3,082 45.9% of EGI Net Operating Income: $ 2,023,963 $ 3,478 Capitalization Rate 7.75% DIRECT CAPITALIZATION VALUE $25,300,000 * $43,471 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 61% Stabilized Vacancy & Collection Loss: 7% Lease-up / Stabilization Period 18 months Terminal Capitalization Rate 8.25% Discount Rate 10.50% Selling Costs 2.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $25,600,000 * $43,986 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $25,600,000 $43,986 / UNIT
SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $34,268 to $61,397 Range of Sales $/Unit (Adjusted) $41,122 to $48,678 VALUE INDICATION - PRICE PER UNIT $ 26,500,000 * $45,533 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 5.31 to 7.04 Selected EGIM for Subject 6.25 Subject's Projected EGI $ 3,904,798 EGIM ANALYSIS CONCLUSION $ 23,600,000 * $40,550 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $ 26,000,000 * $44,674 / UNIT RECONCILED SALES COMPARISON VALUE $ 25,800,000 $44,330 / 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 REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $26,500,000 NOI Per Unit $26,000,000 EGIM Multiplier $23,600,000 INDICATED VALUE BY SALES COMPARISON $25,800,000 $44,330 / UNIT INCOME APPROACH: Direct Capitalization Method: $25,300,000 Discounted Cash Flow Method: $25,600,000 INDICATED VALUE BY THE INCOME APPROACH $25,600,000 $43,986 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $25,700,000 $44,158 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 7999 Silverleaf Drive, Indianapolis, Marion County, Indiana. Indianapolis identifies it as 000651. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by John Nolan on May 7, 2003. Ken Kapecki, MAI has not made a personal inspection of the subject property. John Nolan performed the research, valuation analysis and wrote the report. Ken Kapecki, MAI reviewed the report and concurs with the value. Ken Kapecki, MAI and John Nolan have extensive experience in appraising similar properties and meet the USPAP competency provision. The scope of this investigation comprises the inspection of the property and the collection, verification, and analysis of general and specific data pertinent to the subject property. We have researched current improved sales and leases of similar properties, analyzing them as to their comparability, and adjusting them accordingly. We completed the Sales Comparison and Income Capitalization Approaches to value. From these approaches to value, a concluded overall value was made. DATE OF VALUE AND REPORT This appraisal was made to express the opinion of value as of May 7, 2003. The date of the report is July 9, 2003. PURPOSE AND USE OF APPRAISAL The purpose of the appraisal is to estimate the market value of the fee simple interest in the subject property. It is understood that the appraisal is intended to assist the clients in litigation settlement proceedings. The appraisal was not based on a requested minimum valuation, a specific valuation, or the approval of a loan. PROPERTY RIGHTS APPRAISED We have appraised the Fee Simple Estate in the subject property (as applied in the Sales & Income Approaches), subject to the existing short-term leases. A Fee Simple Estate is AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 10 REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA 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 DDRE II. 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 REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA 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 Indianapolis, Indiana. Overall, the neighborhood is characterized as a suburban setting with the predominant land use being residential. The subject's neighborhood is generally defined by the following boundaries. NEIGHBORHOOD BOUNDARIES East - U.S. 31 West - I-465 South - W. 73rd, 71st North - I-465 MAJOR EMPLOYERS Major employers in the subject's area include Clarian Health Systems, Eli Lilly and Company, Community Hospitals Indianapolis, Marsh/Village Pantry Supermarkets, St. Vincent Hospital and Health Care, IUPUI, Kroger Central Marketing Area, Rolls Royce, Federal Express, and St. Francis Hospital & Health Centers. 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 REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA NEIGHBORHOOD DEMOGRAPHICS
AREA -------------------------------------------- CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA --------------------------- ------------ ------------ ------------ ------------ POPULATION TRENDS Current Population 15,442 67,258 159,771 1,646,584 5-Year Population 15,677 71,859 171,159 1,750,376 % Change CY-5Y 1.5% 6.8% 7.1% 6.3% Annual Change CY-5Y 0.3% 1.4% 1.4% 1.3% HOUSEHOLDS Current Households 6,861 29,094 68,734 648,288 5-Year Projected Households 7,027 31,195 74,030 696,995 % Change CY - 5Y 2.4% 7.2% 7.7% 7.5% Annual Change CY-5Y 0.5% 1.4% 1.5% 1.5% INCOME TRENDS Median Household Income $ 36,629 $ 50,853 $ 57,257 $ 47,488 Per Capita Income $ 25,778 $ 32,525 $ 32,618 $ 24,134 Average Household Income $ 57,156 $ 75,023 $ 75,578 $ 61,296
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 56.08% 40.47% 34.61% 29.55% 5-Year Projected % Renting 54.87% 39.66% 33.72% 28.58% % of Households Owning 31.88% 51.56% 59.22% 63.75% 5-Year Projected % Owning 33.29% 52.86% 60.49% 65.18%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Multi-Family Residential (Fountainhead) South - Single-Family Residential East - Single-Family Residential West - Multi-Family Residential (Kensington/Cedar Crossings) CONCLUSIONS The subject is well located within the city of Indianapolis. 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 REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA MARKET ANALYSIS The subject property is located in the city of Indianapolis in Marion County. The overall pace of development in the subject's market is more or less stable. Approximately 2,550 new units are projected to be constructed in the Indianapolis Metro Area in 2003. This would represent a slight increase from 2002 constructed units of 2,439. The new construction is primarily occurring on the northwest side of town, on the southwest suburbs near the airport, and downtown. No new construction is anticipated in the subject's immediate neighborhood. (Source: CB Richard Ellis) The following table illustrates historical vacancy rates for the subject's market. HISTORICAL VACANCY RATE
Period Region Submarket ------ ------ --------- 2002 9.3% 10.4% 2001 9.4% 9.3% 2000 8.8% 9.4% 1999 7.8% 9.2% 1998 7.9% 8.9% 1997 7.8% 6.4% 1996 7.7% 8.1% 1995 7.7% 6.8% 1994 7.7% 6.2%
(Source: CB Richard Ellis, US Census Bureau) Occupancy trends in the subject's market are decreasing. Historically speaking, the subject's submarket has equated the overall market. Vacancy rates in the area have been increasing for the past three years due primarily to the US recession and decreasing mortgage rates. Low mortgage rates have enticed many former renters to purchase homes. To encourage leasing activity, apartment managers have decreased rents, and offered rent concessions such as free rent or waiving security deposits. In addition, many properties have added/improved amenities such as swimming pools, tennis courts, fitness rooms, and clubhouses. While the Indianapolis economy has been affected by the recession of the early 2000's, its economy is strong relative to other major US cities. Market rents in the subject's market have been following an increasing trend. The following table illustrates historical rental rates for the subject's market. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA HISTORICAL AVERAGE RENT
Period Region % Change Submarket % Change ------ ------ -------- --------- -------- 1993 $609 - N/A - 1994 $637 4.6% N/A N/A 1995 $659 3.5% N/A N/A 1996 $684 3.8% N/A N/A 1997 $703 2.8% N/A N/A 1998 $730 3.8% N/A N/A 1999 $747 2.3% N/A N/A 2000 $767 2.7% N/A N/A 2001 $779 1.6% N/A N/A 2002 $787 1.0% N/A N/A
Source:CB Richard Ellis 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 Carlton Apartments 702 80% N/A 0.75 miles NW of subject R-2 Landmark Apartments 231 80% 1974 0.50 miles S of subject R-3 Kensington Apartments 296 98% 1967 0.50 miles N of subject R-4 Barrington Apartments 144 96% 1966 1 mile N of subject R-5 Chelsea Village 246 91% 1983 1.25 miles N of subject Subject Reflections (Greenspring Manor) 582 61% 1972
The current trend toward low interest rates has increased the percentage of homeowners to renters. Consequently, the market has worsened for rental properties with rents dropping and vacancies increasing. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA PROPERTY DESCRIPTION SITE ANALYSIS Site Area 37.749 acres, or 1,644,346 square feet Shape Rectangular Topography Slightly slope Utilities All necessary utilities are available to the site. Soil Conditions Stable Easements Affecting Site None other than typical utility easements Overall Site Appeal Average Flood Zone: Community Panel 18097C0039E, dated January 5, 2001 Flood Zone Zone X Zoning D-6II, 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 ------------- ---------- ---------- ---------- ---------- -------- 000651 $1,330,100 $7,097,800 $8,427,900 $ 0.03261 $274,859
IMPROVEMENT ANALYSIS Year Built 1972 Number of Units 582 Net Rentable Area 459,080 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, volleyball court, sand volleyball, jogging track, gym room, barbeque equipment, meeting hall, laundry room, business office, and secured parking. Unit Amenities Individual unit amenities include a balcony, cable TV connection, washer and dryer, and washer/dryer connection. Appliances available in each unit include a refrigerator, stove, dishwasher, water heater, garbage disposal,
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA washer/dryer, and oven. Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) -------------- --------------- ---------- Eff/1Ba - EA10 240 450 1Br/1Ba - 1A10 104 770 1Br/1Ba - 2A15 100 950 2Br/2Ba - 2A25 86 1,200 2Br/2Ba - 3A25 52 1,400
Overall Condition Average Effective Age 15 years Economic Life 45 years Remaining Economic Life 30 years Deferred Maintenance None
HIGHEST AND BEST USE ANALYSIS In accordance with the definition of highest and best use, an analysis of the site relating to its legal uses, physical possibilities, and financial feasibility is appropriate. The highest and best use as vacant is to hold for future multi-family development. The subject improvements were constructed in 1972 and consist of a 582-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 REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA 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 REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA 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 REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA 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 REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA SUMMARY OF COMPARABLE SALES - IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 ------------------------------------------------------------------------------------------------------------------ Property Name Reflections (Greenspring Abington Apartments Cross Creek Apartments Manor) LOCATION: Address 7999 Silverleaf Drive 4656 Edwardian Circle 5756 Cross Creek Dr. City, State Indianapolis, Indiana Indianapolis, IN Indianapolis, IN County Marion Marion Marion PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 459,080 293,676 159,492 Year Built 1972 1980 1990 Number of Units 582 328 208 Unit Mix: Type Total Type Total Type Total Eff/1Ba - EA10 240 1Br/1Ba 156 1Br/1Ba 20 1Br/1Ba - 1A10 104 2Br/1Ba 56 1Br/1Ba 76 1Br/1Ba - 2A15 100 2Br/2Ba 84 1Br/1Ba 36 2Br/2Ba - 2A25 86 3Br/2Ba 32 2Br/2Ba 76 2Br/2Ba - 3A25 52 Average Unit Size (SF) 789 895 767 Land Area (Acre) 37.7490 0.0000 0.0000 Density (Units/Acre) 15.4 Parking Ratio (Spaces/Unit) 2.00 2.00 2.00 Parking Type (Gr., Cov., etc.) Garage, Open Covered Open, Covered Open, Covered CONDITION: Good Good Good APPEAL: Good Good Average AMENITIES: Pool/Spa Yes/No Yes/No Yes/No Gym Room Yes Yes No Laundry Room Yes Yes No Secured Parking Yes Yes Yes Sport Courts Yes Yes No Washer/Dryer Connection Yes Yes Yes Other Other OCCUPANCY: 61% 95% 87% TRANSACTION DATA: Sale Date July, 2002 December, 2000 Sale Price ($) $11,240,000 $8,714,417 Grantor Glenborough Realty Trust Grantee AIMCO GE Capital Sale Documentation Verification Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $2,276,112 $6,939 $7.75 $1,473,120 $7,082 $9.24 Vacancy/Credit Loss $ 159,328 $ 486 $0.54 $ 103,118 $ 496 $0.65 Effective Gross Income $2,116,784 $6,454 $7.21 $1,370,002 $6,587 $8.59 Operating Expenses $1,164,231 $3,549 $3.96 $ 753,501 $3,623 $4.72 Net Operating Income $ 952,553 $2,904 $3.24 $ 616,501 $2,964 $3.87 NOTES: None None PRICE PER UNIT $34,268 $41,896 PRICE PER SQUARE FOOT $ 38.27 $ 54.64 EXPENSE RATIO 55.0% 55.0% EGIM 5.31 6.36 OVERALL CAP RATE 8.47% 7.07% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 3 I - 4 ------------------------------------------------------------------------------------------------------------------- Property Name Reflections (Greenspring Arbor Green Apartments Arbor Green Apartments Manor) LOCATION: Address 7999 Silverleaf Drive 3836 Arbor Green Ln. 3836 Arbor Green Ln. City, State Indianapolis, Indiana Indianapolis, IN Indianapolis, IN County Marion Marion Marion PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 459,080 181,152 181,152 Year Built 1972 1989 1989 Number of Units 582 208 208 Unit Mix: Type Total Type Total Type Total Eff/1Ba - EA10 240 1Br/1Ba 48 1Br/1Ba 48 1Br/1Ba - 1A10 104 1Br/1Ba 56 1Br/1Ba 56 1Br/1Ba - 2A15 100 2Br/1Ba 16 2Br/1Ba 16 2Br/2Ba - 2A25 86 2Br/2Ba 72 2Br/2Ba 72 2Br/2Ba - 3A25 52 3Br/2Ba 16 3Br/2Ba 16 Average Unit Size (SF) 789 871 871 Land Area (Acre) 37.7490 20.7750 20.7750 Density (Units/Acre) 15.4 10.0 10.0 Parking Ratio (Spaces/Unit) 2.00 2.00 2.00 Parking Type (Gr., Cov., etc.) Garage, Open Covered Open, Covered Open, Covered CONDITION: Good Good Good APPEAL: Good Good Good AMENITIES: Pool/Spa Yes/No Yes/No Yes/No Gym Room Yes Yes Yes Laundry Room Yes Yes Yes Secured Parking Yes Yes Yes Sport Courts Yes Yes Yes Washer/Dryer Connection Yes Yes Yes Other Other OCCUPANCY: 61% 94% 94% TRANSACTION DATA: Sale Date September, 2002 May, 2001 Sale Price ($) $11,250,000 $9,400,000 Grantor Connor & Murphy Grantee Ritter & Co. Connor & Murphy Sale Documentation Verification Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $1,719,264 $8,266 $9.49 $1,719,264 $8,266 $9.49 Vacancy/Credit Loss $ 120,348 $ 579 $0.66 $ 120,348 $ 579 $0.66 Effective Gross Income $1,598,916 $7,687 $8.83 $1,598,916 $7,687 $8.83 Operating Expenses $ 879,404 $4,228 $4.85 $ 879,404 $4,228 $4.85 Net Operating Income $ 719,512 $3,459 $3.97 $ 719,512 $3,459 $3.97 NOTES: None None PRICE PER UNIT $54,087 $45,192 PRICE PER SQUARE FOOT $ 62.10 $ 51.89 EXPENSE RATIO 55.0% 55.0% EGIM 7.04 5.88 OVERALL CAP RATE 6.40% 7.65% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA COMPARABLE DESCRIPTION SUBJECT I - 5 ---------------------------------------------------------------------------------------- Property Name Reflections (Greenspring Carriagetree Apartments Manor) (Monon Place Apts) LOCATION: Address 7999 Silverleaf Drive 5900 Carvel Ave. City, State Indianapolis, Indiana Indianapolis, IN County Marion Marion PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 459,080 140,492 Year Built 1972 1966 Number of Units 582 136 Unit Mix: Type Total Type Total Eff/1Ba - EA10 240 1Br/1Ba 16 1Br/1Ba - 1A10 104 2Br/1Ba 16 1Br/1Ba - 2A15 100 2Br/2Ba 84 2Br/2Ba - 2A25 86 3Br/2Ba 20 2Br/2Ba - 3A25 52 Average Unit Size (SF) 789 1,033 Land Area (Acre) 37.7490 8.0000 Density (Units/Acre) 15.4 17.0 Parking Ratio (Spaces/Unit) 2.00 2.00 Parking Type (Gr., Cov., etc.) Garage, Open Covered Open, Covered CONDITION: Good Good APPEAL: Good Very Good AMENITIES: Pool/Spa Yes/No Yes/No Gym Room Yes No Laundry Room Yes Yes Secured Parking Yes Yes Sport Courts Yes Yes Washer/Dryer Connection Yes Yes Other Other OCCUPANCY: 61% 98% TRANSACTION DATA: Sale Date April, 2001 Sale Price ($) $8,350,000 Grantor Grantee Buckingham Management Sale Documentation Verification Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Potential Gross Income $1,492,992 $10,978 $10.63 Vacancy/Credit Loss $ 104,509 $ 768 $ 0.74 Effective Gross Income $1,388,483 $10,209 $ 9.88 Operating Expenses $ 763,665 $ 5,615 $ 5.44 Net Operating Income $ 624,817 $ 4,594 $ 4.45 NOTES: None PRICE PER UNIT $61,397 PRICE PER SQUARE FOOT $ 59.43 EXPENSE RATIO 55.0% EGIM 6.01 OVERALL CAP RATE 7.48% Cap Rate based on Pro Forma or Actual Income? PRO FORMA
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA IMPROVED SALES MAP [IMPROVED SALES MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $34,268 to $61,397 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 $41,122 to $48,678 per unit with a mean or average adjusted price of $45,849 per unit. The median adjusted price is $48,350 per unit. Based on the following analysis, we have concluded to a value of $47,000 per unit, which results in an "as is" value of $26,500,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA SALES ADJUSTMENT GRID
DESCRIPTION SUBJECT COMPARABLE COMPARABLE I - 1 I - 2 ----------------------------------- ------------------------ -------------------------- --------------------------- Property Name Reflections (Greenspring Abington Apartments Cross Creek Apartments Manor) Address 7999 Silverleaf Drive 4656 Edwardian Circle 5756 Cross Creek Dr. City Indianapolis, Indiana Indianapolis, IN Indianapolis, IN Sale Date July, 2002 December, 2000 Sale Price ($) $11,240,000 $8,714,417 Net Rentable Area (SF) 459,080 293,676 159,492 Number of Units 582 328 208 Price Per Unit $34,268 $41,896 Year Built 1972 1980 1990 Land Area (Acre) 37.7490 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 07-2002 0% 12-2000 5% VALUE AFTER TRANS ADJUST ($/UNIT) $34,268 $43,991 Location Comparable 0% Comparable 0% Number of Units 582 328 -5% 208 -15% Quality / Appeal Good Inferior 5% Inferior 5% Age / Condition 1972 1980 / Good 15% 1990 / Good 20% Occupancy at Sale 61% 95% 0% 87% 0% Amenities Good Inferior 10% Comparable 0% Average Unit Size (SF) 789 895 -5% 767 0% PHYSICAL ADJUSTMENT 20% 10% FINAL ADJUSTED VALUE ($/UNIT) $41,122 $48,390 DESCRIPTION SUBJECT COMPARABLE COMPARABLE I - 3 I - 4 ----------------------------------- ------------------------ --------------------------- --------------------------- Property Name Reflections (Greenspring Arbor Green Apartments Arbor Green Apartments Manor) Address 7999 Silverleaf Drive 3836 Arbor Green Ln. 3836 Arbor Green Ln. City Indianapolis, Indiana Indianapolis, IN Indianapolis, IN Sale Date September, 2002 May, 2001 Sale Price ($) $11,250,000 $9,400,000 Net Rentable Area (SF) 459,080 181,152 181,152 Number of Units 582 208 208 Price Per Unit $54,087 $45,192 Year Built 1972 1989 1989 Land Area (Acre) 37.7490 20.7750 20.7750 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 09-2002 0% 05-2001 5% VALUE AFTER TRANS ADJUST ($/UNIT) $54,087 $47,452 Location Comparable 0% Comparable 0% Number of Units 582 208 -15% 208 -15% Quality / Appeal Good Inferior 5% Inferior 5% Age / Condition 1972 1989 / Good 5% 1989 / Good 5% Occupancy at Sale 61% 94% 0% 94% 0% Amenities Good Comparable 0% Comparable 0% Average Unit Size (SF) 789 871 -5% 871 -5% PHYSICAL ADJUSTMENT -10% -10% FINAL ADJUSTED VALUE ($/UNIT) $48,678 $42,707 DESCRIPTION SUBJECT COMPARABLE I - 5 ----------------------------------- ------------------------ ---------------------------- Property Name Reflections (Greenspring Carriagetree Apartments Manor) (Monon Place Apts) Address 7999 Silverleaf Drive 5900 Carvel Ave. City Indianapolis, Indiana Indianapolis, IN Sale Date April, 2001 Sale Price ($) $8,350,000 Net Rentable Area (SF) 459,080 140,492 Number of Units 582 136 Price Per Unit $61,397 Year Built 1972 1966 Land Area (Acre) 37.7490 8.0000 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Financing Cash To Seller 0% Conditions of Sale Arm's Length 0% Date of Sale (Time) 04-2001 5% VALUE AFTER TRANS ADJUST ($/UNIT) $64,467 Location Comparable 0% Number of Units 582 136 -25% Quality / Appeal Good Inferior 5% Age / Condition 1972 1966 / Good 15% Occupancy at Sale 61% 98% -5% Amenities Good Comparable 0% Average Unit Size (SF) 789 1,033 -15% PHYSICAL ADJUSTMENT -25% FINAL ADJUSTED VALUE ($/UNIT) $48,350
SUMMARY VALUE RANGE (PER UNIT) $41,122 TO $ 48,678 MEAN (PER UNIT) $45,849 MEDIAN (PER UNIT) $48,350 VALUE CONCLUSION (PER UNIT) $47,000 Value of Improvement & Main Site $27,354,000 Less: Lease-Up Cost -$ 756,000 PV of Concessions -$ 57,000 Value Indicated by Sales Comparison Approach $26,541,000 Rounded $26,500,000
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 REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA 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-1 328 $11,240,000 8.47% $952,553 $2,023,963 1.197 $ 41,035 $ 34,268 $ 2,904 $ 3,478 I-2 208 $ 8,714,417 7.07% $616,501 $2,023,963 1.173 $ 49,157 $ 41,896 $ 2,964 $ 3,478 I-3 208 $11,250,000 6.40% $719,512 $2,023,963 1.005 $ 54,374 $ 54,087 $ 3,459 $ 3,478 I-4 208 $ 9,400,000 7.65% $719,512 $2,023,963 1.005 $ 45,433 $ 45,192 $ 3,459 $ 3,478 I-5 136 $ 8,350,000 7.48% $624,817 $2,023,963 0.757 $ 46,474 $ 61,397 $ 4,594 $ 3,478
PRICE/UNIT
LOW HIGH AVERAGE MEDIAN --- ---- ------- ------ $41,035 $54,374 $47,295 $46,474
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT Estimated Price Per Unit $ 46,000 Number of Units 582 Value $26,772,000 Less: Lease-Up Cost -$ 756,000 PV of Concessions -$ 57,000 Value Based on NOI Analysis $25,959,000 Rounded $26,000,000
The adjusted sales indicate a range of value between $41,035 and $54,374 per unit, with an average of $47,295 per unit. Based on the subject's competitive position within the improved sales, a value of $46,000 per unit is estimated. This indicates an "as is" market value of $26,000,000 (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 REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA 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-1 328 $11,240,000 $2,116,784 $1,164,231 55.00% 5.31 $ 34,268 I-2 208 $ 8,714,417 $1,370,002 $ 753,501 55.00% 6.36 $ 41,896 I-3 208 $11,250,000 $1,598,916 $ 879,404 55.00% 7.04 45.93% $ 54,087 I-4 208 $ 9,400,000 $1,598,916 $ 879,404 55.00% 5.88 $ 45,192 I-5 136 $ 8,350,000 $1,388,483 $ 763,665 55.00% 6.01 $ 61,397
EGIM
LOW HIGH AVERAGE MEDIAN --- ---- ------- ------ 5.31 7.04 6.12 6.01
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES Estimate EGIM 6.25 Subject EGI $ 3,904,798 Value $24,404,988 Less: Lease-Up Cost -$ 756,000 PV of Concessions -$ 57,000 ----------- Value Based on EGIM Analysis $23,591,988 Rounded $23,600,000 Value Per Unit $ 40,550
There is an inverse relationship, which generally holds among EGIMs and operating expenses. Properties, which have higher expense ratios, typically sell for relatively less and therefore produce a lower EGIM. As will be illustrated in the Income Capitalization Approach of this report, the subject's operating expense ratio (OER) is estimated at 45.93% before reserves. The comparable sales indicate an expense ratio of 55.00%, while their EGIMs range from 5.31 to 7.04. Overall, we conclude to an EGIM of 6.25, which results in an "as is" value estimate in the EGIM Analysis of $23,600,000. 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 $25,800,000. Price Per Unit $26,500,000 NOI Per Unit $26,000,000 EGIM Analysis $23,600,000 Sales Comparison Conclusion $25,800,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA 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 REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA 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 --------- --------- -------- ------ --------- Eff/1Ba - EA10 450 $449 $1.00 70.4% 1Br/1Ba - 1A10 770 $569 $0.74 53.8% 1Br/1Ba - 2A15 950 $659 $0.69 47.0% 2Br/2Ba - 2A25 1200 $729 $0.61 51.2% 2Br/2Ba - 3A25 1400 $829 $0.59 76.9%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA RENT ANALYSIS
COMPARABLE RENTS ------------------------------------------------------- R-1 R-2 R-3 R-4 R-5 ------------------------------------------------------- Carlton Landmark Kensington Barrington Chelsea Apartments Apartments Apartments Apartments Village SUBJECT SUBJECT ------------------------------------------------------- DESCRIPTION SUBJECT UNIT ACTUAL ASKING COMPARISON TO SUBJECT TYPE RENT RENT ------------------------------------------------------- Similar Similar Similar Superior Similar ------------------------ -------------- ------- ------- ---------- ---------- ---------- ---------- ------- Monthly Rent EFF/1BA - EA10 $ 449 $ 429 $ 478 $ 465 Unit Area (SF) 450 450 498 500 Monthly Rent Per Sq. Ft. $ 1.00 $ 0.95 $ 0.96 $ 0.93 Monthly Rent 1Br/1Ba - 1A10 $ 569 $ 559 $ 517 $ 570 $ 573 $ 660 $ 548 Unit Area (SF) 770 770 612 726 727 685 750 Monthly Rent Per Sq. Ft. $ 0.74 $ 0.73 $ 0.84 $ 0.79 $ 0.79 $ 0.96 $ 0.73 Monthly Rent 1Br/1Ba - 2A15 $ 659 $ 659 $ 625 $ 653 $ 665 $ 705 $ 662 Unit Area (SF) 950 950 923 885 930 907 963 Monthly Rent Per Sq. Ft. $ 0.69 $ 0.69 $ 0.68 $ 0.74 $ 0.72 $ 0.78 $ 0.69 Monthly Rent 2Br/2Ba - 2A25 $ 729 $ 769 $ 700 $ 723 $ 720 $ 857 $ 742 Unit Area (SF) 1,200 1,200 1,140 1,085 1,250 1,118 1,150 Monthly Rent Per Sq. Ft. $ 0.61 $ 0.64 $ 0.61 $ 0.67 $ 0.58 $ 0.77 $ 0.64 Monthly Rent 2Br/2Ba - 3A25 $ 829 $ 929 $ 883 $ 855 $1,045 Unit Area (SF) 1,400 1,400 1,540 1,475 1,496 Monthly Rent Per Sq. Ft. $ 0.59 $ 0.66 $ 0.57 $ 0.58 $ 0.70
DESCRIPTION MIN MAX MEDIAN AVERAGE ------------------------ ------ ------ ------ ------- Monthly Rent $ 465 $ 478 $ 471 $ 471 Unit Area (SF) 498 500 499 499 Monthly Rent Per Sq. Ft. $ 0.93 $ 0.96 $ 0.94 $ 0.94 Monthly Rent $ 517 $ 660 $ 570 $ 574 Unit Area (SF) 612 750 726 700 Monthly Rent Per Sq. Ft. $ 0.73 $ 0.96 $ 0.79 $ 0.82 Monthly Rent $ 625 $ 705 $ 662 $ 662 Unit Area (SF) 885 963 923 921 Monthly Rent Per Sq. Ft. $ 0.68 $ 0.78 $ 0.72 $ 0.72 Monthly Rent $ 700 $ 857 $ 723 $ 748 Unit Area (SF) 1,085 1,250 1,140 1,149 Monthly Rent Per Sq. Ft. $ 0.58 $ 0.77 $ 0.64 $0.65 Monthly Rent $ 855 $1,045 $ 883 $ 928 Unit Area (SF) 1,475 1,540 1,496 1,504 Monthly Rent Per Sq. Ft. $ 0.57 $ 0.70 $ 0.58 $0.62
CONCLUDED MARKET RENTAL RATES AND TERMS Based on this analysis above, the subject's concluded market rental rates and gross rental income is calculated as follows: GROSS RENTAL INCOME PROJECTION
Market Rent Unit Type Number of Units Unit Area --------------- Monthly Annual (Sq. Ft.) Per Unit Per SF Income Income -------------- --------------- --------- -------- ------ -------- ---------- Eff/1Ba - EA10 240 450 $420 $0.93 $100,800 $1,209,600 1Br/1Ba - 1A10 104 770 $580 $0.75 $ 60,320 $ 723,840 1Br/1Ba - 2A15 100 950 $660 $0.69 $ 66,000 $ 792,000 2Br/2Ba - 2A25 86 1,200 $770 $0.64 $ 66,220 $ 794,640 2Br/2Ba - 3A25 52 1,400 $880 $0.63 $ 45,760 $ 549,120 Total $339,100 $4,069,200
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 REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA SUMMARY OF HISTORICAL INCOME & EXPENSES
FISCAL YEAR 2000 FISCAL YEAR 2001 FISCAL YEAR 2002 FISCAL YEAR 2003 ----------------------- ----------------------- ----------------------- ----------------------- DESCRIPTION ACTUAL ACTUAL ACTUAL MANAGEMENT BUDGET ----------- ----------------------- ----------------------- ----------------------- ----------------------- TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT ----------- -------- ----------- -------- ----------- -------- ----------- -------- Revenues Rental Income $ 3,266,793 $ 5,613 $ 2,910,787 $ 5,001 $ 3,933,838 $ 6,759 $ 4,051,853 $ 6,962 Vacancy $ 1,679,636 $ 2,886 $ 1,824,769 $ 3,135 $ 2,224,548 $ 3,822 $ 2,291,284 $ 3,937 Credit Loss/Concessions $ 53,880 $ 93 $ 74,216 $ 128 $ 168,012 $ 289 $ 173,052 $ 297 ------------ --------- ------------ --------- ------------ --------- ------------ --------- Subtotal $ 1,733,516 $ 2,979 $ 1,898,985 $ 3,263 $ 2,392,560 $ 4,111 $ 2,464,337 $ 4,234 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 110 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 101,298 $ 174 $ 67,214 $ 115 $ 116,934 $ 201 $ 120,442 $ 207 ------------ --------- ------------ --------- ------------ --------- ------------ --------- Subtotal Other Income $ 101,298 $ 174 $ 67,324 $ 116 $ 116,934 $ 201 $ 120,442 $ 207 ------------ --------- ------------ --------- ------------ --------- ------------ --------- Effective Gross Income $ 1,634,575 $ 2,809 $ 1,079,126 $ 1,854 $ 1,658,212 $ 2,849 $ 1,707,958 $ 2,935 Operating Expenses Taxes $ 205,441 $ 353 $ 151,567 $ 260 $ 262,246 $ 451 $ 270,113 $ 464 Insurance $ 70,324 $ 121 $ 62,313 $ 107 $ 83,545 $ 144 $ 86,051 $ 148 Utilities $ 249,976 $ 430 $ 224,574 $ 386 $ 295,036 $ 507 $ 303,887 $ 522 Repair & Maintenance $ 65,773 $ 113 $ 51,707 $ 89 $ 126,534 $ 217 $ 130,330 $ 224 Cleaning $ 93,796 $ 161 $ 60,282 $ 104 $ 96,887 $ 166 $ 99,794 $ 171 Landscaping $ 58,012 $ 100 $ 34,520 $ 59 $ 74,052 $ 127 $ 76,274 $ 131 Security $ 0 $ 0 $ 0 $ 0 $ 27 $ 0 $ 28 $ 0 Marketing & Leasing $ 25,906 $ 45 $ 32,730 $ 56 $ 89,497 $ 154 $ 92,182 $ 158 General Administrative $ 366,142 $ 629 $ 344,238 $ 591 $ 523,946 $ 900 $ 539,664 $ 927 Management $ 88,883 $ 153 $ 60,720 $ 104 $ 83,790 $ 144 $ 86,304 $ 148 Miscellaneous ($ 112,132) -$ 193 ($ 207,604) -$ 357 ($ 592,092) -$ 1,017 ($ 609,855) -$ 1,048 ------------ --------- ------------ --------- ------------ --------- ------------ --------- Total Operating Expenses $ 1,112,121 $ 1,911 $ 815,047 $ 1,400 $ 1,043,468 $ 1,793 $ 1,074,772 $ 1,847 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ------------ --------- ------------ --------- ------------ --------- ------------ --------- Net Income $ 522,454 $ 898 $ 264,079 $ 454 $ 614,744 $ 1,056 $ 633,186 $ 1,088 ------------ --------- ------------ --------- ------------ --------- ------------ ---------
ANNUALIZED YEAR 2003 ----------------------- DESCRIPTION PROJECTION AAA PROJECTION ----------- ----------------------- --------------------------------- TOTAL PER UNIT TOTAL PER UNIT % ----------- -------- ----------- -------- -------- Revenues Rental Income $ 3,906,884 $ 6,713 $ 4,069,200 $ 6,992 100.0% Vacancy $ 1,739,540 $ 2,989 $ 203,460 $ 350 5.0% Credit Loss/Concessions $ 150,476 $ 259 $ 81,384 $ 140 2.0% ------------ --------- ----------- -------- -------- Subtotal $ 1,890,016 $ 3,247 $ 284,844 $ 489 7.0% Laundry Income $ 0 $ 0 $ 0 $ 0 0.0% Garage Revenue $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 203,516 $ 350 $ 120,442 $ 207 3.0% ------------ --------- ----------- -------- -------- Subtotal Other Income $ 203,516 $ 350 $ 120,442 $ 207 3.0% ------------ --------- ----------- -------- -------- Effective Gross Income $ 2,220,384 $ 3,815 $ 3,904,798 $ 6,709 100.0% Operating Expenses Taxes $ 416,752 $ 716 $ 270,113 $ 464 6.9% Insurance $ 91,536 $ 157 $ 86,051 $ 148 2.2% Utilities $ 394,152 $ 677 $ 303,887 $ 522 7.8% Repair & Maintenance $ 93,584 $ 161 $ 130,330 $ 224 3.3% Cleaning $ 81,832 $ 141 $ 99,794 $ 171 2.6% Landscaping $ 27,468 $ 47 $ 76,274 $ 131 2.0% Security $ 324 $ 1 $ 0 $ 0 0.0% Marketing & Leasing $ 11,420 $ 20 $ 92,182 $ 158 2.4% General Administrative $ 448,916 $ 771 $ 539,664 $ 927 13.8% Management $ 104,864 $ 180 $ 195,240 $ 335 5.0% Miscellaneous ($ 434,272) -$ 746 $ 0 $ 0 0.0% ------------ --------- ----------- -------- -------- Total Operating Expenses $ 1,236,576 $ 2,125 $ 1,793,535 $ 3,082 45.9% Reserves $ 0 $ 0 $ 87,300 $ 150 4.9% ------------ --------- ----------- -------- -------- Net Income $ 983,808 $ 1,690 $ 2,023,963 $ 3,478 51.8% ------------ --------- ----------- -------- --------
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 7% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30 REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA 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 $150 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 $150 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 REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR --------- --------- ------ ---------- ----- I-1 Jul-02 95% $ 34,268 8.47% I-2 Dec-00 87% $ 41,896 7.07% I-3 Sep-02 94% $ 54,087 6.40% I-4 May-01 94% $ 45,192 7.65% I-5 Apr-01 98% $ 61,397 7.48% High 8.47% Low 6.40% Average 7.42%
Based on this information, we have concluded the subject's overall capitalization rate should be 7.75%. 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 8.25%. 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 10.50%. HOLDING PERIOD The survey of investors indicates that most investors are completing either 10-year cash flows or extending the analysis to the end of the lease if it is more than 10-years. A 10-year period has been used in the analysis of the subject with the eleventh year stabilized NOI used to determine the reversion. SELLING COSTS Sales of similar size properties are typically accomplished with the aid of a broker and will also incur legal and other transaction related cost. Based on our survey of brokers and a review of institutional investor projections, an allowance of 2.00% of the sale amount is applied. DISCOUNTED CASH FLOW CONCLUSION Discounting the annual cash flows and the equity reversion at the selected rate of 10.50% indicates a value of $25,600,000. In this instance, the reversion figure contributes AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32 REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA approximately 47% 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 REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA DISCOUNTED CASH FLOW ANALYSIS REFLECTIONS (GREENSPRING MANOR)
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 FISCAL YEAR 1 2 3 4 5 6 ----------- ---------- ---------- ---------- ---------- --------- ---------- REVENUE Base Rent $4,069,200 $4,191,276 $4,317,014 $4,446,525 $4,579,920 $4,717,318 Vacancy $1,003,736 $ 296,882 $ 215,851 $ 222,326 $ 228,996 $ 235,866 Credit Loss $ 81,384 $ 83,826 $ 86,340 $ 88,930 $ 91,598 $ 94,346 Concessions $ 62,856 $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- ---------- Subtotal $1,147,976 $ 380,708 $ 302,191 $ 311,257 $ 320,594 $ 330,212 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 120,442 $ 124,055 $ 127,777 $ 131,610 $ 135,559 $ 139,625 ---------- ---------- ---------- ---------- ---------- ---------- Subtotal Other Income $ 120,442 $ 124,055 $ 127,777 $ 131,610 $ 135,559 $ 139,625 ---------- ---------- ---------- ---------- ---------- ---------- EFFECTIVE GROSS INCOME $3,041,666 $3,934,624 $4,142,600 $4,266,878 $4,394,885 $4,526,731 OPERATING EXPENSES: Taxes $ 270,113 $ 278,217 $ 286,563 $ 295,160 $ 304,015 $ 313,135 Insurance $ 86,051 $ 88,633 $ 91,292 $ 94,031 $ 96,852 $ 99,757 Utilities $ 303,887 $ 313,004 $ 322,394 $ 332,066 $ 342,028 $ 352,288 Repair & Maintenance $ 130,330 $ 134,240 $ 138,267 $ 142,415 $ 146,688 $ 151,088 Cleaning $ 99,794 $ 102,787 $ 105,871 $ 109,047 $ 112,319 $ 115,688 Landscaping $ 76,274 $ 78,562 $ 80,919 $ 83,346 $ 85,847 $ 88,422 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 92,182 $ 94,947 $ 97,796 $ 100,730 $ 103,752 $ 106,864 General Administrative $ 539,664 $ 555,854 $ 572,530 $ 589,706 $ 607,397 $ 625,619 Management $ 152,083 $ 196,731 $ 207,130 $ 213,344 $ 219,744 $ 226,337 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- ---------- TOTAL OPERATING EXPENSES $1,750,379 $1,842,975 $1,902,761 $1,959,844 $2,018,640 $2,079,199 Reserves $ 87,300 $ 89,919 $ 92,617 $ 95,395 $ 98,257 $ 101,205 ---------- ---------- ---------- ---------- ---------- ---------- NET OPERATING INCOME $1,203,987 $2,001,729 $2,147,222 $2,211,639 $2,277,988 $2,346,328 ========== ========== ========== ========== ========== ========== Operating Expense Ratio (% of EGI) 57.5% 46.8% 45.9% 45.9% 45.9% 45.9% Operating Expense Per Unit $ 3,008 $ 3,167 $ 3,269 $ 3,367 $ 3,468 $ 3,573 ========== ========== ========== ========== ========== ========== YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 7 8 9 10 11 ----------- ---------- ---------- ---------- ---------- --------- REVENUE Base Rent $4,858,838 $5,004,603 $5,154,741 $5,309,383 $5,468,665 Vacancy $ 242,942 $ 250,230 $ 257,737 $ 265,469 $ 273,433 Credit Loss $ 97,177 $ 100,092 $ 103,095 $ 106,188 $ 109,373 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- Subtotal $ 340,119 $ 350,322 $ 360,832 $ 371,657 $ 382,807 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 143,814 $ 148,128 $ 152,572 $ 157,150 $ 161,864 ---------- ---------- ---------- ---------- ---------- Subtotal Other Income $ 143,814 $ 148,128 $ 152,572 $ 157,150 $ 161,864 ---------- ---------- ---------- ---------- ---------- EFFECTIVE GROSS INCOME $4,662,533 $4,802,409 $4,946,481 $5,094,876 $5,247,722 OPERATING EXPENSES: Taxes $ 322,530 $ 332,205 $ 342,172 $ 352,437 $ 363,010 Insurance $ 102,750 $ 105,832 $ 109,007 $ 112,277 $ 115,646 Utilities $ 362,857 $ 373,743 $ 384,955 $ 396,504 $ 408,399 Repair & Maintenance $ 155,621 $ 160,289 $ 165,098 $ 170,051 $ 175,153 Cleaning $ 119,159 $ 122,734 $ 126,416 $ 130,208 $ 134,114 Landscaping $ 91,075 $ 93,807 $ 96,621 $ 99,520 $ 102,505 Security $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 110,070 $ 113,372 $ 116,773 $ 120,276 $ 123,885 General Administrative $ 644,387 $ 663,719 $ 683,631 $ 704,140 $ 725,264 Management $ 233,127 $ 240,120 $ 247,324 $ 254,744 $ 262,386 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- TOTAL OPERATING EXPENSES $2,141,575 $2,205,822 $2,271,997 $2,340,157 $2,410,361 Reserves $ 104,241 $ 107,368 $ 110,589 $ 113,907 $ 117,324 ---------- ---------- ---------- ---------- ---------- NET OPERATING INCOME $2,416,717 $2,489,219 $2,563,896 $2,640,812 $2,720,037 ========== ========== ========== ========== ========== Operating Expense Ratio (% of EGI) 45.9% 45.9% 45.9% 45.9% 45.9% Operating Expense Per Unit $ 3,680 $ 3,790 $ 3,904 $ 4,021 $ 4,142 ========== ========== ========== ========== ==========
Estimated Stabilized NOI $2,023,963 Months to Stabilized 18 Stabilized Occupancy 95.0% Sales Expense Rate 2.00% Discount Rate 10.50% Terminal Cap Rate 8.25%
Gross Residual Sale Price $32,970,143 Deferred Maintenance $ 0 Less: Sales Expense $ 659,403 Add: Excess Land $ 0 ----------- Net Residual Sale Price $32,310,740 Other Adjustments $ 0 ----------- PV of Reversion $11,904,855 Value Indicated By "DCF" $25,625,401 Add: NPV of NOI $13,720,546 Rounded $25,600,000 ----------- PV Total $25,625,401
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE ------------------------------------------------------------------- TOTAL VALUE 10.00% 10.25% 10.50% 10.75% 11.00% ----------------------------------------------------------------------------------------------------- 7.75% $27,332,688 $26,857,769 $26,393,456 $25,939,479 $25,495,573 8.00% $26,918,286 $26,452,668 $25,997,428 $25,552,300 $25,117,026 TERMINAL CAP RATE 8.25% $26,528,999 $26,072,119 $25,625,401 $25,188,586 $24,761,422 8.50% $26,162,611 $25,713,955 $25,275,258 $24,846,267 $24,426,735 8.75% $25,817,159 $25,376,257 $24,945,124 $24,523,510 $24,111,174
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 34 REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA INCOME LOSS DURING LEASE-UP The subject is currently 61% occupied, below our stabilized occupancy projection. We have estimated an 18-month lease-up period. An adjustment must be made to bring the subject to a stabilized operating level. To account for this income loss during lease-up, we have compared the current DCF analysis to an "as stabilized" DCF analysis assuming the subject's occupancy were stabilized. The difference in net operating income during the lease-up period is discounted to a present value figure of $756,000 as shown in the following table.
DESCRIPTION YEAR 1 YEAR 2 ----------- ------ ------ "As Is" Net Operating Income $1,203,987 $2,001,729 Stabilized Net Operating Income $1,964,250 $2,084,682 ---------- ---------- Difference $ 760,262 $ 82,952 PV of Income Loss During Lease-Up $ 755,957 ---------- Rounded $ 756,000 ----------
CONCESSIONS Due to softness in the market, concessions have been utilized at the subject property and within the market. Based on our discussions with the subject's property manager and those at competing properties, these concessions are expected to continue in the near term until the market returns to a stabilized level. Concessions have been included as a line item deduction within the discounted cash flow analysis. The present value of these concessions equates to $57,000 (rounded). This amount has been deducted from the Direct Capitalization analysis, as well as the Sales Comparison Approach value. DIRECT CAPITALIZATION METHOD After having projected the income and expenses for the property, the next step in the valuation process is to capitalize the net income into an estimate of value. The selected overall capitalization rate ("OAR") covers both return on and return of capital. It is the overall rate of return an investor expects. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 35 REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA After considering the market transactions and the investor surveys, we previously conclude that an overall rate of 7.75% 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 REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA REFLECTIONS (GREENSPRING MANOR)
TOTAL PER SQ. FT. PER UNIT %OF EGI ----- ----------- -------- ------- REVENUE Base Rent $ 4,069,200 $ 8.86 $ 6,992 Less: Vacancy & Collection Loss 7.00% $ 284,844 $ 0.62 $ 489 Plus: Other Income Laundry Income $ 0 $ 0.00 $ 0 0.00% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 120,442 $ 0.26 $ 207 3.08% ------------ ------ -------- ---- Subtotal Other Income $ 120,442 $ 0.26 $ 207 3.08% EFFECTIVE GROSS INCOME $ 3,904,798 $ 8.51 $ 6,709 OPERATING EXPENSES: Taxes $ 270,113 $ 0.59 $ 464 6.92% Insurance $ 86,051 $ 0.19 $ 148 2.20% Utilities $ 303,887 $ 0.66 $ 522 7.78% Repair & Maintenance $ 130,330 $ 0.28 $ 224 3.34% Cleaning $ 99,794 $ 0.22 $ 171 2.56% Landscaping $ 76,274 $ 0.17 $ 131 1.95% Security $ 0 $ 0.00 $ 0 0.00% Marketing & Leasing $ 92,182 $ 0.20 $ 158 2.36% General Administrative $ 539,664 $ 1.18 $ 927 13.82% Management 5.00% $ 195,240 $ 0.43 $ 335 5.00% Miscellaneous $ 0 $ 0.00 $ 0 0.00% TOTAL OPERATING EXPENSES $ 1,793,535 $ 3.91 $ 3,082 45.93% Reserves $ 87,300 $ 0.19 $ 150 2.24% ------------ ------ -------- ---- NET OPERATING INCOME $ 2,023,963 $ 4.41 $ 3,478 51.83% ============ ====== ======== ===== "GOING IN" CAPITALIZATION RATE 7.75% VALUE INDICATION $ 26,115,649 $56.89 $ 44,872 LESS: LEASE-UP COST ($ 756,000) PV OF CONCESSIONS ($ 57,000) "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $ 25,302,649 ROUNDED $ 25,300,000 $55.11 $ 43,471
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 37 REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF -------- ----- ------- ------ ---- 7.00% $28,100,755 $28,100,000 $ 48,282 $61.21 7.25% $27,103,729 $27,100,000 $ 46,564 $59.03 7.50% $26,173,171 $26,200,000 $ 45,017 $57.07 7.75% $25,302,649 $25,300,000 $ 43,471 $55.11 8.00% $24,486,535 $24,500,000 $ 42,096 $53.37 8.25% $23,719,883 $23,700,000 $ 40,722 $51.62 8.50% $22,998,327 $23,000,000 $ 39,519 $50.10
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $25,300,000. 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 $25,600,000 Direct Capitalization Method $25,300,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $25,600,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 38 REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA 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 $25,800,000 Income Approach $25,600,000 Reconciled Value $25,700,000
The Income Capitalization Method is considered a reliable indicator of value. Income and expenses were estimated and projected based on historical operating statements and market oriented expenses. This method is primarily used by investors in their underwriting analysis. Furthermore, there was good support for an overall rate in the Direct Capitalization Method. The Sales Comparison Approach to value supported the value conclusion by the Income Approach and was given secondary consideration. Investment-grade, income-producing properties such as the subject are not typically traded based on cost. Therefore, the Cost Approach has not been considered in our valuation. FINAL VALUE - FEE SIMPLE ESTATE Based on the investigation and premise outlined, it is our opinion that as of May 7, 2003 the market value of the fee simple estate in the property is: $25,700,000 ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA ADDENDA EXHIBIT A AMERICAN APPRAISAL ASSOCIATES, INC. REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA EXHIBIT A SUBJECT PHOTOGRAPHS EXHIBIT A AMERICAN APPRAISAL ASSOCIATES, INC. REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - APARTMENT BUILDING EXTERIOR - APARTMENT BUILDING [PICTURE] [PICTURE] EXTERIOR - PLAYGROUND EXTERIOR - POOL [PICTURE] [PICTURE] INTERIOR - LIVING ROOM INTERIOR - BEDROOM EXHIBIT A AMERICAN APPRAISAL ASSOCIATES, INC. REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA SUBJECT PHOTOGRAPHS [PICTURE] INTERIOR - KITCHEN EXHIBIT B AMERICAN APPRAISAL ASSOCIATES, INC. REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF OMPARABLES EXHIBIT B AMERICAN APPRAISAL ASSOCIATES, INC. REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 ABINGTON APARTMENTS CROSS CREEK APARTMENTS ARBOR GREEN APARTMENTS 4656 Edwardian Circle 5756 Cross Creek Dr. 3836 Arbor Green Ln. Indianapolis, IN Indianapolis, IN Indianapolis, IN [PICTURE] [PICTURE] [PICTURE] COMPARABLE I-4 COMPARABLE I-5 ARBOR GREEN APARTMENTS CARRIAGETREE APARTMENTS (MONON PLACE APTS) 3836 Arbor Green Ln. 5900 Carvel Ave. Indianapolis, IN Indianapolis, IN [PICTURE] [PICTURE] EXHIBIT B AMERICAN APPRAISAL ASSOCIATES, INC. REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA SUMMARY OF COMPARABLE RENTAL PROPERTIES
DESCRIPTION SUBJECT COMPARABLE R - 1 ------------------------------------------------------------------------------------------------------------------------ Property Name Reflections (Greenspring Manor) Carlton Apartments Management Company AIMCO LOCATION: Address 7999 Silverleaf Drive 2629 Plaza Dr. City, State Indianapolis, Indiana Indianapolis, IN County Marion Marion Proximity to Subject 0.75 miles NW of subject PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 459,080 Year Built 1972 N/A Effective Age 15 10 Building Structure Type Wood, w/ brick & siding facade; Wood, w/ brick & siding facade; asphalt shingle roof asphalt shingle roof Parking Type (Gr., Cov., etc.) Garage, Open Covered Open, Covered Number of Units 582 702 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 Eff/1Ba - EA10 450 240 $449 1 Studio 470 0 $460 2 1Br/1Ba - 1A10 770 104 $569 2 1BD/1BH 660 0 $560 3 1Br/1Ba - 2A15 950 100 $659 2 1BD/1BH 560 0 $495 4 2Br/2Ba - 2A25 1,200 86 $729 1 1BD/1BH 525 0 $495 5 2Br/2Ba - 3A25 1,400 52 $829 2 1BD/1BH 615 0 $495 $900 3 2BD/1BH 870 0 $565 3 2BD/2BH 975 0 $685 4 2BD/2BH 1,140 0 $700 Average Unit Size (SF) 789 Unit Breakdown: Efficiency 0% 2-Bedroom 39% Efficiency 2-Bedroom 1-Bedroom 61% 3-Bedroom 0% 1-Bedroom 3-Bedroom CONDITION: Good Good APPEAL: Average Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling X Attach. Garage X Vaulted Ceiling X Balcony X W/D Connect. X Balcony X W/D Connect. Fireplace X Washer Dryer X Fireplace Washer Dryer X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash Spa/Jacuzzi X Car Wash Basketball Court X BBQ Equipment X Basketball Court X BBQ Equipment X Volleyball Court Theater Room Volleyball Court Theater Room X Sand Volley Ball X Meeting Hall X Sand Volley Ball X Meeting Hall Tennis Court X Secured Parking X Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room X Jogging Track X Business Office X Jogging Track X Business Office X Gym Room X Gym Room OCCUPANCY: 61% 80% LEASING DATA: Available Leasing Terms 6 to 15 Months 3 to 12 Months Concessions 1 - 1 1/2 Months Free 1 Month Free Pet Deposit $300 - $500 $ 200 Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas X Water Trash X Water Trash Confirmation Telephone Number NOTES: None COMPARISON TO SUBJECT: Similar
DESCRIPTION COMPARABLE COMPARABLE R - 2 R - 3 ------------------------------------------------------------------------------------------------------------------------ Property Name Landmark Apartments Kensington Apartments Management Company LOCATION: Address 7600 Harcourt Rd. 8444 Rothbury Dr. City, State Indianapolis, IN Indianapolis, IN County Marion Marion Proximity to Subject 0.50 miles S of subject 0.50 miles N of subject PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 215,760 Year Built 1974 1967 Effective Age 25 15 Building Structure Type Wood, w/ brick & siding Wood, w/ brick & siding facade; facade; asphalt shingle roof asphalt shingle roof Parking Type (Gr., Cov., etc.) Open, Covered Open, Covered Number of Units 231 296 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 Studio 500 28 $465 2 1BD/1BH 630 0 $570 2 1BD/1BH 726 60 $570 2 1BD/1BH 750 0 $550 3 1BD/1BH 910 8 $640 2 1BD/1BH 800 0 $600 4 1BD/1BH 1,188 20 $700 3 2BD/1BH 910 0 $650 4 2BD/1BH 1,034 40 $735 3 2BD/2BH 950 0 $680 3 2BD/1BH 880 45 $655 4 2BD/2BH 1,250 0 $720 5 2BD/2BH 1,450 21 $835 5 2BD/2BH 1,350 0 $790 5 3BD/2BH 1,750 9 $995 5 3BD/2BH 1,600 0 $920 Average Unit Size (SF) 934 1,124 Unit Breakdown: Efficiency 12% 2-Bedroom 46% Efficiency 0% 2-Bedroom 0% 1-Bedroom 38% 3-Bedroom 4% 1-Bedroom 0% 3-Bedroom 0% CONDITION: Good Slightly Superior APPEAL: Good Slightly Superior AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling X Attach. Garage X Vaulted Ceiling X Balcony X W/D Connect. X Balcony X W/D Connect. Fireplace Washer Dryer X Fireplace Washer Dryer X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash Spa/Jacuzzi X Car Wash Basketball Court X BBQ Equipment X Basketball Court X BBQ Equipment Court X Volleyball Court Theater Room Volleyball Court Theater Room X Sand Volley Ball X Meeting Hall X Sand Volley Ball X Meeting Hall X Tennis Court Secured Parking X Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track X Business Office X Jogging Track X Business Office X Gym Room X Gym Room OCCUPANCY: 80% 98% LEASING DATA: Available Leasing Terms 9 to 12 Months 6 to 12 Months Concessions None 1 Month Free Pet Deposit $150 $200 Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas X Water Trash X Water Trash Confirmation Telephone Number NOTES: None COMPARISON TO SUBJECT: Similar Similar
DESCRIPTION COMPARABLE COMPARABLE R - 4 R - 5 ----------------------------------------------------------------------------------------------------------------------------- Property Name Barrington Apartments Chelsea Village Management Company LOCATION: Address 8717 Old Town West Dr. 9280 Chelsea Village Dr. City, State Indianapolis, IN Indianapolis, IN County Marion Marion Proximity to Subject 1 mile N of subject 1.25 miles N of subject PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 161,914 227,720 Year Built 1966 1983 Effective Age 25 15 Building Structure Type Wood, w/ brick & siding facade; Wood, w/ brick & siding facade; asphalt shingle roof asphalt shingle roof Parking Type (Gr., Cov., etc.) Garage, Open, Covered Open, Covered Number of Units 144 246 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 2 1BD/1BH 628 18 $ 640 2 1BD/1BH 730 74 $531 2 1BD/1BH 855 6 $ 720 2 1BD/1BH 830 18 $616 3 2BD/1BH 907 18 $ 705 3 2BD/1BH 930 52 $613 4 2BD/2BH 1,069 36 $ 825 4 2BD/2BH 1,100 28 $655 4 2BD/2BH 1,153 20 $ 875 3 2BD/2BH 1,000 46 $717 4 3BD/2BH 1,295 6 $ 985 4 3BD/2BH 1,200 28 $828 5 3BD/2BH 1,496 40 $1,045 Average Unit Size (SF) 1,124 926 Unit Breakdown: Efficiency 0% 2-Bedroom 51% Efficiency 0% 2-Bedroom 51% 1-Bedroom 17% 3-Bedroom 32% 1-Bedroom 37% 3-Bedroom 11% CONDITION: Good Good APPEAL: Good Good AMENITIES: Unit Amenities X Attach. Garage Vaulted Ceiling Attach. Garage X Vaulted Ceiling X Balcony X W/D Connect. X Balcony X W/D Connect. X Fireplace Washer Dryer X Fireplace Washer Dryer X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool X Spa/Jacuzzi Car Wash X Spa/Jacuzzi Car Wash Basketball X BBQ Equipment Basketball Court X BBQ Equipment Court Volleyball X Theater Room X Volleyball Court Theater Room Court Sand Volley X Meeting Hall X Sand Volley Ball Meeting Hall Ball Tennis Court X Secured Parking X Tennis Court Secured Parking Racquet Ball Laundry Room Racquet Ball X Laundry Room Jogging Track X Business Office Jogging Track Business Office X Gym Room X Gym Room OCCUPANCY: 96% 91% LEASING DATA: Available Leasing Terms 3 to 12 Months 6 to 12 Months Concessions 1 Month Free 1 Month Free Pet Deposit $200 $200 Utilities Paid by Tenant X Electric Natural Gas X Electric Natural Gas X Water Trash X Water Trash Confirmation Telephone Number NOTES: None None COMPARISON TO SUBJECT: Superior Similar
EXHIBIT B AMERICAN APPRAISAL ASSOCIATES, INC. REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 CARLTON APARTMENTS LANDMARK APARTMENTS KENSINGTON APARTMENTS 2629 Plaza Dr. 7600 Harcourt Rd. 8444 Rothbury Dr. Indianapolis, IN Indianapolis, IN Indianapolis, IN [PICTURE] [PICTURE] [PICTURE] COMPARABLE R-4 COMPARABLE R-5 BARRINGTON APARTMENTS CHELSEA VILLAGE 8717 Old Town West Dr. 9280 Chelsea Village Dr. Indianapolis, IN Indianapolis, IN [PICTURE] [PICTURE] EXHIBIT C AMERICAN APPRAISAL ASSOCIATES, INC. REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) EXHIBIT C AMERICAN APPRAISAL ASSOCIATES, INC. REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA 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. EXHIBIT C AMERICAN APPRAISAL ASSOCIATES, INC. REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA 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 EXHIBIT C AMERICAN APPRAISAL ASSOCIATES, INC. REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA such testimony, and then such testimony shall be at American Appraisal Associates, Inc.'s, prevailing per diem for the individuals involved. Possession of this report or any copy thereof does not carry with it the right of publication. No portion of this report (especially any conclusion to use, the identity of the appraiser or the firm with which the appraiser is connected, or any reference to the Appraisal Institute or the designations awarded by this organization) shall be disseminated to the public through prospectus, advertising, public relations, news, or any other means of communication without the written consent and approval of American Appraisal Associates, Inc. EXHIBIT D AMERICAN APPRAISAL ASSOCIATES, INC. REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA EXHIBIT D CERTIFICATE OF APPRAISER (1 PAGE) EXHIBIT D AMERICAN APPRAISAL ASSOCIATES, INC. 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. John Nolan 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/ Kenneth W. Kapecki ---------------------- Ken Kapecki, MAI Managing Principal, Real Estate Group State of Indiana, Certified General Appraiser, #CG49600008 EXHIBIT E AMERICAN APPRAISAL ASSOCIATES, INC. REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA EXHIBIT E QUALIFICATIONS OF APPRAISER (3 PAGES) EXHIBIT E AMERICAN APPRAISAL ASSOCIATES, INC. REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA KENNETH W. KAPECKI, MAI MANAGING PRINCIPAL, REAL ESTATE GROUP POSITION Kenneth W. Kapecki is the Managing Principal for the Chicago Real Estate Group of American Appraisal Associates, Inc. ("AAA"). EXPERIENCE Valuation Mr. Kapecki has over 17 years of experience in providing valuation services to clients worldwide. He has a diversified background with considerable expertise in the valuation of special-purpose properties, large multilocational holdings, and investment-grade real estate. He has appraised steel mills, chemical plants, food processing facilities, airports, mines, railroad rights-of-way, hotels, and a variety of commercial and manufacturing facilities. Mr. Kapecki's experience further extends to highest and best use studies, feasibility studies, lease valuation analyses, cost segregation analyses, and insurable value analyses. His reports are most frequently prepared for acquisition, ad valorem tax, divestiture, financing, allocation of purchase price, litigation support, and value reporting. Over the years, he has completed appraisals in 50 states representing over $10 billion in value. Mr. Kapecki has developed a core competency in the valuation of hospitality property. He has appraised more than 150 hotels in the last two years alone for financing, acquisition due diligence, cost segregation, and feasibility. These properties consisted of a mixture of limited-service, full-service, and resort hotels located throughout the United States as well as in the Bahamas, Belize, and Guam. EXHIBIT E AMERICAN APPRAISAL ASSOCIATES, INC. REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA Court Mr. Kapecki has testified as an expert witness in state and federal district courts and by deposition statements and interrogatory communications. Business Prior to joining AAA in 2001, Mr. Kapecki was a senior manager in the Chicago Valuation Service Group of Arthur Andersen, where he served as the central regional team leader for real estate staff training, hospitality consulting, and the valuation of real estate. Prior to his employment with Arthur Andersen, Mr. Kapecki served as the manager of real estate valuations for Lloyd-Thomas Coats and Burchard Co. EDUCATION University of Wisconsin - La Crosse Bachelor of Science - Geography STATE CERTIFICATIONS State of Illinois, Certified General Real Estate Appraiser, #153000331 State of Indiana, Certified General Appraiser, #CG49600008 State of Michigan, Certified General Appraiser, #1201003145 State of Wisconsin, Certified General Appraiser and Licensed Appraiser, #641 PROFESSIONAL AFFILIATIONS Appraisal Institute, MAI Designated Member Chicago Chapter, Admissions Committee Member, 1997 - Present EXHIBIT E AMERICAN APPRAISAL ASSOCIATES, INC. REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA VALUATION AND SPECIAL COURSES Appraisal Institute Appraisal Principles Case Studies in Real Estate Valuation Fair Lending and the Appraiser Highest & Best Use and Market Analysis Income Capitalization, Parts A and B Litigation Support: The Appraiser as an Expert Witness Partial Interest Valuation Real Estate Disclosure Report Writing Standards of Professional Practice Valuation of Detrimental Conditions Valuation Theory and Techniques Arthur Andersen, Course Developer Income Capitalization Theory and Techniques Introduction to the Cost Approach Property Inspection and Market Data Collection AMERICAN APPRAISAL ASSOCIATES, INC. REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA 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.