-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HWjPtO4Wuw75oELC6xoT6yawZWKnnGVswzjom+4d0Yq3Y4PlCqYBwvAr29ASbLBA WAMissBSSah7fNpxyDujxg== 0000950134-05-011466.txt : 20050611 0000950134-05-011466.hdr.sgml : 20050611 20050607060521 ACCESSION NUMBER: 0000950134-05-011466 CONFORMED SUBMISSION TYPE: SC TO-T/A PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 20050607 DATE AS OF CHANGE: 20050607 GROUP MEMBERS: AIMCO-GP INC GROUP MEMBERS: APARTMENT INVESTMENT AND MANAGEMENT CO GROUP MEMBERS: FOX CAPITAL MANAGEMENT CORP GROUP MEMBERS: FOX PARTNERS II SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: CENTURY PROPERTIES FUND XIX CENTRAL INDEX KEY: 0000705752 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 942887133 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC TO-T/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-43357 FILM NUMBER: 05881749 BUSINESS ADDRESS: STREET 1: 55 BEATTIE PLACE STREET 2: P O BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 BUSINESS PHONE: 8642391000 MAIL ADDRESS: STREET 1: 55 BEATTIE PLACE STREET 2: P O BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: CENTURY PROPERTIES FUND XIX CENTRAL INDEX KEY: 0000705752 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 942887133 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13E3/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-43357 FILM NUMBER: 05881750 BUSINESS ADDRESS: STREET 1: 55 BEATTIE PLACE STREET 2: P O BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 BUSINESS PHONE: 8642391000 MAIL ADDRESS: STREET 1: 55 BEATTIE PLACE STREET 2: P O BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: AIMCO PROPERTIES LP CENTRAL INDEX KEY: 0000926660 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF APARTMENT BUILDINGS [6513] IRS NUMBER: 841275621 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC TO-T/A BUSINESS ADDRESS: STREET 1: 4582 S ULSTER ST PARKWAY STREET 2: SUITE 1100 CITY: DENVER STATE: CO ZIP: 80237 BUSINESS PHONE: 3037578101 MAIL ADDRESS: STREET 1: 4582 S ULSTER ST PARKWAY STREET 2: SUITE 1100 CITY: DENVER STATE: CO ZIP: 80237 SC TO-T/A 1 d18178a5sctovtza.txt AMENDMENT NO. 5 TO SC TO-TENDER OFFER SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 SCHEDULE TO/A (AMENDMENT NO. 5) TENDER OFFER STATEMENT UNDER SECTION 14(d)(1) OR 13(e)(1) OF THE SECURITIES EXCHANGE ACT OF 1934 Century Properties Fund XIX - -------------------------------------------------------------------------------- (Name of Subject Company (Issuer)) AIMCO Properties, L.P. Apartment Investment and Management Company AIMCO-GP, Inc. Fox Partners II Fox Capital Management Corporation - -------------------------------------------------------------------------------- (Names of Filing Persons (Offerors)) Limited Partnership Units - -------------------------------------------------------------------------------- (Title of Class of Securities) None - -------------------------------------------------------------------------------- (CUSIP Number of Class of Securities) Martha L. Long Apartment Investment and Management Company 55 Beattie Place PO Box 1089 Greenville, South Carolina 29602 (864) 239-1000 - -------------------------------------------------------------------------------- (Name, address, and telephone numbers of person authorized to receive notices and communications on behalf of filing persons) Copy to: Joseph A. Coco Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 (212) 735-3000 and Jonathan L. Friedman Skadden, Arps, Slate, Meagher & Flom LLP 300 South Grand Avenue Los Angeles, California 90071 (213) 687-5000 Calculation of Filing Fee TRANSACTION VALUATION* AMOUNT OF FILING FEE ---------------------- -------------------- $10,668,102 $1,255.64 * For purposes of calculating the fee only. This amount assumes the purchase of 35,560.34 units of limited partnership interest of the subject partnership for $300.00 per unit. The amount of the filing fee, calculated in accordance with Section 14(g)(1)(B)(3) and Rule 0-11(d) under the Securities Exchange Act of 1934, as amended, equals $117.70 per million of the aggregate amount of cash offered by the bidder. [X] Check the box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount Previously Paid: $1,093.57 Filing Party: AIMCO Properties, L.P. Form or Registration No.: Schedule TO/13E-3 Date Filed: February 16, 2005 [ ] Check the box if the filing relates solely to preliminary communications made before the commencement of a tender offer. Check the appropriate boxes below to designate any transactions to which the statement relates: [X] third-party tender offer subject to Rule 14d-1 [ ] issuer tender offer subject to Rule 13e-4 [X] going-private transaction subject to Rule 13e-3 [ ] amendment to Schedule 13D under Rule 13d-2 Check the following box if the filing is a final amendment reporting the results of the tender offer: [ ] 2 AMENDMENT NO. 5 TO SCHEDULE TO This Amendment No. 5 amends and supplements the Tender Offer Statement and Rule 13e-3 Transaction Statement on Schedule TO initially filed on February 16, 2005, as amended by Amendment No. 1 thereto filed on March 15, 2005, Amendment No. 2 filed on March 28, 2005, Amendment No. 3 filed on April 27, 2005, and Amendment No. 4 filed on May 31, 2005 (as amended, the "Schedule TO"). This Amendment No. 5 relates to the offer by AIMCO Properties, L.P., a Delaware limited partnership, to purchase units of limited partnership interest ("Units") of Century Properties Fund XIX, a California limited partnership (the "Partnership"), at a price of $300.00 per unit in cash, subject to the conditions set forth in the Offer to Purchase dated February 16, 2005 (as amended or supplemented from time to time, the "Offer to Purchase") and in the related Letter of Transmittal (as amended or supplemented from time to time, the "Letter of Transmittal" and, together with the Offer to Purchase, the "Offer"). The item numbers and responses thereto below are in accordance with the requirements of Schedule TO. Unless defined herein, capitalized terms used and not otherwise defined herein have the respective meanings ascribed to such terms in the Offer to Purchase. ITEM 1. SUMMARY TERM SHEET. The information set forth under "SUMMARY TERM SHEET" in the Offer to Purchase is incorporated herein by reference. ITEM 2. SUBJECT COMPANY INFORMATION. (a) The information set forth under "The Offer - Section 8. Certain Information Concerning Your Partnership" in the Offer to Purchase is incorporated herein by reference. The Partnership's principal executive offices are located at 55 Beattie Place, P.O. Box 1089, Greenville, South Carolina 29602, and its phone number is (864) 239-1000. (b) This Schedule TO relates to the units of limited partnership interest of Century Properties Fund XIX, of which 89,292 units were issued and outstanding as of March 31, 2005. (c) Not applicable. ITEM 3. IDENTITY AND BACKGROUND OF FILING PERSON. (a)-(c) This Schedule TO is being filed by Apartment Investment and Management Company, a Maryland corporation ("AIMCO"), AIMCO Properties, L.P., a Delaware limited partnership ("AIMCO OP"), AIMCO-GP, Inc., a Delaware corporation ("AIMCO-GP"), Fox Partners II, a California general partnership, and Fox Capital Management Corporation, a Delaware corporation ("Fox Capital"). AIMCO-GP is the general partner of AIMCO OP and a wholly owned subsidiary of AIMCO. Fox Partners II is the general partner of the Partnership, and a subsidiary of AIMCO. Fox Capital is the managing general partner of Fox Partners II and a wholly owned subsidiary of AIMCO. The principal business of AIMCO, AIMCO-GP, and AIMCO OP is the ownership, acquisition, development, expansion and management of multi-family apartment properties. The business address of AIMCO, AIMCO-GP and AIMCO OP is 4582 Ulster Street Parkway, Suite 1100, Denver, Colorado 80237, and their telephone number is (303) 757-8101. The principal address of Fox Capital is 55 Beattie Place, P.O. Box 1089, Greenville, South Carolina 29602, and its phone number is (864) 239-1000. The information set forth under "The Offer - Section 7. Information Concerning Us and Certain of Our Affiliates" and Annex I of the Offer to Purchase is incorporated herein by reference. During the last five years, none of AIMCO, AIMCO-GP, AIMCO OP, Fox Partners II, or Fox Capital nor, to the best of their knowledge, any of the persons listed in Annex I to the Offer to Purchase (i) has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) was a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining further violations of or prohibiting activities subject to federal or state securities laws or finding any violation with respect to such laws. ITEM 4. TERMS OF THE TRANSACTION. (a) The information set forth in the Offer to Purchase and in the related Letter of Transmittal is incorporated herein by reference. 3 ITEM 5. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS. (a) and (b) The information set forth under "Special Factors - Valuation of Units - Prior Tender Offers," " - Background and Reasons for the Offer," " - Conflicts of Interest and Transactions with Affiliates" and "The Offer - Section 6. The Lawsuit and the Settlement," in the Offer to Purchase is incorporated herein by reference. ITEM 6. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS. (a), (c)(1)-(7) The information set forth under "Special Factors - Effects of the Offer," "Background and Reasons for the Offer," " - Future Plans of the Purchaser" and "The Offer - Section 6. The Lawsuit and the Settlement," in the Offer to Purchase is incorporated herein by reference. ITEM 7. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. (a), (b) and (d) The information set forth under "The Offer - Section 10. Source of Funds" and " - Section 14. Fees and Expenses" in the Offer to Purchase is incorporated herein by reference. ITEM 8. INTEREST IN SECURITIES OF THE SUBJECT COMPANY. The information set forth under "The Offer - Section 8. Certain Information Concerning Your Partnership - Ownership and Voting" in the Offer to Purchase is incorporated herein by reference. ITEM 9. PERSONS/ASSETS, RETAINED, EMPLOYED, COMPENSATED OR USED. Not applicable. ITEM 10. FINANCIAL STATEMENTS. Not applicable. ITEM 11. ADDITIONAL INFORMATION. (a) The information set forth under "The Offer - Section 13. Certain Legal Matters" in the Offer to Purchase is incorporated herein by reference. (b) The information set forth in the Offer to Purchase and in the related Letter of Transmittal is incorporated herein by reference. ITEM 12. EXHIBITS. Item 12 of the Schedule TO is amended and supplemented as follows: (a)(16) Amended and Restated Offer to Purchase dated June 6, 2005. (a)(17) Amended and Restated Letter of Transmittal and related Instructions. (a)(18) Letter, dated June 6, 2005, from AIMCO Properties, L.P. to the limited partners (c)(8) Appraisal of Plantation Crossing by C.B. Richard Ellis (c)(9) Appraisal of Vinings Peak by C.B. Richard Ellis (c)(10) Appraisal of Wood Lake by C.B. Richard Ellis ITEM 13. INFORMATION REQUIRED BY SCHEDULE 13E-3. ITEM 2. SUBJECT COMPANY INFORMATION. (d) The information set forth under "The Offer - Section 8. Certain Information Concerning Your Partnership - Distributions" in the Offer to Purchase is incorporated herein by reference. 4 (e) Not applicable. (f) The information set forth under "Special Factors - Valuation of Units - Prior Tender Offers" in the Offer to Purchase is incorporated herein by reference. ITEM 4. TERMS OF THE TRANSACTION. (c) The information set forth under "Special Factors - Background and Reasons for the Offer" and "The Offer - Section 6. The Lawsuit and the Settlement" of the Offer to Purchase is incorporated herein by reference. (d)-(e) The information set forth under "The Offer - Section 11. Dissenters' Rights" in the Offer to Purchase is incorporated herein by reference. (f) Not applicable. ITEM 5. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS. (c) The information set forth under "Special Factors - Background and Reasons for the Offer" and "The Offer - Section 6. The Lawsuit and the Settlement" in the Offer to Purchase is incorporated herein by reference. (e) Not applicable. ITEM 6. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS. (b) See Item 6 of the Schedule TO. (c)(8) The information set forth under "Special Factors - Effects of the Offer" of the Offer to Purchase is incorporated herein by reference ITEM 7. PURPOSES, ALTERNATIVES, REASONS AND EFFECTS. (a) The information set forth under "Special Factors - Background and Reasons for the Offer - General" in the Offer to Purchase is incorporated herein by reference. (b) The information set forth under "Special Factors - Background and Reasons for the Offer - Alternatives Considered by Your General Partner" and " - Alternative Transactions Considered by Us" in the Offer to Purchase is incorporated herein by reference. (c) The information set forth under "Special Factors - Background and Reasons for the Offer" of the Offer to Purchase is incorporated herein by reference. (d) The information set forth under "Special Factors - Material Federal Income Tax Matters" and " - Effects of the Offer" of the Offer to Purchase is incorporated herein by reference. ITEM 8. FAIRNESS OF THE TRANSACTION. (a)-(f) The information set forth under "Special Factors - Position of the General Partner of Your Partnership with Respect to the Offer" of the Offer to Purchase is incorporated herein by reference. ITEM 9. REPORTS, OPINIONS, APPRAISALS AND NEGOTIATIONS. (a) The information set forth under "Special Factors - Valuation of Units - Estimated Liquidation Proceeds Based on Independent Appraisal," " - Third Party Appraisals in Connection with Refinancings" and " - Position of the General Partner of Your Partnership with Respect to the Offer" of the Offer to Purchase is incorporated herein by reference. (b) The information set forth under "Special Factors - Valuation of Units - Estimated Liquidation Proceeds 5 Based on Independent Appraisal" and " - Third Party Appraisals in Connection with Refinancings" of the Offer to Purchase is incorporated herein by reference. (c) The information set forth under "Special Factors - Valuation of Units - Estimated Liquidation Proceeds Based on Independent Appraisal - Availability of Appraisal Reports" and " - Third Party Appraisals in Connection with Refinancings" of the Offer to Purchase is incorporated herein by reference. ITEM 10. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. (c) See Item 7 of the Schedule TO. ITEM 12. THE SOLICITATION OR RECOMMENDATION. (d)-(e) The information set forth under "Special Factors - Position of the General Partner of Your Partnership with Respect to the Offer" of the Offer to Purchase is incorporated herein by reference. ITEM 13. FINANCIAL STATEMENTS. The information set forth under "The Offer - Section 18. Certain Information Concerning Your Partnership" of the Offer to Purchase and Item 7 of Part II of the Partnership's Annual Report on Form 10-KSB for the fiscal year ended December 31, 2004 and Item 1 of Part I of the Partnership's Quarterly Report on Form 10-QSB for the quarter and March 31, 2005 are incorporated herein by reference. ITEM 14. PERSONS/ASSETS, RETAINED, EMPLOYED, COMPENSATED OR USED. (b) Not applicable. ITEM 15. ADDITIONAL INFORMATION. (b) The information set forth in the Offer to Purchase and the related Letter of Transmittal is incorporated herein by reference. ITEM 16. EXHIBITS. (f) Not applicable. 6 SIGNATURE After due inquiry and to the best of its knowledge and belief, the undersigned hereby certify that the information set forth in this statement is true, complete and correct. Date: June 6, 2005 AIMCO PROPERTIES, L.P. By: AIMCO-GP, INC. Its General Partner By: /s/ Martha L. Long ------------------------------ Martha L. Long Senior Vice President APARTMENT INVESTMENT AND MANAGEMENT COMPANY By: /s/ Martha L. Long ------------------------------ Martha L. Long Senior Vice President AIMCO-GP, INC. By: /s/ Martha L. Long ------------------------------ Martha L. Long Senior Vice President FOX PARTNERS II By: FOX CAPITAL MANAGEMENT CORPORATION Its General Partner By: /s/ Martha L. Long ------------------------------ Martha L. Long Senior Vice President FOX CAPITAL MANAGEMENT CORPORATION By: /s/ Martha L. Long ------------------------------ Martha L. Long Senior Vice President 7 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION ----------- ----------- (a)(16) Amended and Restated Offer to Purchase dated June 6, 2005. (a)(17) Amended and Restated Letter of Transmittal and related Instructions. (a)(18) Letter, dated June 6, 2005, from AIMCO Properties, L.P. to the limited partners (c)(8) Appraisal of Plantation Crossing by C.B. Richard Ellis (c)(9) Appraisal of Vinings Peak by C.B. Richard Ellis (c)(10) Appraisal of Wood Lake by C.B. Richard Ellis
EX-99.(A)(16) 2 d18178a5exv99wxayx16y.txt AMENDED AND RESTATED OFFER TO PURCHASE AMENDED AND RESTATED OFFER TO PURCHASE (AIMCO LOG) AIMCO PROPERTIES, L.P. is offering to purchase any and all limited partnership units in CENTURY PROPERTIES FUND XIX FOR $300.00 PER UNIT IN CASH Upon the terms and subject to the conditions set forth herein, we will accept any and all units validly tendered in response to our offer. You will not pay any partnership transfer fees if you tender your units pursuant to this offer. You will pay any other fees or costs, including any transfer taxes. Our offer price will be reduced for any distributions subsequently made or declared by your partnership prior to the expiration of our offer. Our offer and your withdrawal rights will expire at midnight, New York City time, on June 27, 2005, unless we extend the deadline. The general partner of your partnership does not make any recommendation regarding whether you should accept this offer. You are encouraged to carefully review this Offer to Purchase and any other information available to you and to seek advice from your independent lawyer, tax advisor and/or financial advisor with respect to your particular circumstances before deciding whether or not to accept this offer. SEE "RISK FACTORS" BEGINNING ON PAGE 4 OF THIS OFFER TO PURCHASE FOR A DESCRIPTION OF RISK FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - If you want to tender your units in the offer, you must sign a letter of transmittal in which you release us from all liability, except as otherwise provided in Section 3 herein, with respect to any and all claims through and including the date of execution of the letter of transmittal, including, but not limited to, those claims that were brought or that could have been brought in the Nuanes and Heller litigation brought on behalf of limited partners in your partnership and others, and assign to us your rights in any future claims. On March 21, 2005, the Court of Appeals vacated the trial court's order approving the settlement in the Nuanes and Heller litigation and remanded to the trial court for further findings on the basis that the "state of the record is insufficient to permit meaningful appellate review." By executing the enclosed letter of transmittal, moreover, you will release those claims irrespective of whether you previously requested exclusion from the settlement and irrespective of what happens in connection with the remand and any subsequent appeal. (Continued on next page) NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THIS TRANSACTION, PASSED UPON THE MERITS OF THIS TRANSACTION, OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE DISCLOSURE IN THIS OFFER TO PURCHASE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. If you decide to accept our offer, you must complete and sign the enclosed letter of transmittal in accordance with the instructions thereto and mail or deliver the signed letter of transmittal and any other required documents to The Altman Group, Inc., which is acting as Information Agent in connection with our offer, at one of its addresses set forth on the back cover of this Offer to Purchase. QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THIS OFFER TO PURCHASE, THE LETTER OF TRANSMITTAL OR FOR A COMPLETE COPY OF AN APPRAISAL OF ANY OF YOUR PARTNERSHIP'S PROPERTIES MAY ALSO BE DIRECTED TO THE INFORMATION AGENT AT (800) 467-0821. June 6, 2005 (Continued from prior page) - We determined our offer price by estimating a net equity value for your partnership units based on an aggregate gross property value of $70,285,680. The aggregate gross property value is the sum of the property values for each of your partnership's properties, as estimated by us, before reduction for any prepayment penalties. Our estimate of the aggregate gross property value is approximately 86% of the aggregate appraised value of your partnership's properties, as determined by the independent, court-appointed appraiser in 2003. As a result, our offer price is less than our estimate of the liquidation proceeds that would be payable to you if your partnership's properties were sold at prices equal to their 2003 appraised values, which we estimate to be $390.24 per unit. - Our offer price does not ascribe any value to potential future improvements in the fair market value or operating performance of your partnership's properties, including any increase in value that may result from the redevelopment of Sunrunner Apartments. Our offer price might be higher if it were based on a more recent appraisal of your partnership's properties, or if it took into account any potential improvements in property income. - Our offer price was determined without any arms-length negotiations. If your partnership were to sell its assets and liquidate, the value of the assets would be determined through negotiations with third parties, who may be willing to pay more for your partnership's properties than the value we used to calculate our offer price. Although the actual proceeds you might receive in a liquidation are uncertain, they could exceed our offer price. Similarly, other persons might ascribe a value to your partnership units that is higher than our offer price. As a result, you might be able to sell your units to a third party at a price that exceeds our offer price. - Your general partner and the property manager are affiliates of ours and, therefore, your general partner has substantial conflicts of interest with respect to our offer. - We are making this offer with a view to making a profit and, therefore, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. - Continuation of your partnership will result in our affiliates continuing to receive management fees from your partnership. Such fees would not be payable if your partnership were liquidated. - If we do not acquire all of the outstanding units in your partnership, it is possible that we may conduct a future offer at a higher price, although we have no obligation or current intention to do so. - For any units that we acquire from you, you will not receive any future distributions from operating cash flow of your partnership or upon a sale or refinancing of property owned by your partnership. - The general partner makes no recommendation as to whether you should tender your units because each limited partner's circumstances may differ from those of other limited partners. THE GENERAL PARTNER DOES NOT MAKE ANY RECOMMENDATION REGARDING WHETHER YOU SHOULD ACCEPT THIS OFFER. YOU ARE ENCOURAGED TO CAREFULLY REVIEW THIS OFFER TO PURCHASE AND ANY OTHER INFORMATION AVAILABLE TO YOU AND TO SEEK THE ADVICE OF YOUR INDEPENDENT LAWYER, TAX ADVISOR AND/OR FINANCIAL ADVISOR WITH RESPECT TO YOUR PARTICULAR CIRCUMSTANCES BEFORE DECIDING WHETHER OR NOT TO ACCEPT THIS OFFER. THE INFORMATION AGENT FOR THE OFFER IS: THE ALTMAN GROUP, INC. By Mail: By Overnight Courier: By Hand: 1275 Valley Brook Avenue 1275 Valley Brook Avenue 1275 Valley Brook Avenue Lyndhurst, NJ 07071 Lyndhurst, NJ 07071 Lyndhurst, NJ 07071
For information, please call: TOLL FREE: (800) 467-0821 TABLE OF CONTENTS
PAGE ----- SUMMARY TERM SHEET.......................................... 1 RISK FACTORS................................................ 4 If you tender your units in this offer, you will release us from all liability and assign to us your rights in any and all claims through and including the date of execution of the letter of transmittal, including, but not limited to, those claims relating to the Nuanes and Heller litigation, irrespective of whether you previously requested exclusion from the settlement and irrespective of what happens in connection with the remand and any subsequent appeal....................... 4 Our offer price may not represent the price you could obtain for your units in an open market................ 4 Our offer price is less than the liquidation value implied by the 2003 appraisal.................................. 4 Our offer price does not reflect future prospects......... 4 Our offer price was determined without any arms-length negotiations, which might result in a higher value for your partnership units................................. 5 Continuation of the partnership; no time frame regarding sale of property....................................... 5 Holding your units may result in greater future value..... 5 The general partner faces conflicts of interest with respect to this offer.................................. 6 Your general partner is not making a recommendation regarding this offer................................... 6 Your general partner faces conflicts of interest relating to management fees..................................... 6 If we do not acquire all of the outstanding units in this offer, we may make a future offer at a higher price.... 6 Your tax liability resulting from a sale of your units could exceed our offer price........................... 6 You may recognize taxable gain for release and assignment of claims.............................................. 7 If you tender your units in this offer, you will no longer be entitled to distributions from your partnership..... 7 You could recognize gain in the event of a future reduction in your partnership's liabilities............ 7 We could delay acceptance of, and payment for, your units.................................................. 7 There may be a possible reduction of available information about your partnership as a result of this offer....... 8 Your partnership has balloon payments on its mortgage debt................................................... 8 SPECIAL FACTORS............................................. 9 Valuation of Units........................................ 9 Background and Reasons for the Offer...................... 35 Material Federal Income Tax Matters....................... 36 Effects of the Offer...................................... 39 Position of the General Partner of Your Partnership with Respect to the Offer................................... 40 Conflicts of Interest and Transactions with Affiliates.... 43 Future Plans of the Purchaser............................. 45 THE OFFER................................................... 47 1. Terms of the Offer; Expiration Date................... 47 2. Acceptance for Payment and Payment for Units.......... 47 3. Procedure for Tendering Units......................... 48 4. Withdrawal Rights..................................... 51 5. Extension of Tender Period; Termination; Amendment; No Subsequent Offering Period............................ 52 6. The Lawsuit and the Settlement........................ 52 7. Information Concerning Us and Certain of Our Affiliates............................................ 58 8. Certain Information Concerning Your Partnership....... 63 9. Voting Power.......................................... 69 10. Source of Funds....................................... 69 11. Dissenters' Rights.................................... 70 12. Conditions to the Offer............................... 70 13. Certain Legal Matters................................. 72 14. Fees and Expenses..................................... 72 ANNEX I -- OFFICERS AND DIRECTORS........................... I-1
SUMMARY TERM SHEET This summary term sheet highlights the material information regarding our offer, but it does not describe all of the details thereof. We urge you to read this entire Offer to Purchase, which contains the full details of our offer. We have also included in the summary term sheet references to the sections of this Offer to Purchase where a more complete discussion may be found. Unless otherwise indicated, references in this Offer to Purchase to "we," "our," "us" or "AIMCO Properties" refer to AIMCO Properties, L.P., and references to "general partner" refer to Fox Capital Management Corporation, the managing general partner of your partnership. - The Offer. Upon the terms and subject to the conditions set forth in this Offer to Purchase, we are offering to acquire limited partnership units of Century Properties Fund XIX, your partnership, for $300.00 per unit in cash. See "Special Factors -- Valuation of Units," "Special Factors -- Effects of the Offer" and "The Offer -- Section 1. Terms of the Offer; Expiration Date." - The Litigation Settlement and Release and Assignment of Future Claims. As part of the settlement of a class and derivative litigation entitled Nuanes et al. v. Insignia Financial Group, Inc. et al. and Heller v. Insignia Financial Group, Inc., et al. on behalf of your partnership and limited partners in your partnership and others (the "Nuanes and Heller litigation"), we previously offered to acquire any and all of the limited partnership units of your partnership for $104.89 per unit in cash. THIS OFFER IS NOT BEING MADE AS PART OF THE SETTLEMENT. In connection with the settlement, the Court of Appeals on March 21, 2005 vacated the order approving the settlement and remanded the matter back to the trial court for further findings on the basis that the "state of the record is insufficient to permit meaningful appellate review." If you want to tender your units in the offer, you must sign a letter of transmittal in which you release us from all liability, except as otherwise provided in Section 3 herein, with respect to any and all claims through and including the date of execution of the letter of transmittal, including, but not limited to, those claims that were brought or that could have been brought in the Nuanes and Heller litigation, and assign to us your rights in any future claims. By executing the enclosed letter of transmittal, moreover, you will release those claims irrespective of whether you previously requested exclusion from the settlement and irrespective of what happens in connection with the remand and any subsequent appeal. IF YOU DID NOT REQUEST EXCLUSION FROM THE SETTLEMENT, YOU WILL BE ENTITLED TO RECEIVE YOUR PRO RATA SHARE OF THE SETTLEMENT FUND ($7.94 PER UNIT) WHETHER OR NOT YOU TENDER YOUR UNITS PURSUANT TO THIS OFFER, PROVIDED THAT APPROVAL OF THE SETTLEMENT AND ANY JUDGMENT ENTERED THERETO BECOME FINAL. OTHERWISE, YOU WILL NOT BE ENTITLED TO RECEIVE A PRO RATA SHARE OF THE SETTLEMENT FUND. FOR ADDITIONAL INFORMATION REGARDING THE SETTLEMENT, SEE "THE OFFER -- SECTION 6. THE LAWSUIT AND SETTLEMENT." - Factors in Determining the Offer Price. In determining the offer price per unit we principally considered: - the 2003 appraisal of your partnership's properties; - the location, condition and debt structure of your partnership's properties, including the prepayment penalty associated with the mortgages for these properties; - the current economic conditions in the local markets in which the properties are located; and - your partnership's other assets and liabilities. - Our Offer Price is Less Than the Liquidation Value Implied by the 2003 Appraisal of Your Partnership's Properties and Does Not Reflect Future Prospects. In deciding whether or not to accept our offer, you should consider the fact that, based on the valuation in 2003 of your partnership's properties by American Appraisal Associates, Inc., we estimate that the net liquidation proceeds per unit would be approximately $390.24, which is higher than our offer price of $300.00. 1 In addition, our offer price does not ascribe any value to potential future improvements in the fair market value or operating performance of your partnership's properties, including any increase in value that may result from the redevelopment of Sunrunner Apartments. - Fairness of the Offer. Although we, Apartment Investment and Management Company ("AIMCO") and AIMCO-GP, Inc. (collectively, the "AIMCO Entities") and your general partner have interests that may conflict with those of the partnership's unaffiliated limited partners, each of the AIMCO Entities believes that the offer price and the offer are fair to the unaffiliated limited partners of your partnership. This determination is based on the information and the factors set forth under "Special Factors -- Position of the General Partner of Your Partnership with Respect to the Offer." - No General Partner Recommendation. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Each limited partner should make his or her own decision whether or not to tender. You are encouraged to carefully review this Offer to Purchase and any other information available to you and to seek advice from your independent lawyer, tax advisor and/or financial advisor with respect to your particular circumstances before deciding whether or not to accept this offer. See "Special Factors -- Position of the General Partner of Your Partnership with Respect to the Offer." - Who We Are. We are AIMCO Properties, L.P., the operating partnership of Apartment Investment and Management Company, a New York Stock Exchange-listed company. See "The Offer -- Section 7. Information Concerning Us and Certain of Our Affiliates." - Conflicts of Interest. NHP Management Company (which is our affiliate) receives fees for managing your partnership's properties and the general partner of your partnership (which is our affiliate) is entitled to receive asset management fees and reimbursement of certain expenses involving your partnership and its properties. As a result, a conflict of interest exists between continuing the partnership and receiving these fees, and the liquidation of the partnership and the termination of these fees. See "Special Factors -- Conflicts of Interest and Transactions with Affiliates" and "The Offer -- Section 8. Certain Information Concerning Your Partnership." - Tax Consequences. Your sale of units in this offer will be a taxable transaction for income tax purposes. The consequences to each limited partner may vary and you should consult your tax advisor on the precise tax consequences to you. See "Special Factors -- Material Federal Income Tax Matters." - Expiration Date. Our offer expires on June 27, 2005, unless extended, and you can tender your units until our offer expires. See "The Offer -- Section 1. Terms of the Offer; Expiration Date." - Right to Extend the Expiration Date. We can extend the expiration date of the offer in our reasonable discretion. We reserve the right to extend the offer subject to customary conditions. In the event we extend the offer, we will either issue a press release or other public announcement no later than 9:00 a.m., New York City time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) of the Securities Exchange Act of 1934. See "The Offer -- Section 5. Extension of Tender Period; Termination; Amendment; No Subsequent Offering Period." - How to Tender. To tender your units, complete the accompanying letter of transmittal and send it, along with any other documents required by the letter of transmittal, to the Information Agent, The Altman Group, Inc., at one of the addresses set forth on the back of this Offer to Purchase. See "The Offer -- Section 3. Procedure for Tendering Units." - Withdrawal Rights. You can withdraw your units at any time prior to the expiration of the offer, including any extensions. If you properly withdraw all of the units you previously tendered in the offer, the corresponding letter of transmittal, including your release and assignment of future claims 2 contained therein, will be deemed revoked and of no force or effect. See "The Offer -- Section 4. Withdrawal Rights." - How to Withdraw. To withdraw your units, you need to send a notice of withdrawal to the Information Agent, identifying yourself and the units to be withdrawn. See "The Offer -- Section 4. Withdrawal Rights." - Availability of Funds. We intend to pay the purchase price for any units tendered from our existing cash balances or borrowings under our line of credit. See "The Offer -- Section 10. Source of Funds." - Conditions to the Offer. There are a number of conditions to our offer, including the absence of competing tender offers, that there be no material change with respect to our financial condition, and the absence of certain changes in the financial markets. See "The Offer -- Section 12. Conditions to the Offer." - Remaining as a Limited Partner. If you do not tender your units, you will remain a limited partner in your partnership. Consummation of the offer will not affect the operations, business or financial position of your partnership. However, if there are fewer than 300 unitholders in your partnership as a result of the offer, your partnership will no longer be required to file periodic reports with the SEC, such as annual reports on Form 10-KSB containing annual audited financial statements, and quarterly reports on Form 10-QSB containing unaudited financial statements. See "Special Factors -- Effects of the Offer." - No Subsequent Offering Period. We do not currently intend to have a subsequent offering period after the expiration date of the initial offering period (including any extensions). See "The Offer -- Section 5. Extension of Tender Offer Period; Termination; Amendment; No Subsequent Offering Period." - Additional Information. For assistance in tendering your units, please contact our Information Agent at one of the addresses or the telephone number set forth on the back cover page of this Offer to Purchase. 3 RISK FACTORS Before deciding whether or not to tender any of your units, you should consider carefully the following risks and disadvantages of the offer: IF YOU TENDER YOUR UNITS IN THIS OFFER, YOU WILL RELEASE US FROM ALL LIABILITY AND ASSIGN TO US YOUR RIGHTS IN ANY AND ALL CLAIMS THROUGH AND INCLUDING THE DATE OF EXECUTION OF THE LETTER OF TRANSMITTAL, INCLUDING, BUT NOT LIMITED TO, THOSE CLAIMS RELATING TO THE NUANES AND HELLER LITIGATION, IRRESPECTIVE OF WHETHER YOU PREVIOUSLY REQUESTED EXCLUSION FROM THE SETTLEMENT AND IRRESPECTIVE OF WHAT HAPPENS IN CONNECTION WITH THE REMAND AND ANY SUBSEQUENT APPEAL. If you want to tender your units in the offer, you must sign a letter of transmittal in which you release us from all liability, except as otherwise provided in Section 3 herein, with respect to any and all claims through and including the date of execution of the letter of transmittal, including, but not limited to, those claims that were brought or that could have been brought in the Nuanes and Heller litigation brought on behalf of limited partners in your partnership and others, and assign to us your rights in any future claims. On March 21, 2005, the Court of Appeals vacated the trial court's order approving the settlement in the Nuanes and Heller litigation and remanded to the trial court for further findings on the basis that the "state of the record is insufficient to permit meaningful appellate review." By executing the enclosed letter of transmittal, moreover, you will release those claims irrespective of whether you previously requested exclusion from the settlement and irrespective of what happens in connection with the remand and any subsequent appeal. OUR OFFER PRICE MAY NOT REPRESENT THE PRICE YOU COULD OBTAIN FOR YOUR UNITS IN AN OPEN MARKET. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of the units. Our offer price does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher than our offer price. OUR OFFER PRICE IS LESS THAN THE LIQUIDATION VALUE IMPLIED BY THE 2003 APPRAISAL. We determined our offer price by estimating a net equity value for your partnership units based on an aggregate gross property value of $70,285,680. The aggregate gross property value is the sum of the property values for each of your partnership's properties, as estimated by us, before reduction for any prepayment penalties. Our estimate of the aggregate gross property value is approximately 86% of the aggregate market value of your partnership's properties, as determined by the independent, court-appointed appraiser in 2003. As a result, our offer price is less than our estimate of the liquidation proceeds that would be payable to you if your partnership's properties were sold at prices equal to their 2003 appraised values, which we estimate to be $390.24 per unit. OUR OFFER PRICE DOES NOT REFLECT FUTURE PROSPECTS. Our offer price does not ascribe any value to potential future improvements in the fair market value or operating performance of your partnership's properties, including any increase in value that may result from the redevelopment of Sunrunner Apartments. Our offer price might be higher if it were based on a more recent appraisal of your partnership's properties, or if it took into account any potential improvements in property income. Our offer price does not take into account any prospective increase in property income that may result from the redevelopment of Sunrunner Apartments. Your general partner believes that the redevelopment would eventually allow an increase in the net operating income at the property and will permit it to remain competitive with other rental properties in the local market. If the operating performance of the property improves as anticipated, you could receive more value for your units in the future. For more information regarding the proposed redevelopment, see "The Offer -- Section 8. Certain Information Concerning Your Partnership; Investment Objectives and Policies; Sale or Financing of Investments." 4 OUR OFFER PRICE WAS DETERMINED WITHOUT ANY ARMS-LENGTH NEGOTIATIONS, WHICH MIGHT RESULT IN A HIGHER VALUE FOR YOUR PARTNERSHIP UNITS. Our offer price was determined without any arms-length negotiations. If your partnership were to sell its assets and liquidate, the value of the assets would be determined through negotiations with third parties, who may be willing to pay more for your partnership's properties than the value we used to calculate our offer price. Although the actual proceeds you might receive in a liquidation are uncertain, they could exceed our offer price. Similarly, other persons might ascribe a value to your partnership units that is higher than our offer price. As a result, you might be able to sell your units to a third party at a price that exceeds our offer price. CONTINUATION OF THE PARTNERSHIP; NO TIME FRAME REGARDING SALE OF PROPERTY. Your general partner, which is our affiliate, is proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Your partnership's prospectus, dated September 20, 1983, pursuant to which units in your partnership were sold, indicates that your partnership was intended to be self-liquidating and that it was anticipated that the partnership's properties would be sold within 5 to 8 years of their acquisition, subject to market conditions. The prospectus also indicated that there could be no assurance that the partnership would be able to so liquidate and that, unless sooner terminated as provided in the partnership agreement, the existence of the partnership would continue until the year 2007. On May 19, 2005, your general partner entered into a purchase and sale contract with an unrelated third party to sell Misty Woods Apartments as part of a sale of a portfolio of nine properties. The current total sales price for the portfolio is $62,300,000, of which $6,550,000 currently represents the sales price for Misty Woods Apartments. The closing of the sale is expected to occur in August 2005, and is subject to the purchaser's right to extend the closing for up to thirty days as well as customary closing conditions. Your general partner is also considering whether or not to seek the sale of Sands Point Apartments, but it has not been listed for sale at the current time and it is unknown if and when this property may be listed or sold. It is not known when your partnership's other properties may be sold. The general partner of your partnership continually considers whether your partnership's properties should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. Except as set forth herein, at the current time, the general partner of your partnership believes that a sale of the properties would not be advantageous given market conditions, the condition of the properties and tax considerations. In particular, the general partner considered changes in the local rental market resulting from local economic conditions (such as unemployment, availability of alternative rental properties, vacancy rates, and changes in market rental rates), the potential for appreciation in the value of a property given current local market conditions and trends for the sale of multi-family residential properties (such as the current expected sales price of a property given supply and demand and recent sales of comparable properties in surrounding neighborhoods, the local competitive climate for property sales, development plans for new construction, and trends in local and regional real estate markets), the potential for appreciation given recent or planned capital expenditures on your partnership's properties, the partnership's operating cash-flow requirements, and the potential tax liability to limited partners on the sale of a property. HOLDING YOUR UNITS MAY RESULT IN GREATER FUTURE VALUE. Although a liquidation of your partnership is not currently contemplated in the near future, you might receive more value if you retain your units until your partnership is liquidated. Your general partner believes that the redevelopment of Sunrunner Apartments would eventually allow an increase in the net operating income at the property and will permit the property to remain competitive with other rental properties in the local market. However, our offer price does not ascribe any value to the redevelopment. In addition, on May 19, 2005, your general partner entered into a purchase and sale contract with an unrelated third party to sell Misty Woods Apartments as part of a sale of a portfolio of nine properties. The current total sales price for the portfolio is $62,300,000, of which $6,550,000 currently represents the 5 sales price for Misty Woods Apartments. The closing of the sale is expected to occur in August 2005, and is subject to the purchaser's right to extend the closing for up to thirty days as well as customary closing conditions. Your general partner is also considering whether or not to seek the sale of Sands Point Apartments, but it has not been listed for sale at the current time and it is unknown if and when this property may be listed or sold. Except as set forth herein, at the current time, the general partner of your partnership believes that selling your partnership's other properties would not be advantageous given market conditions, the condition of the properties and tax considerations. If your partnership's properties were sold in the future and the net proceeds realized therefrom were distributed to the limited partners of your partnership, the amount of such distributions might exceed our current offer price. For other partnerships in which we control the general partner and have made tender offers, it is not unusual for those partnerships to subsequently sell a property at a price in excess of the value we used to determine our tender offer price. THE GENERAL PARTNER FACES CONFLICTS OF INTEREST WITH RESPECT TO THIS OFFER. The general partner of your partnership is our affiliate and, therefore, has substantial conflicts of interest with respect to our offer. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. We determined our offer price without negotiation with any other party, including any general or limited partner. See "Special Factors -- Conflicts of Interest and Transactions with Affiliates." YOUR GENERAL PARTNER IS NOT MAKING A RECOMMENDATION REGARDING THIS OFFER. The general partner of your partnership (which is our affiliate) makes no recommendation as to whether or not you should tender or refrain from tendering your units because each limited partner's circumstances may differ from those of other limited partners. Although the general partner believes the offer is fair, you must make your own decision whether or not to participate in the offer based upon a number of factors, including several factors that may be personal to you, such as your financial position, your need or desire for liquidity, your preferences regarding the timing of when you might wish to sell your units, other financial opportunities available to you, and your tax position and the tax consequences to you of selling your units. You are encouraged to carefully review this Offer to Purchase and any other information available to you and to seek advice from your independent lawyer, tax advisor and/or financial advisor with respect to your particular circumstances before deciding whether or not to accept this offer. YOUR GENERAL PARTNER FACES CONFLICTS OF INTEREST RELATING TO MANAGEMENT FEES. Because we or our subsidiaries receive fees for managing your partnership and its properties, a conflict of interest exists between continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. IF WE DO NOT ACQUIRE ALL OF THE OUTSTANDING UNITS IN THIS OFFER, WE MAY MAKE A FUTURE OFFER AT A HIGHER PRICE. It is possible that we may conduct a future offer at a higher price, although we have no obligation or current intention to do so. Our decision to conduct a future offer will depend on, among other things, the performance of the partnership, prevailing economic conditions, and our interest in acquiring additional units. YOUR TAX LIABILITY RESULTING FROM A SALE OF YOUR UNITS COULD EXCEED OUR OFFER PRICE. Your sale of units for cash will be a taxable sale, with the result that you will recognize taxable gain or loss measured by the difference between the amount realized on the sale and your adjusted tax basis in the units of limited partnership interest of your partnership you transfer to us. The "amount realized" with respect to a unit of limited partnership interest you transfer to us will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer plus the amount of partnership liabilities 6 allocable to your unit. Depending on your basis in the units and your tax position, your tax liability resulting from a sale of units to us pursuant to the offer could exceed our offer price. The particular tax consequences for you of our offer will depend upon a number of factors related to your tax situation, including your tax basis in the units you transfer to us, whether you dispose of all of your units, and whether you have available suspended passive losses, credits or other tax items to offset any gain recognized as a result of your sale of your units. We may also be required by state or local tax laws to withhold a portion of our offer price. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your tax advisor to determine the tax consequences of the offer to you. YOU MAY RECOGNIZE TAXABLE GAIN FOR RELEASE AND ASSIGNMENT OF CLAIMS. If you tender units in this offer, a portion of the price paid to you may be deemed a payment for your release and assignment of claims. The proper treatment for federal income tax purposes of your receipt of any deemed payments for your release and assignment of claims is uncertain. No opinion or assurance can be given that the Internal Revenue Service (the "IRS") will not challenge the treatment of any deemed payments for your release and assignment of claims as additional consideration for the units, and assert that such amount should be treated as an ordinary income payment in exchange for your release and/or assignment of current and future claims. You should consult your tax advisor regarding the tax consequences to you with respect to your right to, and your receipt of, any deemed payments for your release and assignment of claims. IF YOU TENDER YOUR UNITS IN THIS OFFER, YOU WILL NO LONGER BE ENTITLED TO DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer to us all right, title and interest in and to all of the units we accept, and the right to receive all distributions in respect of such units on and after the date on which we accept such units for purchase. Accordingly, for any units that we acquire from you, you will not receive any future distributions from operating cash flow of your partnership or upon a sale or refinancing of the property owned by your partnership. YOU COULD RECOGNIZE GAIN IN THE EVENT OF A FUTURE REDUCTION IN YOUR PARTNERSHIP'S LIABILITIES. Generally, a decrease in your share of partnership liabilities is treated, for federal income tax purposes, as a deemed cash distribution. Although the general partner of your partnership does not have any current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause the general partner to reduce your share of the partnership liabilities. If you retain all or a portion of your units and your share of the partnership liabilities were to be reduced, you would be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of the partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. Gain recognized by you on the disposition of retained units with a holding period of 12 months or less may be classified as short-term capital gain and subject to taxation at ordinary income tax rates. WE COULD DELAY ACCEPTANCE OF, AND PAYMENT FOR, YOUR UNITS. We reserve the right to extend the period of time during which our offer is open and thereby delay acceptance for payment of any tendered units. The offer may be extended in our reasonable discretion, and no payment will be made in respect of tendered units until the expiration of the offer and acceptance of units for payment. We will pay for or return tendered units promptly after expiration of the offer. 7 THERE MAY BE A POSSIBLE REDUCTION OF AVAILABLE INFORMATION ABOUT YOUR PARTNERSHIP AS A RESULT OF THIS OFFER. If there are less than 300 unitholders in your partnership upon consummation of the offer, your partnership would no longer be required to file periodic reports with the SEC, such as annual reports on Form 10-KSB containing annual audited financial statements, and quarterly reports on Form 10-QSB containing unaudited quarterly financial statements. Such reports are publicly available and can be obtained on the SEC's web site. The lack of such filings could adversely affect the already limited secondary market which currently exists for units in your partnership and may discourage offers to purchase your units. In such a case, you would regularly have access only to the information your partnership's agreement of limited partnership requires your general partner (which is our affiliate) to provide each year, which consists primarily of tax information. See "Special Factors -- Effects of the Offer -- Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act." YOUR PARTNERSHIP HAS BALLOON PAYMENTS ON ITS MORTGAGE DEBT. Your partnership has a balloon payment of $4,777,000 due on its mortgage debt in January 2006, a balloon payment of $11,000,000 due on its mortgage debt in June 2007, and balloon payments totaling $12,521,000 due on its mortgage debt in July 2013. In addition, if Misty Woods Apartments is not sold before January 2006 (as expected), your general partner will need to refinance its mortgage or extend the maturity date. If your partnership is unable to refinance these mortgages or the mortgages encumbering your partnership's other properties prior to their maturity dates, or is otherwise unable to obtain additional funds to pay the balloon payments when due, it will be in default and could lose the properties to foreclosure. See "The Offer --Section 8. -- Certain Information Concerning Your Partnership" for more information regarding the mortgage debt of your partnership. 8 SPECIAL FACTORS In reviewing this offer and before deciding whether or not to tender any of your units, you should consider carefully the information discussed in this Special Factors section of this Offer to Purchase. VALUATION OF UNITS Determination of Offer Price. Our offer price is based on our estimate of the proceeds that would be available for distribution to limited partners in the event of a liquidation of your partnership's properties. Our starting point in this process is our estimated value for each of the properties. We considered many of the same factors and assumptions that American Appraisal Associates, Inc., the court-appointed, independent appraiser ("AAA"), considered in its appraisals of your partnership's properties, as described in the table below. For a more detailed description of the independent appraisal of your partnership's properties, see "Special Factors -- Valuation of Units -- Estimated Liquidation Proceeds Based on Independent Appraisal."
EFFECTIVE DATE PROPERTY REPORT DATE APPRAISED VALUE OF VALUE - -------- ------------- --------------- -------------- Misty Woods Apartments................... July 3, 2003 $8,200,000 May 13, 2003 Sunrunner Apartments..................... July 7, 2003 $7,200,000 May 14, 2003 Vinings Apartments....................... June 27, 2003 $15,500,000 May 20, 2003 Plantation Crossing Apartments........... June 27, 2003 $9,000,000 May 2, 2003 Wood Lake Apartments..................... July 17, 2003 $12,800,000 May 20, 2003 Greenspoint Apartments................... July 14, 2003 $14,500,000 May 6, 2003 Sands Point Apartments................... July 3, 2003 $14,600,000 May 6, 2003
However, unlike AAA's appraisals, which were performed in 2003, our valuation of your partnership's properties was based on historical and current market data and our own estimates and assumptions, such as rental trends, occupancy projections, rental rate changes, unemployment, and household income. A summary of our valuation for your partnership's properties is set forth below. For Misty Woods Apartments, we assigned it a gross property value of $6,573,093, which is approximately 80% of its appraised value as of May 13, 2003, and which is $23,093 higher than the sales price under the purchase and sale contract dated May 19, 2005. We made this determination based on certain factors, including the following: - the property's loss rate of 18% as of July 2004 compared to a loss rate assumption of 10% by the appraiser; - our assessment of recent housing trends in the local market in which the property is located; and - our assessment of the general economic outlook for the area in which the property is located. For Sunrunner Apartments, we assigned it a gross property value of $7,200,000, which is equal to 100% of its appraised value as of May 14, 2003. No value was assigned to any increase in value that may result from the redevelopment of this property. For Vinings Peak Apartments, we assigned it a gross property value of $13,204,666, which is approximately 85% of its appraised value as of May 20, 2003. We made this determination based on certain factors, including the following: - the property's loss rate of 24% as of July 2004 compared to a loss rate assumption of 9% by the appraiser; - our assessment of recent housing trends in the local market in which the property is located; and - our assessment of the general economic outlook for the area in which the property is located. 9 For Plantation Crossing Apartments, we assigned it a gross property value of $5,772,921, which is approximately 64% of its appraised value as of May 2, 2003. We made this determination based on certain factors, including the following: - the property's loss rate of 20% as of July 2004 compared to a loss rate assumption of 10% by the appraiser; - our assessment of recent housing trends in the local market in which the property is located; and - our assessment of the general economic outlook for the area in which the property is located. For Wood Lake Apartments, we assigned it a gross property value of $12,800,000, which is equal to 100% of its appraised value as of May 20, 2003. For Greenspoint Apartments, we assigned it a gross property value of $12,325,000, which is approximately 85% of its appraised value as of May 6, 2003. We made this determination based on certain factors, including the following: - the property's loss rate of 27% as of July 2004 compared to a loss rate assumption of 14% by the appraiser; - our assessment of recent housing trends in the local market in which the property is located; and - our assessment of the general economic outlook for the area in which the property is located. For Sands Point Apartments, we assigned it a gross property value of $12,410,000, which is approximately 85% of its appraised value as of May 6, 2003. We made this determination based on certain factors, including the following: - the property's loss rate of 28% as of July 2004 compared to a loss rate assumption of 15% by the appraiser; - our assessment of recent housing trends in the local market in which the property is located; and - our assessment of the general economic outlook for the area in which the property is located. Once we estimated the gross property value of each property as described above, we then deducted from the gross property value the estimated prepayment penalty associated with the mortgage indebtedness secured by the property, which would be paid in the event of a sale of the property. Accordingly, we deducted estimated prepayment penalties of $183,093 for Misty Woods Apartments, $828,008 for Sunrunner Apartments, $81,539 for Vinings Peak Apartments, $310,892 for Plantation Crossing Apartments, and $194,113 for Wood Lake Apartments to determine their net property values. The following table compares the appraised values of your partnership's properties to the net property values that we used to determine our offer price:
2003 GROSS PREPAYMENT NET PROPERTY APPRAISED VALUE PROPERTY VALUE PENALTY PROPERTY VALUE - -------- --------------- -------------- ---------- -------------- Misty Woods Apartments.......... $ 8,200,000 $ 6,573,093 $ 183,093 $ 6,390,000 Sunrunner Apartments............ $ 7,200,000 $ 7,200,000 $ 828,008 $ 6,371,992 Vinings Peak Apartments......... $15,500,000 $13,204,666 $ 81,539 $13,123,127 Plantation Crossing Apartments.................... $ 9,000,000 $ 5,772,921 $ 310,892 $ 5,462,029 Wood Lake Apartments............ $12,800,000 $12,800,000 $ 194,113 $12,605,887 Greenspoint Apartments.......... $14,500,000 $12,325,000 -- $12,325,000 Sands Point Apartments.......... $14,600,000 $12,410,000 -- $12,410,000 ----------- ----------- ---------- ----------- Total........................... $81,800,000 $70,285,680 $1,597,645 $68,688,035 =========== =========== ========== ===========
The aggregate net property value for all your partnership's properties is $68,688,035. This is determined by aggregating the net property values of all properties. To determine our offer price, we then 10 calculated a net equity value for your partnership based on such aggregate net property value by adding the value of the non-real estate assets of your partnership and deducting its liabilities, including the mortgage debt (but excluding the associated prepayment penalty already deducted above) and certain other costs as indicated below. Finally, we allocated 98% of this net equity value to limited partners, which is the percentage of net proceeds that would be paid to limited partners in the event of a liquidation of your partnership. Our offer price represents the net equity value per unit determined in this manner as indicated below. Aggregate net property value of partnership properties...... $ 68,688,035 Plus: Cash and cash equivalents............................. 442,149 Plus: Other partnership assets.............................. 1,513,780 Less: Mortgage debt, including accrued interest............. (45,866,879) Less: Loans from partners................................... (802,733) Less: Accounts payable and accrued expenses................. (311,898) Less: Other liabilities..................................... (750,597) Plus: Deficit restoration obligation........................ 877,006 ------------ Net equity value of your partnership........................ $ 23,788,863 Percentage of net equity value allocated to holders of units..................................................... 98% ------------ Net equity value of units................................... $ 23,330,626 Total number of units..................................... 89,292.00 ------------ Net equity value per unit................................... $ 261.28 ============
Although we determined the net equity value for your units to be $261.28 per unit, we have increased our offer price to $300.00 per unit to match the price being offered in a third-party tender offer commenced on March 24, 2005. Comparison of Offer Price to Alternative Consideration. To assist holders of units in evaluating the offer, your general partner, which is our affiliate, has attempted to compare the offer price against: (a) all cash tender offer prices that the general partner has knowledge of, excluding our current offer, (b) prices at which the units have been sold on the secondary market that the general partner has knowledge of, and (c) the estimated liquidation proceeds payable per unit, assuming a sale of properties at prices equal to appraised values determined by the independent appraiser in 2003. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the actual range of possible values. The results of these comparative analyses are summarized in the chart below.
COMPARISON TABLE PER UNIT - ---------------- -------- Cash offer price............................................ $ 300.00 Alternatives Highest cash tender offer price (2002-May 2005)........... $ 300.00 Highest price on secondary market (2002-May 2005)......... $ 300.00 Estimated liquidation proceeds (based on 2003 appraised value)................................................. $ 390.24
PRIOR TENDER OFFERS Excluding the current offer, we have conducted a total of six prior tender offers for units in your partnership. We have described below all of the tender offers for units in your partnership that we are aware of that were commenced or completed since January 1, 2002. 11 2005. Mackenzie Patterson Fuller, Inc. and others have made an offer to purchase up to 16,667 units at $300.00 per unit. 2004. We are not aware of any tender offers for units in your partnership that were commenced or completed in 2004. 2003. On December 30, 2003, we completed a tender offer commenced on November 12, 2003. We acquired 1,494 units in that offer at a price of $104.89 per unit. In that case, we determined our offer price by estimating the net equity value of limited partnership units based on our valuation of your partnership's properties using principally the direct capitalization method. 2002. On June 25, 2002, we completed a tender offer commenced on May 7, 2002. We acquired 1,749 units in that offer at a price of $243.00 per unit. In that case, we determined our offer price by estimating the net equity value of limited partnership units based on our valuation of your partnership's properties using principally the direct capitalization method. Prices on Secondary Market. Secondary market sales information is not a reliable measure of value because of the limited number of any known trades. Except for offers made by us and unaffiliated third parties, privately negotiated sales and sales through intermediaries are the only means that may be available to a limited partner to liquidate an investment in units (other than our offer) because the units are not listed or traded on any securities exchange or quoted on Nasdaq, on the Electronic Bulletin Board, or in "pink sheets." Secondary sales activity for the units, including privately negotiated sales, has been limited and sporadic. Set forth below is secondary sales information as reported by Direct Investments Spectrum (formerly known as The Partnership Spectrum) and The American Partnership Board, which are the only two sources from which we currently have information regarding secondary market sales. Other sources, such as The Stanger Report, may contain prices for the units that equal or exceed the sales prices reported by Direct Investments Spectrum and The American Partnership Board. Set forth below are the high and low sale prices of units during the years ended December 31, 2004, December 31, 2003 and December 31, 2002, as reported by Direct Investments Spectrum, which is an independent, third-party source. 2004 prices are through January 31, 2005 as the last publication included the period December 1, 2004 through January 31, 2005 with no cut-off between calendar years. The gross sales prices reported by Direct Investments Spectrum do not necessarily reflect the net sales proceeds received by sellers of units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported price. We do not know whether the information compiled by Direct Investments Spectrum is accurate or complete. SALES PRICES OF PARTNERSHIP UNITS, AS REPORTED BY DIRECT INVESTMENTS SPECTRUM
HIGH LOW ------- ------- Year Ended December 31, 2004: $227.52 $143.00 Year Ended December 31, 2003: $300.00 $242.85 Year Ended December 31, 2002: $270.00 $270.00
12 Set forth in the table below are the high and low sales prices of units during the year ending December 31, 2005 (through May 31) and the years ended December 31, 2004, December 31, 2003 and December 31, 2002, as reported by the American Partnership Board, which is an independent, third-party source. The gross sales prices reported by American Partnership Board do not necessarily reflect the net sales proceeds received by sellers of units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported prices. We do not know whether the information compiled by the American Partnership Board is accurate or complete. SALES PRICES OF PARTNERSHIP UNITS, AS REPORTED BY THE AMERICAN PARTNERSHIP BOARD
HIGH LOW ------- ------- Year Ending December 31, 2005 (through May 31): $211.12 $211.12 Year Ended December 31, 2004: $227.52 $222.00 Year Ended December 31, 2003: $242.85 $242.85 Year Ended December 31, 2002: $280.01 $280.01
ESTIMATED LIQUIDATION PROCEEDS BASED ON INDEPENDENT APPRAISAL Selection and Qualifications of Independent Appraiser. In 2003, under the terms of the settlement of the Nuanes and Heller litigation, your partnership's properties were appraised by AAA, an independent appraiser appointed by the court. Under the terms of the settlement, the independent appraiser was required to provide in writing its professional opinion as to the market value of each of the partnership's properties describing the methodologies used and other information which the appraiser deemed appropriate to support or explain its work. The appraiser was also required to prepare an executive summary of each appraisal that included all material information. As the appraiser was court-appointed, no special valuation instructions were given to the appraiser by the partnership, us or our affiliates. The information set forth below was provided to us by AAA with respect to its appraisals. AAA is an experienced independent valuation consulting firm with more than 50 offices on four continents. AAA provides valuation and consulting services for the real estate industry through its specialized industry focus and operates through a team of professionals with different economical, financial, statistical, legal, architectural, urban and engineering knowledge and expertise. Factors Considered. AAA performed complete appraisals of all of your partnership's properties. AAA has represented that its report was prepared in conformity with the Uniform Standards of Professional Appraisal Practice and the Code of Professional Ethics and Standards of Professional Practice of the Appraisal Institute. We furnished the appraiser with all of the necessary information requested by AAA in connection with the appraisal. The information furnished to the appraiser was true, correct and complete in all material respects. No limitations were imposed on AAA by us or any of our affiliates. In preparing its valuation of your partnership property, AAA: - inspected and analyzed the exterior of all buildings and site improvements and a representative sample of units; - conducted neighborhood and area research, including major employers, demographics (population trends, number of households, and income trends), housing trends, surrounding uses, and general economic outlook of the area; - conducted market research of rental inventory, historical vacancy rates, historical average rental rates, occupancy trends, concessions, and marketing strategies in the submarket, and occupancy rates at competing properties; - reviewed leasing policy, concessions and history of recent occupancy; - reviewed the historical operating statements for your partnership's property and an operating budget forecast for 2003; 13 - prepared an estimate of stabilized income and expense (for capitalization purposes); - conducted market inquiries into recent sales of similar properties to ascertain sales price per unit, effective gross income multipliers and capitalization rates; and - prepared sales comparison and income capitalization approaches to value. AAA was provided by us with the following management budgets for your partnership's property:
GREENSPOINT MISTY WOODS PLANTATION CROSSING SANDS POINT FISCAL YEAR 2003 FISCAL YEAR 2003 FISCAL YEAR 2003 FISCAL YEAR 2003 MANAGEMENT BUDGET MANAGEMENT BUDGET MANAGEMENT BUDGET MANAGEMENT BUDGET --------------------- --------------------- --------------------- --------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT - ----------- ---------- -------- ---------- -------- ---------- -------- ---------- -------- Revenues Rental Income............ $2,664,000 $7,929 $1,574,496 $6,906 $1,494,000 $8,300 $3,006,687 $6,976 Vacancy.................. 247,500 737 121,829 534 120,000 667 353,500 820 Credit Loss/Concessions....... 117,500 350 42,000 184 55,500 308 128,480 298 Subtotal............... $ 365,000 $1,086 $ 163,829 $ 719 $ 175,500 $ 975 $ 481,980 $1,118 Laundry Income........... $ 18,000 $ 54 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue........... 0 0 0 0 0 0 0 0 Other Misc. Revenue...... 148,100 441 43,296 190 108,950 605 210,800 489 Subtotal Other Income................ $ 166,100 $ 494 $ 43,296 $ 190 $ 108,950 $ 605 $ 210,800 $ 489 Effective Gross Income.... $2,465,100 $7,337 $1,453,963 $6,377 $1,427,450 $7,930 $2,735,507 $6,347 Operating Expenses Taxes.................... $ 161,992 $ 482 $ 94,518 415 $ 88,077 $ 489 $ 217,085 $ 504 Insurance................ 55,469 165 34,137 150 35,735 199 67,845 157 Utilities................ 180,000 536 126,072 553 133,000 739 235,395 546 Repair & Maintenance..... 42,000 125 156,252 685 22,300 124 51,600 120 Cleaning................. 72,000 214 0 0 67,000 372 104,700 243 Landscaping.............. 84,000 250 0 0 57,000 317 74,400 173 Security................. 0 0 0 0 0 0 0 0 Marketing & Leasing...... 60,000 179 30,900 136 24,000 133 42,000 97 General Administrative... 323,676 963 160,473 704 175,325 974 362,400 841 Management............... 141,691 422 74,382 326 71,103 395 167,820 389 Miscellaneous............ 0 0 0 0 0 0 0 0 Total Operating Expenses................. $1,120,828 $3,336 $ 676,734 $2,968 $ 673,540 $3,742 $1,323,245 $3,070 Reserves................. 0 0 0 0 0 0 0 0 Net Income................ $1,344,272 $4,001 $ 777,229 $3,409 $ 753,910 $4,188 $1,412,262 $3,277 SUNRUNNER VININGS PEAK WOOD LAKE FISCAL YEAR 2003 FISCAL YEAR 2003 FISCAL YEAR 2003 MANAGEMENT BUDGET MANAGEMENT BUDGET MANAGEMENT BUDGET --------------------- --------------------- --------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT - ----------- ---------- -------- ---------- -------- ---------- -------- Revenues Rental Income............ $1,499,000 $7,495 $2,448,000 $8,743 $2,128,000 $9,673 Vacancy.................. 67,457 337 365,520 1,305 257,280 1,169 Credit Loss/Concessions....... 44,400 222 127,340 455 103,760 472 Subtotal............... $ 111,857 $ 559 $ 492,860 $1,760 $ 361,040 $1,641 Laundry Income........... $ 36,000 $ 180 $ 0 $ 0 $ 0 $ 0 Garage Revenue........... 0 0 0 0 0 0 Other Misc. Revenue...... 102,000 510 121,560 434 160,800 731 Subtotal Other Income................ $ 138,000 $ 690 $ 121,560 $ 434 $ 160,800 731 Effective Gross Income.... $1,525,143 $7,626 $2,076,700 $7,417 $1,927,760 $8,763 Operating Expenses Taxes.................... $ 169,355 $ 847 $ 190,928 $ 682 $ 164,239 $ 747 Insurance................ 53,180 266 60,349 216 48,445 220 Utilities................ 78,000 390 138,000 493 94,800 431 Repair & Maintenance..... 14,400 72 19,200 69 33,000 150 Cleaning................. 45,600 228 25,000 89 46,500 211 Landscaping.............. 69,600 348 41,048 147 43,020 196 Security................. 0 0 0 0 0 0 Marketing & Leasing...... 16,200 81 44,400 159 30,000 136 General Administrative... 154,480 772 187,269 669 115,935 527 Management............... 77,037 385 108,005 386 98,404 447 Miscellaneous............ 0 0 0 0 0 0 Total Operating Expenses................. $ 677,852 $3,389 $ 814,199 $2,908 $ 674,343 $3,065 Reserves................. 0 0 0 0 0 0 Net Income................ $ 847,291 $4,236 $1,262,501 $4,509 $1,253,417 $5,697
THE ABOVE MANAGEMENT BUDGETS ARE INTERNALLY PREPARED OPERATING PROJECTIONS FOR THE PARTNERSHIP'S PROPERTIES. A MANAGEMENT BUDGET DOES NOT REFLECT A PROPERTY'S ACTUAL PERFORMANCE, OR CHANGES IN THE CONDITION OF A PROPERTY, IN THE LOCAL AREA SURROUNDING A PROPERTY OR IN THE ECONOMY IN GENERAL. Summary of Approaches and Methodologies Employed. The following summary describes the material approaches and analyses employed by AAA in preparing the appraisals. The partnership imposed no conditions or limitations on the scope of AAA's investigation or the methods and procedures to be followed in preparing the appraisal. AAA principally relied on two approaches to valuation: (1) the sales comparison approach and (2) the income capitalization approach. The sales comparison approach uses analysis techniques and sales of comparable improved properties in surrounding or competing areas to derive units of comparison that are then used to indicate a value for the subject property. Under this approach, the primary methods of analysis used by the appraiser were: (1) sales price per unit analysis; (2) net operating income analysis; and (3) effective gross income analysis. The purpose of the income capitalization approach is to value an income-producing property by analyzing likely future income and expenses of the property over a reasonable holding period. Under the income capitalization approach, AAA performed: (1) a direct capitalization analysis and (2) a discounted cash flow analysis to derive property value. The direct capitalization analysis determines the value of a property by applying a capitalization rate that takes into account all of the factors influencing the value of such property to the net operating income of such property for a single year. The direct capitalization method is normally more appropriate for properties with relatively stable operating histories and expectations. The discounted cash flow analysis determines the value of a property by discounting to present value the estimated operating cash flow of such property and the estimated proceeds of a hypothetical sale of such property at the end of an assumed holding period. The discounted cash flow 14 method is 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. AAA relied principally on the income capitalization approach to valuation and secondarily on the sales comparison approach. Although the sales comparison approach is considered a reliable method for valuing property, the income capitalization approach is the primary approach used for valuing income producing property, such as your partnership's property. Summary of Independent Appraisals of Your Partnership's Properties. AAA performed complete appraisals of all of your partnership's properties. The summary set forth below describes the material conclusions reached by AAA based on the values determined under the valuation approaches and subject to the assumptions and limitations described below. The estimated total "as is" market value of the fee simple estate of your partnership's properties is $81,800,000, which was determined by adding the estimated values determined by AAA for each of your partnership's properties and which is higher than our estimate of the aggregate net property value of $68,688,035. GREENSPOINT Valuation Under Sales Comparison Approach. AAA compared five apartment complexes with Greenspoint that were sold between April 2002 and February 2003 and located in the property's real estate market area. Based on its qualitative analysis, AAA rated the locations of three comparable properties as superior, one comparable property as comparable and one comparable property as inferior to the location of Greenspoint. AAA rated the quality/appeal of two comparable properties as superior and three comparable properties as inferior to the quality/appeal of Greenspoint. AAA rated the amenities of two comparable properties as superior, two comparable properties as comparable and one comparable property as inferior to the amenities of Greenspoint. AAA made adjustments to the sales price per unit of each comparable property to reflect differences from Greenspoint in location, number of units, quality/appeal, age/condition, occupancy at sale, amenities and average unit size. Based on the available data, AAA concluded a value range of $42,158 to $46,734 per unit with a mean or average adjusted price of $44,392 per unit and a median adjusted price of $44,828 per unit. Thus, the estimated value based on a $44,000 sales price per unit for the 336 units was approximately $14,500,000 after adjustment for present value of concessions. As part of the sales comparison approach, AAA also conducted a net operating income ("NOI") analysis. NOI effectively takes into account the various physical, location and operating aspects of the sale. AAA compared Greenspoint's NOI to the NOI of the five comparable properties and arrived at a percentage adjustment. After applying the percentage adjustment to the sales price per unit of each comparable property, the range of value was between $39,234 and $54,491 per unit, with an average of $47,163 per unit. The appraiser concluded a value of $45,000 per unit for the 336 units of the property, resulting in an estimated "as is" market value of $14,800,000 using the NOI analysis after adjustment for present value of concessions. AAA also performed an effective gross income multiplier ("EGIM") analysis. The EGIM measures the relationship between the sales price of a property and its effective gross income, which is the total annual income that a property would produce after an allowance for vacancy and credit loss. AAA estimated the operating expense ratio ("OER") of Greenspoint to be 43.35% before reserves, with the expense ratios of the five comparable properties ranging from 32.54% to 45.35%, resulting in EGIMs ranging from 6.73 to 7.47. Thus, AAA concluded an EGIM of 6.00 for Greenspoint, and applied the EGIM to the stabilized effective gross income for the property (see Income Approach section below), resulting in a value conclusion of approximately $14,600,000 after adjustment for present value of concessions. AAA estimated the value using the price per unit analysis at $14,500,000, the value using the NOI analysis at $14,800,000 and the value using the EGIM analysis at $14,600,000. Based on these three 15 valuation methods, AAA concluded that the reconciled value for Greenspoint under the sales comparison approach was $14,600,000. AAA assumed a marketing and exposure period of 6 to 12 months. Valuation Under Income Capitalization Approach. Under the income capitalization approach, AAA performed: (1) a direct capitalization analysis and (2) a discounted cash flow analysis to derive a value for Greenspoint. AAA first utilized a discounted cash flow method to analyze the value of the property. Under this method, anticipated future cash flow and a reversionary value are discounted at an appropriate rate of return to arrive at an estimate of present value. AAA also employed a direct capitalization analysis on the property by dividing a forecast of net operating income ("NOI") by an appropriate capitalization rate. AAA performed a market rent analysis for the property to derive a projected rental income. The analysis included both a review of the subject's current asking and actual rent rates as well as a comparison with comparable apartment properties. AAA calculated Greenspoint's effective gross income ("EGI") by adding apartment rental collections to other income and then making an adjustment for vacancy and collection loss. Under this analysis, AAA arrived at an EGI of $2,475,218. Once the EGI was established, operating expenses were deducted from the EGI in order to arrive at an NOI for Greenspoint of approximately $1,318,257. AAA performed a pro forma analysis of revenue and expenses for the property to derive the subject's stabilized NOI. AAA relied on the subject's historical and budgeted income and expenses for this estimate. AAA derived appropriate investment criteria, including an overall capitalization rate, terminal capitalization rate and a discount rate based upon analysis of comparable sales and a survey of real estate investors. The assumptions employed by AAA to determine the value of Greenspoint under the income approach included: (1) stabilized vacancy and collection loss rate of 14%; (2) replacement reserve of $250 per unit; (3) overall capitalization rate of 9.00%; (4) terminal capitalization rate of 9.50%; (5) discount rate of 12.00%; (6) 2.00% cost of sale at reversion; and (7) holding period of 10 years. No adjustment was made for lease-up costs because the property was near or at a stabilized condition. An adjustment was made for concessions due to soft market conditions, and AAA estimated the present value of concessions to be $299,000. Based on these assumptions, AAA's estimate of cash flows for a 10-year period resulted in an indicated value of $14,400,000 through the discounted cash flow method. The reversion value contributed approximately 41% of the value. Under the direct capitalization method, utilizing a capitalization rate of 9.00%, the projected NOI resulted in a value (after rounding) of $14,300,000 after adjustments for present value of concessions. Using the income capitalization approach, AAA determined on an as-is basis that the direct capitalization method and the discounted cash flow method indicated the value for Greenspoint was $14,400,000. Reconciliation of Values and Conclusions of Appraisal. The final step in the appraisal process was to reconcile the sales comparison approach and the income capitalization approach values to arrive at a final value conclusion. The reconciliation of the two approaches involved weighing the valuation techniques in relation to their substantiation by market and other sources of data, the relativity and applicability of the approaches to the property type, and the purpose of the valuation. AAA concluded that the estimated market value under the sales comparison approach was $14,600,000 and the estimated market value under the income capitalization approach was $14,400,000. After reconciling the various factors, in its appraisal 16 report dated July 14, 2003, AAA determined a final "as is" market value for Greenspoint of $14,500,000 as of May 6, 2003. MISTY WOODS APARTMENTS Valuation Under Sales Comparison Approach. AAA compared five apartment complexes with Misty Woods Apartments that were sold between November 2000 and December 2002 and located in the property's real estate market area. Based on its qualitative analysis, AAA rated the locations of five comparable properties as superior to the location of Misty Woods Apartments. AAA rated the quality/ appeal of five comparable properties as comparable to the quality/appeal of Misty Woods Apartments. AAA rated the amenities of five comparable properties as comparable to the amenities of Misty Woods Apartments. AAA made adjustments to the sales price per unit of each comparable property to reflect differences from Misty Woods Apartments in location, number of units, quality/appeal, age/condition, occupancy at sale, amenities and average unit size. Based on the available data, AAA concluded a value range of $32,889 to $41,233 per unit with a mean or average adjusted price of $37,397 per unit and a median adjusted price of $37,816 per unit. Thus, the estimated value based on a $37,500 sales price per unit for the 228 units was approximately $8,300,000 after adjustment for present value of concessions. As part of the sales comparison approach, AAA also conducted a net operating income ("NOI") analysis. NOI effectively takes into account the various physical, location and operating aspects of the sale. AAA compared Misty Woods Apartments' NOI to the NOI of the five comparable properties and arrived at a percentage adjustment. After applying the percentage adjustment to the sales price per unit of each comparable property, the range of value was between $30,031 and $40,591 per unit, with an average of $34,876 per unit. The appraiser concluded a value of $35,000 per unit for the 228 units of the property, resulting in an estimated "as is" market value of $7,700,000 using the NOI analysis after adjustment for present value of concessions. AAA also performed an effective gross income multiplier ("EGIM") analysis. The EGIM measures the relationship between the sales price of a property and its effective gross income, which is the total annual income that a property would produce after an allowance for vacancy and credit loss. AAA estimated the operating expense ratio ("OER") of Misty Woods Apartments to be 46.78% before reserves, with the expense ratios of the five comparable properties ranging from 40.38% to 44.51%, resulting in EGIMs ranging from 5.09 to 6.48. Thus, AAA concluded an EGIM of 5.25 for Misty Woods Apartments, and applied the EGIM to the stabilized effective gross income for the property (see Income Approach section below), resulting in a value conclusion of approximately $8,100,000 after adjustment for present value of concessions. AAA estimated the value using the price per unit analysis at $8,300,000, the value using the NOI analysis at $7,700,000 and the value using the EGIM analysis at $8,100,000. Based on these three valuation methods, AAA concluded that the reconciled value for Misty Woods Apartments under the sales comparison approach was $8,100,000. AAA assumed a marketing and exposure period of 6 to 12 months. Valuation Under Income Capitalization Approach. Under the income capitalization approach, AAA performed: (1) a direct capitalization analysis and (2) a discounted cash flow analysis to derive a value for Misty Woods Apartments. AAA first utilized a discounted cash flow method to analyze the value of the property. Under this method, anticipated future cash flow and a reversionary value are discounted at an appropriate rate of return to arrive at an estimate of present value. AAA also employed a direct capitalization analysis on the property by dividing a forecast of net operating income ("NOI") by an appropriate capitalization rate. AAA performed a market rent analysis for the property to derive a projected rental income. The analysis included both a review of the subject's current asking and actual rent rates as well as a comparison with comparable apartment properties. AAA calculated Misty Woods Apartments' effective gross income ("EGI") by adding apartment rental collections to other income and then making an adjustment for 17 vacancy and collection loss. Under this analysis, AAA arrived at an EGI of $1,596,142. Once the EGI was established, operating expenses were deducted from the EGI in order to arrive at an NOI for Misty Woods Apartments of approximately $792,435. AAA performed a pro forma analysis of revenue and expenses for the property to derive the subject's stabilized NOI. AAA relied on the subject's historical and budgeted income and expenses for this estimate. AAA derived appropriate investment criteria, including an overall capitalization rate, terminal capitalization rate and a discount rate based upon analysis of comparable sales and a survey of real estate investors. The assumptions employed by AAA to determine the value of Misty Woods Apartments under the income approach included: (1) stabilized vacancy and collection loss rate of 10%; (2) replacement reserve of $250 per unit; (3) overall capitalization rate of 9.50%; (4) terminal capitalization rate of 10.25%; (5) discount rate of 11.25%; (6) 3.00% cost of sale at reversion; and (7) holding period of 10 years. No adjustment was made for lease-up costs because the property was near or at a stabilized condition. An adjustment was made for concessions due to soft market conditions, and AAA estimated the present value of concessions to be $247,000. Based on these assumptions, AAA's estimate of cash flows for a 10-year period resulted in an indicated value of $8,500,000 through the discounted cash flow method. The reversion value contributed approximately 40% of the value. Under the direct capitalization method, utilizing a capitalization rate of 9.50%, the projected NOI resulted in a value (after rounding) of $8,100,000 after adjustments for present value of concessions. Using the income capitalization approach, AAA determined on an as-is basis that the direct capitalization method and the discounted cash flow method indicated the value for Misty Woods Apartments was $8,300,000. Reconciliation of Values and Conclusions of Appraisal. The final step in the appraisal process was to reconcile the sales comparison approach and the income capitalization approach values to arrive at a final value conclusion. The reconciliation of the two approaches involved weighing the valuation techniques in relation to their substantiation by market and other sources of data, the relativity and applicability of the approaches to the property type, and the purpose of the valuation. AAA concluded that the estimated market value under the sales comparison approach was $8,100,000 and the estimated market value under the income capitalization approach was $8,300,000. After reconciling the various factors, in its appraisal report dated July 3, 2003, AAA determined a final "as is" market value for Misty Woods Apartments of $8,200,000 as of May 13, 2003. PLANTATION CROSSING Valuation Under Sales Comparison Approach. AAA compared four apartment complexes with Plantation Crossing that were sold between March 2000 and March 2001 and located in the property's real estate market area. Based on its qualitative analysis, AAA rated the locations of two comparable properties as superior and two comparable properties as inferior to the location of Plantation Crossing. AAA rated the quality/appeal of two comparable properties as superior, one comparable property as comparable and one comparable property as inferior to the quality/appeal of Plantation Crossing. AAA rated the amenities of four comparable properties as comparable to the amenities of Plantation Crossing. 18 AAA made adjustments to the sales price per unit of each comparable property to reflect differences from Plantation Crossing in location, number of units, quality/appeal, age/condition, occupancy at sale, amenities and average unit size. Based on the available data, AAA concluded a value range of $43,876 to $55,366 per unit with a mean or average adjusted price of $49,958 per unit and a median adjusted price of $50,296 per unit. Thus, the estimated value based on a $50,000 sales price per unit for the 180 units was approximately $9,000,000. As part of the sales comparison approach, AAA also conducted a net operating income ("NOI") analysis. NOI effectively takes into account the various physical, location and operating aspects of the sale. AAA compared Plantation Crossing's NOI to the NOI of the four comparable properties and arrived at a percentage adjustment. After applying the percentage adjustment to the sales price per unit of each comparable property, the range of value was between $38,288 and $53,819 per unit, with an average of $45,579 per unit. The appraiser concluded a value of $50,000 per unit for the 180 units of the property, resulting in an estimated "as is" market value of $9,000,000 using the NOI analysis. AAA also performed an effective gross income multiplier ("EGIM") analysis. The EGIM measures the relationship between the sales price of a property and its effective gross income, which is the total annual income that a property would produce after an allowance for vacancy and credit loss. AAA estimated the operating expense ratio ("OER") of Plantation Crossing to be 45.05% before reserves, with the expense ratios of the four comparable properties ranging from 31.10% to 46.58%, resulting in EGIMs ranging from 4.60 to 7.40. Thus, AAA concluded an EGIM of 6.00 for Plantation Crossing, and applied the EGIM to the stabilized effective gross income for the property (see Income Approach section below), resulting in a value conclusion of approximately $9,200,000. AAA estimated the value using the price per unit analysis at $9,000,000, the value using the NOI analysis at $9,000,000 and the value using the EGIM analysis at $9,200,000. Based on these three valuation methods, AAA concluded that the reconciled value for Plantation Crossing under the sales comparison approach was $9,000,000. AAA assumed a marketing and exposure period of 6 to 12 months. Valuation Under Income Capitalization Approach. Under the income capitalization approach, AAA performed: (1) a direct capitalization analysis and (2) a discounted cash flow analysis to derive a value for Plantation Crossing. AAA first utilized a discounted cash flow method to analyze the value of the property. Under this method, anticipated future cash flow and a reversionary value are discounted at an appropriate rate of return to arrive at an estimate of present value. AAA also employed a direct capitalization analysis on the property by dividing a forecast of net operating income ("NOI") by an appropriate capitalization rate. AAA performed a market rent analysis for the property to derive a projected rental income. The analysis included both a review of the subject's current asking and actual rent rates as well as a comparison with comparable apartment properties. AAA calculated Plantation Crossing's effective gross income ("EGI") by adding apartment rental collections to other income and then making an adjustment for vacancy and collection loss. Under this analysis, AAA arrived at an EGI of $1,537,164. Once the EGI was established, operating expenses were deducted from the EGI in order to arrive at an NOI for Plantation Crossing of approximately $799,706. AAA performed a pro forma analysis of revenue and expenses for the property to derive the subject's stabilized NOI. AAA relied on the subject's historical and budgeted income and expenses for this estimate. AAA derived appropriate investment criteria, including an overall capitalization rate, terminal capitalization rate and a discount rate based upon analysis of comparable sales and a survey of real estate investors. The assumptions employed by AAA to determine the value of Plantation Crossing under the income approach included: (1) stabilized vacancy and collection loss rate of 10%; (2) replacement reserve of $250 per unit; (3) overall capitalization rate of 9.00%; 19 (4) terminal capitalization rate of 9.75%; (5) discount rate of 11.25%; (6) 3.00% cost of sale at reversion; and (7) holding period of 10 years. No adjustment was made for lease-up costs because the property was near or at a stabilized condition. No adjustment was made for concessions. Based on these assumptions, AAA's estimate of cash flows for a 10-year period resulted in an indicated value of $9,200,000 through the discounted cash flow method. The reversion value contributed approximately 40% of the value. Under the direct capitalization method, utilizing a capitalization rate of 9.00%, the projected NOI resulted in a value (after rounding) of $8,900,000. Using the income capitalization approach, AAA determined on an as-is basis that the direct capitalization method and the discounted cash flow method indicated the value for Plantation Crossing was $9,000,000. Reconciliation of Values and Conclusions of Appraisal. The final step in the appraisal process was to reconcile the sales comparison approach and the income capitalization approach values to arrive at a final value conclusion. The reconciliation of the two approaches involved weighing the valuation techniques in relation to their substantiation by market and other sources of data, the relativity and applicability of the approaches to the property type, and the purpose of the valuation. AAA concluded that the estimated market value under the sales comparison approach was $9,000,000 and the estimated market value under the income capitalization approach was $9,000,000. After reconciling the various factors, in its appraisal report dated June 27, 2003, AAA determined a final "as is" market value for Plantation Crossing of $9,000,000 as of May 2, 2003. SANDS POINT Valuation Under Sales Comparison Approach. AAA compared five apartment complexes with Sands Point that were sold between April 2002 and February 2003 and located in the property's real estate market area. Based on its qualitative analysis, AAA rated the locations of four comparable properties as superior and one comparable property as inferior to the location of Sands Point. AAA rated the quality/ appeal of three comparable properties as superior, one comparable property as comparable and one comparable property as inferior to the quality/appeal of Sands Point. AAA rated the amenities of four comparable properties as superior and one comparable property as inferior to the amenities of Sands Point. AAA made adjustments to the sales price per unit of each comparable property to reflect differences from Sands Point in location, number of units, quality/appeal, age/condition, occupancy at sale, amenities and average unit size. Based on the available data, AAA concluded a value range of $32,354 to $35,862 per unit with a mean or average adjusted price of $34,862 per unit and a median adjusted price of $35,326 per unit. Thus, the estimated value based on a $35,000 sales price per unit for the 431 units was approximately $14,700,000 after adjustment for lease-up costs and present value of concessions. As part of the sales comparison approach, AAA also conducted a net operating income ("NOI") analysis. NOI effectively takes into account the various physical, location and operating aspects of the sale. AAA compared Sands Point's NOI to the NOI of the five comparable properties and arrived at a percentage adjustment. After applying the percentage adjustment to the sales price per unit of each comparable property, the range of value was between $31,011 and $43,072 per unit, with an average of $37,279 per unit. The appraiser concluded a value of $35,000 per unit for the 431 units of the property, resulting in an estimated "as is" market value of $14,700,000 using the NOI analysis after adjustment for lease-up costs and present value of concessions. AAA also performed an effective gross income multiplier ("EGIM") analysis. The EGIM measures the relationship between the sales price of a property and its effective gross income, which is the total 20 annual income that a property would produce after an allowance for vacancy and credit loss. AAA estimated the operating expense ratio ("OER") of Sands Point to be 47.49% before reserves, with the expense ratios of two comparable properties ranging from 32.54% to 45.35%, resulting in EGIMs ranging from 6.73 to 7.47. Thus, AAA concluded an EGIM of 5.5 for Sands Point, and applied the EGIM to the stabilized effective gross income for the property (see Income Approach section below), resulting in a value conclusion of approximately $14,700,000 after adjustment for lease-up costs and present value of concessions. AAA estimated the value using the price per unit analysis at $14,700,000, the value using the NOI analysis at $14,700,000 and the value using the EGIM analysis at $14,700,000. Based on these three valuation methods, AAA concluded that the reconciled value for Sands Point under the sales comparison approach was $14,700,000. AAA assumed a marketing and exposure period of 6 to 12 months. Valuation Under Income Capitalization Approach. Under the income capitalization approach, AAA performed: (1) a direct capitalization analysis and (2) a discounted cash flow analysis to derive a value for Sands Point. AAA first utilized a discounted cash flow method to analyze the value of the property. Under this method, anticipated future cash flow and a reversionary value are discounted at an appropriate rate of return to arrive at an estimate of present value. AAA also employed a direct capitalization analysis on the property by dividing a forecast of net operating income ("NOI") by an appropriate capitalization rate. AAA performed a market rent analysis for the property to derive a projected rental income. The analysis included both a review of the subject's current asking and actual rent rates as well as a comparison with comparable apartment properties. AAA calculated Sands Point's effective gross income ("EGI") by adding apartment rental collections to other income and then making an adjustment for vacancy and collection loss. Under this analysis, AAA arrived at an EGI of $2,750,755. Once the EGI was established, operating expenses were deducted from the EGI in order to arrive at an NOI for Sands Point of approximately $1,336,595. AAA performed a pro forma analysis of revenue and expenses for the property to derive the subject's stabilized NOI. AAA relied on the subject's historical and budgeted income and expenses for this estimate. AAA derived appropriate investment criteria, including an overall capitalization rate, terminal capitalization rate and a discount rate based upon analysis of comparable sales and a survey of real estate investors. The assumptions employed by AAA to determine the value of Sands Point under the income approach included: (1) stabilized vacancy and collection loss rate of 15%; (2) replacement reserve of $250 per unit; (3) overall capitalization rate of 9.00%; (4) terminal capitalization rate of 9.50%; (5) discount rate of 12.00%; (6) 2.00% cost of sale at reversion; and (7) holding period of 10 years. An adjustment was made for lease-up costs because Sands Point's occupancy level was below a stabilized occupancy projection Thus, AAA assumed a 12-month lease up period. An adjustment was made for concessions due to soft market conditions, and AAA estimated the present value of concessions to be $222,000. Based on these assumptions, AAA's estimate of cash flows for a 10-year period resulted in an indicated value of $14,500,000 through the discounted cash flow method. The reversion value contributed approximately 41% of the value. 21 Under the direct capitalization method, utilizing a capitalization rate of 9.00%, the projected NOI resulted in a value (after rounding) of $14,500,000 after adjustments for lease-up costs and present value of concessions. Using the income capitalization approach, AAA determined on an as-is basis that the direct capitalization method and the discounted cash flow method indicated the value for Sands Point was $14,500,000. Reconciliation of Values and Conclusions of Appraisal. The final step in the appraisal process was to reconcile the sales comparison approach and the income capitalization approach values to arrive at a final value conclusion. The reconciliation of the two approaches involved weighing the valuation techniques in relation to their substantiation by market and other sources of data, the relativity and applicability of the approaches to the property type, and the purpose of the valuation. AAA concluded that the estimated market value under the sales comparison approach was $14,700,000 and the estimated market value under the income capitalization approach was $14,500,000. After reconciling the various factors, in its appraisal report dated July 3, 2003, AAA determined a final "as is" market value for Sands Point of $14,600,000 as of May 6, 2003. SUNRUNNER Valuation Under Sales Comparison Approach. AAA compared five apartment complexes with Sunrunner that were sold between June 2000 and July 2002 and located in the property's real estate market area. Based on its qualitative analysis, AAA rated the locations of five comparable properties as inferior to the location of Sunrunner. AAA rated the quality/appeal of five comparable properties as comparable to the quality/appeal of Sunrunner. AAA rated the amenities of five comparable properties as comparable to the amenities of Sunrunner. AAA made adjustments to the sales price per unit of each comparable property to reflect differences from Sunrunner in location, number of units, quality/appeal, age/condition, occupancy at sale, amenities and average unit size. Based on the available data, AAA concluded a value range of $31,500 to $39,096 per unit with a mean or average adjusted price of $35,052 per unit and a median adjusted price of $35,084 per unit. Thus, the estimated value based on a $35,000 sales price per unit for the 200 units was approximately $7,000,000. As part of the sales comparison approach, AAA also conducted a net operating income ("NOI") analysis. NOI effectively takes into account the various physical, location and operating aspects of the sale. AAA compared Sunrunner's NOI to the NOI of the four comparable properties and arrived at a percentage adjustment. After applying the percentage adjustment to the sales price per unit of each comparable property, the range of value was between $35,236 and $38,387 per unit, with an average of $37,280 per unit. The appraiser concluded a value of $36,000 per unit for the 200 units of the property, resulting in an estimated "as is" market value of $7,200,000 using the NOI analysis. AAA also performed an effective gross income multiplier ("EGIM") analysis. The EGIM measures the relationship between the sales price of a property and its effective gross income, which is the total annual income that a property would produce after an allowance for vacancy and credit loss. AAA estimated the operating expense ratio ("OER") of Sunrunner to be 47.18% before reserves, with the expense ratios of the four comparable properties ranging from 44.90% to 61.84%, resulting in EGIMs ranging from 4.02 to 5.69. Thus, AAA concluded an EGIM of 4.75 for Sunrunner, and applied the EGIM to the stabilized effective gross income for the property (see Income Approach section below), resulting in a value conclusion of approximately $7,000,000. AAA estimated the value using the price per unit analysis at $7,000,000, the value using the NOI analysis at $7,200,000 and the value using the EGIM analysis at $7,000,000. Based on these three valuation methods, AAA concluded that the reconciled value for Sunrunner under the sales comparison approach was $7,000,000. AAA assumed a marketing and exposure period of 6 to 12 months. 22 Valuation Under Income Capitalization Approach. Under the income capitalization approach, AAA performed: (1) a direct capitalization analysis and (2) a discounted cash flow analysis to derive a value for Sunrunner. AAA first utilized a discounted cash flow method to analyze the value of the property. Under this method, anticipated future cash flow and a reversionary value are discounted at an appropriate rate of return to arrive at an estimate of present value. AAA also employed a direct capitalization analysis on the property by dividing a forecast of net operating income ("NOI") by an appropriate capitalization rate. AAA performed a market rent analysis for the property to derive a projected rental income. The analysis included both a review of the subject's current asking and actual rent rates as well as a comparison with comparable apartment properties. AAA calculated Sunrunner's effective gross income ("EGI") by adding apartment rental collections to other income and then making an adjustment for vacancy and collection loss. Under this analysis, AAA arrived at an EGI of $1,465,312. Once the EGI was established, operating expenses were deducted from the EGI in order to arrive at an NOI for Sunrunner of approximately $724,046. AAA performed a pro forma analysis of revenue and expenses for the property to derive the subject's stabilized NOI. AAA relied on the subject's historical and budgeted income and expenses for this estimate. AAA derived appropriate investment criteria, including an overall capitalization rate, terminal capitalization rate and a discount rate based upon analysis of comparable sales and a survey of real estate investors. The assumptions employed by AAA to determine the value of Sunrunner under the income approach included: (1) stabilized vacancy and collection loss rate of 10%; (2) replacement reserve of $250 per unit; (3) overall capitalization rate of 9.75%; (4) terminal capitalization rate of 10.50%; (5) discount rate of 12.00%; (6) 2.00% cost of sale at reversion; and (7) holding period of 10 years. No adjustment was made for lease-up costs because the property was near or at a stabilized condition. No adjustment was made for concessions. Based on these assumptions, AAA's estimate of cash flows for a 10-year period resulted in an indicated value of $7,300,000 through the discounted cash flow method. The reversion value contributed approximately 36% of the value. Under the direct capitalization method, utilizing a capitalization rate of 9.75%, the projected NOI resulted in a value (after rounding) of $7,400,000. Using the income capitalization approach, AAA determined on an as-is basis that the direct capitalization method and the discounted cash flow method indicated the value for Sunrunner was $7,300,000. Reconciliation of Values and Conclusions of Appraisal. The final step in the appraisal process was to reconcile the sales comparison approach and the income capitalization approach values to arrive at a final value conclusion. The reconciliation of the two approaches involved weighing the valuation techniques in relation to their substantiation by market and other sources of data, the relativity and applicability of the approaches to the property type, and the purpose of the valuation. AAA concluded that the estimated market value under the sales comparison approach was $7,000,000 and the estimated market value under the income capitalization approach was $7,300,000. After reconciling the various factors, in its appraisal report dated July 7, 2003, AAA determined a final "as is" market value for Sunrunner of $7,200,000 as of May 14, 2003. 23 VININGS PEAK Valuation Under Sales Comparison Approach. AAA compared five apartment complexes with Vinings Peak that were sold between February 2001 and March 2003 and located in the property's real estate market area. Based on its qualitative analysis, AAA rated the locations of one comparable property as superior, one comparable property as comparable and three comparable properties as inferior to the location of Vinings Peak. AAA rated the quality/appeal of three comparable properties as comparable and two comparable properties as inferior to the quality/appeal of Vinings Peak. AAA rated the amenities of all five comparable properties as comparable to the amenities of Vinings Peak. AAA made adjustments to the sales price per unit of each comparable property to reflect differences from Vinings Peak in location, number of units, quality/appeal, age/condition, occupancy at sale, amenities and average unit size. Based on the available data, AAA concluded a value range of $54,926 to $78,194 per unit with a mean or average adjusted price of $62,007 per unit and a median adjusted price of $58,105 per unit. Thus, the estimated value based on a $58,000 sales price per unit for the 280 units was approximately $16,000,000 after adjustment for a new leasing office and present value of concessions. As part of the sales comparison approach, AAA also conducted a net operating income ("NOI") analysis. NOI effectively takes into account the various physical, location and operating aspects of the sale. AAA compared Vinings Peak's NOI to the NOI of the five comparable properties and arrived at a percentage adjustment. After applying the percentage adjustment to the sales price per unit of each comparable property, the range of value was between $46,426 and $59,931 per unit, with an average of $54,425 per unit. The appraiser concluded a value of $55,000 per unit for the 280 units of the property, resulting in an estimated "as is" market value of $15,200,000 using the NOI analysis after adjustment for a new leasing office and present value of concessions. AAA also performed an effective gross income multiplier ("EGIM") analysis. The EGIM measures the relationship between the sales price of a property and its effective gross income, which is the total annual income that a property would produce after an allowance for vacancy and credit loss. AAA estimated the operating expense ratio ("OER") of Vinings Peak to be 38.06% before reserves, with the expense ratios of the five comparable properties ranging from 27.76% to 46.35%, resulting in EGIMs ranging from 5.91 to 6.89. Thus, AAA concluded an EGIM of 6.50 for Vinings Peak, and applied the EGIM to the stabilized effective gross income for the property (see Income Approach section below), resulting in a value conclusion of approximately $15,200,000 after adjustment for a new leasing office and present value of concessions. AAA estimated the value using the price per unit analysis at $16,000,000, the value using the NOI analysis at $15,200,000 and the value using the EGIM analysis at $15,200,000. Based on these three valuation methods, AAA concluded that the reconciled value for Vinings Peak under the sales comparison approach was $15,500,000. AAA assumed a marketing and exposure period of 6 to 12 months. Valuation Under Income Capitalization Approach. Under the income capitalization approach, AAA performed: (1) a direct capitalization analysis and (2) a discounted cash flow analysis to derive a value for Vinings Peak. AAA first utilized a discounted cash flow method to analyze the value of the property. Under this method, anticipated future cash flow and a reversionary value are discounted at an appropriate rate of return to arrive at an estimate of present value. AAA also employed a direct capitalization analysis on the property by dividing a forecast of net operating income ("NOI") by an appropriate capitalization rate. AAA performed a market rent analysis for the property to derive a projected rental income. The analysis included both a review of the subject's current asking and actual rent rates as well as a comparison with comparable apartment properties. AAA calculated Vinings Peak's effective gross income ("EGI") by adding apartment rental collections to other income and then making an adjustment for vacancy and collection loss. Under this analysis, AAA arrived at an EGI of $2,370,768. Once the EGI was established, operating expenses were deducted from the EGI in order to arrive at an NOI for Vinings Peak of approximately $1,398,510. AAA performed a pro forma analysis of revenue and expenses for the property 24 to derive the subject's stabilized NOI. AAA relied on the subject's historical and budgeted income and expenses for this estimate. AAA derived appropriate investment criteria, including an overall capitalization rate, terminal capitalization rate and a discount rate based upon analysis of comparable sales and a survey of real estate investors. The assumptions employed by AAA to determine the value of Vinings Peak under the income approach included: (1) stabilized vacancy and collection loss rate of 9%; (2) replacement reserve of $250 per unit; (3) overall capitalization rate of 9.00%; (4) terminal capitalization rate of 9.50%; (5) discount rate of 11.00%; (6) 2.00% cost of sale at reversion; and (7) holding period of 10 years. No adjustment was made for lease-up costs because the property was near or at a stabilized condition. An adjustment was made for concessions due to soft market conditions, and AAA estimated the present value of concessions to be $128,000. An adjustment of $100,000 was made for a new leasing office. Based on these assumptions, AAA's estimate of cash flows for a 10-year period resulted in an indicated value of $15,700,000 through the discounted cash flow method. The reversion value contributed approximately 41% of the value. Under the direct capitalization method, utilizing a capitalization rate of 9.00%, the projected NOI resulted in a value (after rounding) of $15,300,000 after adjustments for a new leasing office and present value of concessions. Using the income capitalization approach, AAA determined on an as-is basis that the direct capitalization method and the discounted cash flow method indicated the value for Vinings Peak was $15,500,000. Reconciliation of Values and Conclusions of Appraisal. The final step in the appraisal process was to reconcile the sales comparison approach and the income capitalization approach values to arrive at a final value conclusion. The reconciliation of the two approaches involved weighing the valuation techniques in relation to their substantiation by market and other sources of data, the relativity and applicability of the approaches to the property type, and the purpose of the valuation. AAA concluded that the estimated market value under the sales comparison approach was $15,500,000 and the estimated market value under the income capitalization approach was $15,500,000. After reconciling the various factors, in its appraisal report dated June 27, 2003, AAA determined a final "as is" market value for Vinings Peak of $15,500,000 as of May 20, 2003. WOOD LAKE Valuation Under Sales Comparison Approach. AAA compared five apartment complexes with Wood Lake that were sold between February 2001 and March 2003 and located in the property's real estate market area. Based on its qualitative analysis, AAA rated the locations of one comparable property as superior, one comparable property as comparable and three comparable properties as inferior to the location of Wood Lake. AAA rated the quality/appeal of three comparable properties as comparable and two comparable properties as inferior to the quality/appeal of Wood Lake. AAA rated the amenities of all five comparable properties as comparable to the amenities of Wood Lake. AAA made adjustments to the sales price per unit of each comparable property to reflect differences from Wood Lake in location, number of units, quality/appeal, age/condition, occupancy at sale, amenities 25 and average unit size. Based on the available data, AAA concluded a value range of $54,926 to $78,194 per unit with a mean or average adjusted price of $62,991 per unit and a median adjusted price of $60,526 per unit. Thus, the estimated value based on a $60,000 sales price per unit for the 220 units was approximately $13,100,000 after adjustment for present value of concessions. As part of the sales comparison approach, AAA also conducted a net operating income ("NOI") analysis. NOI effectively takes into account the various physical, location and operating aspects of the sale. AAA compared Wood Lake's NOI to the NOI of the five comparable properties and arrived at a percentage adjustment. After applying the percentage adjustment to the sales price per unit of each comparable property, the range of value was between $48,370 and $62,441 per unit, with an average of $54,621 per unit. The appraiser concluded a value of $55,000 per unit for the 220 units of the property, resulting in an estimated "as is" market value of $12,000,000 using the NOI analysis after adjustment for present value of concessions. AAA also performed an effective gross income multiplier ("EGIM") analysis. The EGIM measures the relationship between the sales price of a property and its effective gross income, which is the total annual income that a property would produce after an allowance for vacancy and credit loss. AAA estimated the operating expense ratio ("OER") of Wood Lake to be 37.73% before reserves, with the expense ratios of the five comparable properties ranging from 27.76% to 46.35%, resulting in EGIMs ranging from 5.91 to 6.89. Thus, AAA concluded an EGIM of 6.45 for Wood Lake, and applied the EGIM to the stabilized effective gross income for the property (see Income Approach section below), resulting in a value conclusion of approximately $12,300,000 after adjustment for present value of concessions. AAA estimated the value using the price per unit analysis at $13,100,000, the value using the NOI analysis at $12,000,000 and the value using the EGIM analysis at $12,300,000. Based on these three valuation methods, AAA concluded that the reconciled value for Wood Lake under the sales comparison approach was $12,500,000. AAA assumed a marketing and exposure period of 6 to 12 months. Valuation Under Income Capitalization Approach. Under the income capitalization approach, AAA performed: (1) a direct capitalization analysis and (2) a discounted cash flow analysis to derive a value for Wood Lake. AAA first utilized a discounted cash flow method to analyze the value of the property. Under this method, anticipated future cash flow and a reversionary value are discounted at an appropriate rate of return to arrive at an estimate of present value. AAA also employed a direct capitalization analysis on the property by dividing a forecast of net operating income ("NOI") by an appropriate capitalization rate. AAA performed a market rent analysis for the property to derive a projected rental income. The analysis included both a review of the subject's current asking and actual rent rates as well as a comparison with comparable apartment properties. AAA calculated Wood Lake's effective gross income ("EGI") by adding apartment rental collections to other income and then making an adjustment for vacancy and collection loss. Under this analysis, AAA arrived at an EGI of $1,926,928. Once the EGI was established, operating expenses were deducted from the EGI in order to arrive at an NOI for Wood Lake of approximately $1,144,841. AAA performed a pro forma analysis of revenue and expenses for the property to derive the subject's stabilized NOI. AAA relied on the subject's historical and budgeted income and expenses for this estimate. AAA derived appropriate investment criteria, including an overall capitalization rate, terminal capitalization rate and a discount rate based upon analysis of comparable sales and a survey of real estate investors. The assumptions employed by AAA to determine the value of Wood Lake under the income approach included: (1) stabilized vacancy and collection loss rate of 9%; (2) replacement reserve of $250 per unit; (3) overall capitalization rate of 9.00%; 26 (4) terminal capitalization rate of 9.50%; (5) discount rate of 11.00%; (6) 2.00% cost of sale at reversion; and (7) holding period of 10 years. No adjustment was made for lease-up costs because the property was near or at a stabilized condition. An adjustment was made for concessions due to soft market conditions, and AAA estimated the present value of concessions to be $104,000. Based on these assumptions, AAA's estimate of cash flows for a 10-year period resulted in an indicated value of $12,900,000 through the discounted cash flow method. The reversion value contributed approximately 41% of the value. Under the direct capitalization method, utilizing a capitalization rate of 9.00%, the projected NOI resulted in a value (after rounding) of $12,600,000 after adjustments for present value of concessions. Using the income capitalization approach, AAA determined on an as-is basis that the direct capitalization method and the discounted cash flow method indicated the value for Wood Lake was $12,800,000. Reconciliation of Values and Conclusions of Appraisal. The final step in the appraisal process was to reconcile the sales comparison approach and the income capitalization approach values to arrive at a final value conclusion. The reconciliation of the two approaches involved weighing the valuation techniques in relation to their substantiation by market and other sources of data, the relativity and applicability of the approaches to the property type, and the purpose of the valuation. AAA concluded that the estimated market value under the sales comparison approach was $12,500,000 and the estimated market value under the income capitalization approach was $12,800,000. After reconciling the various factors, in its appraisal report dated July 17, 2003, AAA determined a final "as is" market value for Wood Lake of $12,800,000 as of May 20, 2003. Assumptions, Limitations and Qualifications of AAA's Valuation. In preparing the appraisal, AAA relied, without independent verification, on the accuracy and completeness of all information supplied or otherwise made available to it by or on behalf of the partnership. In arriving at the appraisal, AAA assumed: - good and marketable title to the property; - validity of owner's claim to the property; - no encumbrances which could not be cleared through normal processes, unless otherwise stated; - accuracy of land areas and descriptions obtained from public records; - no subsurface mineral and use rights or conditions; - no substances such as asbestos, urea-formaldehyde foam insulation, other chemicals, toxic wastes, or other potentially hazardous materials in existence or present on or in the property; - full compliance with applicable federal, state and local environmental regulations and laws, unless otherwise stated, defined and considered; - possession of all required licenses, consents, or other legislative or administrative authority from any local, state, or national government or private entity organization and that the renewal of these items is possible; - compliance with all applicable zoning and use regulations and restrictions, unless a nonconformity has been stated, defined, and considered; - utilization of the land and improvements within property boundaries and no encroachment or trespass of the improvements, unless otherwise stated; 27 - 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 not readily apparent during inspection; and - compliance with the Americans with Disabilities Act of 1992. Compensation of Appraiser. AAA was appointed by the court to perform all the real estate appraisals in connection with the settlement relating to the Nuanes and Heller litigation. AAA was paid a fee of $619,100 for the appraisals. We paid 50% of the costs of the appraisals, with the other 50% paid from the settlement fund. AAA has conducted other appraisals of property in connection with the other offers made pursuant to the settlement agreement. Other than the appraisals performed in connection with the settlement agreement, during the prior two years, no material relationship has existed between AAA and your partnership or any of its affiliates, including the AIMCO Entities. Availability of Appraisal Reports. You may obtain a full copy of AAA's appraisals upon request, without charge, by contacting the Information Agent at one of the addresses or the telephone number on the back cover of this Offer to Purchase. Copies of the appraisal for the property are also available for inspection and copying at the principal executive offices of the partnership during regular business hours by any interested unitholder or his or her designated representative at his or her cost. In addition, a copy of the appraisals has been filed with the SEC as an exhibit to the Tender Offer Statement and Rule 13e-3 Transaction Statement on Schedule TO and is available on the SEC's site on the World Wide Web at http://www.sec.gov. In estimating the net liquidation proceeds that would be payable per unit based on the total appraised value of your partnership's properties, we applied the same basic methodology as described under "Valuation of Units", except that we did not deduct any amounts that were already deducted from and reflected in the total appraised value. We deducted from the total appraised value of your partnership's properties ($81,800,000) total estimated prepayment penalties of $1,597,645 to determine the net appraised value of $80,202,355. As indicated below, based on the total appraised value of the partnership properties, the estimated net liquidation proceeds per unit is $390.24, which is higher than our offer price of $300.00. Net appraised value of partnership properties............... $ 80,202,355 Plus: Cash and cash equivalents............................. 442,149 Plus: Other partnership assets.............................. 1,513,780 Less: Mortgage debt, including accrued interest............. (45,866,879) Less: Loans from partners................................... (802,733) Less: Accounts payable and accrued expenses................. (311,898) Less: Other liabilities..................................... (750,597) Plus: Deficit restoration obligation........................ 1,107,292 ------------ Estimated net liquidation proceeds of your partnership...... $ 35,533,470 Percentage of estimated net liquidation proceeds allocated to holders of units....................................... 98% ------------ Estimated net liquidation proceeds of units................. $ 34,844,947 Total number of units..................................... 89,292.00 ------------ Estimated net liquidation proceeds per unit................. $ 390.24 ============
THIRD-PARTY APPRAISALS IN CONNECTION WITH REFINANCINGS Selection and Qualifications of Independent Appraiser. In connection with the refinancing of the mortgage indebtedness encumbering three of the partnership's properties in 2003, the lenders solicited and obtained appraisals with respect to such properties from CB Richard Ellis, Inc. ("CBRE"), an independent appraiser. In reports dated June 12, 2003, CBRE concluded that the market value of Plantation Crossing Apartments was $9,200,000 as of May 15, 2003, that the market value of Vinings Peak 28 Apartments was $16,700,000 as of May 15, 2003, and that the market value of Wood Lake Apartments was $14,100,000 as of May 15, 2003. The information set forth below was provided to us by CBRE with respect to its appraisals. CBRE is a full-service real estate services company. Together with its partner and affiliate offices, CBRE has more than 300 offices in more than 50 countries. The Valuation & Advisory Services business line of CBRE is a nationwide organization of experienced professionals, providing appraisal and consulting services to a broad-based national and local clientele. CBRE's Valuation & Advisory Services business line has expertise in the appraisal of multifamily, retail, industrial, office, hotel and special purpose properties. Factors Considered. CBRE performed complete appraisals of Plantation Crossing Apartments, Vinings Peak Apartments and Wood Lake Apartments. CBRE has represented that its reports were prepared in conformity with the Uniform Standards of Professional Appraisal Practice of the Appraisal Foundation and the requirements of the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute. No special appraisal instructions were given to, and no conditions or limitations on the scope of CBRE's investigation or the methods and procedures to be followed in preparing the appraisals were imposed on, the appraiser by the partnership, us or our affiliates. In preparing its valuation of each property, CBRE: - physically identified and inspected both the interior and exterior of the subject property, as well as its surrounding environs, and identified and considered those characteristics that may have a legal, economic or physical impact on the subject property; - physically inspected the micro and/or macro market environments with respect to physical and economic factors relevant to the valuation process and expanded this knowledge through interviews with regional and/or local market participants, available published data and various other resources; - conducted regional and/or local research with respect to applicable tax data, zoning requirements, flood zone status, demographics, income and expense data, and comparable listing, sale and rental information; - analyzed the data gathered through the use of appropriate and accepted appraisal methodology to arrive at a probable value indication via each applicable approach to value; - correlated and reconciled the results into a reasonable and defensible value conclusion; and - estimated a reasonable exposure time and marketing time associated with the value estimate presented. The partnership furnished CBRE with all of the necessary information requested by it in connection with the appraisals, including historical operating statements for each of Plantation Crossing Apartments, Vinings Peak Apartments and Wood Lake Apartments for the years 2000 through 2002 and an operating statement for the first four months of 2003, the amounts of which were annualized by CBRE for purposes of the appraisal. Based on these amounts, CBRE derived its own estimates of operating income and expenses to use in its analyses of the properties. The information furnished to CBRE was true, correct and complete in all material respects. Summary of Approaches and Methodologies Employed. The following summary describes the approaches and analyses employed by CBRE in preparing the appraisals. No conditions or limitations on the scope of CBRE's investigation or the methods and procedures to be followed in preparing the appraisals were imposed by the lenders that solicited the appraisals. CBRE principally relied on three approaches to valuation: (1) the cost approach, (2) the sales comparison approach and (3) the income capitalization approach. The cost approach is based on the proposition that an informed purchaser would pay no more for the subject property than the cost to produce a substitute property with equivalent utility. This approach is particularly applicable when the property being appraised involves relatively new improvements that 29 represent the highest and best use of the land or when relatively unique or specialized improvements are located on the site and for which there exist few sales or leases of comparable properties. The sales comparison approach utilizes sales of comparable properties, adjusted for differences, to indicate a value for the subject property. Valuation is typically accomplished using physical units of comparison such as price per square foot, price per unit, price per floor, or economic units of comparison such as gross rent multipliers. Adjustments are applied to the physical units of comparison derived from the comparable sales. The unit of comparison chosen is then used to yield a total value for the subject property. Economic units of comparison are not adjusted, but rather analyzed as to relevant differences, with the final estimate derived based on the general comparisons. The income capitalization approach reflects the subject property's income-producing capabilities. This approach is based on the assumption that value is created by the expectation of benefits to be derived in the future. This approach estimates the amount an investor would be willing to pay to receive an income stream plus reversion value from a property over a period of time. The two common valuation techniques associated with the income capitalization approach are direct capitalization and the discounted cash flow analysis. CBRE relied principally on the income capitalization approach to valuation and secondarily on the sales comparison approach, and used the cost approach as a test of reasonableness against the other valuation techniques. Although the sales comparison approach is considered a reliable method for valuing property, the income capitalization approach is the primary approach used for valuing income-producing property, such as your partnership's properties. The cost approach typically gives a reliable value indication when there is evidence for the replacement cost estimate and when there is minimal depreciation contributing to a loss in value that must be estimated. CBRE considered the cost approach to be less applicable than the other valuation approaches due to the level of depreciation applicable to the subject properties. Summary of Independent Appraisals of Your Partnership's Properties. CBRE performed complete appraisals of three of your partnership's properties. The summary set forth below describes the material conclusions reached by CBRE based on the values determined under the valuation approaches and subject to the assumptions and limitations described below. PLANTATION CROSSING Valuation Under Cost Approach. CBRE began its analysis under the cost approach by valuing the property's land. CBRE compared five land sales between January 2000 and August 2001. The appraiser noted that there had been a lack of recent comparable land sales due to a slowing market and that, therefore, it used land sales that had occurred most recently and that were considered most comparable to the subject property. The appraiser made an adjustment for any change in market conditions since the date of the comparable land sales in addition to making adjustments based on the location of the comparable properties. As a result of its analysis, the appraiser arrived at a value range of $8,405 to $14,426 per unit. CBRE considered a price per unit indication near the middle of the range indicated by the comparables to be most appropriate for the land at Plantation Crossing. Thus, the estimated land value based on a $11,500 sales price per unit for the 180 units was approximately $2,075,000 (after rounding). After determining a value for the land, CBRE next estimated the cost of replacing the property's improvements. CBRE first estimated a base building cost, based on the Marshall Valuation Service cost guide, adjusting such cost to reflect the physical characteristics of the subject property. CBRE then added estimated indirect costs, such as developer overhead, property taxes, legal and insurance costs, local development fees and contingencies, and lease-up and marketing costs. CBRE also added estimated entrepreneurial profit, representing the return to the developer, to arrive at an estimate of the subject property's replacement cost. CBRE then reduced this value by estimating accrued depreciation from three sources: physical deterioration, functional obsolescence and external obsolescence, resulting in an estimate of the subject property's depreciated replacement cost of $7,815,228. CBRE added to this value its 30 estimate of the land value to produce an indication of value for Plantation Crossing of $9,900,000 (after rounding). Valuation Under Sales Comparison Approach. CBRE compared Plantation Crossing with six apartment complexes that were sold between February 2002 and December 2002 and located in Plantation Crossing's real estate market area. Based on its qualitative analysis, CBRE rated two comparable properties as newer and one of the comparable properties as older than Plantation Crossing and rated three comparable properties as being of comparable age. CBRE rated the quality/condition of all six comparable properties as comparable to the quality/condition of Plantation Crossing. CBRE rated the locations of four comparable properties as superior and two comparable properties as comparable to the location of Plantation Crossing. CBRE rated the average unit size of one comparable property as larger than, two comparable properties as comparable to, and three comparable properties as smaller than, the average unit size of Plantation Crossing. CBRE made adjustments to the sales price per unit of each comparable property to reflect differences from Plantation Crossing in age, quality/condition, location and average unit size. Based on the available data, CBRE concluded a value range of $49,963 to $78,125 per unit. CBRE considered a price per unit indication near the lower portion of the range indicated by the comparables to be most appropriate for Plantation Crossing. Thus, the estimated value based on a $52,000 sales price per unit for the 180 units was approximately $9,350,000 (after rounding). CBRE assumed a marketing and exposure period of 9 months. Valuation Under Income Capitalization Approach. Under the income capitalization approach, CBRE performed a direct capitalization analysis to derive a value for Plantation Crossing by dividing a forecast of net operating income ("NOI") by an appropriate capitalization rate. CBRE performed a market rent analysis for the property to derive a projected rental income. The analysis included both a review of the subject's current asking and actual rent rates as well as a comparison with comparable apartment properties. CBRE calculated Plantation Crossing's effective gross income ("EGI") by adding apartment rental collections to other income and then making an adjustment based on an estimated vacancy and collection loss rate of 8.0%. Under this analysis, CBRE arrived at an EGI of $1,458,854. Once the EGI was established, operating expenses were deducted from the EGI in order to arrive at an NOI for Plantation Crossing of approximately $692,137. CBRE performed a pro forma analysis of revenue and expenses for the property to derive the subject's stabilized NOI. CBRE relied on the subject's historical operating statements for this estimate. CBRE derived an overall capitalization rate of 7.50% based upon analysis of comparable sales, published investor surveys, interviews with knowledgeable real estate professionals, and the band of investment technique, a method of capitalization rate derivation based on debt rates and terms common to the market along with common investor dividend requirements. Using an overall capitalization rate of 7.50%, CBRE determined on an as-is basis that the direct capitalization method indicated a value for Plantation Crossing of $9,200,000 (after rounding). Reconciliation of Values and Conclusions of Appraisal. The final step in the appraisal process was to reconcile the cost approach, the sales comparison approach and the income capitalization approach values to arrive at a final value conclusion. The reconciliation of the three approaches involved weighing the valuation techniques in relation to their substantiation by market and other sources of data, the relativity and applicability of the approaches to the property type, and the purpose of the valuation. CBRE concluded that the estimated market value under the cost approach was $9,900,000, the estimated market value under the sales comparison approach was $9,350,000 and the estimated market value under the income capitalization approach was $9,200,000. After reconciling the various factors, CBRE determined a final "as is" market value for Plantation Crossing of $9,200,000 as of May 15, 2003 in its appraisal report dated June 12, 2003. VININGS PEAK Valuation Under Cost Approach. CBRE began its analysis under the cost approach by valuing the property's land. CBRE compared five land sales between January 2000 and August 2001. The appraiser 31 noted that there had been a lack of recent comparable land sales due to a slowing market and that, therefore, it used land sales that had occurred most recently and that were considered most comparable to the subject property. The appraiser made an adjustment for any change in market conditions since the date of the comparable land sales in addition to making adjustments based on the location of the comparable properties. As a result of its analysis, the appraiser arrived at a value range of $9,353 to $14,568 per unit. CBRE considered a price per unit indication near the middle of the range indicated by the comparables to be most appropriate for the land at Vinings Peak. Thus, the estimated land value based on a $12,500 sales price per unit for the 280 units was approximately $3,500,000. After determining a value for the land, CBRE next estimated the cost of replacing the property's improvements. CBRE first estimated a base building cost, based on the Marshall Valuation Service cost guide, adjusting such cost to reflect the physical characteristics of the subject property. CBRE then added estimated indirect costs, such as developer overhead, property taxes, legal and insurance costs, local development fees and contingencies, and lease-up and marketing costs. CBRE also added estimated entrepreneurial profit, representing the return to the developer, to arrive at an estimate of the subject property's replacement cost. CBRE then reduced this value by estimating accrued depreciation from three sources: physical deterioration, functional obsolescence and external obsolescence, resulting in an estimate of the subject property's depreciated replacement cost of $14,081,441. CBRE added to this value its estimate of the land value to produce an indication of value for Vinings Peak of $17,600,000 (after rounding). Valuation Under Sales Comparison Approach. CBRE compared Vinings Peak with six apartment complexes that were sold between February 2002 and December 2002 and located in Vinings Peak's real estate market area. Based on its qualitative analysis, CBRE rated two comparable properties as newer and one of the comparable properties as older than Vinings Peak and rated three comparable properties as being of comparable age. CBRE rated the quality/condition of all six comparable properties as comparable to the quality/condition of Vinings Peak. CBRE rated the locations of four comparable properties as superior and two comparable properties as comparable to the location of Vinings Peak. CBRE rated the average unit size of two comparable properties as larger than, one comparable property as comparable to, and three comparable properties as smaller than, the average unit size of Vinings Peak. CBRE made adjustments to the sales price per unit of each comparable property to reflect differences from Vinings Peak in age, quality/condition, location and average unit size. Based on the available data, CBRE concluded a value range of $53,200 to $78,125 per unit. CBRE considered a price per unit indication near the middle portion of the range indicated by the comparables to be most appropriate for Vinings Peak. Thus, the estimated value based on a $60,000 sales price per unit for the 280 units was approximately $16,800,000. CBRE assumed a marketing and exposure period of 9 months. Valuation Under Income Capitalization Approach. Under the income capitalization approach, CBRE performed a direct capitalization analysis to derive a value for Vinings Peak by dividing a forecast of net operating income ("NOI") by an appropriate capitalization rate. CBRE performed a market rent analysis for the property to derive a projected rental income. The analysis included both a review of the subject's current asking and actual rent rates as well as a comparison with comparable apartment properties. CBRE calculated Vinings Peak's effective gross income ("EGI") by adding apartment rental collections to other income and then making an adjustment based on an estimated vacancy and collection loss rate of 10.0%. Under this analysis, CBRE arrived at an EGI of $2,316,110. Once the EGI was established, operating expenses were deducted from the EGI in order to arrive at an NOI for Vinings Peak of approximately $1,296,048. CBRE performed a pro forma analysis of revenue and expenses for the property to derive the subject's stabilized NOI. CBRE relied on the subject's historical operating statements for this estimate. CBRE derived an overall capitalization rate of 7.75% based upon analysis of comparable sales, published investor surveys, interviews with knowledgeable real estate professionals, and the band of investment technique, a method of capitalization rate derivation based on debt rates and terms common to the market along with common investor dividend requirements. Using an overall capitalization rate of 7.75%, CBRE determined on an as-is basis that the direct capitalization method indicated a value for Vinings Peak of $16,700,000 (after rounding). 32 Reconciliation of Values and Conclusions of Appraisal. The final step in the appraisal process was to reconcile the cost approach, the sales comparison approach and the income capitalization approach values to arrive at a final value conclusion. The reconciliation of the three approaches involved weighing the valuation techniques in relation to their substantiation by market and other sources of data, the relativity and applicability of the approaches to the property type, and the purpose of the valuation. CBRE concluded that the estimated market value under the cost approach was $17,600,000, the estimated market value under the sales comparison approach was $16,800,000 and the estimated market value under the income capitalization approach was $16,700,000. After reconciling the various factors, CBRE determined a final "as is" market value for Vinings Peak of $16,700,000 as of May 15, 2003 in its appraisal report dated June 12, 2003. WOOD LAKE Valuation Under Cost Approach. CBRE began its analysis under the cost approach by valuing the property's land. CBRE compared five land sales between January 2000 and August 2001. The appraiser noted that there had been a lack of recent comparable land sales due to a slowing market and that, therefore, it used land sales that had occurred most recently and that were considered most comparable to the subject property. The appraiser made an adjustment for any change in market conditions since the date of the comparable land sales in addition to making adjustments based on the location of the comparable properties. As a result of its analysis, the appraiser arrived at a value range of $9,353 to $14,568 per unit. CBRE considered a price per unit indication near the middle of the range indicated by the comparables to be most appropriate for the land at Wood Lake. Thus, the estimated land value based on a $12,500 sales price per unit for the 220 units was approximately $2,750,000. After determining a value for the land, CBRE next estimated the cost of replacing the property's improvements. CBRE first estimated a base building cost, based on the Marshall Valuation Service cost guide, adjusting such cost to reflect the physical characteristics of the subject property. CBRE then added estimated indirect costs, such as developer overhead, property taxes, legal and insurance costs, local development fees and contingencies, and lease-up and marketing costs. CBRE also added estimated entrepreneurial profit, representing the return to the developer, to arrive at an estimate of the subject property's replacement cost. CBRE then reduced this value by estimating accrued depreciation from three sources: physical deterioration, functional obsolescence and external obsolescence, resulting in an estimate of the subject property's depreciated replacement cost of $11,660,157. CBRE added to this value its estimate of the land value to produce an indication of value for Wood Lake of $14,400,000 (after rounding). Valuation Under Sales Comparison Approach. CBRE compared Wood Lake with six apartment complexes that were sold between February 2002 and December 2002 and located in Wood Lake's real estate market area. Based on its qualitative analysis, CBRE rated two comparable properties as newer and two comparable properties as older than Wood Lake and rated two comparable properties as being of comparable age. CBRE rated the quality/condition of all six comparable properties as comparable to the quality/condition of Wood Lake. CBRE rated the locations of four comparable properties as superior and two comparable properties as comparable to the location of Wood Lake. CBRE rated the average unit size of two comparable properties as larger than, one comparable property as comparable to, and three comparable properties as smaller than, the average unit size of Wood Lake. CBRE made adjustments to the sales price per unit of each comparable property to reflect differences from Wood Lake in age, quality/condition, location and average unit size. Based on the available data, CBRE concluded a value range of $56,000 to $78,125 per unit. CBRE considered a price per unit indication near the middle of the range indicated by the comparables to be most appropriate for Wood Lake. Thus, the estimated value based on a $64,000 sales price per unit for the 220 units was approximately $14,100,000 (after rounding). CBRE assumed marketing and exposure period of 9 months. Valuation Under Income Capitalization Approach. Under the income capitalization approach, CBRE performed a direct capitalization analysis to derive a value for Wood Lake by dividing a forecast of net 33 operating income ("NOI") by an appropriate capitalization rate. CBRE performed a market rent analysis for the property to derive a projected rental income. The analysis included both a review of the subject's current asking and actual rent rates as well as a comparison with comparable apartment properties. CBRE calculated Wood Lake's effective gross income ("EGI") by adding apartment rental collections to other income and then making an adjustment based on an estimated vacancy and collection loss rate of 10.0%. Under this analysis, CBRE arrived at an EGI of $1,925,379. Once the EGI was established, operating expenses were deducted from the EGI in order to arrive at an NOI for Wood Lake of approximately $1,089,788. CBRE performed a pro forma analysis of revenue and expenses for the property to derive the subject's stabilized NOI. CBRE relied on the subject's historical operating statements for this estimate. CBRE derived an overall capitalization rate of 7.75% based upon analysis of comparable sales, published investor surveys, interviews with knowledgeable real estate professionals, and the band of investment technique, a method of capitalization rate derivation based on debt rates and terms common to the market along with common investor dividend requirements. Using an overall capitalization rate of 7.75%, CBRE determined on an as-is basis that the direct capitalization method indicated a value for Wood Lake of $14,100,000 (after rounding). Reconciliation of Values and Conclusions of Appraisal. The final step in the appraisal process was to reconcile the cost approach, the sales comparison approach and the income capitalization approach values to arrive at a final value conclusion. The reconciliation of the three approaches involved weighing the valuation techniques in relation to their substantiation by market and other sources of data, the relativity and applicability of the approaches to the property type, and the purpose of the valuation. CBRE concluded that the estimated market value under the cost approach was $14,400,000, the estimated market value under the sales comparison approach was $14,100,000 and the estimated market value under the income capitalization approach was $14,100,000. After reconciling the various factors, CBRE determined a final "as is" market value for Wood Lake of $14,100,000 as of May 15, 2003 in its appraisal report dated June 12, 2003. Assumptions, Limitations and Qualifications of CBRE's Valuation. In preparing each appraisal, CBRE relied, without independent verification, on the accuracy and completeness of all information supplied or otherwise made available to it by or on behalf of the partnership. In arriving at the appraisal, CBRE assumed, among other things: - clear and marketable title to the property; - validity of owner's claim to the property; - no recorded or unrecorded matters or exceptions that would adversely affect marketability or value; - accuracy of land areas and descriptions obtained from sources deemed reliable; - no subsurface mineral and use rights or conditions; - no substances such as asbestos, urea-formaldehyde foam insulation, other chemicals, toxic wastes, or other potentially hazardous materials in existence or present on or in the property; - compliance with environmental and other governmental restrictions/conditions by applicable agencies, including but not limited to allowable uses, building codes, permits and licenses; - possession of all required licenses, consents, or other legislative or administrative authority from any local, state, or national government or private entity organization and that the renewal of these items is possible; - compliance with all applicable zoning and use regulations and restrictions, unless a nonconformity has been stated, defined, and considered; - no encroachments to the realty exist; 34 - 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 not readily apparent during inspection; and - compliance with the Americans with Disabilities Act of 1992. Compensation of Appraiser. CBRE was hired by the lenders to perform real estate appraisals in connection with our refinancing of indebtedness encumbering Plantation Crossing Apartments, Vinings Peak Apartments and Wood Lake Apartments. We paid CBRE a fee of $13,700 for the appraisals. CBRE has conducted appraisals of properties owned by other partnerships, the limited partnership units of which we have made offers to purchase, in connection with the refinancing of the indebtedness encumbering such properties. During the prior two years, no material relationship has existed between CBRE and your partnership or any of its affiliates, including the AIMCO Entities. Availability of Appraisal Reports. CBRE's appraisals only speak as of their effective dates in May 2003. You may obtain a full copy of CBRE 's appraisals upon request, without charge, by contacting the Information Agent at one of the addresses or the telephone number on the back cover of this Offer to Purchase. Copies of the appraisals for the properties are also available for inspection and copying at the principal executive offices of the partnership during regular business hours by any interested unitholder or his or her designated representative at his or her cost. In addition, a copy of the appraisals has been filed with the SEC as an exhibit to the Tender Offer Statement and Rule 13e-3 Transaction Statement on Schedule TO and is available on the SEC's site on the World Wide Web at http://www.sec.gov. BACKGROUND AND REASONS FOR THE OFFER General. We are in the business of acquiring direct and indirect interests in apartment properties such as the properties owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's properties while providing you and other investors with an opportunity to liquidate your current investment. This offer constitutes our seventh tender offer for units in your partnership. As part of the settlement of the Nuanes and Heller litigation, we commenced a cash tender offer in November 2003 to acquire limited partnership units in your partnership for $104.89 per unit and acquired 1,494 units. THIS OFFER IS NOT BEING MADE AS PART OF THE SETTLEMENT. Subsequent to the November 2003 litigation settlement offer, we acquired an additional 134 units at an offer price of $104.89 per unit in three negotiated transactions. Alternatives Considered by Your General Partner. From time to time in the past, we have made offers to acquire units of limited partnership interest in your partnership. Before making this offer and the previous offers, your general partner (which is our affiliate) considered a number of alternative transactions. The following is a brief discussion of the advantages and disadvantages of the alternatives considered by your general partner. LIQUIDATION One alternative would be for the partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with the agreement of limited partnership, and thereafter dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of partnership assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). If your partnership was liquidated, and the properties sold at prices equal to the values determined by the independent appraiser in 2003, we estimate that your net liquidation proceeds would be $390.24 per unit. See "Special Factors -- Valuation of Units." However, a liquidating sale of all of your partnership's properties would be a taxable event for all partners, including your general partner. Furthermore, all partners, including those who wish to retain their units, and your general partner would be forced to 35 participate in the liquidation. Lastly, although the future operating results of your partnership and future sales prices of the properties owned by your partnership are uncertain, the operating performance of your partnership's properties may improve in the future, which, in turn, may result in higher property values, making a sale of your partnership's properties a more attractive option in the future. Such values are also a function of the interest rate environment at the time. However, because your general partner and property manager (which are our affiliates) receive fees for managing your partnership and its properties, a conflict of interest exists between continuing the partnership and receiving such fees, on the one hand, and the liquidation of the partnership and the termination of such fees, on the other. See "The Offer -- Section 8. Certain Information Concerning Your Partnership -- Investment Objectives and Policies; Sale or Financing of Investments" and "Special Factors -- Conflicts of Interest and Transactions with Affiliates." The term of the partnership will continue until December 31, 2024, unless the partnership is terminated sooner under the provisions of the partnership agreement, as amended. CONTINUATION OF THE PARTNERSHIP WITHOUT THE OFFER A second alternative would be for your partnership to continue as a separate legal entity with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions or improved operating performance, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's properties at some point in the future a more attractive option than it is currently. The continuation of your partnership will allow you to continue to participate in the net income and any increases in revenue of your partnership and any net proceeds from the sale of the properties owned by your partnership. However, no assurance can be given as to future operating results or as to the results of any future attempts to sell the properties owned by your partnership. The primary disadvantage of continuing the operations of your partnership without our offer is that you would be limited in your ability to sell your units. Although you could sell your units to a third party, any such sale might be at a price less than our offer price. Alternative Transactions Considered by Us. At the present time, we have decided to proceed with this offer. From time to time in the past, we have considered proposing a number of alternative transactions, including the purchase of your partnership's properties or a merger of your partnership in which you would receive cash in exchange for your units. We decided not to pursue these alternative transactions because, in each case, we determined that a tender offer would be a less expensive means of acquiring additional interests in your partnership, and would not require the consent or approval of any limited partners (other than those who elect to tender their units). In the future, however, we may consider purchasing your partnership's properties or effecting such a merger. See "Special Factors -- Future Plans of the Purchaser." We also considered an offer to exchange units in your partnership for limited partnership interests in AIMCO Properties, L.P. However, because of the expense and delay associated with making such an exchange offer, we decided to make an offer for cash only. In addition, our historical experience has been that when we have offered limited partners an opportunity to receive cash or limited partnership interests in AIMCO Properties, L.P., the limited partners who tender usually prefer the cash option. MATERIAL FEDERAL INCOME TAX MATTERS The following summary is a discussion of the material United States federal income tax consequences of the offer that may be relevant to (i) limited partners who tender some or all of their units for cash pursuant to our offer, and (ii) limited partners who do not tender any of their units pursuant to our offer. This discussion is based on the Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all as of the date of this Offer to Purchase. All of the foregoing is subject to change or alternative construction, possibly with retroactive effect, and any such change or alternative construction could affect the continuing accuracy of this summary. This summary is based on the assumption that your partnership is operated in accordance with its 36 organizational documents including its certificate of limited partnership and agreement of limited partnership. This summary does not purport to discuss all aspects of federal income taxation which may be important to a particular person in light of its investment or tax circumstances, or to certain types of investors subject to special tax rules (including financial institutions, broker-dealers, insurance companies, and, except to the extent discussed below, tax-exempt organizations and foreign investors, as determined for United States federal income tax purposes), nor (except as otherwise expressly indicated) does it describe any aspect of state, local, foreign or other tax laws. This summary assumes that the units are held by the limited partners for investment purposes (commonly referred to as "capital assets"), and are not held by partners for sale to customers as dealer property under the Code. No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Offer to Purchase. Further, no opinion of counsel has been obtained with regard to the offer. THE UNITED STATES FEDERAL INCOME TAX TREATMENT OF A LIMITED PARTNER PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF UNITED STATES FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE UNITED STATES FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF SELLING THE INTERESTS IN YOUR PARTNERSHIP REPRESENTED BY YOUR UNITS PURSUANT TO OUR OFFER OR OF A DECISION NOT TO SELL IN LIGHT OF YOUR SPECIFIC TAX SITUATION. Tax Consequences to Limited Partners Tendering Units for Cash. The sale of a unit of limited partnership interest pursuant to this offer will be a taxable transaction for United States federal income tax purposes. You will recognize gain or loss on a sale of a unit of limited partnership interest of your partnership equal to the difference, if any, between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the unit sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer plus the amount of partnership liabilities allocable to your unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from a sale of a unit could exceed the cash received upon such sale. Adjusted Tax Basis. If you acquired your units for cash, your initial tax basis in such units was generally equal to your cash investment in your partnership increased by your share of partnership liabilities at the time you acquired such units. Your initial tax basis generally has been increased by (i) your share of partnership income and gains, and (ii) any increases in your share of partnership liabilities, and has been decreased (but not below zero) by (i) your share of partnership cash distributions, (ii) any decreases in your share of partnership liabilities, (iii) your share of partnership losses, and (iv) your share of nondeductible partnership expenditures that are not chargeable to capital. For purposes of determining your adjusted tax basis in your units immediately prior to a disposition of your units, your adjusted tax basis in your units will include your allocable share of partnership income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of partnership liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized with respect to a unit pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit, and may result in a tax liability to you that exceeds the cash received upon such sale. Character of Gain or Loss Recognized Pursuant to the Offer. Except as described below, the gain or loss recognized by you on a sale of a unit pursuant to the offer generally will be treated as a long-term capital gain or loss if you held the unit for more than one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum United States federal income tax rate of 15%. If the amount realized with respect to a unit of limited partnership interest of your partnership that is attributable to your share of "unrealized receivables" of your partnership exceeds the tax basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture for certain types of property. In addition, the maximum United States federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your units) held for more than one year is currently 25% (rather than 15%) with respect to that portion of the gain attributable to depreciation deductions previously taken on the property. Certain limitations apply to the use of capital losses. 37 If you tender a unit of limited partnership interest of your partnership in the offer, you will be allocated a share of partnership taxable income or loss for the year of tender with respect to any units sold. You will not receive any future distributions on units tendered on or after the date on which such units are accepted for purchase and, accordingly, you may not receive any distributions with respect to such accreted income. Such allocation and any partnership cash distributions to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. Passive Activity Losses. The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as your units. An individual, as well as certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your units is treated as a passive activity, you may be able to reduce gain from the sale of your units pursuant to the offer with passive losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on your sale, you will generally be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. In general, if you sell all or a portion of your units pursuant to the offer and recognize a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses from your partnership that were not otherwise utilized will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. You are urged to consult your tax advisor concerning whether, and the extent to which, you have available "suspended" passive activity losses from your partnership or other investments that may be used to reduce gain from the sale of units pursuant to the offer. Release and Assignment of Claims. If you tender units in this offer, a portion of the price paid to you may be deemed a payment for your release and assignment of claims. The proper treatment for federal income tax purposes of your receipt of any deemed payments for your release and assignment of claims is uncertain. No opinion or assurance can be given that the IRS will not challenge the treatment of any deemed payments for your release and assignment of claims as additional consideration for the units, and assert that such amount should be treated as an ordinary income payment in exchange for your release and/or assignment of current and future claims. You should consult your tax advisor regarding the tax consequences to you with respect to your right to, and your receipt of, any deemed payments for your release and assignment of claims. Information Reporting, Backup Withholding and FIRPTA. If you tender any units, you must report the transaction by filing a statement with your United States federal income tax return for the year of the tender which provides certain required information to the IRS. To prevent the possible application of back-up United States federal income tax withholding with respect to the payment of the offer consideration, you are generally required to provide us with your correct taxpayer identification number. Back-up withholding is not an additional tax. Any amounts withheld under the back-up withholding rules may be refunded or credited against your United States federal income tax liability, if any, provided that the required information is furnished to the Internal Revenue Service. See the instructions to the letter of transmittal. Gain realized by a foreign person on the sale of a unit pursuant to the offer will be subject to federal income tax under the Foreign Investment in Real Property Tax Act of 1980. Under these provisions of the Code, if we acquire an interest held by a foreign person, we will be required to deduct and withhold 10% 38 of the amount realized by such foreign person on the disposition. Amounts withheld would be creditable against a foreign person's United States federal income tax liability and, if in excess thereof, a refund could be claimed from the Internal Revenue Service by filing a United States income tax return. See the instructions to the letter of transmittal. State and Local Withholding. If you tender any units pursuant to this offer, we may be required under state or local tax laws to deduct and withhold a portion of our offer price. You should consult your tax advisor concerning whether any state or local withholding would be required on a disposition of your units and whether such amounts may be available to you as a credit on your state or local tax returns. Tax Consequences to the General Partner of Your Partnership and its Affiliates, including AIMCO Properties, L.P. The sale of your units pursuant to this offer will not be a taxable transaction for the general partner of your partnership or its affiliates, including AIMCO Properties, L.P. Consequently, the general partner of your partnership and its affiliates will not recognize gain or loss in connection with this offer. We, like any other purchaser of units, will receive a tax basis in the purchased units equal to the consideration paid by us for the units plus the allocable share of debt with respect to such units. This tax basis will be allocated over the assets owned by your partnership, and we will be able to take depreciation and amortization deductions to the extent basis is allocated to depreciable or amortizable property owned by your partnership. EFFECTS OF THE OFFER Because the general partner of your partnership is our affiliate, we have control over the management of your partnership. We are affiliated with the company that currently manages the properties owned by your partnership. In addition, we, together with your general partner, IPLP Acquisitions I, L.L.C. and AIMCO IPLP, L.P. (which are our affiliates), own 53,731.66 units, or 60.18%, of the outstanding units of your partnership. Because we and our affiliates own a majority of the outstanding units and control your partnership's general partner, we control the outcome of most voting decisions with respect to your partnership. In general, we will vote the units owned by us in whatever manner we deem to be in our best interests, which may not be in the interest of other limited partners. This could (1) prevent non-tendering limited partners from taking action that they desire but that we oppose and (2) enable us to take action desired by us but opposed by non-tendering limited partners. We are also affiliated with the company that currently manages, and has managed for some time, the properties owned by your partnership. In the event that we acquire a substantial number of units pursuant to this offer, removal of the property manager may become more difficult or impossible. If we acquire all of the units that we are seeking in the offer, our interest in your partnership's net earnings ($(195,000) for the three months ended March 31, 2005) and net book value ($(8,648,000) as of March 31, 2005) will increase to 100%. AIMCO-GP owns a 1% interest in AIMCO Properties, L.P. and AIMCO, through its subsidiaries, owns an 89% interest in AIMCO Properties. Distributions to Us. If we acquire units in the offer, we will participate in any subsequent distributions to limited partners to the extent of the units purchased. Partnership Status. The rules regarding whether a partnership is treated as a "publicly traded partnership" taxable as a corporation are not certain. We believe that our purchase of units in accordance with the terms of our offer should not adversely affect the issue of whether your partnership is classified as a partnership for federal income tax purposes, because, taking into account all of the facts and circumstances, the general partner of your partnership believes that the partnership interests in your partnership should not be treated as readily tradable on a secondary market or the substantial equivalent thereof. Business. Our offer will not affect the operation of the properties owned by your partnership. We will continue to control the general partner of your partnership and the property manager, both of which will remain the same. Consummation of the offer will not affect your agreement of limited partnership, the operations of your partnership, the business and properties owned by your partnership or any other matter 39 relating to your partnership, except it would result in us increasing our ownership of units. We have no current intention of changing the fee structure for your general partner or the manager of your partnership's properties. Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act. If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In the case of your partnership, however, there is no established public trading market for the units and, therefore, we do not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. The units are registered under Section 12(g) of the Exchange Act, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. We do not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Exchange Act. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Exchange Act. Your partnership currently has 3,665 unitholders. The lack of filing periodic reports could affect the already limited secondary market which currently exists for units in your partnership and may result in others not tendering for such units. In such a case, you would regularly have access only to the limited information your partnership's agreement of limited partnership requires your general partner (which is our affiliate) to provide each year, which information consists primarily of tax information. In particular, you will continue to receive a Schedule K-1 each year as well as audited financial statements with respect to your partnership. A Schedule K-1 is an information statement that contains tax information for the fiscal year of your partnership, such as your allocation of income, deductions, credits, gains and losses of your partnership for federal income tax purposes. In comparison, the periodic reports filed by your partnership under the Exchange Act contain your partnership's annual and quarterly financial statements prepared in accordance with generally accepted accounting principles. These periodic reports filed under the Exchange Act also include information regarding your partnership's business and property and a discussion regarding your partnership's financial condition and results of operations. Additionally, your partnership will not be required to provide current reports on Form 8-K, describing certain material events. See "The Offer -- Section 1. Terms of the Offer; Expiration Date." Costs Associated with Being a Public Company. There are various costs associated with being a public company, including costs associated with preparing, auditing and filing our periodic reports with the SEC. We estimate these expenses to be approximately $50,000 per year. This represents approximately 12% of the partnership's general and administrative expenses and 0.40% of the partnership's total expenses (based on 2004 expenses of approximately $419,000 and $12,495,000, respectively). In addition, as a result of the Sarbanes-Oxley Act of 2002, we estimate our costs will increase by approximately 10% beginning in 2006. If the partnership were to terminate its registration under the Exchange Act, the estimated cost savings would be approximately $50,000. Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER The partnership and the general partner of your partnership (which is our affiliate) have provided the following information for inclusion in this Offer to Purchase: Factors in Favor of Fairness Determination. The general partner of your partnership believes the offer price and the structure of the transaction are fair to the unaffiliated limited partners whether or not they tender units in the offer. In support of such determination, the general partner considered the factors 40 and information set forth below, but did not quantify or otherwise attach particular weight to any such factors or information: The general partner considered the following factors in support of the fairness of the offer to unaffiliated limited partners who do NOT tender units in the offer: - the fact that the offer does not require approval of a majority of unaffiliated limited partners and, as a result, each limited partner has an opportunity to make an individual decision on whether to tender his or her units (and how many to tender) or to continue to hold them; and - the fact that unaffiliated limited partners may continue to participate in the future performance of the partnership or its property following an alternative transaction such as a property sale or a liquidation of the partnership. The general partner considered the following factors in support of the fairness of the offer to unaffiliated limited partners who do tender units in the offer: - the fact that the offer does not require approval of a majority of unaffiliated limited partners and, as a result, each limited partner has an opportunity to make an individual decision on whether to tender his or her units (and how many to tender) or to continue to hold them; - there is no established trading market for the limited partnership units, and the offer would provide immediate liquidity for tendering limited partners; - the uncertainty of the resulting proceeds from the possible alternative transactions, particularly a property sale or a liquidation of the partnership; - the offer price exceeds the book value per unit of $15.38 at March 31, 2005; - our offer price is equal to the highest offer price in prior tender offers from 2002 through May 2005; - our offer price is equal to the $300.00 per unit presently being offered by MacKenzie Patterson Fuller, Inc., et al., pursuant to their tender offer on Schedule TO-T filed on March 24, 2005; - our offer price is equal to the highest price at which the units have sold in the secondary market from 2002 through May 31, 2005 (the most recent date for which information was available); - our estimate of the gross property value for Misty Woods Apartments is approximately $23,093 higher than the sales price for the property in the purchase and sale contract dated May 19, 2005; - the fact that our offer price does not reflect any discount for minority interests; and - the absence of any other firm offers by third parties for all or substantially all of the partnership's assets, a merger or other extraordinary transaction during the past two years with which to compare the offer. Factors Not in Favor of Fairness Determination. In addition to the foregoing factors, the general partner considered the following countervailing factors: - we determined our offer price by estimating a net equity value for your partnership units based on a gross property value of $70,285,680. The gross property value is the value of your partnership's property, as estimated by us, before reduction for any prepayment penalty. Our estimate of the gross property value is approximately 86% of the appraised value of your partnership's property, as determined by the independent, court-appointed appraiser in 2003. As a result, our offer price is less than our estimate of the liquidation proceeds that would be payable to you if your partnership's properties were sold at prices equal to their 2003 appraised value, which we estimate to be $390.24 per unit; - our estimate of the gross property values for Plantation Crossing Apartments, Vinings Peak Apartments and Woodlake Apartments is approximately 63%, 79% and 91%, respectively, of their 41 May 2003 appraised values as determined by CBRE for the lenders in connection with our refinancing of indebtedness encumbering these properties; - our offer price does not ascribe any value to potential future improvements in the fair market value or operating performance of your partnership's properties, including any increase in value that may result from the redevelopment of Sunrunner Apartments. Our offer price might be higher if it were based on a more recent appraisal of your partnership's properties, or if it took into account any potential improvements in property income; - the fact that an unaffiliated representative was not retained to act solely on behalf of unaffiliated limited partners for purposes of negotiating the terms of the offer; and - the fact that the general partner's board of directors is comprised solely of an employee of AIMCO Properties, L.P., and, as a result, the terms of the offer were not approved by a majority of independent directors. The general partner did not consider going concern value separately from liquidation value because it does not believe that there is a distinction between going concern value and liquidation value for income-producing properties such as your partnership's properties, where the likely sale price in the event of liquidation is expected to be equal to the going concern value of the property. In some markets, where there is a great demand for apartments to be converted into condominiums, it is possible that sale prices for apartment properties may be higher than their operating income would justify. In these situations, the liquidation value may exceed the going concern value. The general partner has determined that none of your partnership's properties are in markets where the demand for condominium conversions has resulted in this effect. Accordingly, the general partner did not consider the two values separately. Although there is no established trading market for your limited partnership units, the general partner took into consideration the prices at which limited partnership units have sold in the secondary market from 2002 through May 31, 2005 (the most recent date for which information was available), to the extent such information is available. The general partner believes the offer price is fair despite the fact that the liquidation value implied by the 2003 appraised values of your partnership's properties ($390.24 per unit) is higher than our offer price, and despite the fact that CBRE's May 2003 appraised values for Plantation Crossing Apartments, Vinings Peak Apartments and Woodlake Apartments are higher than our estimate of the gross property values for these properties. AAA's and CBRE's 2003 appraised values of your partnership's properties were based on information available to the appraisers at that time, and no assurance can be given that the same conditions currently exist. The general partner believes that our valuation method provides a reasonably fair method to determine the offer price. Although our offer price represents the amount you would receive if we liquidated the partnership based on our determination of property values, an actual liquidation might result in a higher or lower price for the properties, and a correspondingly higher or lower distribution to holders of units. In addition, the general partner believes that appraisals obtained by lenders in connection with refinancings, such as those prepared by CBRE, tend to overstate actual property values somewhat. The general partner believes that consideration of the offer was procedurally fair because, among other things, (1) each limited partner has an opportunity to make an individual decision on whether to tender his or her units (and how many to tender) or to continue to hold them, and (2) limited partners can evaluate our offer price by comparing it to the net liquidation proceeds per unit derived from the independent appraiser's property valuation. In making this determination, the general partner took into account the absence of the following procedural safeguards: (1) the requirement of approval of the offer by a majority of the unaffiliated limited partners, (2) an unaffiliated representative to act solely on behalf of unaffiliated limited partners for purposes of negotiating the terms of the offer, and (3) the approval of the offer by a majority of non-employee directors of your general partner's board of directors. Your general partner is our affiliate. We and your general partner are subsidiaries of AIMCO. As a result, your general partner has a conflict of interest and makes no recommendation as to whether or not you should tender or refrain from tendering your units in this offer. While the general partner believes that 42 the terms of our offer are fair, the general partner also believes that you must make your own decision whether or not to participate in this offer. The general partner is unable to make a recommendation because each limited partner's circumstances may differ from those of other limited partners. These circumstances, which would impact the desirability of tendering units in the offer, include your financial position, your need or desire for liquidity, other financial opportunities available to you, and your tax position and the tax consequences to you of selling your units. YOU ARE ENCOURAGED TO CAREFULLY REVIEW THIS OFFER TO PURCHASE, AND ANY OTHER INFORMATION AVAILABLE TO YOU AND TO SEEK ADVICE FROM YOUR INDEPENDENT LAWYER, TAX ADVISOR AND/OR FINANCIAL ADVISOR WITH RESPECT TO YOUR PARTICULAR CIRCUMSTANCES BEFORE DECIDING WHETHER OR NOT TO ACCEPT THIS OFFER. Neither the general partner of your partnership or its affiliates have any plans or arrangements to tender any units. Except as otherwise provided in "Special Factors -- Future Plans of the Purchaser," the general partner does not have any present plans or proposals which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation, involving your partnership; a purchase or sale or transfer of a material amount of your partnership's assets; or any changes in your partnership's present capitalization, indebtedness or distribution policies. The sale of your units pursuant to this offer will not be a taxable transaction for the general partner of your partnership or its affiliates. Consequently, the general partner of your partnership and its affiliates will not recognize gain or loss in connection with this offer. For information relating to certain relationships between your partnership and its general partner, on one hand, and AIMCO and its affiliates, on the other, and conflicts of interests with respect to the tender offer, see "Special Factors -- Background and Reasons for the Offer" and "--Conflicts of Interest and Transactions with Affiliates." See also "Special Factors -- Valuation of Units -- Comparison of Offer Price to Alternative Consideration" for certain information regarding transactions with respect to units of your partnership. Your partnership did not receive any report, opinion or appraisal with respect to the fairness of this offer or the offer price being offered to limited partners. However, the partnership did receive the 2003 appraisals prepared by AAA, as described above. Although the AIMCO Entities have interests that may be in conflict with those of the partnership's unaffiliated limited partners, each of the AIMCO Entities believes that the offer price and the structure of the transaction are fair to the unaffiliated limited partners based on the information and factors considered by the general partner of your partnership. Each of AIMCO Entities expressly adopts the analysis, and the factors underlying such analysis, of the general partner of your partnership. CONFLICTS OF INTEREST AND TRANSACTIONS WITH AFFILIATES Conflicts of Interest with Respect to the Offer. The general partner of your partnership is a subsidiary of AIMCO. As a result, the general partner has substantial conflicts of interest with respect to the offer. We desire to purchase units at a low price and you desire to sell units at a high price. Such conflicts of interest in connection with the offer differ from those conflicts of interest that exist in connection with the general partner's management of your partnership. Your general partner has filed a Solicitation/ Recommendation Statement on Schedule 14d-9 with the SEC, which indicates that it is remaining neutral and making no recommendation as to whether limited partners should tender their units in the offer. YOU ARE URGED TO READ THIS OFFER TO PURCHASE AND THE SCHEDULE 14D-9 AND THE RELATED MATERIALS CAREFULLY AND IN THEIR ENTIRETY BEFORE DECIDING WHETHER TO TENDER YOUR UNITS. Conflicts of Interest That Currently Exist for Your Partnership. Conflicts of interest exist between the general partner of your partnership and its affiliates (including us), on the one hand, and you and the other limited partners of the partnership, on the other. The directors and officers of your general partner have fiduciary duties to manage the general partner in a manner beneficial to its stockholder, which is a subsidiary of AIMCO. At the same time, the general partner of your partnership has fiduciary duties to 43 manage your partnership in a manner beneficial to all of the limited partners. Such conflicts of interest might arise in the following situations, among others: - The partnership pays fees and reimburses expenses to the general partner and its affiliates for costs incurred in managing and operating the partnership and its properties. We and the general partner of your partnership received total fees and reimbursements (excluding property management fees) of approximately $621,000 in 2002, $677,000 in 2003 and $450,000 in 2004. Total fees and reimbursements (excluding property management fees) for the three months ended March 31, 2005 were approximately $197,000. The property manager is entitled to receive five percent of gross receipts from the partnership's properties for providing property management services. It received management fees of approximately $834,000 in 2002, $719,000 in 2003 and $632,000 in 2004. Management fees for the three months ended March 31, 2005 were approximately $163,000. We have no current intention of changing the fee structure for your general partner or the manager of your partnership's properties. - In determining to sell a property owned by your partnership, the general partner takes into consideration, among other factors: (i) AIMCO's objectives, including its liquidity needs and its relative desire to retain or dispose of properties within its entire portfolio, including the properties owned by your partnership, and (ii) the investment objectives of your partnership. See "The Offer -- Section 8. Certain Information Concerning Your Partnership -- Investment Objectives and Policies; Sale or Financing of Investments". - Decisions of the general partner with respect to the amount and timing of cash expenditures, borrowings, issuances of additional interests and reserves in any quarter will affect whether or the extent to which there is available cash to make distributions in a given quarter. Competition Among Properties. Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. Furthermore, you should bear in mind that AIMCO may acquire properties in general market areas where your partnership's properties are located. We believe that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, we will attempt to reduce conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. Future Offers. We are not obligated to make another tender offer for units in your partnership. We have no current plans to conduct future tender offers for the units in your partnership, but our plans may change based on future circumstances, including tender offers made by third parties. Any such future offers that we make could be at prices that are more or less than the current offer price. Transactions with Affiliates. Your partnership has no employees and is dependent on the general partner and us for the management and administration of all partnership activities. The partnership agreement provides for certain payments to us for services and reimbursement of certain expenses incurred by us on behalf of the partnership. We and the general partner of your partnership are entitled to receive five percent of gross receipts from all of the partnership's properties for providing property management services, and received management fees of $834,000 in 2002, $719,000 in 2003, $632,000 in 2004 and $163,000 for the three months ended March 31, 2005. We were eligible to receive reimbursement of accountable administrative expenses amounting to approximately $172,000 in 2002, $189,000 in 2003, $180,000 in 2004 and $53,000 for the three months ended March 31, 2005. Pursuant to the partnership agreement, for managing the affairs of the partnership, the general partner is entitled to receive a partnership management fee equal to ten percent of the partnership's adjusted cash flow from operations. Approximately $186,000 and $60,000 in partnership management fees were paid along with the distributions from operations made during the years ended December 31, 2002 and 44 December 31, 2004. No fee was earned during the year ended December 31, 2003 or during the three months ended March 31, 2005 because there were no distributions from operations. In connection with the refinancings of Vinings Peak, Wood Lake, and Plantation Crossing Apartments on June 25, 2003, the partnership paid the general partner a fee of approximately $205,000 pursuant to the partnership agreement. We have made available to the partnership a credit line of up to $150,000 per property owned by the partnership. During the year ended December 31, 2003, the general partner exceeded this credit limit and advanced the partnership approximately $2,101,000. This advance was used to repay the second mortgage encumbering McMillan Place Apartments, which was part of the loan extension agreement. The advance and accrued interest were paid in full during the year ended December 31, 2003 with the sales proceeds of McMillan Place Apartments. During the year ended December 31, 2004, we advanced the partnership approximately $854,000. This advance was used to pay property taxes at five of the partnership's properties. During the three months ended March 31, 2005, we advanced the partnership approximately $130,000. This advance was used to pay property taxes at one of the partnership's properties and operating expenses at another. Interest on the credit line is charged at the prime rate plus 2% and was approximately $66,000 and $19,000 for the years ended December 31, 2003 and 2004, respectively. A payment of approximately $66,000 was made on the loan during the year ended December 31, 2004. Interest expense was approximately $16,000 for the three months ended March 31, 2005. At March 31, 2005, the partnership owed approximately $950,000 of principal and interest. Subsequent to March 31, 2005, the general partner advanced approximately $282,000 to the partnership to pay operating expenses at one of the investment properties and for a rate lock fee for the refinancing of the mortgage encumbering another property. The partnership insures its properties up to certain limits through coverage provided by AIMCO, which is generally self-insured for a portion of losses and liabilities related to workers' compensation, property casualty and vehicle liability. The partnership insures its properties above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with your general partner. The partnership was charged by AIMCO and its affiliates approximately $263,000, $217,000 and $191,000 during the years ended December 31, 2002, 2003 and 2004, respectively, and $128,000 during the three months ended March 31, 2005, for insurance coverage and fees associated with policy claims administration. Additional charges will be incurred by the partnership during 2005 as other insurance policies renew later in the year. FUTURE PLANS OF THE PURCHASER As described above under "Special Factors -- Background and Reasons for the Offer," your general partner is our affiliate and, therefore, we have the ability to control the management of your partnership. In addition, we are affiliated with the manager of your partnership's property. We currently intend that, upon consummation of the offer, we will hold the units acquired and your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on partnership operations. Although we are not obligated to do so, we may make future tender offers. However, we have no current plans to conduct future tender offers for units in your partnership. We may acquire additional units or sell units after completion or termination of the offer. Any acquisition may be made through private purchases, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in AIMCO Properties, L.P. or other consideration. We may consider selling some or all of the units we acquire pursuant to this offer to persons not yet determined, which may include our affiliates. We may also buy your partnership's properties, although we have no present intention to do so. There can be no assurance, however, that we will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. 45 On May 19, 2005, your general partner entered into a purchase and sale contract with an unrelated third party to sell Misty Woods Apartments as part of a sale of a portfolio of nine properties. The current total sales price for the portfolio is $62,300,000, of which $6,550,000 currently represents the sales price for Misty Woods Apartments. The closing of the sale is expected to occur in August 2005, and is subject to the purchaser's right to extend the closing for up to thirty days as well as customary closing conditions. The general partner of your partnership is currently analyzing whether net proceeds from the sale, if any, will be used to help pay for the redevelopment of Sunrunner Apartments or will be distributed to limited partners. Your partnership has a balloon payment of $4,777,000 due on it mortgage debt in January 2006, a balloon payment of $11,000,000 due on its mortgage debt in June 2007, and balloon payments totaling $12,521,000 due on its mortgage debt in July 2013. Your general partner currently intends to refinance the mortgage encumbering Misty Woods Apartments (unless sold), which matures in January 2006, or to otherwise extend the maturity date with the current lender. See also "The Offer. Section 8 -- Certain Information Concerning Your Partnership; Investment Objectives and Policies; Sale or Financing of Investments." Except as set forth herein, we do not have any present plans or proposals which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation, involving your partnership; a purchase or sale or transfer of a material amount of your partnership's assets; any changes in composition of your partnership's senior management or personnel or their compensation; any changes in your partnership's present capitalization, indebtedness or distribution policy; or any other material changes in your partnership's structure or business. We or our affiliates may loan funds to your partnership which may be secured by your partnership's properties. If any such loans are made, upon default of such loans, we or our affiliates could seek to foreclose on the loan and related mortgage or security interest. However, we expect that, consistent with your general partner's fiduciary obligations, the general partner will seek and review opportunities, including opportunities identified by us, to engage in transactions which could benefit your partnership, such as sales or refinancings of assets or a combination of the partnership with one or more other entities, with the objective of seeking to maximize returns to limited partners. Except as set forth herein, we have been advised that the general partner is not currently considering undertaking, on behalf of your partnership, any of the following transactions in the foreseeable future: (i) payment of extraordinary distributions; (ii) refinancing, reducing or increasing existing indebtedness of the partnership; (iii) sales of assets, individually or as part of a complete liquidation; and (iv) mergers or other consolidation transactions involving the partnership. Any such merger or consolidation transaction could involve other limited partnerships in which your general partner or its affiliates serve as general partners, or a combination of the partnership with one or more existing, publicly traded entities (including, possibly, affiliates of AIMCO), in any of which limited partners might receive cash, common stock or other securities or consideration. As discussed under "The Offer -- Section 8. Certain Information Concerning Your Partnership -- Investment Objectives and Policies; Sale or Financing of Investments," the general partner regularly evaluates the real estate and capital markets. The general partner may consider refinancing the partnership's existing indebtedness to the extent that the general partner is able to obtain a lower interest rate or if such indebtedness is approaching maturity. Furthermore, in the event that the general partner receives an attractive offer for any of your partnership's properties, the general partner would give due consideration to such an offer. If any of the transactions referred to above occur, and financial benefits accrue to the limited partners, we will participate in those benefits to the extent of our ownership of units. The agreement of limited partnership prohibits limited partners from voting on actions taken by the partnership, unless otherwise specifically permitted therein. Limited partners may vote on a liquidation, and we will be able to significantly influence or control the outcome of any such vote. Our primary objective in seeking to acquire the units pursuant to the offer is not, however, to influence the vote on any particular transaction, but rather to generate a profit on the investment represented by those units. 46 THE OFFER 1. TERMS OF THE OFFER; EXPIRATION DATE Upon the terms and subject to the conditions of the offer, we will accept (and thereby purchase) any and all units that are validly tendered on or prior to the expiration date and not withdrawn in accordance with the procedures set forth in "The Offer -- Section 4. Withdrawal Rights." For purposes of the offer, the term "expiration date" shall mean midnight, New York City time, on June 27, 2005, unless we in our reasonable discretion shall have extended the period of time for which the offer is open. See "The Offer -- Section 5. Extension of Tender Period; Termination; Amendment; No Subsequent Offering Period," for a description of our right to extend the period of time during which the offer is open and to amend or terminate the offer. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made or declared by your partnership on or after the commencement of our offer and prior to the date on which we acquire your units pursuant to our offer. If the offer price is reduced in this manner, we will notify you and, if necessary, we will extend the offer period so that you will have at least ten business days from the date of our notice to withdraw your units. If, prior to the expiration date, we increase the consideration offered pursuant to the offer, the increased consideration will be paid for all units accepted for payment pursuant to the offer, whether or not the units were tendered prior to the increase in consideration. The offer is conditioned on satisfaction of certain conditions. THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF UNITS BEING TENDERED. See "The Offer -- Section 12. Conditions to the Offer," which sets forth in full the conditions of the offer. We reserve the right (but in no event shall we be obligated), in our reasonable discretion, to waive any or all of those conditions. If, on or prior to the expiration date, any or all of the conditions have not been satisfied or waived, we reserve the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units to tendering limited partners, (ii) waive all the unsatisfied conditions and purchase, subject to the terms of the offer, any and all units validly tendered, (iii) extend the offer and, subject to your withdrawal rights, retain the units that have been tendered during the period or periods for which the offer is extended, or (iv) amend the offer. Although we intend to pay for tendered units that have been accepted for payment as promptly as practicable, which we expect will be within three business days after expiration of the offer, by executing the letter of transmittal, you will agree that the transfer of units will be deemed to take effect as of the first day of the calendar quarter in which the offer expires. Although the payment date will occur after expiration of the offer, in the books and records of the partnership the change in ownership of tendered units will be made retroactive to the first day of the calendar quarter in which the offer expires. For tax, accounting and financial reporting purposes, the transfer of tendered units will be deemed to take effect on the first day of the calendar quarter in which the offer expires. Accordingly, all profits and losses relating to any tendered units will be allocated to us from and after this date. If we waive any material conditions to our offer, we will notify you and, if necessary, we will extend the offer period so that you will have at least five business days from the date of our notice to withdraw your units. 2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, we will purchase, by accepting for payment, and will pay for, any and all units validly tendered as promptly as practicable, which we expect will be within three business days after expiration of the offer. A tendering beneficial owner of units whose units are owned of record by an Individual Retirement Account or other qualified plan will not receive direct payment of the offer price; rather, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed letter of transmittal and other documents required by the letter of transmittal. See "The Offer -- Section 3. Procedure for Tendering Units." 47 UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, we will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units, if, as and when we give verbal or written notice to the Information Agent of our acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering limited partners for the purpose of receiving cash payments from us and transmitting cash payments to tendering limited partners. If any tendered units are not accepted for payment by us for any reason, the letter of transmittal with respect to such units not purchased may be destroyed by the Information Agent or us or returned to you. You may withdraw tendered units until the expiration date (including any extensions). After the expiration date, the Information Agent may, on our behalf, retain tendered units, and those units may not be otherwise withdrawn, if, for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or we are unable to accept for payment, purchase or pay for units tendered pursuant to the offer. Any such action is subject, however, to our obligation under Rule 14e-1(c) under the Exchange Act, to pay you the offer price in respect of units tendered or return those units promptly after termination or withdrawal of the offer. We reserve the right to transfer or assign, in whole or in part, to one or more of our affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve us of our obligations under the offer or prejudice your rights to receive payment for units validly tendered and accepted for payment pursuant to the offer. 3. PROCEDURE FOR TENDERING UNITS Valid Tender. To validly tender units pursuant to the offer, a properly completed and duly executed letter of transmittal, and any other required documents must be received by the Information Agent, at one of its addresses set forth on the back cover of this Offer to Purchase, on or prior to the expiration date. You may tender all or any portion of your units. No alternative, conditional or contingent tenders will be accepted. Signature Requirements. If the letter of transmittal is signed by the registered holder of a unit and payment is to be made directly to that holder, then no signature guarantee is required on the letter of transmittal. Similarly, if a unit is tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the letter of transmittal. However, in all other cases, all signatures on the letter of transmittal must be guaranteed by an Eligible Institution. In order for you to tender in the offer, your units must be validly tendered and not withdrawn on or prior to the expiration date. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT YOUR OPTION AND RISK AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. Appointment as Proxy; Power of Attorney. By executing the letter of transmittal, you are irrevocably appointing us and our designees as your proxy, in the manner set forth in the letter of transmittal and each with full power of substitution, to the fullest extent of your rights with respect to the units tendered by you and accepted for payment by us. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, we accept the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to the units will, without further action, be revoked, and no subsequent proxies may be given (and if given 48 will not be effective). We and our designees will, as to those units, be empowered to exercise all voting and other rights as a limited partner as we, in our sole discretion, may deem proper at any meeting of limited partners, by written consent or otherwise. By executing the letter of transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with our directions. The proxy granted by you to us will remain effective and be irrevocable for a period of ten years following the termination of our offer. By executing the letter of transmittal, you also irrevocably constitute and appoint us and our designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by us. Such appointment will be effective when, and only to the extent that, we pay for your units and will remain effective and be irrevocable for a period of ten years following the termination of our offer. You will agree not to exercise any rights pertaining to the tendered units without our prior consent. Upon such payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, we and our designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by your general partner (and execute and deliver any accompanying evidences of transfer and authenticity it may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which we acquire such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which we are entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which we are entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. Assignment of Interest in Future Distributions. By executing the letter of transmittal, you will irrevocably assign to us and our assigns all of your right, title and interest in and to any and all distributions made by your partnership from any source and of any nature, including, without limitation, distributions in the ordinary course, distributions from sales of assets, distributions upon liquidation, winding-up, or dissolution, payments in settlement of existing or future litigation, and all other distributions and payments from and after the expiration date of our offer, in respect of the units tendered by you and accepted for payment and thereby purchased by us. If, after the unit is accepted for payment and purchased by us, you receive any distribution from any source and of any nature, including, without limitation, distributions in the ordinary course, distributions from sales of assets, distributions upon liquidation, winding-up or dissolution, payments in settlement of existing or future litigation and all other distributions and payments, from your partnership in respect of such unit, you will agree to forward promptly such distribution to us. Release of Claims. By executing the letter of transmittal, effective upon acceptance for payment of the units tendered by you, you will, on behalf of yourself, your heirs, estate, executor, administrator, successors and assigns, and your partnership, fully, finally and forever release, relinquish and discharge us and our predecessors, successors and assigns and our present and former parents, subsidiaries, affiliates, investors, insurers, reinsurers, officers, directors, employees, agents, administrators, auditors, attorneys, accountants, information and solicitation agents, investment bankers, and other representatives, including but not limited to AIMCO Properties, L.P. (collectively, the "Releasees"), from any and all claims and causes of action, whether brought individually, on behalf of a class, or derivatively, demands, rights, or liabilities, including, but not limited to, claims for negligence, gross negligence, professional negligence, breach of duty of care or loyalty, or breach of duty of candor, fraud, breach of fiduciary duty, mismanagement, corporate waste, malpractice, misrepresentation, whether intentional or negligent, misstatements and omissions to disclose, breach of contract, violations of any state or federal statutes, rules or regulations, whether known claims or unknown claims that have been asserted or that could have been asserted against the Releasees, through and including the date of execution of the letter of transmittal, 49 including, but not limited to, those claims that arise out of or relate to (a) those matters and claims set forth in the Nuanes and Heller litigation, (b) the ownership of one or more units in your partnership, including but not limited to, any and all claims related to the management of your partnership or the properties owned by your partnership (whether currently or previously), the payment of management fees or other monies to the general partner of your partnership and its affiliates, prior acquisitions or tender offers and the prior settlement, (c) the purchase, acquisition, holding, sale, tender or voting of one or more units in your partnership, or (d) any of the facts, circumstances, allegations, claims, causes of action, representations, statements, reports, disclosures, transactions, events, occurrences, acts, omissions or failures to act, of whatever kind or character whatsoever, irrespective of the state of mind of the actor performing or omitting to perform the same, that have been or could have been alleged in any pleadings, amended pleading, argument, complaint, amended complaint, brief, motion, report or filing in the Nuanes and Heller litigation (collectively, the "Released Claims"); provided, however, that the Released Claims are not intended to include (i) any unrelated claims that are unique to a limited partner or settlement class member (e.g., a settlement class member slips and falls on property owned by one of the defendants in the class and Nuanes and Heller litigation, loses or did not receive a distribution check distributed to other limited partners in such partnership, or is an employee of one of the defendants and has an employee related claim), (ii) any claim based upon violations of federal or state securities laws in connection with this offer, and (iii) any right to your pro rata share of the settlement fund in the Nuanes and Heller settlement, assuming that you are otherwise eligible, and approval of the settlement and any judgment entered thereto become final. In addition, you will expressly waive and relinquish, to the fullest extent permitted by law and consistent with the releases described herein, the provisions, rights and benefits of Section 1542 of the Civil Code of California ("Section 1542"), which provides: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN ITS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. You will have also waived any and all provisions, rights and benefits conferred by any law of any state or territory of the United States, or principle of common law, that is similar, comparable or equivalent to Section 1542. You may hereafter discover facts in addition to or different from those which you now know or believe to be true with respect to the subject matter of the Released Claims, but you will be deemed to have fully, finally and forever settled and released any and all Released Claims, known or unknown, suspected or unsuspected, contingent or non-contingent, that now exist or heretofore have existed upon any theory of law or equity now existing, including, but not limited to, conduct that is negligent, intentional, with or without malice, or a breach of any duty, law or rule, without regard to the subsequent discovery of the existence of such different or additional facts. You will acknowledge and agree that the releases contained in the letter of transmittal are intended to include the Released Claims, which you may have and which you do not know or suspect to exist in your favor against the Releasees and that the releases contained in the letter of transmittal extinguish those claims. You will represent and warrant to the Releasees that you have been advised by your attorney of the effect and import of the provisions of Section 1542, and that you have not assigned or otherwise transferred or subrogated any interest in the Released Claims. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects. All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to our offer will be determined by us, in our reasonable discretion, which determination shall be final and binding on all parties. We reserve the absolute right to reject any or all tenders of any particular unit determined by us not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of our counsel, be unlawful. We also reserve the absolute right to waive or amend any of the conditions of the offer that we are legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit of any particular limited partner. If we waive any of the conditions to the offer with respect to the 50 tender of a particular unit or with respect to a particular limited partner, we will waive such condition with respect to all other tenders of units or all other limited partners in this offer as well. Our interpretation of the terms and conditions of the offer (including the letter of transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither we, the Information Agent, nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any unit or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding. To prevent the possible application of back-up federal income tax withholding with respect to payment of the offer price, you must provide us with your correct taxpayer identification number. See the instructions to the letter of transmittal and "Special Factors -- Material Federal Income Tax Matters." State and Local Withholding. If you tender any units pursuant to this offer, we may be required under state or local tax laws to deduct and withhold a portion of our offer price. You should consult your tax advisor concerning whether any state or local withholding would be required on a disposition of your units and whether such amounts may be available to you as a credit on your state or local tax returns. FIRPTA Withholding. To prevent the withholding of federal income tax in an amount equal to 10% of the amount realized on the disposition (the amount realized is generally the offer price plus the partnership liabilities allocable to each unit purchased), you must certify that you are not a foreign person if you tender units. See the instructions to the letter of transmittal and "Special Factors -- Material Federal Income Tax Matters." Transfer Taxes. The amount of any transfer taxes (whether imposed on the registered holder of units or any person) payable on account of the transfer of units will be deducted from the purchase price unless satisfactory evidence of the payment of such taxes or exemption therefrom is submitted. Binding Agreement. A tender of a unit pursuant to any of the procedures described above and the acceptance for payment of such unit will constitute a binding agreement between the tendering limited partner and us on the terms set forth in this Offer to Purchase and the letter of transmittal. 4. WITHDRAWAL RIGHTS You may withdraw your tendered units at any time prior to the expiration date, including any extensions thereof. If you properly withdraw all of the units you previously tendered in the offer, the corresponding letter of transmittal, including your release and assignment of future claims contained therein, will be deemed revoked and of no force or effect. For a withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at one of its addresses set forth on the back cover of this Offer to Purchase. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person who signed the letter of transmittal in the same manner as the letter of transmittal was signed. If purchase of, or payment for, a unit is delayed for any reason, or if we are unable to purchase or pay for a unit for any reason, then, without prejudice to our rights under the offer, tendered units may be retained by the Information Agent; subject, however, to our obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer price in respect of units tendered or return those units promptly after termination or withdrawal of our offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of our offer. However, withdrawn units may be re-tendered at any time prior to the expiration date by following the procedures described in "The Offer -- Section 3. Procedure for Tendering Units." All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by us in our reasonable discretion, which determination will be final and binding on all parties. 51 Neither the Information Agent, any other person, nor we will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. 5. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT; NO SUBSEQUENT OFFERING PERIOD We expressly reserve the right, in our reasonable discretion, at any time and from time to time, (i) to extend the period of time during which our offer is open and thereby delay acceptance for payment of, and the payment for, any unit, (ii) to terminate the offer and not accept any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied, and (iii) to amend our offer in any respect (including, without limitation, by increasing or decreasing the consideration offered, increasing or decreasing the units being sought, or both). We will not assert any of the conditions to the offer subsequent to the expiration of the offer. Notice of any such extension, termination or amendment will promptly be disseminated to you in a manner reasonably designed to inform you of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 9:00 a.m., New York City time, on the next business day after the scheduled expiration date of our offer, in accordance with Rule 14e-1(d) under the Exchange Act. If we extend the offer, or if we delay payment for a unit (whether before or after its acceptance for payment) or are unable to pay for a unit pursuant to our offer for any reason, then, without prejudice to our rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent tendering limited partners are entitled to withdrawal rights as described in "The Offer -- Section 4. Withdrawal Rights;" subject, however, to our obligation, pursuant to Rule 14e-l(c) under the Exchange Act, to pay the offer price in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If we make a material change in the terms of our offer, or if we waive a material condition to our offer, we will extend the offer and disseminate additional tender offer materials to the extent required by Rules 14d-4 and 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, if any, will depend upon the facts and circumstances, including the materiality of the change, but generally will be five business days. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, if any, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to limited partners. Accordingly, if, prior to the expiration date, we increase (other than increases of not more than two percent of the outstanding units) or decrease the number of units being sought, or increase or decrease the offer price, and if the offer is scheduled to expire at any time earlier than the tenth business day after the date that notice of such increase or decrease is first published, sent or given to limited partners, the offer will be extended at least until the expiration of such ten business days. As used in this Offer to Purchase, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, New York City time. Pursuant to Rule 14d-11 under the Exchange Act, subsequent offering periods may be provided in tender offers for "any and all" outstanding units of a partnership. A subsequent offering period is an additional period of from three to twenty business days following the expiration date of the offer, including any extensions, in which limited partners may continue to tender units not tendered in the offer for the offer price. We do not currently intend to offer a subsequent offering period. 6. THE LAWSUIT AND THE SETTLEMENT BACKGROUND In March 1998, holders of limited partnership units in the partnerships managed by affiliates of Insignia Financial Group (collectively, "Insignia") commenced an action entitled Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. (the "Nuanes action") in the Superior Court of the State of 52 California for the County of San Mateo (the "Court"). The plaintiffs named as defendants, among others, your partnership, its general partner and several of their affiliated partnerships and corporate entities, as well as AIMCO, who had announced a merger with Insignia. The action originally asserted claims on behalf of a putative class of limited partners in over 50 limited partnerships, including your partnership (collectively, the "Partnerships") and derivatively on behalf of those same Partnerships (which are named as nominal defendants) challenging, among other things, the acquisition of interests in certain general partner entities by Insignia; past tender offers by Insignia to acquire limited partnership units; Insignia's management of the Partnerships; and the series of transactions which closed on October 1, 1998 and February 26, 1999 whereby Insignia and Insignia Properties Trust, respectively, were merged into AIMCO (hereinafter, the "Insignia Merger"). PROCEDURAL HISTORY On June 25, 1998, your general partner filed a motion seeking dismissal of the action. In lieu of responding to the motion, the plaintiffs filed an amended complaint. The general partner filed demurrers to the amended complaint which were heard in February 1999. Pending the ruling on such demurrers, settlement negotiations commenced. On November 2, 1999, the parties executed and filed a Stipulation of Settlement, settling claims, subject to court approval, on behalf of your partnership and all limited partners who owned units as of November 3, 1999. Preliminary approval of the settlement was obtained on November 3, 1999 from the Court, at which time the Court set a final approval hearing for December 10, 1999. Prior to the December 10, 1999 hearing, the Court received various objections to the settlement, including a challenge to the Court's preliminary approval based upon the alleged lack of authority of prior lead counsel to enter the settlement. On December 14, 1999, the general partner and its affiliates terminated the proposed settlement. In February 2000, counsel for some of the named plaintiffs filed a motion to disqualify plaintiffs' lead and liaison counsel who negotiated the proposed settlement on behalf of plaintiffs. On June 27, 2000, the Court entered an order disqualifying them from the case. An appeal was taken from part of the June 27, 2000 order on October 5, 2000. Subsequently, certain plaintiffs, specifically, BEJ Equity Partners and J-B Investment Partners, withdrew as plaintiffs. On December 4, 2000, the Court appointed the law firm of Lieff Cabraser Heimann & Bernstein LLP as new lead counsel for plaintiffs and the putative class. Plaintiffs filed a third amended complaint on January 19, 2001 and the general partner and its affiliates filed a demurrer to the third amended complaint. On July 10, 2001, the Court issued an order granting in part and denying in part defendants' demurrer. Among other things, the Court sustained defendants' demurrer without leave to amend as to those derivative claims involving partnerships in which the named plaintiffs did not own an interest. The Court subsequently denied plaintiffs' motion for reconsideration. The fourth amended complaint was filed on September 7, 2001. It was brought by plaintiffs who owned interests in four of the Partnerships. Plaintiffs Jeffrey Homburger, Sean O'Reilly and Norman and Doris Rosenberg formally withdrew from the case on August 20, 2001. The general partner and affiliated defendants filed a demurrer to the fourth amended complaint, which the Court granted in part on January 28, 2002. The Court dismissed without leave to amend plaintiffs' state securities fraud claim under California's Corporate Code Section 25400(b), plaintiffs' contract claim arising out of the partnership agreements, plaintiffs' derivative claim for statutory unfair competition as to those partnerships in which plaintiffs lack representation, plaintiffs' conversion claim and plaintiffs' claim under California's Corporation Code Section 15636. Only some of the remaining claims in the fourth amended complaint relate to the partnership. Plaintiffs alleged that affiliates of the general partner have issued false and misleading tender offers beginning in 1998 and continuing through to the present for units in the partnership. Plaintiffs allege 53 violations of state securities fraud statutes and common law fraud against both AIMCO and Insignia. Specifically, plaintiffs allege that the tender offers have been misleading because they failed to disclose: - that third parties would not use a property's historical income, but would instead use a property's projected income, in calculating a property's value based on the capitalization method. - that the property income figures used in the capitalization method were artificially lower because AIMCO charges management fees allegedly in excess of the market. - that AIMCO allegedly deducted all capital expenditures from property income despite an alleged AIMCO policy of deducting only $250 to $300 per apartment unit. - the rating for the condition of each property, any adjustment made to the capitalization rate as a result, the interest rate on mortgage debt for each property and any corresponding adjustments in the capitalization rates. - that AIMCO allegedly negotiated lower capitalization rates for valuing properties it owns in connection with a revolving credit facility. - that AIMCO failed to disclose that the valuation methods and/or policies it used for its own business purposes allegedly differ from those used in the tender offers. - internal valuations of the properties it used in connection with the Insignia merger or the capitalization rates used in connection with those valuations. Plaintiffs alleged that the general partner breached its fiduciary duty by assisting Insignia and AIMCO in making the tender offers by providing financial information, failing to correct supposedly misleading information given to unitholders, recommending that the prices offered were fair and preventing third parties from making tender offers. Plaintiffs have also included a statutory unfair competition claim against all the defendants, a claim for tortious interference with contract, unjust enrichment and judicial dissolution. THE HELLER COMPLAINT During the third quarter of 2001, a complaint was filed against the same defendants that are named in the Nuanes action, captioned Heller v. Insignia Financial Group, Inc., et al. (the "Heller action"). The Heller complaint was filed in order to preserve derivative claims that were dismissed without leave to amend in the Nuanes action by the Court's July 10, 2001 order. The first amended complaint in the Heller action was brought as a purported derivative action, and asserted claims for, among other things, breach of fiduciary duty; unfair competition; conversion, unjust enrichment; and judicial dissolution. On January 28, 2002, however, the Court, on motion by the general partner and its affiliates, struck the Heller complaint as a violation of its July 10, 2001 order in the Nuanes action. On March 27, 2002, plaintiffs in the Heller action filed a notice of appeal of the Court's January 28, 2002 order striking the complaint. THE SETTLEMENT OF THE NUANES AND HELLER COMPLAINTS On December 20, 2002, the parties to the above-entitled litigation executed a Stipulation of Settlement of the two actions. That settlement was the result of over one year of negotiations and the involvement of two separate settlement judges. Class counsel and defendants' counsel first met with the Honorable William J. Cahill, Retired California Superior Court Judge, on two separate occasions. Counsel also met on four separate occasions with the Honorable Margaret J. Kemp, California Superior Court Judge, before reaching a settlement in principle. The parties initially met with Judge Cahill on two occasions in the fall of 2000, but were ultimately unsuccessful in reaching a definitive settlement agreement. At the Court's direction, they renewed formal settlement discussions before Judge Kemp. The parties first attended a settlement conference before Judge Kemp in September or October 2002 and then subsequently met with her on October 28, 2002, November 26, 2002 and December 2, 2002. The parties reached final agreement on the material terms of the settlement at the last settlement conference with Judge Kemp on December 2, 2002 and put the terms of that agreement on the record in open court. 54 In each of the conferences described above, counsel from Lieff Cabraser Heimann & Bernstein LLP, Farella Braun & Martel LLP & Berman Devalerio Pease & Tobacco attended on behalf of the named plaintiffs and the putative settlement class; counsel from Skadden Arps Slate Meagher & Flom LLP attended on behalf of AIMCO and its affiliated entities, including your general partner, and Orrick Herrington & Sutcliffe attended on behalf of the remaining defendants. Former AIMCO Executive Vice President Patrick Foye also attended each of these meetings. Mr. Vincent Gresham of the Law Offices of Vincent Gresham also participated on behalf of plaintiffs and the putative settlement class in those settlement discussions before the Hon. Cahill, Retired. At these meetings, discussions included possible transactions that could provide liquidity to investors and form the basis of a settlement, the use of a settlement fund and the amount of such fund, the timing and distribution of any settlement fund, selection and use of an appraiser and disclosures that would accompany any contemplated transaction(s). The participants considered but ultimately rejected a merger or roll-up of the various partnerships as possible alternatives to cash tender offers. The parties ultimately concluded, however, that a merger or roll-up could be potentially complicated and time consuming and that a cash tender offer would be a less coercive form of providing liquidity to those investors who desired it. The Settlement Agreement requires each tender offer to attach executive summaries of partnership property appraisals commissioned specifically for the settlement tender offers and to provide an explanation of how the appraised values of the properties compare to the per Unit price(s) being offered. It also requires the payment of an allocable portion of the settlement fund for each unit tendered pursuant to the settlement fund, details the scope of the release and covenants not to sue which will bind class members, requires that tender offers be made no more than one year after final approval of the settlement and imposes certain restrictions on the length of time in which the tender offers can remain open, as well as with regard to other disclosures made therein. On April 4, 2003, the Court preliminarily approved the settlement and, on June 13, 2003, entered an order finally approving the settlement and dismissing both the Heller and Nuanes litigation with prejudice. On August 12, 2003, an objector filed an appeal of the court's order approving the settlement and is seeking to reverse or vacate the Court's order and the judgment entered thereto. On November 24, 2003, the objector appealing the settlement and judgment entered thereto filed an application requesting the Court order AIMCO to withdraw the settlement tender offers, refrain from making further offers pending the appeal and auction any units tendered to third parties. The objector contended that our prior offers did not conform with the terms of the Settlement. Alternatively, counsel for the objector has requested the Court on behalf of a settlement class member to order AIMCO to pay all non-tendering settlement class members their pro rata share of the Settlement Fund whether or not the settlement and judgment entered thereto is vacated on appeal and to notify settlement class members that the releases and covenant not to sue are not binding unless the settlement and judgment entered thereto is affirmed on appeal. On December 18, 2003, the Court heard oral argument on the applications brought on behalf of the objector and denied them in their entirety. On February 23, 2004, an appeal was also taken from certain portions of the Court's December 2003 orders denying injunctive relief in connection with the settlement offers and assessing fees against objector's counsel for the Court's use of a referee. On March 21, 2005, the Court of Appeals issued opinions in both pending appeals. With regard to the settlement and judgment entered thereto, the Court of Appeals vacated the trial court's order and remanded to the trial court for further findings on the basis that the "state of the record is insufficient to permit meaningful appellate review." With regard to the second appeal, the Court of Appeals reversed the order assessing fees against objector's counsel for the Court's use of a referee. On April 26, 2005, the Court of Appeals lifted the stay of a pending appeal related to the Heller action and the trial court's order striking the complaint. On April 28, 2005, the objector filed a petition for review with the California Supreme Court in connection with the opinion vacating the order approving the settlement and remanding for further findings. AIMCO filed an answer to the objector's petition on May 18, 2005. 55 TERMS OF THE SETTLEMENT Under the terms of the settlement, we made cash tender offers for all outstanding limited partnership interests in your partnership and 40 other partnerships (the "Tender Offer Partnerships") and accompanied each of those offers with executive summaries of appraisals of partnership properties prepared by an independent appraiser appointed by the Court. Our affiliate paid 50% of the costs of the appraisals, with the other 50% paid from the settlement fund. The appraiser was paid $619,100 for the appraisals. Under the settlement, we had the option of making a second round of tender offers (in our sole and absolute discretion) to purchase all remaining outstanding limited partnership interests, at the same price, or at a higher or lower price, within 18 months of the order finally approving the settlement. In November and December 2004, we commenced a second round of cash tender offers for all outstanding limited partnership units in 14 Tender Offer Partnerships. That 18-month period has expired, and this offer does not constitute one of the second round of tender offers. In addition, as part of the settlement, we agreed to create a settlement fund for the benefit of settlement class members in the principal amount of $9.9 million. The settlement class members consist of all limited partners in the Tender Offer Partnerships, including your partnership, who owned units as of December 20, 2002, and who did not validly request exclusion from the settlement. After deducting attorneys' fees and other settlement costs, including a portion of the costs of appraisal and certain costs of administration of the settlement fund, we allocated the remaining amount in the settlement fund among the Tender Offer Partnerships, pursuant to the terms of the settlement, pro rata based on partnership revenue for the year ended December 31, 2002 allocable to units held by members of the settlement class, as set forth below:
(C) OWNERSHIP PERCENTAGE ALLOCATED OF (D) PORTION OF (A) (B) SETTLEMENT ADJUSTED SETTLEMENT PARTNERSHIP REVENUE(1) CLASS(2) REVENUE(3) FUND(4) - ----------- ------------ ------------- -------------- ------------- Angeles Income Properties, Ltd. II....... $ 6,721,398 38.11% $ 2,561,680.99 2.12% Angeles Income Properties, Ltd. III...... 757,234 47.99% 363,400.46 0.30% Angeles Income Properties, Ltd. 6........ 3,314,969 57.18% 1,895,539.00 1.57% Angeles Opportunity Properties, Ltd. .... 2,487,492 50.42% 1,254,256.40 1.04% Angeles Partners VII..................... 1,382,326 32.28% 446,158.51 0.37% Angeles Partners IX...................... 3,053,411 32.79% 1,001,090.64 0.83% Angeles Partners X....................... 2,363,419 40.94% 967,701.17 0.80% Angeles Partners XI...................... 8,102,088 37.05% 3,002,068.40 2.49% Angeles Partners XII..................... 17,579,608 30.85% 5,423,897.42 4.50% Century Properties Fund XIV.............. 5,754,231 33.27% 1,914,451.55 1.59% Century Properties Fund XV............... 7,891,876 35.11% 2,770,502.79 2.30% Century Properties Fund XVI.............. 3,129,310 38.59% 1,207,704.29 1.00% Century Properties Fund XVII............. 13,989,178 39.81% 5,568,998.68 4.62% Century Properties Fund XVIII............ 4,652,589 44.57% 2,073,721.09 1.72% Century Properties Fund XIX.............. 15,838,890 41.77% 6,615,207.49 5.48% Century Properties Growth Fund XXII...... 18,750,167 44.10% 8,268,717.87 6.86% Consolidated Capital Growth Fund......... 11,095,122 35.45% 3,933,281.02 3.26% Consolidated Capital Institutional Properties............................. 17,492,318 34.85% 6,095,971.72 5.05% Consolidated Capital Institutional Properties/2........................... 4,531,076 50.40% 2,283,507.96 1.89% Consolidated Capital Institutional Properties/3........................... 11,898,507 46.92% 5,583,341.99 4.63% Consolidated Capital Properties III...... 3,319,845 48.56% 1,612,222.94 1.34% Consolidated Capital Properties IV....... 26,375,116 43.55% 11,486,890.81 9.52% Consolidated Capital Properties VI....... 1,790,898 49.39% 884,610.64 0.73% Davidson Diversified Real Estate I, L.P. .................................. 926,289 57.35% 531,230.56 0.44%
56
(C) OWNERSHIP PERCENTAGE ALLOCATED OF (D) PORTION OF (A) (B) SETTLEMENT ADJUSTED SETTLEMENT PARTNERSHIP REVENUE(1) CLASS(2) REVENUE(3) FUND(4) - ----------- ------------ ------------- -------------- ------------- Davidson Diversified Real Estate II, L.P. .................................. 6,679,248 50.21% 3,353,945.59 2.78% Davidson Diversified Real Estate III, L.P. .................................. 4,914,862 59.79% 2,938,470.22 2.44% Davidson Growth Plus, L.P. .............. 5,497,496 42.55% 2,339,052.86 1.94% Davidson Income Real Estate, L.P. ....... 4,824,647 55.50% 2,677,466.62 2.22% Fox Strategic Housing Income Partners.... 2,905,478 59.32% 1,723,635.91 1.43% Johnstown/Consolidated Income Partners... 1,109,711 45.50% 504,939.49 0.42% Multi-Benefit Realty Fund 87-1........... 3,584,756 Class A Investors...................... 1,993,125 35.01% 697,750.93 0.58% Class B Investors...................... 1,591,632 47.59% 757,524.59 0.63% National Property Investors III.......... 8,886,583 25.79% 2,291,879.79 1.90% National Property Investors 4............ 7,248,900 24.52% 1,777,282.20 1.47% National Property Investors 5............ 4,610,576 36.17% 1,667,480.41 1.38% National Property Investors 6............ 10,168,298 34.73% 3,531,813.61 2.93% National Property Investors 7............ 7,235,037 31.17% 2,255,187.60 1.87% National Property Investors 8............ 4,334,235 38.98% 1,689,580.96 1.40% Shelter Properties I Limited Partnership............................ 4,908,445 20.51% 1,006,722.11 0.83% Shelter Properties II Limited Partnership............................ 5,148,389 29.25% 1,505,669.73 1.25% Shelter Properties III Limited Partnership............................ 5,155,756 35.20% 1,814,826.22 1.50% Shelter Properties IV Limited Partnership............................ 9,682,744 31.49% 3,048,820.05 2.53% Shelter Properties V Limited Partnership............................ 13,237,273 28.68% 3,796,475.63 3.15% Shelter Properties VI Limited Partnership............................ 8,475,852 34.45% 2,920,007.57 2.42% Shelter Properties VII Limited Partnership............................ 1,497,429 37.87% 567,007.84 0.47% ------------ -------------- ------ Total.................................. $313,303,073 $ 120,611,694 100.00% ============ ============== ======
- --------------- (1) For the year ended December 31, 2002. (2) Excludes units owned by AIMCO and its affiliates and other limited partners who have requested exclusion from the settlement class. (3) Determined, for each partnership, by multiplying the amount of revenue (column (B)) by the percentage of outstanding units held by members of the settlement class (column (C)). (4) Determined, for each partnership, by dividing the amount of adjusted revenue (column (D)) by the total amount of adjusted revenue for all partnerships. The amount allocated to a Tender Offer Partnership was then divided by the total number of outstanding units owned by settlement class members in such Tender Offer Partnership (excluding units held by us and our affiliates), and the resulting amount was included in the offer price for units in that Tender Offer Partnership. For each unit validly tendered in the offers and accepted by us, an amount equal to the portion of the settlement fund included in the per unit offer price was deducted from the settlement fund and paid to us (other than units tendered by limited partners who have requested exclusion from the settlement class). All limited partners who tendered their units in response to the offers received the same price per unit, including those persons who may have requested exclusion from the settlement class. Any balance remaining will be paid to settlement class members who have retained any units based on the allocation method used in the litigation settlement offers, provided that the Court's order approving the settlement and entering judgment thereto is affirmed on appeal and is final. If the Court's order is reversed or vacated by virtue of the appeal, however, you will not be entitled to receive a pro rata share of the settlement fund. 57 The general partners of the Tender Offer Partnerships have also agreed, as part of the settlement, to waive their right to seek reimbursement and/or indemnification for the full amount of fees and costs incurred in the defense of the class and derivative litigation; provided, however, that they may charge fees and costs to your partnership and the other partnerships involved in the litigation in an amount not to exceed $1,500,000 (which is approximately 50% of the outstanding fees and costs). In consideration for the terms described above, plaintiffs and settlement class members agreed, among other things, to dismiss the Nuanes action and the Heller action with prejudice, release the defendants from all liability with respect to all claims and causes of action, whether brought individually, on behalf of a class, or derivatively, whether known or unknown, that have been asserted or that could have been asserted that arise out of or relate to (i) those matters and claims set forth in the complaints in the Heller and Nuanes actions, (ii) ownership of one or more units in any of the Tender Offer Partnerships, (iii) the purchase, acquisition, holding, sale, tender or voting of one or more units in any of the Tender Offer Partnerships, and (iv) any of the facts, circumstances, allegations, claims, causes of action, representations, statements, reports, disclosures, transactions, events, occurrences, acts, omissions or failures to act, of whatever kind or character whatsoever, irrespective of the state of mind of the actor performing or omitting to perform the same, that have been or could have been alleged in any pleadings, amended pleading, argument, complaint, amended complaint, brief, motion, report or filing in either the Nuanes action or the Heller action, provided, however, that the released claims are not intended to include any unrelated claims that are unique to a particular settlement class member (e.g., a settlement class member slips and falls on property owned by one of our affiliates, loses or did not receive a distribution check distributed to other limited partners in your partnership, or is an employee and has an employee related claim). Settlement class members also covenanted and agreed not to bring any action, claim, suit, or proceeding against any of the defendants in the class and derivative litigation that concerns any of the matters which are the subject of the settlement and that the stipulation of settlement will act as a bar to any such claim, action, suit or proceeding. The plaintiffs and settlement class members also agreed that they would not oppose a request that the Court withdraw the finding regarding Robert A. Stanger & Co. made in the June 27, 2000 order disqualifying lead and liaison counsel. Under the terms of the settlement, neither we nor our affiliates admit to any wrongdoing, and we deny liability under all claims brought in the litigation. The final settlement of the lawsuit is the product of good faith, arm's length negotiations between settlement class counsel and counsel for the defendants. These negotiations resulted in the settlement set forth in the Stipulation. 7. INFORMATION CONCERNING US AND CERTAIN OF OUR AFFILIATES General. We are AIMCO Properties, L.P., a Delaware limited partnership. Together with our subsidiaries, we conduct substantially all of the operations of Apartment Investment and Management Company, a Maryland corporation ("AIMCO"). AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange under the symbol "AIV." As of March 31, 2005, we owned or managed 261,358 apartment units in 1,477 properties located in 47 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled by the National Multi Housing Council, we believe that we are one of the largest owners and managers of multi-family apartment properties in the United States. As of March 31, 2005, we: - owned or controlled (consolidated) 171,707 units in 680 apartment properties; - held an equity interest in (unconsolidated) 41,940 units in 313 apartment properties; and - provided services or managed, for third party owner, 47,711 units in 484 apartment properties, primarily pursuant to long term, non-cancelable agreements (including 41,239 units in 418 properties that are asset managed only, and not property managed). 58 Our general partner is AIMCO-GP, Inc., a Delaware corporation, which is a wholly owned subsidiary of AIMCO. Our principal executive office is located at 4582 South Ulster Street Parkway, Suite 1100, Denver, Colorado 80237, and our telephone number is (303) 757-8101. The names, positions and business addresses of the directors and executive officers of AIMCO and your general partner (which is our affiliate), as well as a biographical summary of the experience of such persons for the past five years or more, are set forth on Annex I attached hereto and are incorporated herein by reference. We and AIMCO are both subject to the information and reporting requirements of the Exchange Act and, in accordance therewith, file reports and other information with the Securities and Exchange Commission relating to our business, financial condition and other matters, including the complete financial statements summarized below. Such reports and other information may be inspected at the public reference facilities maintained by the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such material can also be obtained from the Public Reference Room of the SEC in Washington, D.C. at prescribed rates. The SEC also maintains a site on the World Wide Web at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. In addition, information filed by AIMCO with the New York Stock Exchange may be inspected at the offices of the New York Stock Exchange at 20 Broad Street, New York, New York 10005. For more information regarding AIMCO and AIMCO Properties, L.P., please refer to our Annual Report on Form 10-K for the year ended December 31, 2004 and our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2005 (particularly the management's discussion and analysis of financial condition and results of operations) and other reports and documents we have filed with the SEC. Except as described in "Special Factors -- Background and Reasons for the Offer," "-- Conflicts of Interest and Transactions with Affiliates" and "The Offer -- Section 8. Certain Information Concerning Your Partnership -- Ownership and Voting," neither we nor, to the best of our knowledge, any of the persons listed on Annex I attached hereto, (i) beneficially own or have a right to acquire any units, (ii) has effected any transaction in the units in the past 60 days, or (iii) have any contract, arrangement, understanding or relationship with any other person with respect to any securities of your partnership, including, but not limited to, contracts, arrangements, understandings or relationships concerning transfer or voting thereof, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of proxies. Neither we nor our affiliates intend to tender any units beneficially owned in this offer. SEC Investigation. The Central Regional Office of the SEC is conducting a formal investigation of AIMCO relating to certain matters. Although the staff of the SEC is not limited in the areas that it may investigate, AIMCO believes that the areas of investigation include AIMCO's miscalculated monthly net rental income figures in the third quarter of 2003, forecasted guidance, accounts payable, rent concessions, vendor rebates, capitalization of payroll and certain other costs, and tax credit transactions. At the end of the first quarter of 2005, the SEC added certain tender offers for limited partnership interests as an area of investigation. AIMCO is cooperating fully. AIMCO is not able to predict when the investigation will be resolved. AIMCO does not believe that the ultimate outcome will have a material adverse effect on its consolidated financial condition or results of operations. Summary Selected Financial Information for AIMCO Properties, L.P. The historical financial data set forth below for AIMCO Properties, L.P. for the three months ended March 31, 2005 and 2004 is based on unaudited financial statements. The historical financial data set forth below for AIMCO Properties, L.P. for the years ended December 31, 2004, 2003 and 2002 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of the AIMCO Operating Partnership" included in AIMCO Properties, L.P.'s Annual Report 59 on Form 10-K for the year ended December 31, 2004 and its Quarterly Report on Form 10-Q for the quarter ended March 31, 2005.
FOR THE THREE MONTHS ENDED FOR THE YEAR ENDED MARCH 31, DECEMBER 31, --------------------------- --------------------------------------- 2005 2004(1) 2004(1) 2003(1) 2002(1) ------------ ------------ ----------- ----------- ----------- (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: Total revenues................. $ 391,015 $ 355,056 $ 1,485,492 $ 1,413,659 $ 1,279,149 Total expenses................. 312,307 268,677 1,158,222 994,466 814,264 (Loss) income from continuing operations.................. (3,116) 1,939 58,581 74,362 173,810 Income from discontinued operations, net............. 5,103 17,671 238,497 103,506 32,392 Cumulative effect of change in accounting principle........ -- (3,957) (3,957) -- -- Net income..................... 1,987 15,653 293,121 177,868 206,202 PER SHARE DATA: Earnings per common unit -- basic: (Loss) income from continuing operations (net of preferred distributions)............ $ (0.27) $ (0.19) $ (0.37) $ (0.28) $ 0.67 Income from discontinued operations................ 0.05 0.17 2.29 0.99 0.33 Cumulative effect of change in accounting principle... -- (0.04) (0.04) -- -- Net (loss) income attributable to common unitholders............... (0.22) (0.06) 1.88 0.71 1.00 Earnings per common unit -- diluted: (Loss) income from continuing operations (net of preferred distributions)............ (0.27) (0.19) (0.37) (0.28) 0.67 Income from discontinued operations................ 0.05 0.17 2.29 0.99 0.32 Cumulative effect of change in accounting principle... -- (0.04) (0.04) -- -- Net (loss) income attributable to common unitholders............... (0.22) (0.06) 1.88 0.71 0.99 Dividends declared per common unit........................ 0.60 0.60 2.40 2.84 3.28 BALANCE SHEET INFORMATION: Real estate, net of accumulated depreciation................ $ 9,061,501 $ 8,372,664 $ 8,779,856 $ 8,145,304 $ 7,968,051 Total assets................... 10,342,577 10,337,101 10,084,154 10,098,649 10,347,829 Total indebtedness............. 6,359,206 5,831,829 5,984,477 5,730,830 5,559,153 Partners' capital.............. 3,180,497 3,289,720 3,291,087 3,174,815 3,576,083
60
FOR THE THREE MONTHS ENDED FOR THE YEAR ENDED MARCH 31, DECEMBER 31, --------------------------- --------------------------------------- 2005 2004(1) 2004(1) 2003(1) 2002(1) ------------ ------------ ----------- ----------- ----------- (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) CASH FLOW DATA: Cash provided by operating activities.................. $ 102,061 $ 62,164 $ 365,523 $ 463,879 $ 505,412 Cash (used in) provided by investing activities........ (306,717) (98,926) 407,683 279,543 (884,496) Cash provided by (used in) financing activities........ 218,942 14,986 (782,295) (728,543) 398,637 Net increase (decrease) in cash and cash equivalents........ 14,286 (21,776) (9,089) 14,879 19,553 OTHER DATA: Funds from operations available to common unitholders -- diluted(2).................. $ 66,919 $ 70,626 $ 295,645 $ 349,108 $ 498,589 Weighted average number of common units, common units equivalents and dilutive preferred securities outstanding................. 105,883 106,164 105,694 108,151 109,538
- --------------- (1) Certain reclassifications have been made to the 2004, 2003 and 2002 amounts to conform to the 2005 presentation. These reclassifications primarily represent presentation changes related to discontinued operations resulting from the 2002 adoption of Statement of Financial Accounting Standard No. 144, Accounting for the Impairment of Long-Lived Asset to be Disposed Of. (2) Funds From Operations, or FFO, is a financial measure not calculated in accordance with generally accepted accounting principles, or GAAP, that we believe, when considered with the financial data determined in accordance with GAAP, is helpful to investors in understanding our performance because it captures features particular to real estate performance by recognizing that real estate generally appreciates over time or maintains residual value to a much greater extent than do other depreciable assets such as machinery, computers or other personal property. The Board of Governors of the National Association of Real Estate Investment Trusts, or NAREIT, defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from extraordinary items, cumulative effect of change in accounting principle, gains on dispositions of depreciable real estate related to unconsolidated entities and other, gains on dispositions of real estate from discontinued operations, net of related income taxes, plus real estate related depreciation and amortization (excluding amortization of financing costs), including depreciation for unconsolidated real estate partnerships, joint ventures and discontinued operations. We calculate FFO based on the NAREIT definition, as further adjusted for amortization of management contracts and deficit distributions to minority partners. We calculate FFO (diluted) by subtracting redemption related preferred OP Unit issuance costs and distributions on preferred OP Units, adding back distributions on dilutive preferred securities and adding back the interest expense on dilutive mandatorily redeemable convertible preferred securities. FFO should not be considered an alternative to net income or net cash flows from operating activities, as calculated in accordance with GAAP, as an indication of our performance or as a measure of liquidity. FFO is not necessarily indicative of cash available to fund future cash needs. In addition, although FFO is a measure used for comparability in assessing the performance of real estate investment trusts, there can be no assurance that our basis for computing FFO is comparable with that of other real estate investment trusts. 61 The following is a reconciliation of net income to Funds From Operations:
FOR THE THREE MONTHS ENDED FOR THE YEAR ENDED MARCH 31, DECEMBER 31, --------------------------- -------------------------------- 2005 2004 2004 2003 2002 ----------- ----------- -------- --------- --------- (UNAUDITED) (AMOUNTS IN THOUSANDS) NET (LOSS) INCOME ATTRIBUTABLE TO COMMON UNITHOLDERS(A)........................ $(23,087) $ (6,444) $196,199 $ 74,242 $ 98,556 Adjustments: Depreciation and amortization(B)...... 104,541 86,216 368,447 331,489 267,958 Depreciation and amortization related to non-real estate assets.......... (3,791) (4,920) (18,349) (20,370) (19,070) Depreciation on rental property related to minority partners' interest(C)........................ (10,866) (10,336) (43,351) (28,707) (22,526) Depreciation on rental property related to unconsolidated properties......................... 5,958 6,070 22,360 25,817 33,549 Gain on dispositions of real estate related to unconsolidated entities and other.......................... (1,858) -- (68,634) (3,178) 22,362 Gain on dispositions of non-depreciable assets............. 675 -- 38,977 -- -- Deficit distributions to minority partners, net(D)................... 1,472 4,447 18,247 19,633 27,566 Cumulative effect of change in accounting principle............... -- 3,957 3,957 -- -- Discontinued operations: Depreciation of rental property, net of minority partners' interest(C)...................... 61 4,698 12,765 37,462 48,181 Gain on dispositions of real estate, net of minority partners' interest(C)...................... (7,098) (11,327) (249,944) (101,849) (4,374) Deficit distributions (recovery of deficit distributions) to minority partners(D)............. 465 (3,322) (4,103) (7,690) 814 Income tax arising from disposals........................ 13 697 16,015 12,134 2,507 Preferred OP Unit distributions....... 23,951 22,097 93,433 95,981 107,646 Redemption related preferred OP Unit issuance costs..................... 1,123 -- 3,489 7,645 -- -------- -------- -------- --------- --------- FUNDS FROM OPERATIONS................... $ 91,559 $ 91,833 $389,508 $ 442,609 $ 563,169 Preferred OP Unit distributions......... (23,951) (22,097) (93,433) (95,981) (107,646) Redemption related preferred OP Unit issuance costs........................ (1,123) -- (3,489) (7,645) -- Distributions on dilutive preferred securities............................ 434 890 3,059 9,138 41,905 Interest expense on mandatorily redeemable convertible preferred securities............................ -- -- -- 987 1,161 -------- -------- -------- --------- --------- Funds from Operations attributable to common unitholders -- diluted......... $ 66,919 $ 70,626 $295,645 $ 349,108 $ 498,589 ======== ======== ======== ========= ========= WEIGHTED AVERAGE NUMBER OF COMMON UNITS, COMMON UNIT EQUIVALENTS AND DILUTIVE PREFERRED SECURITIES OUTSTANDING: Common unit and equivalents(E)........ 104,607 104,391 104,386 104,861 99,168 Dilutive preferred securities......... 1,276 1,773 1,308 3,290 10,370 -------- -------- -------- --------- --------- Total.............................. 105,883 106,164 105,694 108,151 109,538 ======== ======== ======== ========= =========
- --------------- (A) Represents numerator for earnings per common unit calculated in accordance with GAAP. 62 (B) Includes amortization of management contracts where we are the general partner. Such management contracts were established in certain instances where we acquired a general partner in either a consolidated or an unconsolidated partnership. Because the recoverability of these management contracts depends primarily on the operations of the real estate owned by the limited partnerships, we believe it is consistent with the White Paper to add back such amortization, as the White Paper directs the add-back of amortization of assets uniquely significant to the real estate industry. (C) "Minority partners' interest," as referenced in this line item and others in this presentation means minority interest in AIMCO Properties' consolidated real estate partnerships. (D) In accordance with GAAP, deficit distributions to minority partners are charges recognized in our income statement when cash is distributed to a non-controlling partner in a consolidated real estate partnership in excess of the positive balance in such partner's capital account, which is classified as minority interest on our balance sheet. We record these charges for GAAP purposes even though there is no economic effect or cost. Deficit distributions to minority partners occur when the fair value of the underlying real estate exceeds its depreciated net book value because the underlying real estate has appreciated or maintained its value. As a result, the recognition of expense for deficit distributions to minority partners represents, in substance, either (a) our recognition of depreciation previously allocated to the non-controlling partner or (b) a payment related to the non-controlling partner's share of real estate appreciation. Based on White Paper guidance that requires real estate depreciation and gains to be excluded from FFO, we add back deficit distributions and subtract related recoveries in our reconciliation of net income to FFO. (E) Represents denominator for earnings per common unit -- diluted, calculated in accordance with GAAP plus additional common unit equivalents that are dilutive for FFO. 8. CERTAIN INFORMATION CONCERNING YOUR PARTNERSHIP General. Your partnership was organized on August 11, 1982 under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership was formed for the purpose of making investments in income-producing commercial and residential real estate. Your partnership's investment portfolio currently consists of seven residential apartment complexes. Your partnership currently has approximately 3,665 limited partners. General Partner. The general partner of your partnership is Fox Partners II, and the managing general partner of Fox Partners II and your partnership is Fox Capital Management Corporation, both of which are affiliates of AIMCO. The managing general partner is vested with full authority as to the general management and supervision of the business and affairs of the partnership. The non-managing general partner and the limited partners have no right to participate in the management or conduct of such business and affairs. Throughout this Offer to Purchase, we refer to Fox Capital Management Corporation, your managing general partner, as the "general partner" of your partnership. Our affiliate serves as manager of the properties owned by your partnership. We and the general partner of your partnership received total fees and reimbursements (excluding property management fees) of approximately $621,000 in 2002, $677,000 in 2003 and $450,000 in 2004. Total fees and reimbursements (excluding property management fees) for the three months ended March 31, 2005 were approximately $197,000. The property manager is entitled to receive five percent of gross receipts from the partnership's property for providing property management services. It received management fees of approximately $834,000 in 2002, $719,000 in 2003 and $632,000 in 2004. Management fees for the three months ended March 31, 2005 were approximately $163,000. Ownership and Voting. We, together with your managing general partner, IPLP Acquisitions I, L.L.C. and AIMCO IPLP, L.P. (which are our affiliates), own 53,731.66 units, or 60.18%, of the outstanding units of your partnership. Because we and our affiliates own a majority of the outstanding units and control your partnership's general partner, we control the outcome of most voting decisions with respect to your partnership. In general, we will vote the units owned by us in whatever manner we deem to 63 be in our best interests, which may not be in the interest of other limited partners. See "Special Factors -- Effects of the Offer" and "The Offer -- Section 9. Voting Power." Investment Objectives and Policies; Sale or Financing of Investments. In general, your general partner (which is our affiliate) regularly evaluates the partnership's properties by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors a property's specific locale and sub-market conditions (including stability of the surrounding neighborhood), evaluating current trends, competition, new construction and economic changes. It oversees the operating performance of the properties and continuously evaluates the physical improvement requirements. In addition, the financing structure for the properties (including any prepayment penalties), tax implications, availability of attractive mortgage financing to a purchaser, and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold the partnership properties. After taking into account the foregoing considerations, on May 19, 2005, your general partner entered into a purchase and sale contract with an unrelated third party to sell Misty Woods Apartments as part of a sale of a portfolio of nine properties. The current total sales price for the portfolio is $62,300,000, of which $6,550,000 currently represents the sales price for Misty Woods Apartments. The closing of the sale is expected to occur in August 2005, and is subject to the purchaser's right to extend the closing for up to thirty days as well as customary closing conditions. The general partner of your partnership is currently analyzing whether net proceeds from the sale, if any, will be used to help pay for the redevelopment of Sunrunner Apartments or will be distributed to limited partners. Your general partner is also considering whether or not to seek the sale of Sands Point Apartments, but it has not been listed for sale at the current time and it is unknown if and when this property may be listed or sold. Your general partner has no present intention of seeking a sale of your partnership's other properties, and it is not known when those properties may be sold. In addition, your general partner currently intends to refinance the mortgage encumbering Misty Woods Apartments (unless sold), which matures in January 2006, or to otherwise extend the maturity date with the current lender. The general partner spent approximately $1.5 million for capital improvements at your partnership's properties in 2004 to repair and update the properties. Your partnership has approved a $2.6 million redevelopment project at Sunrunner Apartments. After completion of the redevelopment, which is currently expected to be completed by the third quarter of 2006, your general partner plans to hold and operate the property and increase rents to reflect the improvements resulting from the redevelopment. In connection with the redevelopment of Sunrunner Apartments, your general partner plans to seek the approval of the limited partners to obtain a loan from us to fund the redevelopment. If the loan is approved, to the extent that there is any cash flow available for distribution to limited partners, such distributions are not expected to resume until the redevelopment is completely funded and our loan to your partnership is fully repaid. Your general partner is also currently considering the redevelopment of Plantation Crossing, Vinings Peak and Wood Lake Apartments, but no final decision has been made. Although there can be no assurance as to the effect of these expenditures on the future performance of the properties, these expenditures are expected to improve the desirability of the properties to tenants. Although the future operating results of your partnership and future sales prices of the properties owned by your partnership are uncertain, the operating performance of your partnership's properties may improve in the future or the private resale market for properties could improve over time, which, in turn, may result in higher property values, making a sale of your partnership's properties a more attractive option in the future. Such values, however, are also a function of the interest rate environment at the time. Another significant factor considered by your general partner is the likely tax consequences of a sale of the properties for cash. Such a transaction would likely result in tax liabilities for many limited partners. Term of Your Partnership. Under your partnership's agreement of limited partnership, as amended, the term of the partnership will continue until December 31, 2024 unless sooner terminated as provided in the agreement or by law. Capital Replacements. Your partnership has an ongoing program of capital improvements, replacements and renovations, including interior and exterior building improvements, cabinet, floor covering 64 and appliance replacements and other replacements and renovations in the ordinary course of business. During 2005, the capital improvements for each property in your partnership will be determined on a quarterly basis, primarily based on the immediate maintenance needs of each property to maintain both tenant safety and curb appeal. Your partnership has approved a $2.6 million redevelopment project at Sunrunner Apartments. After completion of the redevelopment, which is currently expected to be completed by the third quarter of 2006, your general partner plans to hold and operate the property and increase rents to reflect the improvements resulting from the redevelopment. Your general partner is also currently considering the redevelopment of Plantation Crossing, Vinings Peak and Wood Lake Apartments, but no final decision has been made. While the partnership currently has no material commitments for property improvements and replacements at the other properties, certain routine capital expenditures are anticipated during 2005. Such capital expenditures will depend on the physical condition of the property as well as anticipated cash flow generated by the property. The capital expenditures will be incurred only if cash is available from operations or from partnership reserves. Competition. There are other residential properties within the market area of each of your partnership's properties. The number and quality of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's properties and the rents that may be charged for such apartments. While AIMCO is a significant factor in the United States in the apartment industry, competition for apartments is local. According to data published by the National Multi-Housing Council, we believe AIMCO is the largest owner and manager of multifamily apartment properties in the United States. Financial Data. The selected financial information set forth below for the three months ended March 31, 2005 and 2004 is based on unaudited financial statements. The selected financial information of your partnership set forth below for the years ended December 31, 2004, 2003 and 2002 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership" in the Annual Report on Form 10-KSB of your partnership for the year ended December 31, 2004 and the Quarterly Report on Form 10-QSB for the quarter ended March 31, 2005. These reports and other information may be inspected at the public reference facilities maintained by the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such material can also be obtained from the Public Reference Room of the SEC in Washington, D.C. at prescribed rates. The SEC also maintains a site on the World Wide Web at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. 65
FOR THE THREE MONTHS ENDED FOR THE YEAR ENDED MARCH 31, DECEMBER 31, ----------------------------- ------------------------------------------------- 2005 2004 (RESTATED)(1) 2004 2003 (RESTATED)(1) 2002 (RESTATED)(1) -------- ------------------ ------- ------------------ ------------------ (UNAUDITED) (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: Total revenues............ $ 2,951 $ 2,831 $11,555 $11,796 $ 14,312 (Loss) income from continuing operations............. (230) (139) (940) (626) 998 (Loss) income from discontinued operations............. 35 (57) (112) 307 (145) Gain from sale of discontinued operations............. -- -- -- 6,013 -- Net (loss) income......... (195) (196) (1,052) 5,694 853 (Loss) income from continuing operations per limited partnership unit................... (2.27) (1.38) (9.28) (6.19) 9.86 (Loss) income from discontinued operations per limited partnership unit................... 0.35 (0.55) (1.11) 3.03 (1.43) Gain from sale of discontinued operations per limited partnership unit................... -- -- -- 66.00 -- Net (loss) income per limited partnership unit................... (1.92) (1.93) (10.39) 62.84 8.43 Distributions per limited partnership unit....... -- 5.92 5.92 25.51 18.38 Ratio of earnings to fixed charges................ 66.30% 79.40% 65.54% 79.12% 126.49% BALANCE SHEET INFORMATION: Cash and cash equivalents............ $ 535 $ 462 $ 524 $ 1,250 $ 2,025 Real estate, net of accumulated depreciation........... 32,699 37,587 33,097 38,120 47,435 Assets held for sale...... 3,337 -- 3,346 -- -- Total assets.............. 39,042 40,628 39,389 41,676 51,242 Notes payable............. 40,454 46,510 40,749 46,798 58,388 Liabilities related to assets held for sale... 4,920 -- 5,017 -- -- General partner's deficit................ (10,021) (9,897) (9,997) (9,802) (9,838) Limited partners' capital (deficit).............. 1,373 2,300 1,544 3,001 (333) Partners' deficit......... (8,648) (7,597) (8,453) (6,801) (10,171) Total distributions....... -- (600) (600) (2,324) (1,861) Book value per limited partnership unit....... 15.38 25.76 17.29 33.61 (3.73) CASH FLOW DATA: Net increase (decrease) in cash and cash equivalents............ $ 11 $ (788) $ (726) $ (775) $ 380 Net cash provided by operating activities... 565 334 1,703 2,527 4,133
- --------------- (1) Effective January 1, 2002, the partnership adopted Statement of Financial Accounting Standards No. 144, which established standards for the way that public business enterprises report information about long-lived assets that are either being held for sale or have already been disposed of by sale or other means. The standard requires that results of operations for a long-lived asset that is being held 66 for sale or has already been disposed of be reported as discontinued operations on the statement of operations. As a result, the consolidated statements of operations have been restated as of January 1, 2002 to reflect the operations of McMillan Place Apartments, which sold in August 2003, as income (loss) from discontinued operations. In addition, the consolidated statements of operations have been restated as of January 1, 2003 to reflect the operations of Misty Woods Apartments as income (loss) from discontinued operations due to the intention of selling the property within one year. Description of Property. The following shows the location, the date of purchase, the nature of your partnership's ownership interest in and the use of your partnership's properties.
DATE OF PROPERTY PURCHASE TYPE OF OWNERSHIP USE - -------- -------- ----------------- --- Wood Lake Apartments.......... 12/83 Fee ownership subject to a Apartment Atlanta, Georgia first mortgage. 220 units Greenspoint Apartments........ 02/84 Fee ownership subject to a Apartment Phoenix, Arizona first mortgage. 336 units Sandspoint Apartments......... 02/84 Fee ownership subject to a Apartment Phoenix Arizona first mortgage. 432 units Vinings Peak Apartments....... 04/84 Fee ownership subject to a Apartment Atlanta, Georgia first mortgage. 280 units Plantation Crossing 06/84 Fee ownership subject to a Apartment Apartments.................. first mortgage. 180 units Atlanta, Georgia Sunrunner Apartments.......... 07/84 Fee ownership subject to a Apartment St. Petersburg, Florida first mortgage. 200 units Misty Woods Apartments(1)..... 06/85 Fee ownership subject to a Apartment Charlotte, North Carolina first mortgage. 228 units
- --------------- (1) Property is held by a limited liability company, in which the partnership owns a 100% membership interest. On May 19, 2005, your general partner entered into a purchase and sale contract with an unrelated, third party to sell Misty Woods Apartments as part of a sale of a portfolio of nine properties. The total sales price for the portfolio is $62,300,000, of which $6,550,000 represents the sales price for Misty Woods Apartments. The closing of the sale is expected to occur in August 2005, and is subject to the purchaser's right to extend the closing for up to thirty days as well as customary closing conditions. Accumulated Depreciation Schedule. The following shows the gross carrying value and accumulated depreciation of your partnership's properties as of December 31, 2004.
GROSS CARRYING ACCUMULATED DEPRECIABLE METHOD OF FEDERAL PROPERTY VALUE DEPRECIATION LIFE DEPRECIATION TAX BASIS - -------- -------- ------------ ----------- ------------ -------------- (IN THOUSANDS) (IN THOUSANDS) Wood Lake Apartments................ $13,941 $ 8,978 5-30 years S/L $ 1,801 Greenspoint Apartments.............. 15,252 8,769 5-30 years S/L 2,547 Sandspoint Apartments............... 18,262 10,174 5-30 years S/L 2,850 Vinings Peak Apartments............. 16,317 9,779 5-30 years S/L 2,354 Plantation Crossing Apartments...... 10,406 6,373 5-30 years S/L 1,667 Sunrunner Apartments................ 8,254 5,262 5-30 years S/L 1,303 ------- ------- ------- Total............................. $82,432 $49,335 $12,522 ======= ======= =======
The gross carrying value and accumulated depreciation of Misty Woods Apartments, which was an asset held for sale at December 31, 2004, were approximately $8,803,000 and $5,475,000, respectively. 67 Schedule of Mortgages. The following shows certain information regarding the outstanding first mortgage encumbering your partnership's properties as of December 31, 2004.
PRINCIPAL BALANCE AT STATED DECEMBER 31, INTEREST PERIOD MATURITY PRINCIPAL BALANCE PROPERTY 2004 RATE(1) AMORTIZED DATE DUE AT MATURITY(2) - -------- -------------- -------- --------- -------- ------------------ (IN THOUSANDS) (IN THOUSANDS) Wood Lake Apartments......... $ 7,158 4.41% 25 years 07/01/13 $ 4,592 Greenspoint Apartments(3).... 8,039 8.33% 30 years 06/15/05 7,988 Sandspoint Apartments(4)..... 8,929 8.33% 30 years 06/15/05 8,874 Vinings Peak Apartments...... 8,084 4.41% 25 years 07/01/13 5,186 Plantation Crossing Apartments................. 4,276 4.41% 25 years 07/01/13 2,743 Sunrunner Apartments......... 4,263 7.06% 20 years 09/01/21 -- ------- ------- Total................... $40,749 $29,383 ======= =======
- --------------- (1) Fixed rate mortgages. (2) See notes to financial statements in the partnership's Annual Report on Form 10-KSB for the year ended December 31, 2004 for information with respect to the partnership's ability to prepay these loans and other specific details about the loans. (3) On May 17, 2005, the partnership refinanced the mortgage encumbering Greenspoint Apartments. The new mortgage, in the principal amount of $11,000,000, replaced the existing mortgage, which had an outstanding balance of approximately $7,981,000. The remaining loan proceeds will be used to fund the proposed redevelopment of Sunrunner Apartments. The new mortgage is amortized over 25 years and requires monthly payments of principal and interest of $66,307, beginning on July 1, 2005. The loan matures June 1, 2030. The lender can exercise a call option on the mortgage on May 1, 2012 and every fifth anniversary thereafter. The interest rate is fixed at 5.31% for the life of the mortgage. Subject to prior notice and the payment of a prepayment premium, the partnership may prepay the mortgage in full at any time beginning October 1, 2005. (4) On May 27, 2005, the partnership refinanced the mortgage encumbering Sandspoint Apartments. The new mortgage, in the principal amount of $11,000,000, replaced the existing mortgage, which had an outstanding balance of approximately $8,859,000. The remaining loan proceeds will be used to fund the proposed redevelopment of Sunrunner Apartments. The new mortgage loan matures June 1, 2007 and requires monthly interest payments beginning on July 1, 2005, with interest being equal to the average of the one-month LIBOR plus 145 basis points. The partnership has the option to extend the maturity date for two additional six-month terms. Your general partner also intends to refinance the mortgage encumbering Misty Woods Apartments (unless sold), which has a balloon payment of approximately $4,777,000 due in January 2006. Average Rental Rates and Occupancy. The following shows the average rental rates and occupancy percentages for your partnership's property during the periods indicated.
AVERAGE ANNUAL AVERAGE RENTAL RATES ANNUAL (PER UNIT) OCCUPANCY --------------- ----------- PROPERTY 2004 2003 2004 2003 - -------- ------ ------ ---- ---- Wood Lake Apartments................................... $7,984 $8,373 94% 91% Greenspoint Apartments................................. 7,428 7,639 83% 86% Sandspoint Apartments.................................. 6,496 6,543 87% 82% Vinings Peak Apartments................................ 7,413 7,818 92% 91% Plantation Crossing Apartments......................... 7,508 7,781 91% 94% Sunrunner Apartments................................... 7,173 7,167 94% 92%
68 Property Management. Your partnership's properties are managed by one of our affiliates. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's properties, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. Distributions. The following table shows, for each of the years indicated, the distributions paid per unit for such years.
YEAR ENDED DECEMBER 31 AMOUNT - ---------------------- ------ 2002........................................................ $18.38 2003........................................................ $25.51 2004........................................................ $ 5.92 2005 (through March 31)..................................... $ --
Compensation Paid to the General Partner and its Affiliates. The following table shows, for each of the years indicated, approximate amounts paid to your general partner and its affiliates on a historical basis. The general partner is reimbursed for actual direct costs and expenses incurred in connection with the operation of the partnership. The property manager is entitled to receive fees for transactions involving your partnership and its properties and is entitled to receive five percent of the gross receipts from the partnership's properties for providing property management services. See "Special Factors -- Conflicts of Interest and Transactions with Affiliates."
PARTNERSHIP PROPERTY FEES AND MANAGEMENT YEAR EXPENSES FEES - ---- ----------- ---------- 2002........................................................ $621,000 $834,000 2003........................................................ $677,000 $719,000 2004........................................................ $450,000 $632,000 2005 (through March 31)..................................... $197,000 $163,000
Legal Proceedings. From time to time, your partnership may be a party to a variety of legal proceedings related to its ownership of properties which arise in the ordinary course of business. See "The Offer -- Section 6. The Lawsuit and the Settlement." 9. VOTING POWER Decisions with respect to the day-to-day management of your partnership are the responsibility of the general partner. Because the general partner of your partnership is our affiliate, we control the management of your partnership. Under your partnership's agreement of limited partnership, limited partners holding a majority of the outstanding units must approve certain extraordinary transactions, including the removal of the general partner, most amendments to the partnership agreement and the sale of all or substantially all of your partnership's assets. We, together with your general partner, IPLP Acquisitions I, L.L.C. and AIMCO IPLP, L.P. (which are our affiliates), own 53,731.66 units, or 60.18%, of the outstanding units of your partnership. Because we and our affiliates own a majority of the outstanding units and control your partnership's general partner, we control the outcome of most voting decisions with respect to your partnership. In general, we will vote the units owned by us in whatever manner we deem to be in our best interests, which may not be in the interest of other limited partners. See "Special Factors -- Effects of the Offer." 10. SOURCE OF FUNDS We expect that approximately $10,668,100 will be required to purchase all of the limited partnership units that we are seeking in this offer exclusive of fees and expenses. For more information regarding fees and expenses, see "The Offer -- Section 14. Fees and Expenses." 69 In addition to this offer, we intend to make concurrent offers to acquire interests in approximately 11 other limited partnerships. We also intend to acquire interests in 5 other partnerships by merger. If all such transactions were fully subscribed for cash, we would be required to pay approximately $54.3 million for all such units. If for some reason we did not have such funds available, we might extend these offers for a period of time sufficient for us to obtain additional funds, or we could terminate the offers. However, we do not expect all such offers to be fully subscribed. Additionally, we believe that we will have sufficient cash on hand and available sources of financing to acquire all units tendered pursuant to such offers. As of March 31, 2005, we had $119.6 million of cash on hand and $152.9 million available for borrowing under existing lines of credit. We intend to repay any amounts borrowed to finance the offer out of future working capital. We have a $445 million revolving credit facility with Bank of America, Fleet National Bank and First Union National Bank with a syndicate comprised of a total of ten lender participants. We are the borrower and all obligations thereunder are guaranteed by certain of AIMCO's subsidiaries. The obligations under the credit facility are secured, among other things, by our pledge of our stock ownership in certain subsidiaries of AIMCO, and a first priority pledge of certain of our non-real estate assets. The annual interest rate under the credit facility is based on either LIBOR or a base rate which is the higher of Bank of America's reference rate or 0.5% over the federal funds rate, plus, in either case, an applicable margin. The margin ranges between 2.15% and 2.85% in the case of LIBOR-based loans and between 0.65% and 1.35% in the case of base rate loans, based upon a fixed charge coverage ratio. The credit facility expires on July 31, 2005 and can be extended at AIMCO's option for a one-year term on a one-time basis. 11. DISSENTERS' RIGHTS Neither the agreement of limited partnership of your partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with, or as a result of, our offer. You have the opportunity to make an individual decision on whether or not to tender your units in the offer. No provisions have been made with regard to the offer to allow you or other limited partners to inspect the books and records of the partnership or to obtain counsel or appraisal services at our expense or at the expense of your partnership. However, you have the right under your partnership's agreement of limited partnership to obtain a list of the limited partners in your partnership. 12. CONDITIONS TO THE OFFER We will not be required to accept for payment and pay for any units tendered pursuant to our offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend our offer if at any time on or after the date of this Offer to Purchase and at or before the expiration of our offer (including any extension thereof), any of the following shall occur: - any change shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its properties, including any fire, flood, natural disaster, casualty loss, or act of God that is adverse to your partnership or the value of your units to us, which change would, individually or in the aggregate, result in an adverse effect on net operating income of your partnership of more than $10,000 per year, or a decrease in value of an asset of your partnership, or the incurrence of a liability with respect to your partnership, in an amount in excess of $100,000 (a "Material Adverse Effect"); or - there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 5.0%, measured from the close of business on the last trading day preceding the date of this offer and the close of business on the last trading day preceding the expiration of this offer, (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major 70 equity security indices in the United States such that there shall have occurred at least a 25 basis point increase in LIBOR, or at least a 5.0% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case, measured from the close of business on the last trading day preceding the date of this offer and the close of business on the last trading day preceding the expiration of this offer, (iv) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (v) any limitation (whether or not mandatory) by any governmental authority on, or any other material event which, in either case, could reasonably be expected to affect the extension of credit by banks or other lending institutions, or (vi) in the case of any of the foregoing existing at the time of the commencement of the offer, a material acceleration or worsening thereof; or - there shall have been threatened in writing, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by us of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by us (or any of our affiliates) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in our ability to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by us or any of our affiliates of the entity serving as your general partner (which is our affiliate) or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on our ability or any of our affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on our ability or any of our affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by us on all matters properly presented to unitholders or (v) in the case of any of the foregoing existing at the time of the commencement of the offer, a material acceleration or worsening thereof; or - there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, your partnership, any general partner of your partnership, us or any affiliate of our or your partnership, or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, directly or indirectly, results in any of the consequences referred to in clauses (i) through (v) of the immediately preceding paragraph; or - a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or we shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or - there shall have occurred any event, circumstance, change, effect or development that, individually or in the aggregate with any other events, circumstances, changes, effects or developments, has had an adverse effect on our financial condition in an amount in excess of $10,000,000; or, which does not result from actions or inactions by us or our affiliates. The foregoing conditions are for our sole benefit and may be asserted by us regardless of the circumstances giving rise to such conditions or may be waived by us at any time in our reasonable discretion prior to the expiration of this offer. The failure by us at any time to exercise any of the foregoing rights shall 71 not be deemed a waiver of any such right, and the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances. If we waive any of the conditions to the offer with respect to the tender of a particular unit, we will waive such condition with respect to all other tenders of units in this offer as well. All conditions to our offer will be satisfied or waived on or before the expiration of our offer. We will not waive a material condition to the offer on the expiration date. If we waive any material conditions to our offer, we will notify you and, if necessary, we will extend the offer period so that you will have at least five business days from the date of our notice to withdraw your units. 13. CERTAIN LEGAL MATTERS General. Except as set forth in this Section 13, we are not aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by our acquisition of units as contemplated herein, or any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to the acquisition of units by us pursuant to the offer, other than the filing of a Tender Offer Statement and Rule 13e-3 Transaction Statement on Schedule TO with the SEC (which has already been filed) and any required amendments thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer pending receipt of any such additional approval or the taking of any such action, there can be no assurance that any such additional approval or action, if needed, would be obtained without substantial conditions or that adverse consequences might not result to your partnership or its business, or that certain parts of its business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause us to elect to terminate the offer without purchasing units thereunder. Our obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this Section 13. Antitrust. We do not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by our offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to our offer. State Laws. We are not aware of any jurisdiction in which the making of our offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. If, after such good faith effort, we cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions with securities or blue sky laws that require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of us, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. 14. FEES AND EXPENSES You will not pay any partnership transfer fees if you tender your units. Except as set forth herein, we will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We have retained The Altman Group, Inc. to act as Information Agent in connection with our offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominee limited partners to forward materials relating to the offer to beneficial owners of the units. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify it against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will also pay all costs and expenses of 72 printing and mailing the offer and any related legal fees and expenses. The partnership will not be responsible for paying any of the fees or expenses incurred by us in connection with this offer. The following is an itemized statement of the aggregate estimated expenses incurred and to be incurred in this offer by us: Information Agent Fees...................................... $ 7,500 Legal Fees.................................................. 50,000 Printing Fees............................................... 33,000 Tax and Accounting Fees..................................... 1,500 Postage..................................................... 42,100 Depositary.................................................. 500 -------- Total..................................................... $134,600 ========
--------------------- NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION ON BEHALF OF US NOT CONTAINED HEREIN, OR IN THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THE GENERAL PARTNER DOES NOT MAKE ANY RECOMMENDATION REGARDING WHETHER YOU SHOULD ACCEPT THIS OFFER. YOU ARE INSTEAD ENCOURAGED TO CAREFULLY REVIEW THIS OFFER TO PURCHASE AND ANY OTHER INFORMATION AVAILABLE TO YOU AND TO SEEK ADVICE FROM YOUR INDEPENDENT LAWYER, TAX ADVISOR AND/OR FINANCIAL ADVISOR WITH RESPECT TO YOUR PARTICULAR CIRCUMSTANCES BEFORE DECIDING WHETHER OR NOT TO ACCEPT THIS OFFER. We have filed with the SEC a Tender Offer Statement and Rule 13e-3 Transaction Statement on Schedule TO, pursuant to Sections 13(e)(4), 14(d)(1) and Rule 14d-3 under the Exchange Act, furnishing certain additional information with respect to our offer, and may file amendments thereto. Your partnership has filed with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9 pursuant to Section 14(d)(4) and Rule 14d-9 under the Exchange Act, furnishing certain additional information about your partnership's and the general partner's position concerning our offer, and your partnership may file amendments thereto. The Schedules TO and 14D-9 and any amendments to either Schedule, including exhibits, may be inspected and copies may be obtained at the same place and in the same manner as described in "The Offer -- Section 8. Certain Information Concerning Your Partnership." The letter of transmittal and any other required documents should be sent or delivered by each limited partner or such limited partner's broker, dealer, bank, trust company or other nominee to the Information Agent at one of its addresses set forth below. THE INFORMATION AGENT FOR THE OFFER IS: THE ALTMAN GROUP, INC. By Mail: By Overnight Courier: By Hand: 1275 Valley Brook Avenue 1275 Valley Brook Avenue 1275 Valley Brook Avenue Lyndhurst, NJ 07071 Lyndhurst, NJ 07071 Lyndhurst, NJ 07071
For information, please call: TOLL FREE: (800) 467-0821 73 ANNEX I OFFICERS AND DIRECTORS The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"); AIMCO-GP, Inc. ("AIMCO-GP") and Fox Capital Management Corporation, the managing general partner of your partnership (the "Managing General Partner") are set forth below. All of the executive officers of AIMCO also serve as executive officers of AIMCO-GP. The directors of AIMCO are also set forth below. The two directors of AIMCO-GP are Terry Considine and Paul J. McAuliffe. The directors of the Managing General Partner of your partnership are Martha L. Long and Harry G. Alcock. Unless otherwise indicated, the business address of each executive officer and director is 4582 South Ulster Parkway, Suite 1100, Denver, Colorado 80237. Each executive officer and director is a citizen of the United States of America.
NAME POSITION - ---- -------- Terry Considine........................... Chairman of the Board, Chief Executive Officer and President of AIMCO and AIMCO-GP Jeffrey W. Adler.......................... Executive Vice President -- Conventional Property Operations of AIMCO and Executive Vice President of the Managing General Partner and AIMCO-GP Harry G. Alcock........................... Executive Vice President and Chief Investment Officer of AIMCO, Executive Vice President and Director of the Managing General Partner and Executive Vice President of AIMCO-GP Miles Cortez.............................. Executive Vice President, General Counsel and Secretary of AIMCO, the Managing General Partner and AIMCO-GP Randall J. Fein........................... Executive Vice President -- University Housing of AIMCO and Executive Vice President of the Managing General Partner and AIMCO-GP Patti K. Fielding......................... Executive Vice President -- Securities and Debt of AIMCO and Executive Vice President of the Managing General Partner and AIMCO-GP Lance J. Graber........................... Executive Vice President of AIMCO, the Managing General Partner and AIMCO-GP Paul J. McAuliffe......................... Executive Vice President and Chief Financial Officer of AIMCO, AIMCO-GP and the Managing General Partner and Director of AIMCO-GP James G. Purvis........................... Executive Vice President -- Human Resources of AIMCO and Executive Vice President of the Managing General Partner and AIMCO-GP David Robertson........................... Executive Vice President of AIMCO, AIMCO-GP and the Managing General Partner Thomas M. Herzog.......................... Executive Vice President and Chief Accounting Officer of AIMCO and Senior Vice President and Chief Accounting Officer of the Managing General Partner Martha L. Long............................ Senior Vice President and Director of the Managing General Partner and Senior Vice President of AIMCO and AIMCO-GP James N. Bailey........................... Director of AIMCO Richard S. Ellwood........................ Director of AIMCO J. Landis Martin.......................... Director of AIMCO Thomas L. Rhodes.......................... Director of AIMCO Michael A. Stein.......................... Director of AIMCO
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS - ---- --------------------------------------------- Terry Considine........................... Mr. Considine has been Chairman of the Board and Chief Executive Officer of AIMCO since July 1994 and has been President since October 2004. Mr. Considine serves as Chairman of the Board of Directors of American Land Lease, Inc. (formerly Asset Investors Corporation and Commercial Asset Investors, Inc.), another public real estate investment trust. Mr. Considine devotes his time to his responsibilities at AIMCO and AIMCO-GP on a full-time basis, and the balance to American Land Lease, Inc. Jeffrey W. Adler.......................... Mr. Adler was appointed Executive Vice President, Conventional Property Operations in February 2004. Previously he served as Senior Vice President of Risk Management of AIMCO from January 2002 until November 2002, when he added the responsibility of Senior Vice President, Marketing. Prior to joining AIMCO, from 2000 to 2002, Mr. Adler was Vice President, Property/Casualty for Channelpoint, a software company. From 1990 to 2000 Mr. Adler held several positions at Progressive Insurance including Colorado General Manager from 1996 to 2000, Product Manager for Progressive Insurance Mountain Division from 1992 to 1996, and Director of Corporate Marketing from 1990 to 1992. Harry G. Alcock........................... Mr. Alcock served as a Vice President of AIMCO from July 1996 to October 1997, when he was promoted to Senior Vice President -- Acquisitions. Mr. Alcock served as Senior Vice President -- Acquisitions until October 1999, when he was promoted to Executive Vice President and Chief Investment Officer. Mr. Alcock has held responsibility for AIMCO's acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles-based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisition and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Miles Cortez.............................. Mr. Cortez was appointed Executive Vice President, General Counsel and Secretary of AIMCO in August 2001. Prior to joining AIMCO, Mr. Cortez was the senior partner of Cortez Macaulay Bernhardt & Schuetze LLC, a Denver law firm, from December 1997 through September 2001. From August 1993 through November 1997, Mr. Cortez was a partner in the law firm of McKenna & Cuneo, LLP in Denver. Mr. Cortez was the President of the Colorado Bar Association from 1996 to 1997 and President of the Denver Bar Association from 1982 to 1983.
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS - ---- --------------------------------------------- Randall J. Fein........................... Mr. Fein was appointed Executive Vice President -- University Housing of AIMCO in October 2003. He is responsible For the operation of AIMCO's student housing related Portfolio, including its joint venture activities. From 1989 through 2003, Mr. Fein served as general partner of Income Apartment Investors L.P., and Texas First Properties L.P., which operated student and non-student housing. Prior to entering the apartment industry, Mr. Fein was engaged in the securities industry as a Director of Jefferies and as a Vice President of Salomon Brothers Inc. Mr. Fein is a member of the State Bar of Texas. Patti K. Fielding......................... Ms. Fielding was appointed Executive Vice President -- Securities and Debt of the Managing General Partner in February 2004 and of AIMCO in February 2003. She is responsible for securities and debt financing and the treasury department. From January 2000 to February 2003, Ms. Fielding served as Senior Vice President -- Securities and Debt. Ms. Fielding joined AIMCO in February 1997 and served as Vice President -- Tenders, Securities and Debt until January 2002. Prior to joining AIMCO, Ms. Fielding was a Vice President with Hanover Capital Partners from 1996 to 1997, Vice Chairman, Senior Vice President and Principal of CapSource Funding Corp from 1993 to 1995, and Group Vice President with Duff & Phelps Rating Co. from 1987 to 1993. Lance J. Graber........................... Mr. Graber was appointed Executive Vice President -- Acquisitions in October 1999. His principal business function is overseeing dispositions, refinancings, redevelopments and other transactions within AIMCO Capital's portfolio of affordable properties. Prior to joining AIMCO, Mr. Graber was an Associate from 1991 through 1992 and then a Vice President from 1992 through 1994 at Credit Suisse First Boston engaged in real estate financial advisory services and principal investing. He was a Director there from 1994 to May 1999, during which time he supervised a staff of seven in the making of principal investments in hotel, multi-family and assisted living properties. Mr. Graber received a B.S. and an M.B.A. from the Wharton School of the University of Pennsylvania.
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS - ---- --------------------------------------------- Paul J. McAuliffe......................... Mr. McAuliffe has been Executive Vice President and Chief Financial Officer of the Managing General Partner since April 2002. Mr. McAuliffe has been Executive Vice President of AIMCO since February 1999 and was appointed Chief Financial Officer in October 1999. Prior to joining AIMCO, Mr. McAuliffe was Senior Managing Director of Secured Capital Corporation and prior to that time had been a Managing Director of Smith Barney, Inc. from 1993 to 1996, where he was a key member of the underwriting team that led AIMCO's initial public offering in 1994. Mr. McAuliffe was also a Managing Director and head of the real estate group at CS First Boston from 1990 to 1993 and he was a Principal in the real estate group at Morgan Stanley & Co., Inc. from 1983 to 1990. Mr. McAuliffe received a B.A. from Columbia College and an MBA from University of Virginia, Darden School. James G. Purvis........................... Mr. Purvis was appointed Executive Vice President in February 2003. He is responsible for AIMCO's Human Resources and People Initiatives. Mr. Purvis has over 20 years of executive strategic human resources experience. Prior to joining AIMCO he was Vice President, HR at SomaLogic, a privately funded biotechnology company. He was a principal in O(3)C Global Organization Solutions, and has held executive human resources and operations management positions in ALCOA (Aluminum Company of America), Texas Air/Eastern Airlines, Starwood/WestinHotels and Resorts, and Tele-Communications (TCI) Technology, Inc. Mr. Purvis holds a BA in communications and modern languages from the University of Notre Dame. David Robertson........................... Mr. Robertson was appointed Executive Vice President -- Affordable Properties in February 2002. He is responsible for affordable property operations, refinancing and other value creation within AIMCO's affordable portfolio. Prior to joining AIMCO, Mr. Robertson was a member of the investment-banking group at Smith Barney from 1991 to 1996, where he was responsible for real estate investment banking transactions in the western United States, and was part of the Smith Barney team that managed AIMCO's initial public offering in 1994. Since February 1996, Mr. Robertson has been Chairman and Chief Executive Officer of Robeks Corporation, a privately held chain of specialty food stores.
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS - ---- --------------------------------------------- Thomas M. Herzog.......................... Mr. Herzog was appointed Executive Vice President of AIMCO in December 2004 and Chief Accounting Officer of AIMCO in January 2004. He was also appointed Senior Vice President and Chief Accounting Officer of the Managing General Partner in January 2004. Prior to joining AIMCO, Mr. Herzog was at GE Real Estate, serving as Chief Accounting Officer & Global Controller from April 2002 to January 2004 and as Chief Technical Advisor from March 2000 to April 2002. Prior to joining GE Real Estate, Mr. Herzog was at Deloitte & Touche LLP from 1990 until 2000, including a two-year assignment in the real estate national office. Martha L. Long............................ Martha L. Long has been with AIMCO since October 1998 and served in various capacities. From 1998 to 2001, she served as Senior Vice President and Controller. During 2002 and 2003, she served as Senior Vice President of Continuous Improvement. Ms. Long has been a Director and Senior Vice President of the Managing General Partner since February 2004. James N. Bailey........................... Mr. Bailey was appointed a Director of AIMCO in Cambridge Associates, Inc. June 2000. In 1973, Mr. Bailey co-founded 1 Winthrop Square, Cambridge Associates, Inc., which is an Suite 500 investment consulting firm for non-profit Boston, MA 02110 institutions and wealthy family groups. He is also Co-Founder, Treasurer and Director of The Plymouth Rock Company, Direct Response Corporation and Homeowners' Direct Corporation, each of which is a United States personal lines insurance company. He received his M.B.A. and J.D. degrees in 1973 from Harvard Business School and Harvard Law School. Richard S. Ellwood........................ Mr. Ellwood was appointed a Director of AIMCO in 12 Auldwood Lane July 1994 and is currently Chairman of the Audit Rumson, NJ 07660 Committee and a member of the Compensation Committee. Mr. Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, Mr. Ellwood had 31 years experience on Wall Street as an investment banker, serving as: Managing Director and senior banker at Merrill Lynch Capital Markets from 1984 to 1987; Managing Director at Warburg Paribas Becker from 1978 to 1984; general partner and then Senior Vice President and a director at White, Weld & Co. from 1968 to 1978; and in various capacities at J.P. Morgan & Co. from 1955 to 1968. Mr. Ellwood currently serves as a director of Felcor Lodging Trust, Incorporated and Florida East Coast Industries, Inc.
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS - ---- --------------------------------------------- J. Landis Martin.......................... Mr. Martin was appointed a director of AIMCO in 199 Broadway July 1994 and became Chairman of the Suite 4300 Compensation Committee on March 19, 1998. Mr. Denver, CO 80202 Martin is a member of the Audit Committee. Mr. Martin has served as President and Chief Executive Officer of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation ("Tremont"), a holding company operating though its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc. ("NL"), since 1990 and as Chief Executive Officer and a director of Tremont since 1988. Mr. Martin has served as Chairman of TIMET, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by a predecessor of Halliburton Company ("Halliburton") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a director of Halliburton, which is engaged in the petroleum services, hydrocarbon and engineering industries, and Crown Castle International Corporation, a communications company. Thomas L. Rhodes.......................... Mr. Rhodes was appointed a Director of AIMCO in 215 Lexington Avenue July 1994 and is a member of the Audit and 4th Floor Compensation Committees. Mr. Rhodes has served New York, NY 10016 as the President and a Director of National Review magazine since November 1992, where he has also served as a Director since 1998. From 1976 to 1992, he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 1992. He is currently Co-Chairman of the Board, Co-Chief Executive Officer and a Director of American Land Lease, Inc. He also serves as a Director of Delphi Financial Group and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company and the Lynde and Harry Bradley Foundation. Michael A. Stein.......................... Mr. Stein was elected a Director of AIMCO 22021 20th Avenue SE effective October 15, 2004 and is a member of Bothell, WA 98021 the Audit, Compensation and Human Resources, and Nominating and Corporate Governance Committees. Mr. Stein is currently the Vice President and Chief Financial Officer of ICOS Corporation. Mr. Stein was previously Executive Vice President and Chief Financial Officer of Nordstrom Inc., and held a similar position at Marriott International Inc. Prior to joining Marriott in 1989, he spent 18 years at Arthur Andersen LLP, where he was a partner and served as head of the Commercial Group within the Washington D.C. Financial Consulting and Audit Division. Mr. Stein is a certified public accountant.
I-6 Questions and requests for assistance or for additional copies of this Offer to Purchase and the letter of transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the offer. The Information Agent for offer is: THE ALTMAN GROUP, INC. By Mail: 1275 Valley Brook Avenue Lyndhurst, NJ 07071 By Overnight Courier: 1275 Valley Brook Avenue Lyndhurst, NJ 07071. By Hand: 1275 Valley Brook Avenue Lyndhurst, NJ 07071 For information, please call: By Telephone: TOLL FREE: (800) 467-0821 By Fax: (201) 460-0050 EX-99.(A)(17) 3 d18178a5exv99wxayx17y.txt AMENDED AND RESTATED LETTER OF TRANSMITTAL AND INSTRUCTIONS (AIMCO) AMENDED AND RESTATED LETTER OF TRANSMITTAL TO TENDER UNITS OF LIMITED PARTNERSHIP INTEREST IN CENTURY PROPERTIES FUND XIX (THE "PARTNERSHIP") PURSUANT TO AN AMENDED AND RESTATED OFFER TO PURCHASE DATED JUNE 6, 2005 BY AIMCO PROPERTIES, L.P. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT MIDNIGHT, NEW YORK CITY TIME, ON JUNE 27, 2005, UNLESS EXTENDED (THE "EXPIRATION DATE") THE OFFER PRICE IS $300.00 PER UNIT - -------------------------------------------------------------------------------- IF YOU HAVE THE CERTIFICATE ORIGINALLY ISSUED TO REPRESENT YOUR INTEREST IN THE PARTNERSHIP PLEASE SEND IT TO THE INFORMATION AGENT WITH THIS LETTER OF TRANSMITTAL The Information Agent for the offer is: THE ALTMAN GROUP, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 238 1275 Valley Brook Avenue 1275 Valley Brook Avenue Lyndhurst, NJ 07071 Lyndhurst, NJ 07071 Lyndhurst, NJ 07071 By Telephone: TOLL FREE (800) 467-0821 By Fax: (201) 460-0050
To participate in the offer, you must send a duly executed copy of this Letter of Transmittal and any other documents required by this Letter of Transmittal so that such documents are received by The Altman Group, Inc., the Information Agent, on or prior to the Expiration Date. THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT YOUR OPTION AND RISK, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. DELIVERY OF THIS LETTER OF TRANSMITTAL OR ANY OTHER REQUIRED DOCUMENTS TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE VALID DELIVERY. FOR INFORMATION OR ASSISTANCE IN CONNECTION WITH THE OFFER OR THE COMPLETION OF THIS LETTER OF TRANSMITTAL, PLEASE CONTACT THE INFORMATION AGENT AT (800) 467-0821 (TOLL FREE). THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. WHEN TENDERING, YOU MUST SEND ALL PAGES OF THIS LETTER OF TRANSMITTAL, INCLUDING EXECUTED TAX CERTIFICATIONS (BOXES A AND B).
- ------------------------------------------------------------------------------------------------------------------- DESCRIPTION OF UNITS TENDERED - ------------------------------------------------------------------------------------------------------------------- NAME(S), ADDRESS(ES), NUMBER OF UNITS OWNED AND TAX IDENTIFICATION NUMBER OF REGISTERED HOLDER(S). (PLEASE INDICATE CHANGES OR CORRECTIONS TO THE NAME, ADDRESS, TOTAL NUMBER OF UNITS TENDERED NUMBER OF UNITS OWNED AND TAX IDENTIFICATION NUMBER PRINTED BELOW.) (#) - ------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------
SPECIAL PAYMENT INSTRUCTIONS (SEE INSTRUCTIONS 2, 4 AND 8) To be completed ONLY if the consideration for the purchase price of Units accepted for payment is to be issued in the name of someone other than the undersigned. [ ] Issue consideration to: Name: - -------------------------------------------------------------------------------- (Please Type or Print) Address: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Include Zip Code) - -------------------------------------------------------------------------------- (Tax Identification or Social Security No.) (See Substitute Form W-9) SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 2, 4 AND 8) To be completed ONLY if the consideration for the purchase price of Units accepted for payment is to be sent to someone other than the undersigned or to the undersigned at an address other than that shown above. [ ] Mail Consideration to: Name: - -------------------------------------------------------------------------------- (Please Type or Print) Address: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Include Zip Code) NOTE: SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY. 2 Ladies and Gentlemen: The undersigned hereto hereby acknowledges that he or she has received (i) the Purchaser's Offer to Purchase dated February 16, 2005 (the "Offer Date") and the Amended and Restated Offer to Purchase dated the date set forth above, relating to the offer by AIMCO Properties, L.P. (the "Purchaser") to purchase Limited Partnership Interests (the "Units") in the Partnership and (ii) this Letter of Transmittal and the Instructions hereto, as each may be supplemented or amended from time to time (collectively, the "Offer"). THE GENERAL PARTNER OF YOUR PARTNERSHIP DOES NOT MAKE ANY RECOMMENDATION REGARDING WHETHER YOU SHOULD ACCEPT THE OFFER. YOU ARE ENCOURAGED TO CAREFULLY REVIEW THE OFFER TO PURCHASE AND ANY OTHER INFORMATION AVAILABLE TO YOU AND TO SEEK ADVICE FROM YOUR INDEPENDENT LAWYER, TAX ADVISOR AND/OR FINANCIAL ADVISOR WITH RESPECT TO YOUR PARTICULAR CIRCUMSTANCES BEFORE DECIDING WHETHER OR NOT TO ACCEPT THE OFFER. Upon the terms and subject to the conditions set forth in the Offer to Purchase, and this Letter of Transmittal, the undersigned hereto hereby tenders to the Purchaser the Units set forth in the box above entitled "Description of Units Tendered," including all interests in any limited partnership represented by such units (collectively, the "Units"), at the price indicated on the Offer and any supplement thereto, less the amount of distributions, if any, made by the Partnership from the Offer Date until the Expiration Date (the "Offer Price"), net to the undersigned in cash, without interest. By executing this Letter of Transmittal, the undersigned hereby acknowledges that the general partner does not make any recommendation regarding whether the undersigned should accept the Offer, and the undersigned hereto represents and warrants to the Purchaser that the undersigned has received the Offer. Subject to and effective upon acceptance for payment of any of the Units tendered hereby in accordance with the terms of the Offer, the undersigned hereto hereby irrevocably sells, assigns, transfers, conveys and delivers to, or upon the order of, the Purchaser all right, title and interest in and to such Units tendered hereby that are accepted for payment pursuant to the Offer, including, without limitation, (i) all of the undersigned's interest in the capital of the Partnership, and the undersigned's interest in all profits, losses and distributions of any kind to which the undersigned shall at any time be entitled in respect of the Units, including, without limitation, distributions in the ordinary course, distributions from sales of assets, distributions upon liquidation, winding-up, or dissolution, payments in settlement of existing or future litigation, and all other distributions and payments from and after the Expiration Date of the Offer, in respect of the Units tendered by the undersigned and accepted for payment and thereby purchased by the Purchaser; (ii) all other payments, if any, due or to become due to the undersigned in respect of the Units, under or arising out of the agreement and certificate of limited partnership of the Partnership (the "Partnership Agreement"), or any agreement pursuant to which the Units were sold (the "Purchase Agreement"), whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of the undersigned's claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of the Partnership Agreement or Purchase Agreement or the undersigned's ownership of the Units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of the Partnership; and (iv) all present and future claims, if any, of the undersigned whether on behalf of the Partnership, individually or on behalf of a putative class (including without limitation any claims against limited partners of the Partnership, the general partner(s) and/or any affiliates thereof) under, arising out of or related to the Partnership Agreement, the Purchase Agreement, the undersigned's status as a limited partner, the terms or conditions of the Offer, the management of the Partnership, monies loaned or advanced, services rendered to the Partnership or its partners, or any other claims arising out of or related to the undersigned's ownership of Units in the Partnership. The undersigned hereto, on behalf of himself or herself, his or her heirs, estate, executor, administrator, successors and assigns, and the Partnership, fully, finally and forever releases, relinquishes and discharges the Purchaser and its predecessors, successors and assigns and its present and former parents, subsidiaries, affiliates, investors, insurers, reinsurers, officers, directors, employees, agents, 3 administrators, auditors, attorneys, accountants, information and solicitation agents, investment bankers, and other representatives, including but not limited to Apartment Investment and Management Company and the general partner of the Partnership (collectively, the "Releasees"), from any and all claims and causes of action, whether brought individually, on behalf of a class, or derivatively, demands, rights, or liabilities, including, but not limited to, claims for negligence, gross negligence, professional negligence, breach of duty of care or loyalty, or breach of duty of candor, fraud, breach of fiduciary duty, mismanagement, corporate waste, malpractice, misrepresentation, whether intentional or negligent, misstatements and omissions to disclose, breach of contract, violations of any state or federal statutes, rules or regulations, whether known claims or unknown claims that have been asserted or that could have been asserted against the Releasees, through and including the date of execution of the letter of transmittal, including, but not limited to, those claims that arise out of or relate to (a) those matters and claims set forth in the Nuanes and Heller class and derivative litigation described in the Offer to Purchase, (b) the ownership of one or more Units in the Partnership, including but not limited to, any and all claims related to the management of the Partnership or the properties owned by the Partnership (whether currently or previously), the payment of management fees or other monies to the general partner of the Partnership and its affiliates, prior acquisitions or tender offers and the prior settlement, (c) the purchase, acquisition, holding, sale, tender or voting of one or more Units in the Partnership, or (d) any of the facts, circumstances, allegations, claims, causes of action, representations, statements, reports, disclosures, transactions, events, occurrences, acts, omissions or failures to act, of whatever kind or character whatsoever, irrespective of the state of mind of the actor performing or omitting to perform the same, that have been or could have been alleged in any pleadings, amended pleading, argument, complaint, amended complaint, brief, motion, report or filing in the Nuanes and Heller class and derivative litigation (collectively, the "Released Claims"); provided, however, that the Released Claims are not intended to include (i) any unrelated claims that are unique to a unitholder or settlement class member (e.g., a settlement class member slips and falls on property owned by one of the defendants in the Nuanes and Heller class and derivative litigation, loses or did not receive a distribution check distributed to other limited partners in such partnership, or is an employee of one of the defendants and has an employee-related claim), (ii) any claim based on violations of federal or state securities laws in connection with the Offer, and (iii) any right to your pro rata share of the settlement fund in the Nuanes and Heller settlement, assuming that you are otherwise eligible, and approval of the settlement and any judgment entered thereto become final. The undersigned hereto expressly waives and relinquishes, to the fullest extent permitted by law and consistent with the releases contained herein, the provisions, rights and benefits of Section 1542 of the Civil Code of California ("Section 1542"), which provides: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN ITS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. The undersigned hereto waives any and all provisions, rights and benefits conferred by any law of any state or territory of the United States, or principle of common law, that is similar, comparable or equivalent to Section 1542. The undersigned acknowledges and agrees that it may hereafter discover facts in addition to or different from those which it now knows or believes to be true with respect to the subject matter of the Released Claims, but the undersigned shall be deemed to have fully, finally and forever settled and released any and all Released Claims, known or unknown, suspected or unsuspected, contingent or non-contingent, that now exist or heretofore have existed upon any theory of law or equity now existing, including, but not limited to, conduct that is negligent, intentional, with or without malice, or a breach of any duty, law or rule, without regard to the subsequent discovery of the existence of such different or additional facts. The undersigned hereto agrees that the releases contained herein are intended to include the Released Claims, which the undersigned may have and which the undersigned does not know or suspect to exist in its favor against the Releasees and that the releases contained herein extinguish those claims. The 4 undersigned hereto represents and warrants to the Releasees that the undersigned has been advised by its attorney of the effect and import of the provisions of Section 1542, and that the undersigned has not assigned or otherwise transferred or subrogated any interest in the Released Claims. The undersigned hereto irrevocably appoints the Purchaser and its designees as his or her proxy, each with full power of substitution, to the fullest extent of the undersigned's rights with respect to the Units tendered by him or her and accepted for payment by the Purchaser. Such proxy shall be considered coupled with an interest in the tendered Units. Such appointment will be effective when, and only to the extent that, we accept the tendered units for payment. Upon such acceptance for payment, all prior proxies and consents given by the undersigned hereto with respect to the Units will, without further action, be revoked, and no subsequent proxies or consents may be given (and if given will not be effective). The Purchaser and its designees are, as to those Units, empowered to exercise all voting and other rights as a limited partner as the Purchaser, in its discretion, may deem proper at any meeting of limited partners, by written consent or otherwise. By executing this Letter of Transmittal, the undersigned agrees to execute all such documents and take such other actions as shall be reasonably required to enable the Units tendered to be voted in accordance with the Purchaser's directions. The proxy granted by the undersigned hereto to the Purchaser will remain effective and be irrevocable for a period of ten years following the Expiration Date of the Offer. The undersigned hereto hereby irrevocably constitutes and appoints the Purchaser and any designees of the Purchaser as the true and lawful agent and attorney-in-fact of the undersigned with respect to such Units, with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to do all such acts and things necessary or expedient to deliver such Units and transfer ownership of such Units on the partnership books maintained by the general partner of the Partnership, together with all accompanying evidence of transfer and authenticity to, or upon the order of, the Purchaser, to sign any and all documents necessary to authorize the transfer of the Units to the Purchaser including, without limitation, the "Transferor's (Seller's) Application for Transfer" created by the National Association of Securities Dealers, Inc., if required, and upon receipt by the Information Agent (as the undersigned's agent) of the Offer Price, to become a substitute limited partner, to receive any and all distributions made or declared by the Partnership from and after the Expiration Date of the Offer (regardless of the record date for any such distribution), and to receive all benefits and otherwise exercise all rights of beneficial ownership of such Units, all in accordance with the terms of the Offer. This appointment is effective upon purchase of the Units by the Purchaser and will remain effective and be irrevocable for a period of ten years following the Expiration Date of the Offer. Upon purchase of the Units pursuant to the Offer, all prior powers of attorney given by the undersigned hereto with respect to such Units will be revoked and no subsequent powers of attorney may be given (and if given will not be deemed effective). In addition to and without limiting the generality of the foregoing, the undersigned hereto hereby irrevocably (i) requests and authorizes (subject to and effective upon acceptance for payment of any Unit tendered hereby) the Partnership and its general partner to take any and all actions as may be required to effect the transfer of the undersigned's Units to the Purchaser (or its designee) and to admit the Purchaser as a substitute limited partner in the Partnership under the terms of the Partnership Agreement; (ii) empowers the Purchaser and its agent to execute and deliver to the general partner a change of address form instructing the general partner to send any and all future distributions to the address specified in the form, and to endorse any check payable to or upon the order of such unitholder representing a distribution to which the Purchaser is entitled pursuant to the terms of the Offer, in each case, in the name and on behalf of the tendering unitholder; (iii) agrees not to exercise any rights pertaining to the Units without the prior consent of the Purchaser; and (iv) requests and consents to the transfer of the Units, to be effective on the books and records of the Partnership as of the effective date set forth in the Offer. NOTWITHSTANDING ANY PROVISION IN THE PARTNERSHIP AGREEMENT OR ANY PURCHASE AGREEMENT TO THE CONTRARY, THE UNDERSIGNED HERETO HEREBY DIRECTS THE GENERAL PARTNER OF THE PARTNERSHIP TO MAKE ALL DISTRIBUTIONS AFTER THE PURCHASER ACCEPTS THE TENDERED UNITS FOR PAYMENT TO THE PURCHASER OR ITS DESIGNEE. Subject to and effective upon acceptance for payment of any Unit tendered hereby, the undersigned hereby 5 requests that the Purchaser be admitted to the Partnership as a substitute limited partner under the terms of the Partnership Agreement. Upon request, the undersigned will execute and deliver additional documents deemed by the Information Agent or the Purchaser to be necessary or desirable to complete the assignment, transfer and purchase of Units tendered hereby and will hold any distributions received from the Partnership after the Expiration Date in trust for the benefit of the Purchaser and, if necessary, will promptly forward to the Purchaser any such distributions immediately upon receipt. The Purchaser reserves the right to transfer or assign, in whole or in part, from time to time, to one or more of its affiliates, the right to purchase Units tendered pursuant to the Offer, but any such transfer or assignment will not relieve the Purchaser of its obligations under the Offer or prejudice the rights of tendering unitholders to receive payment for Units validly tendered and accepted for payment pursuant to the Offer. By executing this Letter of Transmittal, the undersigned hereto represents that either (i) the undersigned is not a plan subject to Title I of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code"), or an entity deemed to hold "plan assets" within the meaning of 29 C.F.R. Section 2510.3-101 of any such plan, or (ii) the tender and acceptance of Units pursuant to the Offer will not result in a nonexempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code. The undersigned hereto understands that a tender of Units to the Purchaser will constitute a binding agreement between the undersigned and the Purchaser upon the terms and subject to the conditions of the Offer. The undersigned recognizes that under certain circumstances set forth in the Offer, the Purchaser may not be required to accept for payment any or all of the Units tendered hereby. In such event, the undersigned understands that any Letter of Transmittal for Units not accepted for payment may be returned to the undersigned or destroyed by the Purchaser (or its agent). THIS TENDER IS IRREVOCABLE, EXCEPT THAT UNITS TENDERED PURSUANT TO THE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE, OR UNLESS ALREADY ACCEPTED FOR PAYMENT, ANY TIME AFTER 60 DAYS FROM THE OFFER DATE. THE UNDERSIGNED HAS BEEN ADVISED THAT THE PURCHASER IS AN AFFILIATE OF THE GENERAL PARTNER OF THE PARTNERSHIP. THE UNDERSIGNED HERETO HAS MADE HIS OR HER OWN DECISION TO TENDER UNITS. The undersigned hereto hereby represents and warrants for the benefit of the Partnership and the Purchaser that the undersigned owns the Units tendered hereby and has full power and authority and has taken all necessary action to validly tender, sell, assign, transfer, convey and deliver the Units tendered hereby and that when the same are accepted for payment by the Purchaser, the Purchaser will acquire good, marketable and unencumbered title thereto, free and clear of all liens, restrictions, charges, encumbrances, conditional sales agreements or other obligations relating to the sale or transfer thereof, and such Units will not be subject to any adverse claims and that the transfer and assignment contemplated herein are in compliance with all applicable laws and regulations. All authority herein conferred or agreed to be conferred shall survive the death or incapacity of the undersigned hereto, and any obligations of the undersigned shall be binding upon the heirs, personal representatives, trustees in bankruptcy, legal representatives, and successors and assigns of the undersigned. The undersigned hereto further represents and warrants that, to the extent a certificate evidencing the Units tendered hereby (the "original certificate") is not delivered by the undersigned together with this Letter of Transmittal, (i) the undersigned has not sold, transferred, conveyed, assigned, pledged, deposited or otherwise disposed of any portion of the Units, (ii) the undersigned has caused a diligent search of its records to be taken and has been unable to locate the original certificate, (iii) if the undersigned shall find or recover the original certificate evidencing the Units, the undersigned will immediately and without consideration surrender it to the Purchaser; and (iv) the undersigned shall at all times indemnify, defend, and save harmless the Purchaser and the Partnership, its successors, and its assigns from and against any and all claims, actions, and suits whether groundless or otherwise, and from and against any and all liabilities, losses, damages, judgments, costs, charges, counsel fees, and other expenses of every nature and character by reason of honoring or refusing to honor the original certificate when presented by or on behalf of a holder in due course of a holder appearing to or believed by the partnership to be such, or by issuance or delivery of a replacement certificate, or the making of any payment, delivery, or credit in respect of the original certificate without surrender thereof, or in respect of the replacement certificate. 6 IMPORTANT: WHEN TENDERING, YOU MUST SEND ALL PAGES OF THIS LETTER OF TRANSMITTAL, INCLUDING EXECUTED TAX CERTIFICATIONS ON NEXT PAGE. SIGNATURE BOX (SEE INSTRUCTION 2) - -------------------------------------------------------------------------------- Please sign exactly as your name is printed on the front of this Letter of Transmittal. For joint owners, each joint owner must sign. (See Instruction 2). The undersigned hereto hereby represents, warrants and agrees as set forth in this Letter of Transmittal and tenders the Units indicated in this Letter of Transmittal to the Purchaser pursuant to the terms of the Offer. X - -------------------------------------------------------------------------------- (Signature of Owner) X - -------------------------------------------------------------------------------- (Signature of Joint Owner) Name and Capacity (if other than individuals): - -------------------------------------------------------------------------------- Title: - -------------------------------------------------------------------------------- Address: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (City) (State) (Zip) Area Code and Telephone No. (Day): - -------------------------------------------------------------------------------- (Evening): - -------------------------------------------------------------------------------- SIGNATURE GUARANTEE (IF REQUIRED) (SEE INSTRUCTION 2) - -------------------------------------------------------------------------------- YOU DO NOT NEED TO HAVE YOUR SIGNATURE GUARANTEED UNLESS YOU ARE A TRUSTEE, EXECUTOR, ADMINISTRATOR, GUARDIAN, ATTORNEY-IN-FACT, OFFICER OF A CORPORATION OR OTHER PERSON ACTING IN A FIDUCIARY OR REPRESENTATIVE CAPACITY. Name and Address of Eligible Institution: - -------------------------------------------------------------------------------- Authorized Signature: X - -------------------------------------------------------------------------------- Name: - -------------------------------------------------------------------------------- Title: --------------- Date: -------------------- 7 TAX CERTIFICATIONS (SEE INSTRUCTION 5) Please refer to the attached Instructions for completing Boxes A and B below.
- --------------------------------------------------------------------------------------------------------- BOX A SUBSTITUTE W-9 - --------------------------------------------------------------------------------------------------------- SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN --------------------------------------- FORM W-9 THE BOX AT THE RIGHT OR, IF YOU DO SOCIAL SECURITY NUMBER NOT HAVE A TIN, WRITE "APPLIED FOR" DEPARTMENT OF THE TREASURY AND SIGN THE CERTIFICATION BELOW. OR INTERNAL REVENUE SERVICE --------------------------------------- (IRS) TAXPAYER IDENTIFICATION NUMBER [ ] EXEMPT PAYER'S REQUEST FOR TAXPAYER IDENTIFICATION NUMBER (TIN) ----------------------------------------------------------------------------- PART 2 -- CERTIFICATION -- Under penalties of perjury, I certify that: PLEASE FILL IN YOUR NAME AND (1) The number shown on this form is my correct Taxpayer Identification ADDRESS BELOW. Number (or I am waiting for a number to be issued to me), - -------------------------- Name (2) I am not subject to backup withholding either because (a) I am exempt - -------------------------- from backup withholding, (b) I have not been notified by the IRS that I am Business Name subject to backup withholding as a result of failure to report all - -------------------------- interest or dividends, or (c) the IRS has notified me that I am no longer Address (number and subject to backup withholding, and street) - -------------------------- (3) I am a U.S. person (as defined for U.S. federal income tax purposes). City, State and Zip Code ----------------------------------------------------------------------------- CERTIFICATION INSTRUCTIONS -- You must cross out item (2) in Part 2 above if you have been notified by the IRS that you are subject to backup withholding because of under reporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding, you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out item (2). If you are exempt from backup withholding, check the box in Part 1 and see the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9". Signature: --------------------------------------------- Date: ---------- - ---------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- BOX B FIRPTA AFFIDAVIT - -------------------------------------------------------------------------------- Under Section 1445(e)(5) of the Internal Revenue Code and Treas. Reg. 1.1445 11T(d), a transferee must withhold tax equal to 10% of the amount realized with respect to certain transfers of an interest in a partnership if 50% or more of the value of its gross assets consists of U.S. real property interests and 90% or more of the value of its gross assets consists of U.S. real property interests plus cash equivalents, and the holder of the Units is a foreign person. To inform AIMCO Properties, L.P. that no withholding is required with respect to the unitholder's Units in the Partnership, the undersigned hereby certifies the following under penalties of perjury: (i) Unless this box [ ] is checked, the unitholder, if an individual, is a U.S. citizen or a resident alien for purposes of U.S. income taxation, and if other than an individual, is not a foreign corporation, foreign partnership, foreign estate or foreign trust (as those terms are defined in the Internal Revenue Code and Income Tax Regulations); (ii) The unitholder is not a disregarded entity as defined in Treas. Reg. Section 1.1445-2(b)(2)(iii); (iii) The unitholder's U.S. social security number (for individuals) or employer identification number (for non individuals) is correct as furnished in the blank provided for that purpose in Box A; (iv) The unitholder's home address (for individuals), or office address (for non individuals), is correctly printed (or corrected) is correct as furnished in the blank provided for that purpose in Box A. The undersigned understands that this certification may be disclosed to the IRS by AIMCO Properties, L.P. and that any false statements contained herein could be punished by fine, imprisonment, or both. Under penalties of perjury I declare that I have examined this certification and to the best of my knowledge and belief it is true, correct, and complete. Signature: ---------------------------------------- Date: ------------------ 8 INSTRUCTIONS FOR COMPLETING LETTER OF TRANSMITTAL 1. REQUIREMENTS OF TENDER. To be effective, a duly completed and signed Letter of Transmittal (or facsimile thereof) and any other required documents must be received by the Information Agent at one of its addresses (or its facsimile number) set forth herein on or before the date and time of the Expiration Date, unless extended. To ensure receipt of the Letter of Transmittal and any other required documents, it is suggested that you use overnight courier delivery or, if the Letter of Transmittal and any other required documents are to be delivered by United States mail, that you use certified or registered mail, return receipt requested. Our records indicate that you own the number of Units set forth in the box above entitled "Description of Units Tendered" under the column entitled "Name(s), Address(es), Number of Units Owned and Tax Identification Number of Registered Holder(s)." If you would like to tender only a portion of your Units, please so indicate in the space provided in the box above entitled "Description of Units Tendered." WHEN TENDERING, YOU MUST SEND ALL PAGES OF THE LETTER OF TRANSMITTAL, INCLUDING EXECUTED TAX CERTIFICATIONS (BOXES A AND B). THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING UNITHOLDER AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. 2. SIGNATURE REQUIREMENTS. INDIVIDUAL AND JOINT OWNERS. After carefully reading and completing the Letter of Transmittal, to tender Units, unitholders must sign at the "X" in the Signature Box of the Letter of Transmittal. The signature(s) must correspond exactly with the names printed (or corrected) on the front of the Letter of Transmittal. NO SIGNATURE GUARANTEE ON THE LETTER OF TRANSMITTAL IS REQUIRED IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE UNITHOLDER (OR BENEFICIAL OWNER IN THE CASE OF AN IRA). If any tendered Units are registered in the names of two or more joint owners, all such owners must sign this Letter of Transmittal. IRAS/ELIGIBLE INSTITUTIONS. For Units held in an IRA account, the beneficial owner should sign in the Signature Box and no signature guarantee is required. Similarly, no signature guarantee is required if Units are tendered for the account of a member firm of a registered national security exchange, a member firm of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"). TRUSTEES, CORPORATIONS, PARTNERSHIP AND FIDUCIARIES. Trustees, executors, administrators, guardians, attorneys-in-fact, officers of a corporation, authorized partners of a partnership or other persons acting in a fiduciary or representative capacity must sign at the "X" in the Signature Box and have their signatures guaranteed by an Eligible Institution by completing the signature guarantee set forth in the Signature Box of the Letter of Transmittal. If the Letter of Transmittal is signed by trustees, administrators, guardians, attorneys-in-fact, officers of a corporation, authorized partners of a partnership or others acting in a fiduciary or representative capacity, such persons should, in addition to having their signatures guaranteed, indicate their title in the Signature Box and must submit proper evidence satisfactory to the Purchaser of their authority to so act (see Instruction 3 below). 3. DOCUMENTATION REQUIREMENTS. In addition to the information required to be completed on the Letter of Transmittal, additional documentation may be required by the Purchaser under certain circumstances including, but not limited to, those listed below. Questions 9 on documentation should be directed to the Information Agent at its telephone number set forth herein. DECEASED OWNER (JOINT TENANT) -- Copy of death certificate. DECEASED OWNER (OTHERS) -- Copy of death certificate (see also Executor/ Administrator/Guardian below). EXECUTOR/ADMINISTRATOR/GUARDIAN -- Copy of court appointment documents for executor or administrator; and (a) a copy of applicable provisions of the will (title page, executor(s)' powers, asset distribution); or (b) estate distribution documents. ATTORNEY-IN-FACT -- Current power of attorney. CORPORATION/PARTNERSHIP -- Corporate resolution(s) or other evidence of authority to act. Partnership should furnish a copy of the partnership agreement. TRUST/PENSION PLANS -- Unless the trustee(s) are named in the registration, a copy of the cover page of the trust or pension plan, along with a copy of the section(s) setting forth names and powers of trustee(s) and any amendments to such sections or appointment of successor trustee(s).
4. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If consideration is to be issued in the name of a person other than the person signing the Signature Box of the Letter of Transmittal or if consideration is to be sent to someone other than such signer or to an address other than that set forth on the Letter of Transmittal in the box entitled "Description of Units Tendered," the appropriate boxes on the Letter of Transmittal should be completed. 5. TAX CERTIFICATIONS. The unitholder(s) tendering Units to the Purchaser pursuant to the Offer must furnish the Purchaser with the unitholder(s)' taxpayer identification number ("TIN") and certify as true, under penalties of perjury, the representations in Box A and Box B. See attached Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for guidance in determining the proper TIN to give the Purchaser. U.S. PERSONS. A unitholder that is a U.S. citizen or a resident alien individual, a domestic corporation, a domestic partnership, a domestic trust or a domestic estate (collectively, "U.S. Persons"), as those terms are defined in the Code, should follow the instructions below with respect to certifying Box A and Box B. BOX A -- SUBSTITUTE FORM W-9. PART (i), TAXPAYER IDENTIFICATION NUMBER. Tendering unitholders must certify to the Purchaser that the TIN provided in Box A is correct. If a correct TIN is not provided, penalties may be imposed by the Internal Revenue Service (the "IRS"), in addition to the unitholder being subject to backup withholding. PART (ii), BACKUP WITHHOLDING. In order to avoid Federal income tax backup withholding, the tendering unitholder must certify, under penalty of perjury, that such unitholder is not subject to backup withholding. Certain unitholders (including, among others, all corporations and certain exempt non-profit organizations) are not subject to backup withholding. Backup withholding is not an additional tax. If withholding results in an overpayment of taxes, a refund may be obtained from the IRS. DO NOT CHECK THE BOX IN BOX A, PART (ii), UNLESS YOU HAVE BEEN NOTIFIED BY THE IRS THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING. 10 When determining the TIN to be furnished, please refer to the following as a guide: Individual accounts -- should reflect owner's TIN. Joint accounts -- should reflect the TIN of the owner whose name appears first. Trust accounts -- should reflect the TIN assigned to the trust. IRA custodial accounts -- should reflect the TIN of the custodian (not necessary to provide). Custodial accounts for the benefit of minors -- should reflect the TIN of the minor. Corporations, partnership or other business entities -- should reflect the TIN assigned to that entity. Single member limited liability company -- should reflect the TIN of the owner of the Units for federal income tax purposes. NON-U.S. PERSONS. In order for a unitholder that is not a U.S. Person ("Non-U.S. Person") to qualify as exempt, such unitholder must submit a completed Form W-8BEN "Certificate of Foreign Status," Form W-8ECI "Certificate of Foreign Person's Claim for Exemption from Withholding on Income Effectively Connected with the Conduct of a U.S. Trade or Business," or Form W-8IMY "Certificate of Foreign Intermediary, Foreign Flow Through Entity or Certain U.S. Branches for United States Tax Withholding" signed under penalties of perjury attesting to such exempt status. Such forms may be obtained from the IRS at www.irs.gov. BOX B -- FIRPTA AFFIDAVIT. Section 1445 of the Code requires that each unitholder transferring interests in a partnership with real estate assets meeting certain criteria certify under penalty of perjury the representations made in Box B, or be subject to withholding of tax equal to 10% of the amount realized for interests purchased. Tax withheld under Section 1445 of the Code is not an additional tax. If withholding results in an overpayment of tax, a refund may be obtained from the IRS. PART (i) SHOULD BE CHECKED ONLY IF THE TENDERING UNITHOLDER IS NOT A U.S. PERSON, AS DESCRIBED THEREIN. 6. CONDITIONAL TENDERS. No alternative, conditional or contingent tenders will be accepted. 7. VALIDITY OF LETTER OF TRANSMITTAL. All questions as to the validity, form, eligibility (including time of receipt) and acceptance of a Letter of Transmittal and other required documents will be determined by the Purchaser and such determination will be final and binding. The Purchaser's interpretation of the terms and conditions of the Offer (including these Instructions for this Letter of Transmittal) will be final and binding. The Purchaser will have the right to waive any irregularities or conditions as to the manner of tendering. Any irregularities in connection with tenders, unless waived, must be cured within such time as the Purchaser shall determine. This Letter of Transmittal will not be valid until any irregularities have been cured or waived. Neither the Purchaser nor the Information Agent are under any duty to give notification of defects in a Letter of Transmittal and will incur no liability for failure to give such notification. 8. ASSIGNEE STATUS. Assignees must provide documentation to the Information Agent which demonstrates, to the satisfaction of the Purchaser, such person's status as an assignee. 9. TRANSFER TAXES. The amount of any transfer taxes (whether imposed on the registered holder or such person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the payment of such taxes or exemption therefrom is submitted. 11 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 WHAT NAME AND NUMBER TO GIVE THE REQUESTER NAME If you are an individual, you must generally enter the name shown on your Social Security card. However, if you have changed your last name, for instance, due to marriage, without informing the Social Security Administration of the name change, enter your first name, the last name shown on your Social Security card, and your new last name. If the account is in joint names, list first and then circle the name of the person or entity whose number you enter in Part I of the form. Sole Proprietor -- You must enter your individual name as shown on your Social Security card. You may enter your business, trade or "doing business as" name on the Business Name line. Limited Liability Company (LLC) -- If you are a single-member LLC (including a foreign LLC with a domestic owner) that is disregarded as an entity separate from its owner under Treasury regulations sec. 301.7701-3, enter the owner's name. Enter the LLC's name on the Business Name line. A disregarded domestic entity that has a foreign owner must use the appropriate Form W-8. Other Entities -- Enter the business name as shown on required federal income tax documents. This name should match the name shown on the charter or other legal document creating the entity. You may enter any business, trade or "doing business as" name on the Business Name line. TAXPAYER IDENTIFICATION NUMBER (TIN) You must enter your taxpayer identification number in the appropriate box. If you are a resident alien and you do not have and are not eligible to get a Social Security number, your taxpayer identification number is your IRS individual taxpayer identification number (ITIN). Enter it in the Social Security number box. If you do not have an individual taxpayer identification number, see OBTAINING A NUMBER below. If you are a sole proprietor and you have an employer identification number, you may enter either your Social Security number or employer identification number. However, using your employer identification number may result in unnecessary notices to the requester, and the IRS prefers that you use your Social Security number. If you are an LLC that is disregarded as an entity separate from its owner under Treasury regulations sec. 301.7701-3, and are owned by an individual, enter the owner's Social Security number. If the owner of a disregarded LLC is a corporation, partnership, etc., enter the owner's employer identification number. See the chart below for further clarification of name and TIN combinations. 12 Social Security numbers have nine digits separated by two hyphens: i.e., 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e., 00-0000000. The table below will help determine the number to give the payer. - ----------------------------------------------------- GIVE THE TAXPAYER FOR THIS TYPE OF ACCOUNT: IDENTIFICATION NUMBER OF -- - ----------------------------------------------------- 1. An individual account The individual 2. Two or more individuals The actual owner of (joint account) the account or, if combined funds, the first individual on the account(1) 3. Custodian account of a The minor(2) minor (Uniform Gift to Minors Act) 4. a. The usual revocable The grantor trustee(1) savings trust account (grantor is also trustee) b. So-called trust The actual owner(1) account that is not a legal or valid trust under state law 5. Sole proprietorship or The owner(3) single-owner LLC 6. A valid trust, estate or The legal entity (Do pension trust not furnish the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title.)(4) - ----------------------------------------------------- - ----------------------------------------------------- GIVE THE TAXPAYER FOR THIS TYPE OF ACCOUNT: IDENTIFICATION NUMBER OF -- - ----------------------------------------------------- 7. Corporate or LLC The corporation electing corporate status on Form 8832 8. Association, club, The organization religious, charitable, educational organization, or other tax-exempt organization 9. Partnership or multi- The partnership member LLC 10. A broker or registered The broker or nominee nominee 11. Account with the The public entity Department of Agriculture in the name of a public entity (such as a State or local government, school district, or prison) that receives agricultural program payments - -----------------------------------------------------
(1) List first and circle the name of the person whose number you furnish. If only one person on a joint account has a social security number, that person's number must be furnished. (2) Circle the minor's name and furnish the minor's social security number. (3) You must show your individual name, but you may also enter your business or "doing business as" name. You may use either your Social Security number or employer identification number (if you have one). (4) List first and circle the name of the legal trust, estate, or pension trust. NOTE: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. 13 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 OBTAINING A NUMBER If you do not have a taxpayer identification number or you do not know your number, obtain Form SS-5, Application for a Social Security Number Card (for individuals), or Form SS-4, Application for Employer Identification Number (for businesses and all other entities), at the local office of the Social Security Administration or the Internal Revenue Service and apply for a number. PAYEES EXEMPT FROM BACKUP WITHHOLDING For interest and dividends, the following payees are generally exempt from backup withholding: - - An organization exempt from tax under section 501(a) of the Internal Revenue Code of 1986, as amended (the "Code"), an individual retirement account (IRA), or a custodial account under section 403(b)(7) of the Code if the account satisfies the requirements of section 401(f)(2) of the Code. - - The United States or any of its agencies or instrumentalities. - - A state, the District of Columbia, a possession of the United States, or any of their political subdivisions or instrumentalities. - - A foreign government or any of its political subdivisions, agencies or instrumentalities. - - An international organization or any of its agencies or instrumentalities. - - A corporation. - - A foreign bank of central issue. - - A dealer in securities or commodities required to register in the United States, the District of Columbia or a possession of the United States. - - A real estate investment trust. - - An entity registered at all times during the tax year under the Investment Company Act of 1940. - - A common trust fund operated by a bank under section 584(a) of the Code. - - A financial institution (as defined for purposes of section 3406 of the Code). - - A middleman known in the investment community as a nominee or who is listed in the most recent publication of the American Society of Corporate Secretaries, Inc., Nominee List. - - A trust exempt from tax under section 664 of the Code or described in section 4947 of the Code. For broker transactions, persons listed above, as well the persons listed below, are exempt from backup withholding. - - A futures commission merchant registered with the Commodity Futures Trading Commission. - - A person registered under the Investment Advisors Act of 1940 who regularly acts as a broker. Exempt payees described above should file substitute Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER. FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM. IF YOU ARE A NONRESIDENT ALIEN OR A FOREIGN ENTITY NOT SUBJECT TO BACKUP WITHHOLDING, FILE WITH PAYER A COMPLETED INTERNAL REVENUE FORM W-8 (CERTIFICATE OF FOREIGN STATUS). Certain payments other than interest, dividends, and patronage dividends, that are not subject to information reporting are also not subject to backup withholding. For details, see the regulations under sections 6041, 6041A(A), 6045, and 6050A. PRIVACY ACT NOTICE -- Section 6109 requires most recipients of dividend, interest, or other payments to give correct taxpayer identification numbers to payers who must report the payments to the IRS. The IRS uses the numbers for identification purposes. Payers must be given the numbers whether or not recipients are required to file a tax return. Payers must generally withhold a portion of taxable interest, dividend, and certain other payments to a payee who does not furnish a correct taxpayer identification number to a payer. Certain penalties may also apply. PENALTIES (1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER -- If you fail to furnish your correct taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING -- If you make a false statement with no reasonable basis that results in no imposition of backup withholding, you are subject to a penalty of $500. (3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION -- Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE 14 The Information Agent for the offer is: THE ALTMAN GROUP, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 238 1275 Valley Brook Avenue 1275 Valley Brook Avenue Lyndhurst, NJ 07071 Lyndhurst, NJ 07071 Lyndhurst, NJ 07071 By Telephone: TOLL FREE (800) 467-0821 By Fax: (201) 460-0050
15 EX-99.(A)(18) 4 d18178a5exv99wxayx18y.txt LETTER TO LIMITED PARTNERS Exhibit (a)(18) AIMCO AIMCO PROPERTIES, L.P. c/o The Altman Group, Inc. P.O. Box 238 Lyndhurst, NJ 07071 (800) 467-0821 June 6, 2005 Dear Limited Partner: In February 2005, we mailed you tender offer documents offering to purchase your units of limited partnership interest in Century Properties Fund XIX for $300.00 per unit in cash. Our offer was made upon the terms and subject to the conditions set forth in the Offer to Purchase, dated February 16, 2005, and in the related Letter of Transmittal (collectively, together with any supplements or amendments, our "Offer"). We recently extended our Offer to expire on June 27, 2005. We have amended and restated our Offer to Purchase to include additional information. A copy is enclosed, along with an Amended and Restated Letter of Transmittal. Please review it carefully before making your decision as to whether or not to accept our offer. Our offer price remains $300.00 per unit. If you have any questions or require further information, please contact the Information Agent, toll free, at (800) 467-0821. Sincerely, AIMCO Properties, L.P. EX-99.(C)(8) 5 d18178a5exv99wxcyx8y.txt APPRAISAL OF PLANTATION CROSSING [CB RICHARD ELLIS LOGO] COMPLETE APPRAISAL SELF-CONTAINED REPORT OF THE PLANTATION CROSSING APARTMENTS 2703 Delk Road Marietta, Cobb County, Metropolitan Atlanta, Georgia CBREI File No. 03-341AT-9358-000 DATE OF VALUE May 16, 2003 PREPARED FOR Mr. James Ashmun KEYCORP REAL ESTATE CAPITAL MARKETS, INC. 127 Public Square, Mailcode: OH-01-27-0824 Cleveland, Ohio 44114 PREPARED BY CB RICHARD ELLIS, INC. VALUATION & ADVISORY SERVICES 3225 Cumberland Boulevard, Suite 450 Atlanta, Georgia 30339 June 12, 2003 Mr. James Ashmun KEYCORP REAL ESTATE CAPITAL MARKETS, INC. 127 Public Square, Mailcode: OH-01-27-0824 Cleveland, Ohio 44114 RE: Appraisal of the Plantation Crossing Apartments 2703 Delk Road Marietta, Cobb County, Metropolitan Atlanta, Georgia CBREI File No. 03-341AT-9358-000 Dear Mr. Ashmun: At your request and authorization, CB Richard Ellis, Inc. has prepared a Complete Appraisal presented in a self-contained appraisal report of the market value of the referenced real property. The subject is a 180-unit garden apartment property, built in 1979. The property is situated on a 14.947-acre site, in Marietta, Cobb County, metropolitan Atlanta, Georgia. The property has a street address of 2703 Delk Road, and is currently 95.6% occupied. It should be noted that there were several minor items of deferred maintenance noted at the subject property. However, these items will be cured in the near-term and, at the request of the client, we have not made any deductions for these items. The subject is more fully described, legally and physically, within the enclosed report. Data, information and calculations leading to the value conclusion are incorporated in the report following this letter. The report, in its entirety, including all assumptions and limiting conditions, is an integral part of and inseparable from this letter. Based on the analysis contained in the following report, the market value of the subject is concluded as follows: MARKET VALUE CONCLUSION
APPRAISAL PREMISE INTEREST APPRAISED DATE OF VALUE VALUE CONCLUSION - ---------------------------------------------------------------------------------- Market Value As Is Fee Simple May 15, 2003 $9,200,000
Source: Cb Richard Ellis, Inc. The following appraisal sets forth the most pertinent data gathered, the techniques employed and the reasoning leading to the opinion of value. The analyses, opinions and conclusions were developed based on, and this report has been prepared in conformance with, our interpretation of the guidelines and recommendations set forth in the Uniform Standards of Professional Appraisal Practice (USPAP), the requirements of the Code of Professional Ethics and Standards of Professional Appraisal Practice Mr. James Ashmun June 12, 2003 Page 2 of the Appraisal Institute, The Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), Title XI Regulations, and according to Freddie Mac underwriting guidelines. It has been a pleasure to assist you in this assignment. If you have any questions concerning the analysis, or if CB Richard Ellis, Inc. can be of further service, please contact us. Respectfully submitted, CB RICHARD ELLIS, INC. VALUATION & ADVISORY SERVICES ________________________________________ ________________________________________ Raymond A. Higgins Ronald A. Neyhart, MAI Vice President Senior Managing Director Georgia State Certification No. CG001388 Georgia State Certification No. CG000490 Phone: 770-984-5007 Phone: 770-984-5020 Fax: 770-984-5001 Fax: 770-984-5001 Email: rhiggins@cbre.com Email: rneyhart@cbre.com RAN/RAH
PLANTATION CROSSING APARTMENTS CERTIFICATION OF THE APPRAISAL CERTIFICATION OF THE APPRAISAL We certify to the best of our knowledge and belief: 1. The statements of fact contained in this report are true and correct. 2. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions and are our personal, impartial and unbiased professional analyses, opinions, and conclusions. 3. We have no present or prospective interest in or bias with respect to the property that is the subject of this report and have no personal interest in or bias with respect to the parties involved with this assignment. 4. Our engagement in this assignment was not contingent upon developing or reporting predetermined results. 5. Our compensation for completing this assignment is not contingent upon the development or reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal. 6. This appraisal assignment was not based upon a requested minimum valuation, a specific valuation, or the approval of a loan. 7. Our analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice of The Appraisal Foundation and the requirements of the Code of Professional Ethics and the Standards of Professional Appraisal Practice of the Appraisal Institute, as well as the requirements of the State of Georgia relating to review by its duly authorized representatives. This report also conforms to the requirements of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA). 8. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. 9. Ronald A. Neyhart, MAI has completed the requirements of the continuing education program of the Appraisal Institute. 10. Raymond A. Higgins has made a personal inspection of the property that is the subject of this report. Ronald A. Neyhart, MAI has not made a personal inspection of the subject property. 11. No one provided significant real property appraisal assistance to the persons signing this report. 12. Raymond A. Higgins and Ronald A. Neyhart, MAI have extensive experience in the appraisal/review of similar property types. 13. Raymond A. Higgins and Ronald A. Neyhart, MAI are currently certified in the state where the subject is located. 14. We have reviewed an environmental and engineer report for the subject property and we found no items which would negatively impact our estimate of market value. 15. Valuation & Advisory Services operates as an independent economic entity within CB Richard Ellis, Inc. Although employees of other CB Richard Ellis, Inc. divisions may be contacted as a part of our routine market research investigations, absolute client confidentiality and privacy are maintained at all times with regard to this assignment without conflict of interest. ________________________________________ ________________________________________ Raymond A. Higgins Ronald A. Neyhart, MAI Vice President Senior Managing Director Georgia State Certification No. CG001388 Georgia State Certification No. CG000490
i PLANTATION CROSSING APARTMENTS SUBJECT PHOTOGRAPHS SUBJECT PHOTOGRAPHS Insert digital photo pages here ii PLANTATION CROSSING APARTMENTS SUMMARY OF SALIENT FACTS iii PLANTATION CROSSING APARTMENTS SUMMARY OF SALIENT FACTS SUMMARY OF SALIENT FACTS PROPERTY NAME Plantation Crossing Apartments LOCATION 2703 Delk Road, Marietta, GA ASSESSOR'S PARCEL NUMBER 17-0858-006 HIGHEST AND BEST USE As Though Vacant Apartment As Improved Apartment PROPERTY RIGHTS APPRAISED Fee Simple DATE OF INSPECTION May 15, 2003 LAND AREA 14.947 AC IMPROVEMENTS Number of Buildings 13 Number of Stories 2 & 3 Gross Building Area 192,330 SF Net Rentable Area 190,030 SF Number of Units 180 Average Unit Size 1,056 SF Year Built 1979 Condition Good ESTIMATED EXPOSURE TIME 9 Months FINANCIAL INDICATORS Current Overall Occupancy 95.6% Stabilized Overall Occupancy 92.0% Overall Capitalization Rate 7.50%
TOTAL PER UNIT ---------- --------- STABILIZED OPERATING DATA ON MAY 15, 2003 Effective Gross Income $1,458,854 $ 8,105 Operating Expenses $ 766,718 $ 4,260 Expense Ratio 52.56% Net Operating Income $ 692,137 $ 3,845 VALUATION MARKET VALUE AS IS ON MAY 15, 2003 Land Value $2,075,000 $ 11,528 Cost Approach $9,900,000 $ 55,000 Sales Comparison Approach $9,350,000 $ 51,944 Income Capitalization Approach $9,200,000 $ 51,111
CONCLUDED MARKET VALUE
APPRAISAL PREMISE INTEREST APPRAISED DATE OF VALUE VALUE - ----------------- ------------------ ------------- ----- Market Value As Is Fee Simple May 15, 2003 $9,200,000
Source: CB Richard Ellis, Inc. iv PLANTATION CROSSING APARTMENTS TABLE OF CONTENTS TABLE OF CONTENTS CERTIFICATION OF THE APPRAISAL........................................... I SUBJECT PHOTOGRAPHS...................................................... II SUMMARY OF SALIENT FACTS................................................. IV TABLE OF CONTENTS........................................................ V INTRODUCTION............................................................. 1 AREA ANALYSIS............................................................ 6 NEIGHBORHOOD ANALYSIS.................................................... 17 MARKET ANALYSIS.......................................................... 21 SITE ANALYSIS............................................................ 41 IMPROVEMENT ANALYSIS..................................................... 43 ZONING................................................................... 48 TAX AND ASSESSMENT DATA.................................................. 49 HIGHEST AND BEST USE..................................................... 51 APPRAISAL METHODOLOGY.................................................... 53 LAND VALUE............................................................... 55 COST APPROACH............................................................ 58 SALES COMPARISON APPROACH................................................ 62 INCOME CAPITALIZATION APPROACH........................................... 67 RECONCILIATION OF VALUE.................................................. 89 ASSUMPTIONS AND LIMITING CONDITIONS...................................... 90
ADDENDA A Glossary of Terms B Additional Subject Photographs C Comparable Land Sales D Improved Comparable Sales E Rent Comparables F Demographics G Rent Roll H Historical Operating Statements I Freddie Mac Form 439 J Qualifications v PLANTATION CROSSING APARTMENTS INTRODUCTION INTRODUCTION PROPERTY IDENTIFICATION The subject is a 180-unit garden apartment property, built in 1979. The property is situated on a 14.947-acre site, in Marietta, Cobb County, metropolitan Atlanta, Georgia. The subject has a street address of 2703 Delk Road and is identified as parcel 17-0858-006 by the Cobb County Tax Assessor's office. OWNERSHIP AND PROPERTY HISTORY According to Cobb County records, title to the property is currently vested in the name of Century Properties Fund XIX. CB Richard Ellis is not aware of any ownership transfers of the property in the last three years. Furthermore, the property is not reportedly under contract or being marketed for sale at the time of this appraisal. DATE OF INSPECTION The subject was inspected on May 16, 2003. DATE OF VALUE The date of appraisal for the "as is" value is May 16, 2003. DATE OF REPORT The date of report is the date indicated on the letter of transmittal. PURPOSE OF THE APPRAISAL The purpose of this appraisal is to estimate the market value of the subject property. The current economic definition agreed upon by agencies that regulate federal financial institutions in the U.S. (and used herein) is as follows: The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: 1. buyer and seller are typically motivated; 2. both parties are well informed or well advised, and acting in what they consider their own best interests; 3. a reasonable time is allowed for exposure in the open market; 4. payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and, 1 PLANTATION CROSSING APARTMENTS INTRODUCTION 5. the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.(1) PREMISE OF THE APPRAISAL The premise of this appraisal valuation is "as is" on the date of value. TERMS AND DEFINITIONS The Glossary of Terms in the Addenda provides definitions for terms that are, and may be used, in this appraisal. INTENDED USE AND USER OF REPORT This appraisal is to be used in the underwriting of the property for a mortgage loan. PROPERTY RIGHTS APPRAISED The interest appraised represents the fee simple estate. SCOPE OF WORK The scope of the assignment relates to the extent and manner in which research is conducted, data is gathered and analysis is applied, all based upon the purpose of the appraisal and its intended use, as previously outlined. CB Richard Ellis, Inc. completed the following steps for this assignment: 1. physically identified and inspected both the interior and exterior of the subject property, as well as its surrounding environs; identified and considered those characteristics that may have a legal, economic or physical impact on the subject; 2. physically inspected the micro and/or macro market environments with respect to physical and economic factors relevant to the valuation process; expanded this knowledge through interviews with regional and/or local market participants, available published data and other various resources; 3. conducted regional and/or local research with respect to applicable tax data, zoning requirements, flood zone status, demographics, income and expense data, and comparable listing, sale and rental information; 4. analyzed the data gathered through the use of appropriate and accepted appraisal methodology to arrive at a probable value indication via each applicable approach to value; 5. correlated and reconciled the results into a reasonable and defensible value conclusion, as defined herein; and, - ------------------------- (1) Appraisal Standards Board of The Appraisal Foundation, Uniform Standards of Professional Appraisal Practice, 2002 ed. (Washington, DC: The Appraisal Foundation, 2002), 219; Appraisal Institute, The Dictionary of Real Estate Appraisal, 3rd ed. (Chicago: Appraisal Institute, 1993), 222-223. This definition is also compatible with the OTS, OCC, RTC, FDIC, FRS and NCUA definitions of market value. 2 PLANTATION CROSSING APARTMENTS INTRODUCTION 6. estimated a reasonable exposure time and marketing time associated with the value estimate presented. To develop the opinion of value, CB Richard Ellis, Inc. performed a Complete Appraisal as defined by the Uniform Standards of Professional Appraisal Practice (USPAP). This means that no departures from Standard 1 were invoked. In this Complete Appraisal, CB Richard Ellis, Inc. used all appropriate approaches to value. Furthermore, the value conclusion reflects all known information about the subject, market conditions, and available data. This appraisal of the subject has been presented in the form of a Self-Contained Appraisal Report, which is intended to comply with the reporting requirements set forth under Standards Rule 2-2(a) of the USPAP. That is, this report incorporates, to the fullest extent possible, practical explanation of the data, reasoning and analysis that were used to develop the opinion of value. This report also includes thorough descriptions of the subject and the market for the property type. SPECIAL APPRAISAL INSTRUCTIONS There have been no special appraisal instructions for this assignment. EXPOSURE TIME An estimate of exposure time is not intended to be a prediction of a date of sale or a simple one-line statement. Instead, it is an integral part of the appraisal analysis and is based on one or more of the following: - statistical information about days on the market - information gathered through sales verification - interviews of market participants. The reasonable exposure period is a function of price, time, and use. It is not an isolated estimate of time alone. Exposure time is different for various types of real estate and under various market conditions. Exposure time is the estimated length of time the property would have been offered prior to a hypothetical market value sale on the effective date of appraisal. It is a retrospective estimate based on an analysis of recent past events, assuming a competitive and open market. It assumes not only adequate, sufficient, and reasonable time but also adequate, sufficient, and reasonable marketing effort. Exposure time is therefore interrelated with appraisal conclusion of value. In consideration of these factors, we have analyzed the following: - exposure periods of comparable sales revealed during the course of this appraisal; - the CB Richard Ellis, Inc. National Investor Survey; and, - knowledgeable real estate professionals. 3 PLANTATION CROSSING APARTMENTS INTRODUCTION The following table presents the information derived from these sources: EXPOSURE TIME INFORMATION - APARTMENT PROPERTIES
Exposure Time (Months) Data Source Range Average - ----------- ---------- ------- National Investor Survey, 2003 Class A 2.0 - 36.0 6.64 Class B 3.0 - 24.0 6.68 Class C 3.0 - 24.0 6.89
Source: CB Richard Ellis, Inc. National Investor Survey Based on the foregoing analysis, an exposure time of nine months is reasonable, defensible, and appropriate. CB Richard Ellis, Inc. assumes the subject would have been competitively priced and aggressively promoted regionally. MARKETING TIME Marketing time is the period a prospective investor would forecast to sell the subject property immediately after the date of value, at the value estimated. The marketing time is an estimate of the number of months it will require to sell the subject from the date of value, into the future. The anticipated marketing time is essentially a measure of the perceived level of risk associated with the marketability, or liquidity, of the subject property. The marketing time estimate is based on the data used in estimating the reasonable exposure time, in addition to an analysis of the anticipated changes in market conditions following the date of appraisal. The future price for the subject (at the end of the marketing time) may or may not equal the appraisal estimate. The future price depends on unpredictable changes in the physical real estate, demographic and economic trends, real estate markets in general, supply/demand characteristics for the property type, and many other factors. Based on the premise that present market conditions are the best indicators of future performance, a prudent investor will forecast that, under the conditions described above, the subject will require a marketing time of nine months. 4 PLANTATION CROSSING APARTMENTS AREA ANALYSIS AREA MAP (NOT A FACING PAGE) Replace this page with the indicated exhibit. 5 PLANTATION CROSSING APARTMENTS AREA ANALYSIS AREA ANALYSIS LOCATION The subject property is located in the Atlanta metropolitan statistical area (MSA). The 20-county MSA includes the state capital and the state's largest city, Atlanta. POPULATION The following table of population statistics shows changes in population from the 1990 and 2000 censuses, estimates for the current year, and forward projections for the MSA. As these data demonstrate, there has been a significant increase in the area population during the last two decades and that growth is projected to continue into the foreseeable future. POPULATION OF MSA BY COUNTY
1990 2000 1990-2000 Percentage 2002 2007 2002-2007 County Census Census Ann. Growth of MSA Estimate Projection Ann. Growth - --------------- --------- --------- ----------- ---------- --------- ---------- ----------- Barrow 29,721 46,144 4.6% 1% 49,513 57,868 3.4% Bartow 55,897 76,019 3.0% 2% 80,163 90,410 2.6% Carroll 71,422 87,268 1.8% 2% 90,666 98,986 1.8% Cherokee 90,204 141,903 4.8% 4% 153,097 180,614 3.6% Clayton 182,052 236,517 2.5% 6% 246,304 271,171 2.0% Cobb 447,745 607,751 3.0% 15% 635,495 706,631 2.2% Coweta 53,853 89,215 5.5% 2% 95,939 112,898 3.5% DeKalb 545,837 665,865 1.8% 16% 687,557 742,650 1.6% Douglas 71,120 92,174 2.5% 2% 95,966 105,658 2.0% Fayette 62,415 91,263 3.9% 2% 96,516 109,878 2.8% Forsyth 44,083 98,407 10.3% 3% 110,512 140,083 5.4% Fulton 648,951 816,006 2.1% 19% 842,615 911,700 1.6% Gwinnett 352,910 588,448 5.6% 15% 632,751 744,477 3.5% Henry 58,741 119,341 8.6% 3% 132,112 163,684 4.8% Newton 41,808 62,001 4.0% 2% 66,335 76,985 3.2% Paulding 41,611 81,678 8.0% 2% 89,818 110,082 4.5% Pickens 14,432 22,983 4.9% 1% 24,957 29,751 3.8% Rockdale 54,091 70,111 2.5% 2% 72,322 78,309 1.7% Spalding 54,457 58,417 0.6% 1% 59,047 60,703 0.6% Walton 38,586 60,687 4.8% 2% 65,752 78,059 3.7% --------- --------- ---- --------- --------- --- Total MSA 2,959,936 4,112,198 3.2% 4,327,437 4,870,597 2.5% --------- --------- ---- --------- --------- ---
Source: Claritas, Inc. The following list provides comparative metropolitan population gain for the top 10 MSA's plus other selected metropolitan areas in the southeast across the previous decade. Atlanta has consistently ranked among the top 10. 6 PLANTATION CROSSING APARTMENTS AREA ANALYSIS POPULATION GROWTH IN SELECTED METROPOLITAN AREAS
Rank Metropolitan Statistical Area %Gain Rank Metropolitan Statistical Area %Gain - ---- ----------------------------- ----- ---- ----------------------------- ----- 1 Las Vegas, NV 83.3% 12 Charlotte-Gastonia, NC 29.0% 2 McAllen-Edinburg-Mission, TX 48.5% 16 Nashville, TN 25.0% 3 Austin-San Marcos, TX 47.7% 27 Greensboro-Winston-Salem, NC 19.2% 4 Phoenix-Mesa, AZ 45.3% 28 Columbia, SC 18.4% 5 Atlanta, GA 38.9% 29 Knoxville, TN 17.3% 6 Raleigh-Durham-Chapel Hill, NC 38.9% 34 Greenville-Spartanburg, SC 15.9% 7 Orlando, FL 34.3% 45 Memphis, Tennessee 12.7% 8 W Palm Beach-Boca Raton, FL 31.0% 54 Birmingham, AL 9.6% 9 Denver-Boulder-Greeley, CO 30.4% 58 Charleston-North Charleston, SC 8.3% 10 Colorado Springs, CO 30.2% 59 Louisville, KY 8.1%
Population growth for 82 metropolitan areas with total population exceeding 500,000, ranked by percent change, based on total population estimates for 1990 to 2000. Source: US Census Bureau; Compiled by CB Richard Ellis The overall percentage gain for all metropolitan markets is 13.8%, representing the addition of approximately 27.8 million people in metropolitan areas. HOUSEHOLDS The following table shows changes in demographic statistics by household based on the 2000 Census. 7 PLANTATION CROSSING APARTMENTS AREA ANALYSIS MSA HOUSEHOLD PROFILES BY COUNTY
Households Housing Median Income ------------------------------------ ---------------------- --------------------- 2000 2002 2007 Owner Persons per Per Per County Census Estimate Projection Occupied HH Household Capita - ------------- --------- --------- ---------- -------- ----------- --------- --------- Barrow 16,354 17,530 20,429 76% 2.79 $ 41,235 $ 17,674 Bartow 27,176 28,671 32,365 75% 2.76 $ 45,976 $ 20,846 Carroll 31,568 32,929 36,298 71% 2.66 $ 39,089 $ 18,705 Cherokee 49,495 53,453 63,201 84% 2.85 $ 63,091 $ 26,204 Clayton 82,243 85,324 93,049 61% 2.84 $ 49,738 $ 20,653 Cobb 227,487 237,409 262,668 68% 2.64 $ 70,401 $ 33,539 Coweta 31,442 33,846 39,917 78% 2.81 $ 48,087 $ 22,476 DeKalb 249,339 256,889 275,903 58% 2.62 $ 60,211 $ 29,226 Douglas 32,822 34,397 38,500 75% 2.78 $ 56,998 $ 24,368 Fayette 31,524 33,487 38,546 86% 2.88 $ 77,551 $ 32,664 Forsyth 34,565 38,687 48,605 88% 2.83 $ 68,123 $ 30,342 Fulton 321,242 332,031 360,034 52% 2.44 $ 56,956 $ 35,544 Gwinnett 202,317 216,464 251,462 72% 2.88 $ 75,504 $ 31,156 Henry 41,373 45,923 57,255 85% 2.87 $ 50,486 $ 21,083 Newton 21,997 23,663 27,825 78% 2.77 $ 40,927 $ 18,743 Paulding 28,089 30,894 37,866 87% 2.89 $ 42,686 $ 17,191 Pickens 8,960 9,797 11,880 82% 2.54 $ 42,074 $ 22,149 Rockdale 24,052 24,888 27,160 75% 2.87 $ 57,698 $ 25,081 Spalding 21,519 21,859 22,755 63% 2.67 $ 40,925 $ 19,618 Walton 21,307 23,129 27,579 77% 2.82 $ 38,321 $ 17,425 --------- --------- --------- -- ---- --------- --------- Total MSA 1,504,871 1,581,270 1,773,297 66% 2.68 $ 59,964 $ 29,037 --------- --------- --------- -- ---- --------- ---------
Source: Claritas, Inc. EMPLOYMENT Atlanta continues to lead the southeast region of the United States in commercial, industrial, and financial sectors. The following chart presents the diversity of Atlanta's economic base. Compared with employment distribution for the US, Atlanta is less dependent on services but more dependent on retail trade, with resources being evenly distributed to other sectors. 8 PLANTATION CROSSING APARTMENTS AREA ANALYSIS EMPLOYMENT BY SECTORS [EMPLOYMENT BY SECTORS PIE CHART] Government 5% Retail Trade 21% Finance, Insurance, Real Estate 8% Services 33% Agriculture, Mining, Construction, Other 8% Manufacturing 11% Transport,/Utility 7% Wholesale Trade 7%
Source: Bureau of Economic Analysis Entering the second half of 2002, job growth appeared to be negligible at the national level. Georgia and metro Atlanta seem to be consistent in reflecting this trend. The top 25 public companies in Georgia have announced layoffs or scaled back operations, having suffered setbacks in market valuation. However, owing to its diverse economy, Atlanta has undergone growth in defense, health services, and retail (discount stores) employment. During 1993, 1994, 1996, and 1999, Atlanta led the nation in job growth - ranking among the top 10 cities in the nation for job growth in the previous decade. Following these years of expansion, the recession that began in 2001 hit Atlanta hard. Job growth was reduced to negligible levels in 2001 and losses accumulated through 2002. On a seasonally adjusted basis, nonagricultural employment in metro Atlanta stands at just over 2.1 million. The current national economic climate, aggravated by geopolitical tensions around the world, continues to have a detrimental effect on the regional economy. Prospects for resumption of positive levels of job creation are just beginning to be apparent, and near-term prospects reflect the beginning of slow recovery through 2003. The following table summarizes job creation trends, according to the quarterly economic forecast published by Georgia State University's (GSU) Economic Forecasting Center. 9 PLANTATION CROSSING APARTMENTS AREA ANALYSIS METRO ATLANTA JOB GROWTH [METRO ATLANTA JOB GROWTH BAR CHART]
Georgia Atlanta ------- ------- 1994 156.8 97.5 1995 137.2 84.0 1996 125.2 86.0 1997 87.0 56.0 1998 124.5 83.6 1999 143.3 87.2 2000 66.5 52.2 2001 8.1 9.1 2002 (86.7) (54.3) 2003 (5.0) 2.8 2004 63.6 45.9 2005 84.4 56.0
Source: Georgia State University Economic Forecasting Center (February 2003) According to GSU's Economic Forecasting Center, job losses for 2002 in Atlanta totaled 54,300. The growth sectors that had continued strength through the 1990's - tourism, transportation, and telecommunications - were all negatively impacted by the recession, the attacks on September 11, 2001, or both. Passenger traffic at major airlines remains below peak. Convention business is slow, and hotel room rates have not begun to grow following competitive reductions. Telecom remains saturated with excess capacity. Thus, according to Rajeev Dhawan, Director of the Economic Forecasting Center, while the regional economy grew faster than the national average over the past decade, Atlanta may lag behind the nation in near-term recovery. Dhawan projects that the US economy will begin to grow by early Fourth Quarter 2003, assuming a quick victory in engaging Iraq. A quick victory in Iraq is generally perceived to be in the near-term. With perceptions evolving to a diminished threat of terrorism, corporate decision makers are anticipated to begin reengaging and expand hiring. As job growth picks up, fundamental reasons for increases in consumption and income growth will replace the current patchwork of credit and home equity cash-outs, according to the forecast. We note from our own observations that the Atlanta economy has continued to outperform expectations year after year. While the prospects for near-term expansion continue to be modest, in long-term projections, the Atlanta metropolitan area is forecast to remain a national leader in job creation. 10 PLANTATION CROSSING APARTMENTS AREA ANALYSIS The following table shows the historic strength of the local employment market, comparing the unemployment rate for the metropolitan area to that of the state and country. ANNUAL UNEMPLOYMENT RATE
MSA State US ---- ----- ---- 1995 4.3% 4.9% 5.6% 1996 3.8% 4.6% 5.4% 1997 3.7% 4.5% 4.9% 1998 3.3% 4.2% 4.5% 1999 3.1% 4.0% 4.2% 2000 3.0% 3.7% 4.0% 2001 3.5% 4.0% 4.8% 2002 4.8% 4.6% 5.8%
Source: US Bureau of Labor Statistics Preliminary data reported for indicate that the annual average unemployment rate for Atlanta was 5.8% in 2002, which represents a noticeable increase over the prior year. The metropolitan area is home to operations for over 700 of the Fortune 1,000 - 24 of the Fortune 1,000 companies are headquartered in the metro area. The largest corporate employers are listed in the following table. LARGEST CORPORATE EMPLOYERS
COMPANY INDUSTRY SCOPE OF OPERATIONS EMPLOYEES - --------------------------- -------------------- ------------------- --------- 1. Delta Air Lines Transportation Headquarters 26,200 2. BellSouth Telecommunication Headquarters 22,000 3. Wal-Mart Stores Retail Merchandiser Regional 15,100 4. AT&T Corporation Telecommunication Regional 10,000 5. The Home Depot Retail Merchandiser Headquarters 9,700 6. IBM Corporation Technology Regional 8,400 7. United Parcel Service Transportation Headquarters 8,100 8. SunTrust Finance Headquarters 6,700 9. Cox Enterprises Media Headquarters 6,200 10. Wachovia Finance Regional 6,000
Source: Atlanta Business Chronicle, March 2002 COMMERCIAL PROPERTY PRICE AND RENT TRENDS With growth in the population and employment, there have been corresponding steady rises in prices for real estate. The following tables provide information for various property types, comparing metro Atlanta with national averages. 11 PLANTATION CROSSING APARTMENTS AREA ANALYSIS AVERAGE SALES PRICE COMPARISON
Period CBD Office Suburban Office Industrial Retail Apartment (Year/Qtr) Atlanta US Atlanta US Atlanta US Atlanta US Atlanta US - ---------- ------- --- ------- --- ------- -- ------- --- ------- -- 1995 / 4 133 143 112 110 30 34 105 100 60 67 1996 / 4 137 148 125 123 33 36 116 105 67 74 1997 / 4 141 166 145 142 33 39 108 113 72 81 1998 / 4 138 190 142 152 36 42 112 117 77 89 1999 / 4 144 194 153 163 35 43 121 120 86 95 2000 / 4 159 216 170 180 38 45 122 122 85 104 2001 / 4 146 204 156 174 34 44 115 118 81 104 2002 / 4 139 210 151 179 36 44 115 123 81 106
Note: Prices are given in dollars per square foot, rounded, for Class A property sectors. Source: CB Richard Ellis/National Real Estate Index Market Monitor, 415 733 5300 AVERAGE RENTAL RATE COMPARISON
Period CBD Office Suburban Office Industrial Retail Apartment (Year/Qtr) Atlanta US Atlanta US Atlanta US Atlanta US Atlanta US - ---------- ------- ----- ------- ----- ------- ---- ------- ----- ------- ----- 1995 / 4 23.57 22.49 19.27 19.30 3.80 4.69 14.99 14.72 9.94 11.10 1996 / 4 23.42 23.97 22.36 21.06 4.01 4.95 15.17 15.42 10.06 11.71 1997 / 4 24.58 27.12 23.75 23.19 4.09 5.14 15.50 16.33 10.24 12.21 1998 / 4 25.46 29.72 23.23 24.28 4.07 5.33 16.11 16.91 10.47 13.02 1999 / 4 25.90 31.50 22.75 24.89 4.28 5.57 17.00 17.31 10.62 13.58 2000 / 4 27.00 35.51 23.12 28.17 4.42 5.80 17.07 17.80 11.33 14.43 2001 / 4 25.80 32.63 21.36 25.47 4.26 5.61 16.60 17.49 10.94 14.54 2002 / 4 24.15 30.04 19.61 23.46 3.93 5.37 16.55 17.47 10.13 14.12
Note: Rents are presented in dollars per square foot for Class A properties. Office, industrial, and apartment properties are given on an effective gross basis; retail properties, on a triple net basis. Source: CB Richard Ellis/National Real Estate Index Market Monitor, 415 733 5300 CAPITALIZATION RATE COMPARISON
Period CBD Office Suburban Office Industrial Retail Apartment (Year/Qtr) Atlanta US Atlanta US Atlanta US Atlanta US Atlanta US - ---------- ------- ----- ------- ----- ------- ---- ------- ----- ------- ----- 1995 / 4 8.3% 9.0% 9.3% 9.6% 9.1% 9.3% 8.6% 9.4% 8.3% 9.1% 1996 / 4 8.7% 9.0% 9.2% 9.2% 8.8% 9.2% 8.3% 9.3% 7.8% 8.9% 1997 / 4 8.9% 8.9% 9.2% 9.1% 9.1% 9.0% 9.4% 9.2% 8.5% 8.9% 1998 / 4 9.5% 8.6% 9.7% 9.0% 8.9% 8.9% 9.1% 9.1% 8.4% 8.8% 1999 / 4 9.2% 8.9% 8.9% 8.7% 9.3% 9.1% 8.7% 9.0% 8.1% 8.7% 2000 / 4 9.0% 8.7% 8.1% 8.6% 8.5% 9.0% 9.1% 9.1% 7.6% 8.4% 2001 / 4 9.6% 8.9% 8.5% 8.6% 9.5% 9.1% 9.4% 9.3% 8.3% 8.5% 2002 / 4 9.8% 7.6% 8.0% 7.4% 8.6% 8.7% 9.5% 8.9% 7.6% 7.9%
Note: Cap rates are determined from actual net operating income either from actual sales or from representative prototypes for Class A property sectors. Source: CB Richard Ellis/National Real Estate Index Market Monitor, 415 733 5300 RESIDENTIAL HOME COSTS The following chart compares the median home price for Atlanta and the nation. 12 PLANTATION CROSSING APARTMENTS AREA ANALYSIS SINGLE FAMILY MEDIAN HOME PRICE [SINGLE FAMILY MEDIAN HOME PRICE BAR CHART]
Atlanta US -------- -------- 1997 $108,400 $121,800 1998 $115,400 $128,400 1999 $123,700 $133,300 2000 $131,200 $139,100 2001 $138,800 $147,500 2002 $146,500 $158,300
Source: National Association of Realtors COST OF LIVING The Cost of Living Index, published by the American Chamber of Commerce Researchers Association, measures relative price levels for consumer goods and services in participating areas. The average of all participating municipalities equals 100, and the Atlanta index is read as a percentage against that national measure, shown along with other Southeastern metropolitan areas in the table below. COST OF LIVING
Location Total Grocery Housing Utilities Trans Health Misc. - ----------------------- ----- ------- ------- --------- ----- ------ ----- Memphis 87.1 90.9 78.3 78.5 94.1 90.2 92.3 Knoxville 89.1 95.4 78.3 91.8 86.1 88.1 95.7 Augusta-Aiken 91.0 104.4 71.9 91.2 99.8 94.3 97.5 Winston-Salem 91.7 94.7 85.9 91.9 92.3 85.6 95.7 Nashville-Franklin 91.7 99.1 81.7 80.4 93.3 82.9 100.3 Greenville 94.7 96.7 78.3 103.7 100.8 91.9 104.0 Columbia 95.1 99.2 85.4 114.7 88.8 89.7 99.2 Charlotte 95.7 94.9 88.5 91.3 102.7 95.5 101.2 Birmingham 97.6 107.1 84.4 102.8 97.4 87.1 104.7 Atlanta 98.1 101.9 94.5 92.1 101.8 106.3 98.3 Charleston-N Charleston 100.7 98.9 100.9 96.8 99.3 97.7 103.3 Raleigh 101.0 108.0 96.8 99.5 97.4 102.0 102.4
Source: ACCRA Cost of Living Index 13 PLANTATION CROSSING APARTMENTS AREA ANALYSIS RETAIL SALES Atlanta has shown consistent, strong growth in retail sales, ranking in the top 10 national markets for retail sales over the past five years. Annual sales volumes for the metropolitan area, prepared by Claritas are depicted in the following chart. Note that data reported prior to 1999 are not comparable with data in 2000 and following; the adoption of NAFTA required replacement of SIC codes with NAICS codes. RETAIL SALES GROWTH [RETAIL SALES GROWTH BAR CHART] 1995 $34.9 1996 $37.6 1997 $40.2 1998 $43.7 2000 $59.6 2001 $64.6 2002 $64.7
Numbers shown are $billion. Source: Sales & Marketing Management (to 1998) and Claritas, Inc. (2000 and following) Based on population, current spending trends and total sales, and other demographic factors, Claritas projects that total retail sales for the metro area will reach $88.8 billion by the year 2007, a growth rate of 7.5% per annum. TRANSPORTATION Atlanta began in the nineteenth century as a railway and manufacturing center and continues to maintain and improve its transportation systems, enhancing a primary reason for the area's economic growth and development. Air transportation continues to recover at Hartsfield-Atlanta International Airport, which remains the world's busiest passenger airport. Surpassing Chicago O'Hare (66.56 million passengers) and Los Angeles International (56.22 million passengers), Atlanta Hartsfield has maintained its top ranking in measures of passenger traffic and aircraft movement since 1998. More than 80% of the US population is reachable by air within two hours of Atlanta. 14 PLANTATION CROSSING APARTMENTS AREA ANALYSIS ATLANTA HARTSFIELD INTERNATIONAL AIRPORT
Activity 1997 1998 1999 2000 2001 2002 - --------------------------- ------- ------- ------- ------- ------- ------- Passengers (million) 68.21 73.47 78.09 80.16 75.86 76.88 Cargo (metric tons) 864,474 907,208 882,994 894,471 735,796 734,083 Movements (landing/takeoff) 794,447 846,881 909,911 915,454 890,494 889,966
Source: Airports Council International The airport has begun a 10-year facility expansion that will add a fifth runway by 2005. The new runway, which will measure either 6,000 or 9,000 feet in length, is projected to decrease the present average delay of 9:00 minutes per flight to 6:12 per flight. Additional enhancements will include a new rental car facility, international terminal, control tower, and possibly third major terminal. The economic impact of Hartsfield International Airport has been estimated at $16 billion annually for the metro Atlanta economy. Seven interstates serve metro Atlanta, including Interstates 75, 85, and 20, which run through the city, varying in width from four to fourteen lanes. In addition, a number of US and state highways, including Georgia Highway 400 (a primary north-south corridor, extending from the central business district northward), provide excellent regional access. Georgia has a historically strong commitment to maintaining its regional roads, and major interstate highway construction continues to meet projected growth and future needs. The Metropolitan Atlanta Rapid Transit Authority (MARTA) provides a 37-mile rapid rail transit system and extensive connector bus routes. Other available sources of commercially available ground transportation include Amtrak and Greyhound. CONCLUSION The Atlanta metropolitan region has played a major role in the growth of Georgia and the southeastern United States. A strong economic base has been shown in steady increases in population, in the diversity of the work force, and in job growth. Atlanta continues to gain new jobs faster and to maintain unemployment levels lower than most areas of the US. These demographic and employment trends indicate the primary drive for housing demand, retail sales, and commercial construction, and Atlanta continues to experience an exceptionally high level of economic prosperity. Atlanta has experienced tremendous growth in recent decades and taken its place as an international city. Despite modest slowing indicated by certain economic indicators, Atlanta's fundamentals remain strong and a pattern of stable growth should continue well into the foreseeable future. 15 PLANTATION CROSSING APARTMENTS NEIGHBORHOOD ANALYSIS NEIGHBORHOOD MAP (NOT A FACING PAGE) 16 PLANTATION CROSSING APARTMENTS NEIGHBORHOOD ANALYSIS NEIGHBORHOOD ANALYSIS LOCATION The subject is located in northwestern metropolitan Atlanta, on the north side of Delk Road, just east of Interstate 75, approximately 13 miles northeast of the Atlanta central business district. The boundaries of the subject's neighborhood are not delineated, but generally encompass a two- to three-mile radius from the subject property. LAND USE The neighborhood is an established area of northwest metropolitan Atlanta. The subject and its neighborhood are located north of the Interstate 75/Interstate 285 interchange in the eastern portion of Cobb County. There are two major influences affecting the Marietta area: development around Cumberland Mall/Galleria and Dobbins Air Reserve Base. The most intense development in the area is located just south of the subject property, in the area surrounding the intersection of Interstate 75 and Interstate 285. The development in this area has a heavy concentration of office and retail uses. In addition, the neighborhood has a large concentration of retail uses, including Cumberland Mall and the Atlanta Galleria Specialty Mall. Cumberland Mall, a 1.2 million square foot super-regional facility, opened in 1973 and was the original catalyst of the significant level of real estate development in the area. This property was renovated in 1983, and has Rich's, J.C. Penney, and Sears as anchor tenants. Another major development in the area is located approximately two miles northwest of the subject. Dobbins Air Reserve Base, located on approximately 3,500 acres, is utilized by the US Air Force, US Navy, and the Georgia Air National Guard. In addition, at the northwest portion of this facility is a Lockheed-Martin factory, which manufactures military aircraft, including the C-130 and previously the C5-A&B transport planes. This facility is also the production facility for the latest US Tactical Fighter Jet, the F-22. This plant is the major employer of the area with approximately 10,000 employees. Major office developments in or near the neighborhood include: Wildwood, Interstate North, Circle 75, Atlanta Galleria, Cumberland, Parkwood, Galleria 75, and Powers Ferry Landing. This submarket is the largest office submarket in the metropolitan area exceeding 26 million square feet. Currently, two significant office projects have recently finished construction, with lease-up anticipated in the near-term. These are the addition of Galleria 600, an 18-story 432,000 square foot office tower in the Childress Klein's Atlanta Galleria office park; and Overton Park, a 15-story 400,000 square foot office tower with retail that is the first aspect of a new mixed use development by Hines. In fact, the Cumberland/Galleria area has developed as a desirable location for a stable range of companies - from old economy stalwarts such as General Electric, Home Depot, and Lockheed 17 PLANTATION CROSSING APARTMENTS NEIGHBORHOOD ANALYSIS Martin to new economy concerns including Worldspan, NetSchools, and Computerjobs.com. With over 50 companies resident in the Cumberland area, the area has earned its own nickname: the Platinum Triangle. Users cite access to fiber optics, ample power, and a rapidly improving system of transportation as factors that make the area appealing. The remaining commercial development in the neighborhood consists of numerous community and neighborhood shopping centers, franchise restaurants, banking facilities, single-tenant retail facilities, automobile sales and service facilities, convenience stores, and numerous similar uses. These developments are almost exclusively located along the primary local traffic arteries. The industrial development in the neighborhood consists almost exclusively of business parks and business service facilities. These developments are typically along secondary roadways, but are positioned for convenient access to the interstate highways. All of these developments were constructed in the mid-1970's and mid-1980's. The residential development of the neighborhood consists of multi- and single-family uses. In the current economic cycle, developers have built homes ranging in price from $250,000 to $1,000,000. Due to the lack of land, but a desire by many people to be closer to their place of work and avoid extended driving times, many in-fill subdivisions have been developed in the neighborhood. These homes are typically priced from $200,000 and have sold quickly. The multi-family uses in the neighborhood are generally apartment complexes, but there are also various condominium uses in the area. Generally, the area apartment complexes consist of two product types. The properties developed in the 1980's and 1990's are typically class "A" and "B", whereas the properties which were developed in the 1970's or earlier are generally categorized as "B" and "C" grade developments. Neighborhood apartment development is located along primary and secondary roadways. The neighborhood also has a good level of supportive developments, including schools, parks, and Houses of Worship. ACCESS The accessibility to the area in general, and the subject property in particular, is excellent. Located just east of Interstate 75 and north of Interstate 285, there is easy access to all parts of the Atlanta metropolitan area. The neighborhood is also traversed by several primary thoroughfares including Delk Road, Powers Ferry Road, Cobb Parkway (US Highway 41), Windy Hill Road, Terrell Mill Road, and Akers Mill Road. Interstate 285, Atlanta's perimeter highway, serves to connect all interstate highways within the metropolitan area, allowing convenient access to most Atlanta communities. Interstate 75 is a major 18 PLANTATION CROSSING APARTMENTS NEIGHBORHOOD ANALYSIS north/south interstate extending through Atlanta and Georgia, and providing access to the eastern United States. The subject has access to Delk Road interstate exit, approximately one mile west of the main entrance. Major road improvement projects were completed at the intersection of Interstates 285 and 75 (the Kennedy Interchange) and at Windy Ridge Parkway and Interstate 75. The Kennedy Interchange was designed to improve traffic around the Cumberland Mall/Galleria area, providing additional access to the freeway system and reducing traffic on surface streets. In addition Powers Ferry Road, from Interstate Parkway North to north of Windy Hill Road is currently being widened. These road improvements are expected to enhance the overall accessibility of the neighborhood. In addition to the primary thoroughfares, the neighborhood is served by the Cobb Community Transit bus service which connects to the Atlanta MARTA bus and rail system. Bus service is available along most major roads in the Marietta area. Announced future transportation improvements include a MARTA rail line connecting the Galleria to Midtown Atlanta to be built by the state and $1.8 million in sidewalk improvements to be added by the Galleria community improvement district (CID). DEMOGRAPHICS Population growth and new household formations have been on an upward trend within the subject neighborhood. Selected neighborhood demographics in a one-, three-, and five-mile radius from the subject are shown in the following table: 19 PLANTATION CROSSING APARTMENTS NEIGHBORHOOD ANALYSIS SELECTED NEIGHBORHOOD DEMOGRAPHICS
2703 DELK RD SE Radius 1.0 Radius 3.0 Radius 5.0 MARIETTA, GA 30067-6203 Mile Miles Miles - ------------------------------------- --------- ---------- ---------- Population 2007 Projection 19,184 84,974 218,584 2002 Estimate 17,497 79,443 202,436 2000 Census 16,843 77,383 196,322 2002 - 2007 % Change 9.6% 7.0% 8.0% Households 2007 Projection 8,560 37,473 91,731 2002 Estimate 7,924 35,339 85,295 2000 Census 7,697 34,598 82,980 2002 - 2007 % Change 8.0% 6.0% 7.5% 2002 Average Household Income $ 71,495 $ 78,950 $ 92,494 2002 Median Household Income $ 62,843 $ 60,939 $ 63,048 2002 Per Capita Income $ 30,693 $ 34,287 $ 38,926 2002 Median Owner Occ. Prop. Value $ 131,684 $ 153,463 $ 170,127 % College Graduates 50.9% 50.1% 45.4%
Source: Claritas, Inc. The demographics of the neighborhood will be further discussed in the Market Analysis section of this report. CONCLUSION The subject property is located in an area with excellent accessibility, and which is conveniently located to employment centers. The neighborhood has a significant level of residential, commercial and office development. In summary, we expect the overall development and demographic nature of the neighborhood to remain relatively constant over the foreseeable future. 20 PLANTATION CROSSING APARTMENTS MARKET ANALYSIS MARKET ANALYSIS Marketability refers to the posture of the subject property within its marketplace and its ability to be leased, sold or marketed relative to its competition and current conditions. Within this section, the overall market trends influencing the Atlanta apartment market are analyzed, along with trends occurring in the local submarket, investment trends for multi-family properties, and demographic influences affecting the subject property. The primary data sources utilized for this analysis are the Atlanta Apartment Market Tracker Year-End 2002 and the Atlanta Apartment Pipeline Report Year-End 2002, published by Dale Henson Associates, Inc. The Atlanta Apartment Market Tracker focuses on apartment trends occurring within the nine of the 20 counties comprising the Atlanta metropolitan statistical area (MSA). These counties - Fulton, DeKalb, Cobb, Gwinnett, Clayton, Cherokee, Henry, Douglas, and Rockdale - - are subdivided into 17 apartment submarkets. The Atlanta Apartment Pipeline Report focuses on apartment projects that are recently completed, under construction or planned for development, as well as the lease-up and absorption levels witnessed at these properties. The Atlanta Apartment Pipeline Report covers all 20 counties within the MSA. The subject is located within the Cobb County submarket, as defined by the Dale Henson reports. A demographic study prepared by Claritas, Inc. has also been used to project probable future market demand for the subject property. The demographic study is included as an exhibit in the Addenda. METROPOLITAN ATLANTA APARTMENT MARKET OVERVIEW HISTORICAL TRENDS Metropolitan Atlanta has witnessed tremendous expansion in the past few decades, becoming the center of economic growth in the southeastern United States. Recognizing the area's growth potential, apartment developers from around the nation focused on Atlanta during the mid-1980's. The strong national economic conditions of the times provided ample demand, which increased rental rates and occupancy rates to record levels. However, the deep national recession of the early 1990's resulted in low occupancy and rent levels, and an extreme over-supply. The Atlanta market began its recovery in early 1992 and generally maintained stable occupancy levels, even as steady expansion continued through 2000. However, with the economic downturn that began in early 2001, the apartment market began slowing. The following table illustrates overall metro Atlanta apartment occupancy levels over the past several years. 21 PLANTATION CROSSING APARTMENTS MARKET ANALYSIS ATLANTA APARTMENT MARKET - HISTORICAL OCCUPANCY [ATLANTA APARTMENT MARKET - HISTORICAL OCCUPANCY BAR CHART] 1985 94% 1986 94% 1987 94% 1988 90% 1989 88% 1990 88% 1991 87% 1992 91% 1993 94% 1994 96% 1995 96% 1996 93.5% 1997 94.2% 1998 95.3% 1999 95.4% 2000 95.7% 2001 91.1% 2002 89.4%
Source: The Atlanta Apartment Tracker, Dale Henson Associates, Inc. Occupancy levels have decreased from the levels witnessed over the end of the 1990's, declining as regional job growth turned negative. The largest drop was recorded in the year-end change from 2000 to 2001. Also, it is significant to note that occupancy levels remain somewhat stronger than the low points set in 1989 to 1991. The change reported for year-end 2001 to 2002 was relatively minor, and outperformed the generally grim expectations of many observers. Whether occupancy levels have indeed "bottomed out" remains unclear, as significant levels of job creation have not yet exceeded job reductions. Downward pressure on occupancy has placed competitive pressure on rental rates and upward pressure on the level of concessions offered. The following table illustrates the apartment market trends within the Atlanta metropolitan area over the past several years. METROPOLITAN ATLANTA APARTMENT MARKET - HISTORICAL TRENDS
Reported Street Rent Street Rent Effective Rent Reported Units Units Units Year Occupancy ($/SF) ($/Unit/Mo.) ($/Unit/Mo.) Concessions Started Delivered Absorbed - ---- --------- ----------- ------------ -------------- ----------- ------- --------- -------- 1995 96.0% $0.64 $646 $621 $ 2 13,775 7,580 7,500 1996 93.5% $0.67 $678 $617 $17 11,073 11,800 10,050 1997 94.2% $0.69 $701 $639 $21 12,572 10,040 9,880 1998 95.3% $0.71 $725 $680 $12 12,569 11,930 12,090 1999 95.4% $0.74 $759 $707 $17 14,828 12,000 11,350 2000 95.7% $0.78 $792 $743 $14 11,288 12,820 12,800 2001 91.1% $0.79 $814 $679 $63 10,770 12,235 10,240 2002 89.4% $0.79 $814 $631 $98 7,750 12,641 4,961
Notes: Including properties with 50 units or more within the nine-county core area. Source: The Atlanta Apartment Tracker, Dale Henson Associates, Inc. 22 PLANTATION CROSSING APARTMENTS MARKET ANALYSIS As illustrated, the overall occupancy level declined sharply from year-end 2000 to year-end 2001, from 95.7% to 91.1%. This deterioration is attributed to the general economic downturn, reflected in declining job growth in the Atlanta area. Since year-end 2001, the overall occupancy level witnessed an additional but more moderate decrease to 89.4% at year-end 2002. This slowing rate of decline is positive for the market, but recovery remains dependent on the return of economic expansion and positive levels of job creation. The previous table illustrates that metro Atlanta average street rental rates have remained nearly unchanged, despite the slowing economy. However, substantial change has been occurring in effective rents, which have deteriorated over the past two years. Changes have occurred primarily in the level of concessions and occupancy, which have reduced effective rental rates. Average effective rental rates decreased $64 from year-end 2000 to 2001, and $48 from year-end 2001 to 2002. These declines returned effective rents to 1997 levels. The market is perceived to be in a stronger position to return to growth in rents and occupancy when general economic expansion resumes, as the level of apartment starts is well below recent levels. Developers have delayed their construction schedules due to the slowing economy, which will prevent extreme overbuilding from occurring. Considering consensus economic projections that indicate positive job growth will resume by mid- to late-2003 and the absence of strong levels of new construction, projected occupancy is likely to return to 90%+ levels by late-2003 or mid-2004. In addition, Atlanta is generally well positioned to emerge successfully from the current recession, due to its high level of diversity, strong in-migration, and low business costs. The Atlanta metropolitan area witnessed tremendous job growth over the past decade and is expected to continue as the regional growth area over the long-term. SUPPLY COMPONENT The following table summarizes the metropolitan apartment supply by submarket, as of year-end. 23 PLANTATION CROSSING APARTMENTS MARKET ANALYSIS METROPOLITAN ATLANTA APARTMENT MARKET
Percent Street Street Effective Total of Reported Units Units Units Rent Rent Rent Reported Submarket Units* Market Occupancy Delivered Absorbed Started (PSF) (Unit/Mo. (Unit/Mo.) Concession - -------------------------- ------- ------- --------- --------- -------- ------- ------ --------- ---------- ---------- Buckhead/Brookhaven 19,770 5.7% 91.7% 520 217 586 $ 1.06 $ 1,137 $ 876 $ 167 Cherokee County 5,649 1.6% 90.7% 484 981 0 $ 0.75 $ 817 $ 637 $ 104 Clayton County 26,871 7.8% 90.5% 814 34 672 $ 0.68 $ 688 $ 581 $ 42 Cobb County 62,687 18.1% 89.1% 1,195 41 543 $ 0.79 $ 810 $ 621 $ 101 Decatur 10,826 3.1% 88.4% 355 (230) 255 $ 0.88 $ 873 $ 681 $ 91 Douglas County 6,325 1.8% 91.1% 364 117 932 $ 0.77 $ 781 $ 655 $ 56 East DeKalb County 10,658 3.1% 88.5% 483 122 0 $ 0.68 $ 724 $ 560 $ 81 Gwinnett County 48,642 14.0% 88.8% 2,977 1,938 992 $ 0.79 $ 810 $ 599 $ 121 Henry County 4,790 1.4% 90.0% 409 302 338 $ 0.71 $ 771 $ 639 $ 56 Midtown/Brookwood 15,000 4.3% 90.2% 1,228 1,217 1,088 $ 1.03 $ 937 $ 758 $ 87 North DeKalb County 31,311 9.0% 90.8% 614 (263) 0 $ 0.82 $ 833 $ 655 $ 101 North Fulton County 19,651 5.7% 90.2% 706 654 0 $ 0.81 $ 894 $ 681 $ 126 Rockdale County 2,827 0.8% 89.9% 176 22 0 $ 0.73 $ 741 $ 608 $ 57 Sandy Springs/Dunwoody 27,215 7.9% 91.2% 818 489 398 $ 0.88 $ 930 $ 713 $ 135 Southeast DeKalb County 10,284 3.0% 87.7% 730 239 964 $ 0.69 $ 762 $ 594 $ 74 Southwest DeKalb County 14,951 4.3% 88.0% 154 (396) 0 $ 0.65 $ 633 $ 526 $ 30 South Atlanta/South Fulton 28,761 8.3% 85.2% 614 (523) 982 $ 0.64 $ 618 $ 489 $ 38 ------- ---- ------ ----- ----- ------ --------- ---------- ---------- Totals/Average** 346,218 89.4% 12,641 4,961 7,750 $ 0.79 $ 814 $ 631 $ 98 ------- ---- ------ ----- ----- ------ --------- ---------- ----------
Notes: * Including properties with 50 units or more. **Averages are weighted based on percent of overall market. Source: The Atlanta Apartment Tracker, Dale Henson Associates, Inc. As illustrated, there is a current overall supply of approximately 346,200 apartment units in the nine-county core of metropolitan Atlanta, taking into account only properties with 50 units or more. Cobb and Gwinnett Counties make-up the largest submarkets, with approximately 18% and 14% of the overall supply, respectively. However, Fulton and DeKalb Counties would account for the largest apartment inventories, if they were not divided into multiple submarkets. Submarkets located primarily in Fulton County combine for a total of approximately 110,400 units, or 32% of the metropolitan market. Submarkets located primarily in DeKalb County contain approximately 78,000 units, or 23% of the metropolitan market. All of the metropolitan Atlanta submarkets are currently witnessing average occupancy levels between 88% and 92%. Buckhead/Brookhaven, Sandy Springs/Dunwoody, and Douglas County reported the highest occupancy levels among all submarkets, with reported occupancy over 91% at year-end. The highest effective rental rates on a per square foot are being achieved in the Buckhead/Brookhaven and Midtown/Brookwood submarkets, which were both over $1.00 at year-end. The market average was $0.79 per square foot as of year-end. The Gwinnett County submarket witnessed the most apartment deliveries during 2002, with 2,977 units completed. The Midtown/Brookwood and Cobb County submarkets also saw significant deliveries during the year, with 1,228 and 1,195 new units added, respectively. Net absorption during 2002 was negative in only four of the 17 submarkets, as compared to nine submarkets with negative net absorption during 2001. This indicates that the market is in a better position to recover. The Gwinnett and Midtown/Brookwood submarkets had the highest levels of net absorption, with 1,938 and 1,217 units absorbed, respectively. 24 PLANTATION CROSSING APARTMENTS MARKET ANALYSIS Construction starts were moderate compared to prior years. The Midtown/Brookwood submarket led with 1,088 units begun during 2002. Douglas County, Gwinnett County, Southeast DeKalb County, and South Atlanta/South Fulton also had relatively strong levels of starts, with over 900 units begun in each. (Note that Gwinnett County, which had 992 units started, was moderate compared with prior years, when 2,500 to 3,000 units were started.) Six of the 17 submarkets had no starts. With regard to future increases to apartment supply in metro Atlanta, the most important factor is the availability of suitable sites. Currently, developers are facing challenges in obtaining appropriately zoned apartment sites in areas with rent levels that can support new construction. The availability of apartment sites is being restricted, primarily by area governing authorities, which are resistant to new construction. Contributing to the governing authority's restrictive tendencies is the perception that apartments will eventually end-up oriented to lower-income groups within 20 or so years. Apartments are also perceived as contributing to overcrowding of area schools and a drain on the overall infrastructure (i.e. utilities, roads, etc.). As a result, several zoning authorities have instituted moratoriums on the rezoning of land for apartments, particularly in the northern portion of the metropolitan area. The decreasing supply of available apartment sites, along with the unwillingness of governmental bodies to approve re-zonings, has had a visible impact on developers, shown in the decreased level of starts. Another consideration in the supply picture is that the majority of new apartment construction is concentrated in several high-growth areas. Conversely, a large portion of the metro area is experiencing minimal or no new construction. The majority of the new apartment development, as with most other types of commercial development, has been in the area extending north of Atlanta's central business district, between Interstates 75 and 85. In the slower growth areas, rent levels are generally lower than in the northern portions of metropolitan Atlanta, making apartment development less attractive. These trends are expected to continue. DEMAND Demand for multi-family communities is primarily correlated to population and employment shifts. More recently, changes in capital markets, particularly the home mortgage market, have had an additional impact on demand. The primary indicator of apartment demand is changes in job growth, as the addition of new jobs ultimately provides the catalyst for new apartment construction. In the Atlanta area, the overall demand for apartments, as with all types of real estate, declined significantly during the early 1990s, a direct result of the decline in job growth. The current national economic climate, aggravated by geopolitical tensions around the world, continues to have a detrimental effect on the regional economy. Prospects for resumption of positive 25 PLANTATION CROSSING APARTMENTS MARKET ANALYSIS levels of job creation are just beginning to be apparent, and near-term prospects reflect the beginning of slow recovery through 2003. The following table summarizes job creation trends, according to the quarterly economic forecast published by Georgia State University's (GSU) Economic Forecasting Center. METRO ATLANTA JOB GROWTH [BAR CHART]
Georgia Atlanta ------- ------- 1994 156.8 97.5 1995 137.2 84.0 1996 125.2 86.0 1997 87.0 56.0 1998 124.5 83.6 1999 143.3 87.2 2000 66.5 52.2 2001 8.1 9.1 2002 (86.7) (54.3) 2003 (5.0) 2.8 2004 63.6 45.9 2005 84.4 56.0
Source: Georgia State University Economic Forecasting Center (February 2003) According to GSU's Economic Forecasting Center, job losses for 2002 in Atlanta totaled 54,300. The growth sectors that had continued strength through the 1990's - tourism, transportation, and telecommunications - were all negatively impacted by the recession, the attacks on September 11, 2001, or both. Passenger traffic at major airlines remains below peak. Convention business is slow, and hotel room rates have not begun to grow following competitive reductions. Telecom remains saturated with excess capacity. Thus, according to Rajeev Dhawan, Director of the Economic Forecasting Center, while the regional economy grew faster than the national average over the past decade, Atlanta may lag behind the nation in near-term recovery. Dhawan projects that the US economy will begin to grow by early Fourth Quarter 2003, assuming a quick victory in engaging Iraq. With perceptions evolving to a diminished threat of terrorism, corporate decision makers are anticipated to begin reengaging and expand hiring. As job growth picks up, fundamental reasons for increases in consumption and income growth will replace the current patchwork of credit and home equity cash-outs, according to the forecast. We note from our own observations that the Atlanta economy has continued to outperform expectations year after year. While the prospects for near-term expansion continue to be modest, in 26 PLANTATION CROSSING APARTMENTS MARKET ANALYSIS long-term projections, the Atlanta metropolitan area is forecast to remain a national leader in job creation. First time home ownership has been increasingly competing with the multi-family rental market, and property occupancy has suffered directly as a result of the record low interest rate environment. The decline in interest rates that continued through 2002 made home ownership more attainable for an increasingly larger pool of prospects, allowing renters to buy homes and removing them from the rental market. In a rating action released in early 2003, Moody's Investor Service cited the economy and credit trends as having negatively impacted the multi-family market over the past year. With a shrinking pool of renters, revenue has declined through reduced occupancy levels. Typically, Class A resident pools can qualify for mortgage loans, both in terms of credit profile and income. In order to compete for the remaining renters, Class A properties have increased concessions and rent discounts. In some cases this makes the product affordable to the typical B and C class tenants, attracting them away from affordable properties. Even among the Class B and C resident pools, with various private and public programs, renters are finding themselves in a position to purchase a home. In Atlanta, with lower-cost starter homes readily available, a noticeable impact on multi-family occupancy has been attributed to changes in mortgage rates and terms. Interest rates are generally anticipated to be increased with the return of economic expansion, generally projected for mid- to late-2003. Residential mortgage rates will most likely increase in corresponding fashion. 27 PLANTATION CROSSING APARTMENTS MARKET ANALYSIS PERFORMANCE MEASURES METROPOLITAN ATLANTA APARTMENT MARKET
YE % YE % YE % YE % YE CLASS "A" PROPERTIES 1998 Change 1999 Change 2000 Change 2001 Change 2002 - -------------------- ----- ------ ----- ------ ----- ------ ----- ------ ----- Effective Rent $ 796 4.8% $ 834 6.4% $ 887 -11.4% $ 786 -5.5% $ 743 Street Rent (per Unit) $ 860 5.2% $ 905 4.2% $ 943 1.8% $ 960 -0.1% $ 959 Street Rent (per SF) $0.79 5.1% $0.83 3.6% $0.86 1.2% $0.87 -1.1% $0.86 Reported Occupancy 95.0% 0.1% 95.1% 0.8% 95.9% -5.0% 91.1% -0.1% 91.0% Reported Concessions $ 21 -- $ 26 -- $ 18 -- $ 89 -- $ 130
YE % YE % YE % YE % YE CLASS "B" PROPERTIES 1998 Change 1999 Change 2000 Change 2001 Change 2002 - -------------------- ----- ------ ----- ------ ----- ------ ----- ------ ----- Effective Rent $ 693 2.7% $ 712 5.2% $ 749 -8.0% $ 689 -7.8% $ 635 Street Rent (per Unit) $ 742 3.1% $ 765 4.8% $ 802 3.2% $ 828 0.0% $ 828 Street Rent (per SF) $0.72 2.8% $0.74 4.1% $0.77 3.9% $0.80 0.0% $0.80 Reported Occupancy 95.2% 0.0% 95.2% 0.2% 95.4% -4.8% 90.8% -1.5% 89.4% Reported Concessions $ 13 -- $ 17 -- $ 16 -- $ 64 -- $ 106
YE % YE % YE % YE % YE CLASS "C" PROPERTIES 1998 Change 1999 Change 2000 Change 2001 Change 2002 - -------------------- ----- ------ ----- ------ ----- ------ ----- ------ ----- Effective Rent $ 629 3.7% $ 652 4.1% $ 679 -8.2% $ 623 -7.4% $ 577 Street Rent (per Unit) $ 665 4.2% $ 693 4.6% $ 725 1.8% $ 738 -0.1% $ 737 Street Rent (per SF) $0.68 4.4% $0.71 4.2% $0.74 1.4% $0.75 0.0% $0.75 Reported Occupancy 96.0% -0.1% 95.9% -0.6% 95.3% -3.9% 91.6% -2.6% 89.2% Reported Concessions $ 9 -- $ 12 -- $ 12 -- $ 52 -- $ 81
YE % YE % YE % YE % YE OVERALL MARKET 1998 Change 1999 Change 2000 Change 2001 Change 2002 - -------------------- ----- ------ ----- ------ ----- ------ ----- ------ ----- Effective Rent $ 678 4.3% $ 707 5.1% $ 743 -8.6% $ 679 -7.1% $ 631 Street Rent (per Unit) $ 725 4.7% $ 759 4.3% $ 792 2.8% $ 814 0.0% $ 814 Street Rent (per SF) $0.71 4.2% $0.74 5.4% $0.78 1.3% $0.79 0.0% $0.79 Reported Occupancy 95.3% 0.1% 95.4% 0.1% 95.5% -4.6% 91.1% -1.9% 89.4% Reported Concessions $ 13 -- $ 17 -- $ 14 -- $ 63 -- $ 98
Note: The survey is based on properties with 50 units or more, and covers a nine-county core area. Source: The Atlanta Apartment Tracker, Dale Henson Associates, Inc. As illustrated, all classes of apartments witnessed an occupancy decrease from year-end 2001 to year-end 2002. Class B and C properties saw the largest decreases. Class C properties declined from reported occupancy of 91.6% at year-end 2001 to 89.2% at year-end 2002. Class B properties were down from reported occupancy of 90.8% to 89.4%. Class A apartments witnessed a negligible occupancy decline, from 91.1% to 91.0% at year-end 2002. Effective rental rates decreased in all sectors as well, while reported concessions increased. Again, the largest declines came among Class B and C properties, which recorded decreases of over 7.8% and 7.4%, respectively, while Class A effective rents declined approximately 5.5%. OUTLOOK FOR THE OVERALL ATLANTA APARTMENT MARKET During the late 1990's, the Atlanta apartment market showed resilient strength and tremendous growth. However, the current national recession has produced decreasing employment growth in 28 PLANTATION CROSSING APARTMENTS MARKET ANALYSIS metro Atlanta, resulting in lower apartment occupancy levels, increased concessions and declines in effective rental rates. While the data considered indicate that the Atlanta market continued a moderate decline through 2002, the rate of decline has slowed significantly compared to the prior year. Consideration of the various data suggest some submarkets are stabilizing, while others may erode slightly further. In addition, the Atlanta area is projected to begin recovery over the coming year, with positive levels of job growth returning by year-end. Moreover, due to the lack of suitable apartment sites and discouragement of apartment development by local municipalities, the Atlanta area should avoid reaching an extreme oversupply of units. The result should be improving occupancy levels and moderate rental rate growth over the long-term. COBB COUNTY SUBMARKET ANALYSIS The subject is located within the Cobb County submarket. A summary of the recent operating characteristics of this submarket is presented in the following table in the Cobb County submarket. 29 PLANTATION CROSSING APARTMENTS MARKET ANALYSIS COBB COUNTY APARTMENT SUBMARKET
Annual Annual Annual YE % YE % YE % YE % Mid- % YE CLASS "A" PROPERTIES 1998 Change 1999 Change 2000 Change 2001 Change 2002 Change 2002 - -------------------- ----- ------ ----- ------ ----- ------ ----- ------ ------ ------ ----- Effective Rent $ 843 1.4% $ 855 7.1% $ 916 -10.6% $ 819 -3.1% $ 794 -5.7% $ 749 Street Rent (per Unit) $ 899 3.2% $ 928 4.8% $ 973 0.9% $ 982 0.2% $ 984 0.8% $ 992 Street Rent (per SF) $0.81 3.7% $0.84 3.6% $0.87 1.1% $0.88 1.1% $ 0.89 0.0% $0.89 Reported Occupancy 95.5% -0.2% 95.3% 0.8% 96.1% -4.4% 91.9% -0.5% 91.4% -0.4% 91.0% Reported Concessions $ 16 -- $ 29 -- $ 19 -- $ 83 -- $ 105 -- $ 154
Annual Annual Annual YE % YE % YE % YE % Mid- % YE CLASS "B" PROPERTIES 1998 Change 1999 Change 2000 Change 2001 Change 2002 Change 2002 - -------------------- ----- ------ ----- ------ ----- ------ ----- ------ ------ ------ ----- Effective Rent $ 737 1.9% $ 751 3.1% $ 774 -9.2% $ 703 -5.1% $ 667 -2.8% $ 648 Street Rent (per Unit) $ 780 3.2% $ 805 3.5% $ 833 0.7% $ 839 -1.4% $ 827 1.5% $ 839 Street Rent (per SF) $0.74 4.1% $0.77 5.2% $0.81 0.0% $0.81 -1.2% $ 0.80 1.3% $0.81 Reported Occupancy 95.5% -0.1% 95.4% -0.1% 95.3% -4.4% 91.1% -2.0% 89.3% 0.2% 89.5% Reported Concessions $ 8 -- $ 18 -- $ 21 -- $ 61 -- $ 72 -- $ 103
Annual Annual Annual YE % YE % YE % YE % Mid- % YE CLASS "C" PROPERTIES 1998 Change 1999 Change 2000 Change 2001 Change 2002 Change 2002 - -------------------- ----- ------ ----- ------ ----- ------ ----- ------ ------ ------ ----- Effective Rent $ 648 2.8% $ 666 3.3% $ 688 -12.2% $ 604 -3.3% $ 584 -0.3% $ 582 Street Rent (per Unit) $ 682 5.1% $ 717 3.8% $ 744 -0.3% $ 742 0.3% $ 744 0.3% $ 746 Street Rent (per SF) $0.68 4.4% $0.71 2.8% $0.73 1.4% $0.74 0.0% $ 0.74 0.0% $0.74 Reported Occupancy 95.9% -0.5% 95.4% -0.1% 95.3% -4.5% 91.0% -1.8% 89.4% 0.1% 89.5% Reported Concessions $ 6 -- $ 18 -- $ 21 -- $ 71 -- $ 81 -- $ 86
Annual Annual Annual YE % YE % YE % YE % Mid- % YE OVERALL SUBMARKET 1998 Change 1999 Change 2000 Change 2001 Change 2002 Change 2002 - -------------------- ----- ------ ----- ------ ----- ------ ----- ------ ------ ------ ----- Effective Rent $ 700 1.4% $ 710 4.8% $ 744 -9.9% $ 670 -3.0% $ 650 -4.5% $ 621 Street Rent (per Unit) $ 741 3.1% $ 764 4.8% $ 801 0.9% $ 808 -0.6% $ 803 0.9% $ 810 Street Rent (per SF) $0.72 2.8% $0.74 5.4% $0.78 0.0% $0.78 0.0% $ 0.78 1.3% $0.79 Reported Occupancy 95.6% -0.3% 95.3% 0.0% 95.3% -4.7% 90.8% -0.9% 90.0% -1.0% 89.1% Reported Concessions $ 9 -- $ 18 -- $ 19 -- $ 64 -- $ 73 -- $ 101
Source: The Atlanta Apartment Tracker, Dale Henson Associates, Inc. As the previous table identifies, the average occupancy in the Cobb County submarket is currently 89.1% for all apartments, which represents a minimal decrease over the previous mid-year level of 90.0%. Prior to year-end 2001, the Cobb County submarket average occupancy level remained relatively consistent in the mid 90% range. In the subject submarket, there were minimal decreases in all apartment classes. The average effective rental rate within the Cobb County submarket decreased 4.5% between mid-year 2002 and year-end 2002. Effective rent decreased in all classes. Furthermore, all sectors reported an increase in their level of concessions being offered. The general perception among property owners is that rent and occupancy levels will begin to rebound during 2003, as the national economy improves and job growth returns. 30 PLANTATION CROSSING APARTMENTS MARKET ANALYSIS ABSORPTION Apartment activity during 2002 shows that the Cobb County submarket recorded net absorption of 41 units and new deliveries of 1,195 units. The following table illustrates absorption rates at recently completed apartment properties within the submarket: COBB COUNTY APARTMENT SUBMARKET RECENT ABSORPTION
Begin # Construction Leasing Property Developer Units Start Date Date - -------------------------------------------------- ----------------------------- ------ ------------ ------- Caswyck Parkside, 1615 Cobb Parkway Cannon Company 234 Apr-01 Jun-02 AMLI at Barrett Walk, 2055 Barrett Lakes Boulevard AMLI Residential Properties 310 Dec-01 Aug-02 Trees at Kennesaw, Old U.S. 41/Stanley Rd. Wilwat Properties 166 Mar-01 Feb-02 Estates at Ridenour, U.S. 41/Barrett Pkwy. Estates, Inc. 300 Feb-00 Sep-00 Stanton Place, Baker Grove, Acworth Andrews Properties 240 Feb-00 Jan-01 Caswyck Town Center, Williams Drive Cannon Company 358 Jun-00 May-01 Walden Ridge, Highway 41, Acworth United Residential Properties 210 Dec-00 Jul-01 Shiloh Valley Overlook, Greer Chapel Rd./I-75 Hayes Development Corporation 300 Mar-00 May-01 Summit Shiloh Phase II, 4044 Busbee Parkway Summit Properties 50 May-01 Jan-02 Alta Green, Shiloh Rd./Wade Green Rd./1-75 Wood Partners 498 Dec-00 Oct-01
Source: Atlanta Apartment Pipeline Report, Year-End 2002, Dale Henson & Associates, Inc. The data illustrates absorption ranging from 7.4 to 24.4 units per month, with the median being 13.6 units per month. This is considered a good level of absorption. NEW DEVELOPMENT The number of apartment units under construction as of year-end 2002 totaled 836 units in 4 properties within the Cobb County submarket. This is considered a relatively small amount of activity, given the geographic area that the submarket encompasses. These properties are summarized in the following table. COBB COUNTY APARTMENT SUBMARKET APARTMENTS UNDER CONSTRUCTION
Comp. Const. First Units Expected Property Developer # Units Start Date Avail. Date - ------------------------------------------------ ---------------------------- ------- ---------- ----------- -------- Galleria No apartments under construction in this subarea South Cobb No apartments under construction in this subarea Town Center Caswyck Parkside, 1615 Cobb Pkwy. Cannon Company 234 Apr-01 Jul-02 Oct-02 Cobblestone Landing, U.S. 41 PRS Construction 172 Jun-02 Jan-03 Jun-03 AMLI at Barrett Walk, 2055 Barrett Lakes Blvd. AMLI Residential Properties 310 Dec-01 Aug-02 Jul-03 Highland Court, Goerge Busbee Parkway/Wade Green Norsouth 120 Nov-02 Jul-03 -- East Marietta No apartments under construction in this subarea West Cobb No apartments under construction in this subarea Total 836
Source: Atlanta Apartment Pipeline Report, Year-End 2002, Dale Henson & Associates, Inc. 31 PLANTATION CROSSING APARTMENTS MARKET ANALYSIS There are multiple properties which are currently under construction. However, none of these properties are in the subject's submarket. In addition, these properties will not provide competition for the subject, as they will be Class "A" properties and will appeal to a different type of tenant. In addition, the identified properties are located over a very large geographical area, which decreases the potential negative impact of the new product being added to the apartment housing stock. In addition to projects currently under construction, there is one known project in various stages of planning. This number of proposed projects is also considered a relatively moderate level of activity, given the large geographic area that the submarket encompasses. The properties proposed for development in the near-term are summarized in the following table. COBB COUNTY APARTMENT SUBMARKET PROPOSED APARTMENTS
# Property Developer Units # Acres Remarks - --------------------------------------- --------------------- ----- ------- ------------------------ Galleria No apartments planned for this subarea South Cobb No apartments planned for this subarea Town Center Hillside Vista, 2155 Cobb Parkway Vista Realty Partners 212 --- Construction start 01/03 East Marietta No apartments planned for this subarea West Cobb No apartments planned for this subarea ---- Total 212 ----
Source: Atlanta Apartment Pipeline Report, Year-End 2002, Dale Henson & Associates, Inc. Based on our discussions with the developer of this site, we believe that this property will be constructed. As mentioned previously, new construction in the submarket will not compete with the subject, therefore there is sufficient demand for this product. Furthermore, there are no proposed apartment properties in the subject's immediate area. EAST MARIETTA PRIMARY MARKET AREA Although Cobb County is identified as only one submarket by the Atlanta Apartment Market Tracker, it subdivides the county into five primary market areas. These areas are identified as Cumberland/Galleria, South Cobb, Town Center, East Marietta and West Cobb. The subject is located within the East Marietta primary market area, as defined by the report. The following table illustrates changes in rental rates, occupancy levels and concessions with the East Marietta primary market area over the past four years. 32 PLANTATION CROSSING APARTMENTS MARKET ANALYSIS EAST MARIETTA PRIMARY MARKET AREA
YE % YE % YE % Mid- % YE CLASS "A" PROPERTIES 1999 Change 2000 Change 2001 Change 2002 Change 2002 - -------------------- ----- ------ ----- ------ ----- ------ ----- ------ ----- Effective Rent $ 812 2.2% $ 830 -13.3% $ 720 -5.6% $ 680 -9.3% $ 617 Street Rent (per Unit) $ 881 3.7% $ 914 -4.4% $ 874 0.7% $ 880 4.3% $ 918 Street Rent (per SF) $0.79 3.8% $0.82 -6.1% $0.77 1.3% $0.78 0.0% $0.78 Reported Occupancy 95.3% 0.1% 95.4% -8.3% 87.5% -3.4% 84.5% 0.8% 85.2% Reported Concessions $ 28 -- $ 42 -- $ 45 -- $ 64 -- $ 172
YE % YE % YE % Mid- % YE CLASS "B" PROPERTIES 1999 Change 2000 Change 2001 Change 2002 Change 2002 - -------------------- ----- ------ ----- ------ ----- ------ ----- ------ ----- Effective Rent $ 712 3.2% $ 735 -11.3% $ 652 -2.8% $ 634 -1.1% $ 627 Street Rent (per Unit) $ 765 4.3% $ 798 -1.1% $ 789 -0.8% $ 783 1.9% $ 798 Street Rent (per SF) $0.71 4.2% $0.74 0.0% $0.74 -1.4% $0.73 6.8% $0.78 Reported Occupancy 94.9% 0.0% 94.9% -5.8% 89.4% 0.6% 89.9% 0.4% 90.3% Reported Concessions $ 14 -- $ 22 -- $ 53 -- $ 70 -- $ 98
YE % YE % YE % Mid- % YE CLASS "C" PROPERTIES 1999 Change 2000 Change 2001 Change 2002 Change 2002 - -------------------- ----- ------ ----- ------ ----- ------ ----- ------ ----- Effective Rent $ 657 3.5% $ 680 -11.5% $ 602 -6.3% $ 564 4.3% $ 588 Street Rent (per Unit) $ 709 4.7% $ 742 1.2% $ 751 -4.3% $ 719 3.2% $ 742 Street Rent (per SF) $0.69 2.9% $0.71 -1.4% $0.70 -2.9% $0.68 4.4% $0.71 Reported Occupancy 95.4% -0.4% 95.0% -4.7% 90.5% -3.6% 87.2% 2.6% 89.5% Reported Concessions $ 19 -- $ 25 -- $ 78 -- $ 63 -- $ 83
YE % YE % YE % Mid- % YE OVERALL SUBMARKET 1999 Change 2000 Change 2001 Change 2002 Change 2002 - -------------------- ----- ------ ----- ------ ----- ------ ----- ------ ----- Effective Rent $ 704 2.7% $ 723 -11.1% $ 643 -4.7% $ 613 -4.7% $ 584 Street Rent (per Unit) $ 761 3.9% $ 791 -1.1% $ 782 -0.6% $ 777 0.9% $ 784 Street Rent (per SF) $0.72 4.2% $0.75 -1.3% $0.74 0.0% $0.74 0.0% $0.74 Reported Occupancy 95.1% -0.4% 94.7% -5.9% 89.1% -2.4% 87.0% 1.3% 88.1% Reported Concessions $ 20 -- $ 27 -- $ 54 -- $ 63 -- $ 114
Source: The Atlanta Apartment Tracker, Dale Henson Associates, Inc. As illustrated, the East Marietta primary market area has not performed quite as well as the overall Cobb County submarket, with a reported year-end occupancy level of 88.1%. Though, it appears that Class "B" and "C" properties are fairing better than Class "A" properties, with a reported occupancy level of 85.2%. However, overall properties showed an increase of 88.1% in occupancy from mid-year 2002 figures. We expect conditions to improve rather quickly within this area, however, as there is no new construction occurring or planned, and there is little, if any, remaining developable land for apartments. CONCLUSIONS FOR THE COBB COUNTY APARTMENT SUBMARKET Based on our analysis, we have found the Cobb County and East Marietta apartment market is experiencing operating characteristics which are similar to those found in the overall metro Atlanta market. In addition, the area is expected to continue receiving a good level of job creations, following the current recession. Therefore, we believe the Cobb County submarket provides a very 33 PLANTATION CROSSING APARTMENTS MARKET ANALYSIS viable location for a well located apartment complex, such as the subject property. Further, we believe the subject will experience a good operating level over the long-term following the planned extensive renovation. INVESTMENT TRENDS Generally, there remains a divide between sellers' pricing and buyers' offers. Given softened occupancies and reductions in rental rates, the attractiveness of multi-family acquisitions has been temporarily diminished somewhat. This trend may continue through 2003, which holds subdued prospects for rent increases until sustained job growth resumes. Over the longer-term, apartments are anticipated to recover strongly and continue to be commodity investments. For 5- and 10-year periods, apartments are anticipated to outperform other property sectors. Regionally, reflecting the softer apartment operating environment, the volume of multi-family sales in metropolitan Atlanta slowed over the past year. Total volume for the year 2002 was reported at $700 million, down 41% from 2001 and 51% from 2002 levels. Although the number of sales fell, overall values did not appear to be significantly negatively impacted, as lower rates and yields have offset property performance issues. The following charts present the average selling price per apartment unit over the recent past. Among Class A properties, there continues to be appreciation for properties built in infill locations, while suburban properties have fluctuated downward over the past four years. Among Class B properties, prices have declined for properties in infill locations, while suburban properties have generally shown a net increase over the recent past. 34 PLANTATION CROSSING APARTMENTS MARKET ANALYSIS CLASS A - AVERAGE SELLING PRICE PER UNIT [BAR CHART]
Infill Suburban -------- -------- 1999 $109,000 $ 79,964 2000 $103,368 $ 75,005 2001 $106,232 $ 78,620 2002 $118,721 $ 74,568
Source: CB Richard Ellis, Inc. CLASS B - AVERAGE SELLING PRICE PER UNIT [BAR CHART]
Infill Suburban -------- -------- 1999 $78,254 $49,997 2000 $65,413 $57,980 2001 $70,473 $57,070 2002 $66,870 $54,645
Source: CB Richard Ellis, Inc. DEMOGRAPHIC ANALYSIS Demand for additional residential property is a direct function of population change. Multi-family communities are products of a clearly definable demand relating directly to population shifts. HOUSING, POPULATION, AND HOUSEHOLD FORMATION The following table illustrates the population and household changes for the subject neighborhood. 35 PLANTATION CROSSING APARTMENTS MARKET ANALYSIS POPULATION AND HOUSEHOLD PROJECTIONS
2703 DELK RD SE Radius 1.0 Radius 3.0 Radius 5.0 MARIETTA, GA 30067-6203 Mile Miles Miles - ----------------------- ---------- ---------- ---------- Population 2007 Projection 19,184 84,974 218,584 2002 Estimate 17,497 79,443 202,436 2000 Census 16,843 77,383 196,322 2002 - 2007 % Change 9.6% 7.0% 8.0% Households 2007 Projection 8,560 37,473 91,731 2002 Estimate 7,924 35,339 85,295 2000 Census 7,697 34,598 82,980 2002 - 2007 % Change 8.0% 6.0% 7.5%
Source: Claritas, Inc. Households represent the basic unit of demand in the housing market. According to the data, the subject's neighborhood is experiencing continuing strong levels of increase in population and households. INCOME DISTRIBUTIONS Household income available for expenditure on housing and other consumer items is the bottom line factor for determining the price/rent level of housing demand in a market area. In the case of this study, projections of household income, particularly for renters, identifies in gross terms the market from which the subject submarket draws. The following table illustrates estimated household income distribution for the subject neighborhood. HOUSEHOLD INCOME DISTRIBUTION
2703 DELK RD SE Radius 1.0 Radius 3.0 Radius 5.0 MARIETTA, GA 30067-6203 Mile Miles Miles - ------------------------------------------ ---------- ---------- ---------- 2002 Est. Households by Household Income $150,000 - or more 29.54% 23.23% 13.19% $100,000 - $149,999 11.30% 10.91% 12.15% $ 75,000 - $ 99,999 16.52% 14.69% 13.55% $ 50,000 - $ 74,999 32.63% 25.54% 23.25% $ 35,000 - $ 49,999 17.21% 18.41% 16.27% $ 25,000 - $ 34,999 8.65% 9.02% 8.46% $ 15,000 - $ 24,999 4.57% 6.08% 6.76% Under $15,000 2.80% 5.31% 6.38%
Source: Claritas, Inc. 36 PLANTATION CROSSING APARTMENTS MARKET ANALYSIS The following table illustrates the median and average household income levels for a one-, three-, and five-mile radius. HOUSEHOLD INCOME LEVELS
2703 DELK RD SE Radius 1.0 Radius 3.0 Radius 5.0 MARIETTA, GA 30067-6203 Mile Miles Miles - -------------------------------- ---------- ---------- ---------- 2002 Average Household Income $71,495 $78,950 $92,494 2002 Median Household Income $62,843 $60,939 $63,048 2002 Per Capita Income $30,693 $34,287 $38,926
Source: Claritas, Inc. An analysis of the income data indicates that the submarket is generally comprised of middle-income groups, which are the same groups to which the subject property is oriented. EMPLOYMENT The employment population within a one-, three-, and five-mile radius is as follows: POPULATION BY OCCUPATION
2703 DELK RD SE Radius 1.0 Radius 3.0 Radius 5.0 MARIETTA, GA 30067-6203 Mile Miles Miles - ------------------------------------------- ---------- ---------- ---------- Occupation Managerial and Professional Specialty 35.83% 34.68% 34.96% Technical, Sales and Administrative Support 41.90% 40.98% 38.87% Service 9.84% 10.86% 10.58% Farming, Forestry and Fishing 0.21% 0.65% 0.77% Precision, Production, Craft and Repair 6.31% 6.18% 7.53% Operators, Fabricators and Laborers 5.91% 6.66% 7.29%
Source: Claritas, Inc. The previous table illustrates the employment character of the submarket, indicating a predominantly `white-collar' employment profile. Within a three-mile radius of the subject, executive and managerial, professional specialty, sales, and administrative support are the largest employment categories. SUMMARY OF DEMOGRAPHIC TRENDS Based on our analysis, the area within a three-mile radius of the subject property is projected to experience significant growth relative to households and population in the foreseeable future. Given the area demographics, we believe that there will continue to be a good level of demand for area apartment units, and for the subject property. 37 PLANTATION CROSSING APARTMENTS MARKET ANALYSIS OCCUPANCY Comparable apartment properties have been surveyed in order to identify the occupancy trends within the immediate submarket. The comparable data is summarized in the following table: SUMMARY OF COMPARABLE APARTMENT RENTALS
COMP. NO. NAME LOCATION OCC - ------- ------------------------------------- ----------------------- --- 1 Stone Mill 2575 Delk Road, 95% Marietta, GA 2 Signature Place Apartments 1049 Powers Ferry Road, 80% Marietta, GA 3 Highland Falls 2560 Delk Road, 85% Marietta, GA 4 Concepts 21 Delk 2600 Bentley Road, 85% Marietta, GA 5 Bentley Manor 2605 Bentley Road, 89% Marietta, GA 6 Gardens At East Cobb (fka Park Knoll) 2850 Delk Road, SE, 91% Marietta, GA -- Subject Plantation Crossing Apartments 2703 Delk Road, Marietta, GA 96% --
Compiled by: CB Richard Ellis, Inc. The comparable properties surveyed mostly reported occupancy rates ranging from 80% to 95%. The subject property is currently 95.6% occupied. Based on the foregoing analysis, CB Richard Ellis' conclusion of stabilized occupancy for the subject is illustrated in the following table. We note that our stabilized occupancy estimate includes a deduction for vacancy and collection loss, as well as for non-revenue units. 38 PLANTATION CROSSING APARTMENTS MARKET ANALYSIS OCCUPANCY CONCLUSIONS Atlanta Area 89.4% Cobb County Submarket 88.4% East Marietta Primary Market Area 88.1% Rent Comparables (Average) 87.5% Subject's Current Occupancy 95.6% ==== Subject's Stabilized Occupancy 92.0% ----
Source: CB Richard Ellis, Inc. CONCLUSION We believe the subject property is well located for an apartment complex. The site provides convenient access to Interstate 75 and major employment centers in metropolitan Atlanta. It is located in an area which is experiencing growth similar to that of metropolitan Atlanta. Furthermore, there is a minimal number of properties under construction or planned in the subject's immediate area. Given these considerations, we believe the subject will enjoy a good operating level. 39 PLANTATION CROSSING APARTMENTS SITE ANALYSIS Insert site plan here 40 PLANTATION CROSSING APARTMENTS SITE ANALYSIS SITE ANALYSIS The following chart provides a summary of the salient features relating to the subject site. SITE SUMMARY PHYSICAL DESCRIPTION Net Site Area 14.947 Acres 651,091 Sq. Ft. Primary Road Frontage Delk Road Excess Land Area None Zoning District RM-12, Multi-Family Residential Flood Map Panel No. 13067C 0055F Flood Zone X
Source: Various sources compiled by CB Richard Ellis, Inc. LOCATION The subject property is located along the north side of Delk Road, just east of Interstate 75, in the city of Marietta, in Cobb County, metropolitan Atlanta, Georgia, with a street address of 2703 Delk Road. Ingress and egress is available to the site via one curb along Delk Road. The site has a good level of visibility from Delk Road. ASSESSORS PARCEL NUMBER The subject is identified by the Cobb County Tax Assessor's office as parcel 17-0858-006. LAND AREA The site consists of 14.947 gross acres. There is no unusable or excess land area. SHAPE AND FRONTAGE The site is irregular in shape and has a good level of frontage along the north side of Delk Road. TOPOGRAPHY AND DRAINAGE The site has a gently rolling topography. During the inspection of the property, no drainage problems were observed and none are assumed to exist. SOILS A soil analysis for the site has not been provided for the preparation of this appraisal. In the absence of a soil report, it is a specific assumption that the site has adequate soils to support the highest and best use. 41 PLANTATION CROSSING APARTMENTS SITE ANALYSIS EASEMENTS AND ENCROACHMENTS A title policy for the property has not been provided for the preparation of this appraisal. Based on our visual inspection and review of the site plan, the property does not appear to be adversely affected by any easements or encroachments. It is recommended that the client/reader obtain a current title policy outlining all easements and encroachments on the property, if any, prior to making a business decision. COVENANTS, CONDITIONS AND RESTRICTIONS There are no known covenants, conditions and restrictions impacting the site which are considered to affect the marketability or highest and best use, other than zoning restrictions. UTILITIES AND SERVICES The site is within the jurisdiction of the city of Marietta and Cobb County and is provided all services, including police, fire and refuse garbage collection. All utilities are available to the site in adequate quality and quantity to service the highest and best use as if vacant and as improved. FLOOD ZONE According to flood hazard maps published by the Federal Emergency Management Agency (FEMA), the site appears to be located within Zone X (outside the 500-year flood hazard area). This information is indicated on Community Map Panel 13067C 0055F, dated August 18, 1992. This zone is defined as follows. FEMA Zone X: Areas determined to be outside the 500-year flood plain. ENVIRONMENTAL ISSUES CB Richard Ellis, Inc. has not observed, yet is not qualified to detect, the existence of potentially hazardous material or underground storage tanks which may be present on or near the site. The existence of hazardous materials or underground storage tanks may have an affect on the value of the property. For this appraisal, CB Richard Ellis, Inc. has specifically assumed that the property is not affected by any hazardous materials and/or underground storage tanks which may be present on or near the property. CONCLUSION The site is well located and afforded excellent access from Delk Road and Interstate 75. The size of the site is typical for the area and use, and there are no known detrimental uses in the immediate vicinity. Overall, there are no known factors which are considered to prevent the site from development to its highest and best use, as if vacant, or adverse to the existing use of the site. 42 PLANTATION CROSSING APARTMENTS IMPROVEMENT ANALYSIS IMPROVEMENT ANALYSIS The following chart depicts the subject's unit mix and building area. IMPROVEMENT SUMMARY Number of Buildings 13 Number of Stories 2 & 3 Gross Building Area 192,330 SF Net Rentable Area 190,030 SF Number of Units 180 Average Unit Size 1,056 SF
PERCENT OF UNIT SIZE UNIT MIX NO. OF UNITS TOTAL (SF) NRA (SF) - -------- ------------ ---------- --------- -------- 1BR/1BA 60 33.3% 820 49,200 2BR/1BA 40 22.2% 1,070 42,800 2BR/2BA 40 22.2% 1,135 45,400 2BR/2BA 22 12.2% 1,300 28,600 2BR/2BA 18 10.0% 1,335 24,030 --- ----- ----- ------- Total/Average: 180 100.0% 1,056 190,030 --- ----- ----- -------
Source: Property Manager Building plans and specifications were not provided for the preparation of this appraisal. The following is a description of the subject improvements and basic construction features derived from CB Richard Ellis, Inc.'s physical inspection and discussions with property management. YEAR BUILT The subject property was built in 1979. FOUNDATION The foundation consists of poured reinforced concrete/perimeter footings and column pads. CONSTRUCTION COMPONENTS The construction components include a wood frame with wood truss and joist floor structure and plywood floor deck. FLOOR STRUCTURE The floor structure is summarized as follows: 43 PLANTATION CROSSING APARTMENTS IMPROVEMENT ANALYSIS GROUND FLOOR: Concrete slab on compacted fill OTHER FLOORS: Plywood decking with light-weight concrete cover EXTERIOR WALLS The exterior wall structure consists of wood frame over wood trim. The units have single-pane windows in aluminum frames. ROOF COVER Roofs consist of a wood truss support system covered with plywood decking, felt paper and composition shingles. PARKING AND DRIVES The subject has 314 normal parking spaces and 7 handicap spaces, which equates to 1.78 parking spaces per unit. This is considered a minimal amount of parking as compared to comparable properties in the market. All of the parking areas and driveways are asphalt paved and currently in average condition. LANDSCAPING The project features a combination of grass, planted beds and forested landscaping which is considered to be in average condition. PROJECT AMENITIES The project amenities include a swimming pool, Jacuzzi, two lighted tennis courts, carwash, and laundry facility. UNIT AMENITIES Each unit has washer/dryer connections, sunrooms, and walk-in closets. In addition, select units have fireplaces and ceiling fans. FIRE PROTECTION The improvements are not fire sprinklered. However, all units are equipped with smoke detectors and are assumed to have adequate fire alarm systems, fire exits, fire extinguishers, fire escapes and/or other fire protection measures to meet local Fire Marshal requirements. 44 PLANTATION CROSSING APARTMENTS IMPROVEMENT ANALYSIS HVAC The units feature individual "central" HVAC units with exterior mounted compressors. The systems are assumed to be in good operating condition and adequate for the respective square footage of each individual unit. UTILITIES The units have gas heat and hot water heaters, along with all appliances being gas. The cost of trash removal and pest control is included in the rental rates. Thus, current operations indicate the landlord is responsible for common area utilities, as well as the cost of trash removal and pest control to the individual units. Each resident is responsible for their respective electrical, natural gas, telephone and cable television expenses. All utilities are publicly provided. INTERIOR LIGHTING Each unit features a combination of incandescent and fluorescent lighting in appropriate interior and exterior locations. KITCHENS Each unit features a range/oven, frost-free refrigerator with icemaker, garbage disposal, and dishwasher. Furthermore, each unit features wood cabinets with Formica countertops and vinyl flooring in the kitchen area. BATHROOMS The bathrooms within each unit feature combination garden tub/showers with fiberglass surrounds. Additionally, each bathroom features a commode, wood cabinet with Formica counter and built-in sink, wall-mounted vanity mirror and vinyl tile flooring. QUALITY AND STRUCTURAL CONDITION The overall quality of the project is considered to be good for the neighborhood and age. CB Richard Ellis, Inc. did not observe any evidence of structural fatigue and the improvements appear structurally sound for occupancy. However, CB Richard Ellis, Inc. is not qualified to determine structural integrity and it is recommended that the client/reader retain the services of a qualified, independent engineer or contractor to determine the structural integrity of the improvements prior to making a business decision. There were several minor items of deferred maintenance noted at the subject property, which is discussed below. 45 PLANTATION CROSSING APARTMENTS IMPROVEMENT ANALYSIS FUNCTIONAL UTILITY All of the floor plans are considered to feature functional layouts and the overall layout of the project is considered functional in utility. According to property management, each unit within the project receives adequate demand and the project does not have excess demand for any particular floor plan or location. Therefore, the unit mix is also functional and no conversion is warranted. PROJECT DENSITY The project is developed to a density of 12.04 units per acre, which is commensurate with other properties in the neighborhood. ADA COMPLIANCE All common areas of the project are assumed to have handicap accessibility and several of the project's units are assumed to have been designed for handicap occupancy. The client/reader's attention is directed to the specific limiting conditions regarding ADA compliance. FURNITURE, FIXTURES AND EQUIPMENT The apartment units are rented on an unfurnished basis. However, miscellaneous maintenance tools, pool furniture, leasing office furniture, clubhouse furniture and exercise machines are examples of personal property associated with and typically included in the sale of multi-family apartment complexes. The personal property items contained in the project are not considered to contribute significantly to the overall value of the real estate. ENVIRONMENTAL ISSUES CB Richard Ellis, Inc. has not observed, yet is not qualified to detect, the existence of any potentially hazardous materials such as lead paint, asbestos, urea formaldehyde foam insulation, or other potentially hazardous construction materials on or in the improvements. The existence of such substances may have an affect on the value of the property. For the purpose of this assignment, we have specifically assumed that the subject is not affected by any hazardous materials which would cause a loss in value. DEFERRED MAINTENANCE The engineering reports indicated several minor items of deferred maintenance at the subject property. The following chart depicts the deferred maintenance items identified and their respective estimated costs to cure. 46 PLANTATION CROSSING APARTMENTS IMPROVEMENT ANALYSIS ANALYSIS OF DEFERRED MAINTENANCE Prepare, Prime, and Paint Pool Fence $ 1,500 Replace Flexible Gas Connectors $ 1,800 Gutter/Downspout Repair $ 6,000 Tree Trimming and Removal $ 10,000 Railing Replacement $ 250 Siding and Trim Repair $ 27,100 Exterior Painting $ 59,000 ---------- Total Deferred Maintenance: $ 105,650 ----------
Source: Engineering Reports The items of deferred maintenance will be cured in the near-term. Therefore, at the request of the client, we have not made any deductions. ECONOMIC AGE AND LIFE CB Richard Ellis, Inc.'s estimate of the subject improvements effective age and remaining economic life is depicted in the following chart: ECONOMIC AGE AND LIFE Actual Age 24 YEARS Effective Age 20 YEARS MVS Expected Life 50 YEARS Remaining Economic Life 30 YEARS Accrued Physical Incurable Depreciation 40.0%
Source: CB Richard Ellis, Inc. The overall life expectancy is based upon our on-site observations and a comparative analysis of typical life expectancies reported for buildings of similar construction as published by Marshall and Swift, Inc., in the Marshall Valuation Service cost guide. While CB Richard Ellis, Inc. did not observe anything to suggest a different economic life, a capital improvement program could extend the life expectancy. CONCLUSION The improvements are considered to be in good overall condition and are considered to be above average for the age and location with regard to improvement design and layout, as well as amenities. Overall, there are no known factors which could be considered to adversely impact the marketability of any of the subject units or the overall project from a rental standpoint. 47 PLANTATION CROSSING APARTMENTS ZONING ZONING The following chart summarizes the zoning requirements applicable to the subject: ZONING SUMMARY Current Zoning RM-12, Multi-family Residential Legally conforming Yes Uses permitted Multi-family Residential Zoning Change Not Likely CATEGORY ZONING REQUIREMENT Parking 1.78 Spaces per unit Source: City of Marietta Planning & Zoning Department ANALYSIS AND CONCLUSION The improvements appear to be a legally conforming use. It should be noted that the value of the subject property would not be impacted if the property was found to be legally non-conforming. In addition, improvements can be restored if damaged or destroyed based on the zoning status. Because the subject property consists of 13 separate buildings, the risk associated with losing more than one structure to a typical loss, such as fire, seems highly unlikely. Further, we are not aware of any code violations. It is recommended that the City of Marietta planning and zoning personnel be contacted regarding more specific information which might be applicable to the subject. 48 PLANTATION CROSSING APARTMENTS TAX AND ASSESSMENT DATA TAX AND ASSESSMENT DATA The subject property is liable for real estate taxes in the city of Marietta and Cobb County. Property in Cobb County is assessed at 40% of the assessor's estimated market value. The combined city and county tax rate for 2002 was $29.473 per $1,000 of assessment. Minimal or no change is expected for 2003. The following table illustrates the subject's 2003 tax value. These figures do not include any furniture, fixtures and equipment. AD VALOREM TAX INFORMATION
Assessor's Market Value 2003 - ----------------------- ----------- 17-0858-006 $ 8,718,451 Assessed Value @ 40% $ 3,487,380 Tax Rate (per $1,000 A.V.) 29.473 TOTAL TAXES $ 102,784
Source: Cobb County Tax Assessor's Office TAX COMPARABLES As a crosscheck to the subject's applicable real estate taxes, CB Richard Ellis, Inc. has reviewed the real estate tax information for comparable properties in the immediate area. The following table summarizes the real estate tax comparables employed for this assignment: AD VALOREM TAX COMPARABLES
Comp 1 Comp 2 Comp 3 Subject ------------------------- -------------------- --------------- ------------------------------ Property Highland Falls Oaks At Powers Ferry Signature Place Plantation Crossing Apartments Parcel Number 17-0799-003 & 17-0800-001 17-0868-002 17-0926-025 17-0858-006 Year Built 1971 1980 1973 1979 No. Units 446 182 414 180 Tax Year 2003 2003 2003 2003 TOTAL TAX VALUE $19,268,301 $8,313,806 $16,643,183 $8,718,451 PER UNIT $ 43,202 $ 45,680 $ 40,201 $ 48,436
Source: Cobb County Tax Assessor's Office CONCLUSION The tax comparables range in value from $40,201 to $45,680 per unit, with the subject's tax value being within the indicated range. Therefore, we believe the subject's current tax value is appropriate and we have utilized the current tax liability within our analysis. 49 PLANTATION CROSSING APARTMENTS TAX AND ASSESSMENT DATA Another factor we have considered is that the subject's tax value is less than our estimate of market value. However, we have found this to be common of the Tax Assessor's Office, in that tax values typically lag behind market values. 50 PLANTATION CROSSING APARTMENTS HIGHEST AND BEST USE HIGHEST AND BEST USE In appraisal practice, the concept of highest and best use represents the premise upon which value is based. The four criteria the highest and best use must meet are: - legal permissibility; - physical possibility; - financial feasibility; and, - maximum profitability. Highest and best use analysis involves assessing the subject both as if vacant and as improved. AS VACANT LEGAL PERMISSIBILITY The legally permissible uses were discussed in the zoning section of this report. Basically, the site is limited to multi-family residential uses. PHYSICAL POSSIBILITY The physical characteristics of the subject site were discussed in detail in the site analysis. Overall, a wide range of legally permissible uses would be physically possible. FINANCIAL FEASIBILITY The financial feasibility of a specific property is market driven, and is influenced by surrounding land uses. Based on the subject's specific location and physical characteristics, development of the site with a multi-family residential use, which is complimentary to the surrounding land uses would represent the most likely financially feasible option. MAXIMUM PROFITABILITY Based on our analysis of current rents and building costs, it is our opinion that an apartment development would represent the most profitable use. CONCLUSION: HIGHEST AND BEST USE AS VACANT Based on the foregoing, the highest and best use of the site as though vacant would be for apartment development. 51 PLANTATION CROSSING APARTMENTS HIGHEST AND BEST USE AS IMPROVED LEGAL PERMISSIBILITY The subject site was approved for apartment development and the improvements are a legally conforming use. PHYSICAL POSSIBILITY The subject improvements were discussed in detail in the Improvement Analysis. The layout and positioning of the improvements are functional for apartment use based on comparison to neighborhood properties. FINANCIAL FEASIBILITY The financial feasibility for an apartment property is based on the amount of rent which can be generated, less operating expenses required to generate that income; if a residual amount exists then the land is being to a productive use. As will be indicated in the Income Capitalization Approach, the subject is capable of producing a positive net cash flow and continued utilization of the improvements for apartment is considered financially feasible. MAXIMUM PROFITABILITY It appears there are no alternative uses of the existing improvements which would produce a higher net income and/or value over time than the current use, as a rental apartment complex. CONCLUSION: HIGHEST AND BEST USE AS IMPROVED Based on the foregoing, the highest and best use of the property as improved is for continued operation as a rental apartment complex. 52 PLANTATION CROSSING APARTMENTS APPRAISAL METHODOLOGY APPRAISAL METHODOLOGY In appraisal practice, an approach to value is included or omitted based on its applicability to the property type being valued and the quality and quantity of information available. COST APPROACH The Cost Approach is based upon the proposition the informed purchaser would pay no more for the subject than the cost to produce a substitute property with equivalent utility. This approach is particularly applicable when the property being appraised involves relatively new improvements which represent the highest and best use of the land or when relatively unique or specialized improvements are located on the site and for which there exist few sales or leases of comparable properties. SALES COMPARISON APPROACH The Sales Comparison Approach utilizes sales of comparable properties, adjusted for differences, to indicate a value for the subject. Valuation is typically accomplished using physical units of comparison such as price per square foot, price per unit, price per floor, etc., or economic units of comparison such as gross rent multiplier. Adjustments are applied to the physical units of comparison derived from the comparable sale. The unit of comparison chosen for the subject is then used to yield a total value. Economic units of comparison are not adjusted, but rather analyzed as to relevant differences, with the final estimate derived based on the general comparisons. INCOME CAPITALIZATION APPROACH The Income Capitalization Approach reflects the subject's income-producing capabilities. This approach is based on the assumption that value is created by the expectation of benefits to be derived in the future. Specifically estimated is the amount an investor would be willing to pay to receive an income stream plus reversion value from a property over a period of time. The two common valuation techniques associated with the Income Capitalization Approach are direct capitalization and the discounted cash flow (DCF) analysis. METHODOLOGY APPLICABLE TO THE SUBJECT In valuing the subject, all three approaches are applicable and have been utilized. 53 PLANTATION CROSSING APARTMENTS LAND VALUE insert land sale map here 54 PLANTATION CROSSING APARTMENTS LAND VALUE LAND VALUE The following table summarizes the comparable data used in the valuation of the subject site with a comparable map presented on the previous page. A more detailed description of each transaction is included in the Addenda. SUMMARY OF COMPARABLE LAND SALES
TRANSACTION ADJUSTED SALE SIZE PRICE PER PRICE PER NO. PROPERTY LOCATION TYPE DATE PROPOSED USE PRICE (ACRES) ACRE BLDG UNIT --- ----------------- ----------- ------ ------------ ------------- ------- --------- --------- 1 7850 Lee Road, Sale Aug-01 Apartments $ 1,757,500 36.27 $ 48,456 $ 7,641 Lithia Springs, GA 2 NWQ U.S. Hwy 41 & White Circle Sale Feb-01 Apartments $ 2,381,472 19.85 $ 119,973 $ 10,177 Road, Kennesaw, GA 3 NE/S of Shiloh Road, S of Sale Nov-00 Apartments $ 7,043,400 40.56 $ 173,654 $ 14,143 Royal North Pkwy., Kennesaw, GA 4 1999 Cliff Valley Way, Sale Jun-00 Apartments $ 4,190,000 13.49 $ 310,600 $ 15,519 Atlanta, GA 5 NS of Williams Drive, E of Sale Jan-00 Apartments $ 3,500,000 39.78 $ 87,984 $ 9,777 Bells Ferry Road, Marietta, GA Subject 2703 Delk Road, --- --- Apartments --- 14.95 --- --- Marietta, GA
Source: CB Richard Ellis, Inc. ANALYSIS OF LAND SALES It should be noted that there has been a lack of recent comparable land sales due to the slowing market. We have, therefore, utilized land sales which occurred most recently and that are considered most comparable to the subject. Additionally, we have made an adjustment for any change in market conditions since the date of the comparable land sales. LAND SALE ONE This comparable represents the sale of a 36.27-acre vacant site, purchased for the development of a 230-unit apartment complex. The site is located on the west side of Lee Road (Georgia Highway 5), approximately one-quarter mile south of Interstate 20, in the western portion of metropolitan Atlanta. In comparison to the subject, an upward adjustment is required to account for the inferior location of this site. Overall, an upward adjustment is warranted to the price per unit indication of this sale. LAND SALE TWO This comparable represents the sale of a 19.85-acre vacant site, purchased for the development of a 234-unit apartment complex to be known as Caswyck Battlefield Apartments. The site is located 55 PLANTATION CROSSING APARTMENTS LAND VALUE within the northwest quadrant of U.S. Highway 41 and White Circle Road, in the northwestern portion of metropolitan Atlanta. In comparison to the subject, a downward adjustment is required to account for the superior location of this site. Overall, a downward adjustment is warranted to the price per unit indication of this sale. LAND SALE THREE This comparable represents the sale of a 40.56-acre vacant site, purchased for the development of a 498-unit apartment complex to be known as Alta Green. The site is located along the northeast side of Shiloh Road, south of Royal North Parkway, in the northwestern portion of metropolitan Atlanta. This sale warrants an upward adjustment for generally improving market values since the date of sale, compared to the date of the appraisal (time adjustment). No additional adjustments are required. LAND SALE FOUR This comparable represents the sale of a 13.49-acre site, purchased for the development of a 270-unit apartment complex to be developed by Archstone. The site was improved as Parkwood Hospital and a $465,000 cost-to-raze adjustment was incorporated in the selling price. The site is located on Cliff Valley way, approximately one-quarter mile north of Briarcliff Road and one-quarter mile south of Interstate 85, in the central portion of metropolitan Atlanta. This sale warrants an upward adjustment for generally improving market values since the date of sale, compared to the date of the appraisal (time adjustment). In addition, a downward adjustment is required to account for the superior location of this site. Overall, a downward adjustment is warranted to the price per unit indication of this sale. LAND SALE FIVE This comparable represents the sale of a 39.78-acre vacant site, purchased for the development of a 358-unit apartment complex to be known as Caswyck at Town Center. The site is located along the north side of Williams Drive, east of Bells Ferry Road, in the northwestern portion of metropolitan Atlanta. This sale warrants an upward adjustment for generally improving market values since the date of sale, compared to the date of the appraisal (time adjustment). No additional adjustments are required. SUMMARY OF ADJUSTMENTS Based on the foregoing discussions, the following table presents the adjustments warranted to each sale, as compared to the subject. The following adjustment grid implies a level of accuracy, which may not exist in the current market. However, the grid has been included in order to illustrate the 56 PLANTATION CROSSING APARTMENTS LAND VALUE magnitude of the warranted adjustments. Use of an adjustment grid in making quantitative adjustments is only appropriate and reliable when the extent of adjustment for each particular factor is well supported and the dollar or percentage adjustment is derived through either paired sales analysis or other data relevant to the market. In instances where paired sales and market data is not readily available, the appraiser must use his best judgment to make a reasonable estimate for the appropriate warranted adjustment. LAND SALES ADJUSTMENT GRID Comparable Number 1 2 3 4 5 Subject Transaction Type Sale Sale Sale Sale Sale --- Transaction Date Aug-01 Feb-01 Nov-00 Jun-00 Jan-00 --- Proposed Use Apartments Apartments Apartments Apartments Apartments Apartments Adjusted Sale Price $1,757,500 $2,381,472 $7,043,400 $4,190,000 $3,500,000 --- Size (Acres) 36.27 19.85 40.56 13.49 39.78 15.50 Price Per SF $ 1.11 $ 2.75 $ 3.99 $ 7.13 $ 2.02 --- ---------- ---------- ---------- ---------- ---------- Price ($ Per Unit) $ 7,641 $ 10,177 $ 14,143 $ 15,519 $ 9,777 ---------- ---------- ---------- ---------- ---------- Conditions of Sale 0% 0% 0% 0% 0% Market Conditions 0% 0% 2% 2% 3% ---------- ---------- ---------- ---------- ---------- Subtotal $ 7,641 $ 10,177 $ 14,426 $ 15,829 $ 10,070 ---------- ---------- ---------- ---------- ---------- Size 0% 0% 0% 0% 0% Topography 0% 0% 0% 0% 0% Location 10% -5% 0% -10% 0% ---------- ---------- ---------- ---------- ---------- Total Other Adjustments 10% -5% 0% -10% 0% ========== ========== ========== ========== ========== Value Indication for Subject $ 8,405 $ 9,668 $ 14,426 $ 14,246 $ 10,070 ========== ========== ========== ========== ==========
Source: CB Richard Ellis, Inc. CONCLUSION Based on the preceding discussions of each comparable and the foregoing adjustment analysis, a price per unit indication near the middle of the range indicated by these comparables is the most appropriate for the subject. The following table presents the valuation conclusion: CONCLUDED LAND VALUE
$ Per Unit Subject Units Total - ---------- -- ------------- -- ----------- $ 11,500 x 180 = $ 2,070,000 Rounded: $ 2,075,000
Source: CB Richard Ellis, Inc. 57 PLANTATION CROSSING APARTMENTS COST APPROACH COST APPROACH The Cost Approach is based upon the proposition the informed purchaser would pay no more for the subject than the cost to produce a substitute property with equivalent utility. This approach is particularly applicable when the property being appraised involves relatively new improvements which represent the highest and best use of the land, or when relatively unique or specialized improvements are located on the site for which there exist few sales or leases of comparable properties. DIRECT COST The Marshall Valuation Service (MVS) cost guide, published by Marshall and Swift, Inc., has been used to estimate the direct costs for the subject. Salient details regarding the direct costs are summarized in the Cost Approach Schedule which follows this section. The MVS cost estimate include the following: 1. average architect's and engineer's fees for plans, plan check, building permits and survey(s) to establish building line; 2. normal interest in building funds during the period of construction plus a processing fee or service charge; 3. materials, sales taxes on materials and labor costs;. 4. normal site preparation including finish grading and excavation for foundation and backfill; 5. utilities from structure to lot line figured for typical setback; 6. contractor's overhead and profit, including job supervision, workmen's compensation, fire and liability insurance, unemployment insurance, equipment, temporary facilities, security, etc.; 7. site improvements (included as lump sum additions); and, 8. initial tenant improvement costs are included in MVS cost estimate. However, additional lease-up costs such as advertising, marketing and leasing commissions are not included. Base building costs (direct costs), indicated by the MVS cost guide, are adjusted to reflect the physical characteristics of the subject. Making these adjustments, including the appropriate local and current cost multipliers, the Direct Building Cost is indicated. ADDITIONS Items not included in the direct building cost estimate include parking and walks, signage, landscaping and miscellaneous site improvements. The cost for these items is estimated separately using the segregated cost sections of the MVS cost guide. INDIRECT COST Several indirect cost items are not included in the direct building cost figures derived through the MVS cost guide. These items include developer overhead (general and administrative costs), property taxes, legal and insurance costs, local development fees and contingencies, lease-up and marketing costs and miscellaneous costs. Research into these costs leads to the conclusion that an average property requires an allowance for additional indirect costs of about 10% to 15% of the total direct costs. 58 PLANTATION CROSSING APARTMENTS COST APPROACH ENTREPRENEURIAL PROFIT Entrepreneurial profit represents the return to the developer, and is separate from contractor's overhead and profit. This line item, which is a subjective figure, tends to range from 10% to 15% of total direct and indirect costs for this property type, based on discussions with developers active in this market. Based on the subject's location, we believe a rate of entrepreneurial profit near the low end of the range is appropriate. REPLACEMENT COST NEW Based on the quantity and quality of the available cost data, the subject's estimated replacement cost new is based primarily on MVS. ACCRUED DEPRECIATION There are essentially three sources of accrued depreciation: 1. physical deterioration, both curable and incurable; 2. functional obsolescence, both curable and incurable; and, 3. external obsolescence. PHYSICAL DETERIORATION The subject's physical condition was detailed in the Improvement Analysis. With regard to incurable deterioration, the subject improvements are considered to have deteriorated due to normal wear and tear associated with natural aging. Our estimate of the subject improvements effective age and remaining economic life is depicted in the following chart: ECONOMIC AGE AND LIFE Actual Age 24 Years Effective Age 20 Years MVS Expected Life 50 Years Remaining Economic Life 30 Years Accrued Physical Incurable Depreciation 40.0%
Source: CB Richard Ellis, Inc. FUNCTIONAL OBSOLESCENCE Based on a review of the design and layout of the improvements, no forms of curable functional obsolescence were noted. Due to the fact that replacement cost considers the construction of the subject improvements utilizing modern materials and current standards, design and layout, functional incurable obsolescence is not applicable. 59 PLANTATION CROSSING APARTMENTS COST APPROACH EXTERNAL OBSOLESCENCE We have concluded that there is no significant external obsolescence affecting the subject improvements. COST APPROACH CONCLUSION The value estimate is calculated on the Cost Approach Schedule which follows. COST APPROACH SCHEDULE Building Type: Apartment (1-4 Story) Height per Story: 10' Age: 20 YRS Number of Buildings: 13 Quality/Condition: Good Gross Building Area: 192,330 SF Exterior Wall: Wood siding Net Rentable Area: 190,030 SF Number of Unts: 180 Average Unit Size: 1,056 SF Number of Stories: 2 & 3 ------------ FINAL SQUARE FOOT COST $ 52.69 ------------ BASE BUILDING COST (via Marshall Valuation Service cost data) $ 10,134,777 ADDITIONS Signage, Landscaping & Misc. Site Improvements $ 200,000 Parking & Driveways $ 215,000 Appliances $ 215,000 ------------ DIRECT BUILDING COST $ 10,764,777 INDIRECT COSTS 10.0% of Direct Building Cost $ 1,076,478 ------------ DIRECT AND INDIRECT BUILDING COST $ 11,841,255 ENTREPRENEURIAL PROFIT 10.0% of Total Building Cost $ 1,184,126 ------------ REPLACEMENT COST NEW $ 13,025,381 ------------ ACCRUED DEPRECIATION Curable Physical Deterioration $ 0 Unfinished Shell Space $ 0 Incurable Physical 40.0% of Replacement Cost New less Deterioration Curable Physical Deterioration ($ 5,210,152) Functional Obsolescence $ 0 External Obsolescence $ 0 -------------------- Total Accrued Depreciation 40.0% of Replacement Cost New ($ 5,210,152) DEPRECIATED REPLACEMENT COST $ 7,815,228 ------------ LAND VALUE $ 2,075,000 ------------ STABILIZED VALUE INDICATION $ 9,890,228 ROUNDED $ 9,900,000 VALUE PER SF $ 52.10 VALUE PER UNIT $ 55,000
Source: CB Richard Ellis, Inc. 60 PLANTATION CROSSING APARTMENTS SALES COMPARISON APPROACH insert sale comp map here 61 PLANTATION CROSSING APARTMENTS SALES COMPARISON APPROACH SALES COMPARISON APPROACH The following table summarizes the most comparable data utilized in the analysis with a comparable map presented on the previous page. A more detailed description of each transaction is included in the Addenda. SUMMARY OF COMPARABLE APARTMENT SALES
TRANSACTION YEAR NO. AVG. UNIT ADJ. SALE PRICE PER NOI PER NO. NAME TYPE DATE BUILT UNITS SIZE PRICE UNIT UNIT OAR - ------- ------------------------------- ----------- ------ ----- ----- --------- ----------- --------- ------- --- 1 Cinnamon Ridge, Sale Dec-02 1980 200 1,184 $11,200,000 $56,000 $4,480 8.00% Marietta, GA 2 Windridge Apartments, Sale Dec-02 1982 272 855 $15,100,000 $55,515 $4,164 7.50% Atlanta, GA 3 Oakwood Village, Sale Nov-02 1982 184 1,134 $11,675,000 $63,451 $5,038 7.94% Chamblee, GA 4 Hawthorne Court Sale Jun-02 1990 172 746 $11,960,000 $69,535 $5,215 7.50% Apartments, Atlanta, GA 5 Hawthorne Town View Sale Jun-02 1990 278 779 $19,419,975 $69,856 $5,239 7.50% Apartments, Atlanta, GA 6 Oak Park of Vinings, Sale Feb-02 1974 168 N/A $12,500,000 $74,405 $5,908 7.94% Smyrna, GA Subject Plantation Crossing Apartments, --- --- 1979 180 1,056 --- --- $3,845 --- Marietta, GA
Source:CB Richard Ellis, Inc. ANALYSIS OF IMPROVED SALES IMPROVED SALE ONE This comparable represents the sale of a 200-unit apartment property that was built in 1980, and renovated in 1991. The property is located on Franklin Road, approximately two miles northwest of the subject property, in the northwestern portion of metropolitan Atlanta. The property offers one- and two-bedroom units, with an average unit size of 1,184 square feet. As compared to the subject, this sale requires a downward adjustment to account for its larger average unit size. Overall, a downward adjustment is warranted to the price per unit indication of this sale. IMPROVED SALE TWO This comparable represents the sale of a 272-unit apartment property that was built in 1982. The property is located Roswell Road at Northridge Drive, approximately 11 miles northeast of the subject property, in the north central portion of metropolitan Atlanta. The property offers one- and two-bedroom units, with an average unit size of 855 square feet. 62 PLANTATION CROSSING APARTMENTS SALES COMPARISON APPROACH As compared to the subject, this sale requires a downward adjustment for its superior location. In addition, this sale requires an upward adjustment to account for its smaller average unit size. Overall, a downward adjustment was warranted to the price per unit indication of this sale. IMPROVED SALE THREE This comparable represents the sale of a 184-unit apartment property that was built in 1982. The property is located along the south side of Chamblee Tucker Road, south of Interstate 285, approximately 19 miles east of the subject property, in the central portion of metropolitan Atlanta. The property offers one-, two- and three-bedroom units, with an average unit size of 1,134 square feet. As compared to the subject, this sale requires a downward adjustment for its superior location. Overall, a downward adjustment was warranted to the price per unit indication of this sale. IMPROVED SALE FOUR This comparable represents the sale of a 172-unit apartment property that was built in 1990. The property is located on the north side of Wimbledon Road, just west of Piedmont Road, approximately 14 miles southeast of the subject property, inside the city limits of Atlanta, Georgia. The property offers one- and two-bedroom units, with an average unit size of 746 square feet. As compared to the subject, this sale requires downward adjustments for its newer age and superior location. In addition, this sale requires an upward adjustment for its smaller average unit size. Overall, a downward adjustment was warranted to the price per unit indication of this sale. IMPROVED SALE FIVE This comparable represents the sale of a 278-unit apartment property that was built in 1990. The property is located on the southeast quadrant of Mescalin Street and Deering Road, approximately 12 miles southeast of the subject property, within the city limits of Atlanta, Georgia in Fulton County. The property offers one- and two-bedroom units, with an average unit size of 779 square feet. As compared to the subject, this sale requires downward adjustments for its newer age and superior location. In addition, this sale requires an upward adjustment for its smaller average unit size. Overall, a downward adjustment was warranted to the price per unit indication of this sale. IMPROVED SALE SIX This comparable represents the sale of a 168-unit apartment property that was built in 1974. The property is located along Winchester Trail, just east of Interstate 285, approximately eight miles south of the subject property, in the northwestern portion of metropolitan Atlanta. 63 PLANTATION CROSSING APARTMENTS SALES COMPARISON APPROACH As compared to the subject, this sale requires an upward adjustment for its older age. Overall, an upward adjustment was warranted to the price per unit indication of this sale. SUMMARY OF ADJUSTMENTS Based on the foregoing discussions, the following table presents the adjustments warranted to each sale, as compared to the subject. The following adjustment grid implies a level of accuracy, which may not exist in the current market. However, the grid has been included in order to illustrate the magnitude of the warranted adjustments. Use of an adjustment grid in making quantitative adjustments is only appropriate and reliable when the extent of adjustment for each particular factor is well supported and the dollar or percentage adjustment is derived through either paired sales analysis or other data relevant to the market. In instances where paired sales and market data is not readily available, the appraiser must use his best judgment to make a reasonable estimate for the appropriate warranted adjustment. In addition, the comparable sales utilized were all arm's length transactions. APARTMENT SALES ADJUSTMENT GRID Comparable Number 1 2 3 4 5 6 Subject Transaction Type Sale Sale Sale Sale Sale Sale --- Transaction Date Dec-02 Dec-02 Nov-02 Jun-02 Jun-02 Feb-02 --- Year Built 1980 1982 1982 1990 1990 1974 1979 No. Units 200 272 184 172 278 168 180 Avg. Unit Size 1,184 855 1,134 746 779 N/A 1,056 Sale Price $ 11,200,000 $ 15,100,000 $ 11,675,000 $ 11,960,000 $ 19,419,975 $ 12,500,000 --- Price Per Unit $ 56,000 $ 55,515 $ 63,451 $ 69,535 $ 69,856 $ 74,405 --- Price Per SF $ 47.28 $ 64.90 $ 55.97 $ 93.18 $ 89.70 N/A --- NOI Per Unit $ 4,480 $ 4,164 $ 5,038 $ 5,215 $ 5,239 $ 5,908 $ 3,845 OAR 8.00% 7.50% 7.94% 7.50% 7.50% 7.94% --- ------------ ------------ ------------ ------------ ------------ ------------ Adj. Price Per Unit $ 56,000 $ 55,515 $ 63,451 $ 69,535 $ 69,856 $ 74,405 ------------ ------------ ------------ ------------ ------------ ------------ Conditions of Sale 0% 0% 0% 0% 0% 0% Market Conditions (Time) 0% 0% 0% 0% 0% 0% ------------ ------------ ------------ ------------ ------------ ------------ Subtotal $ 56,000 $ 55,515 $ 63,451 $ 69,535 $ 69,856 $ 74,405 ------------ ------------ ------------ ------------ ------------ ------------ Age 0% 0% 0% -10% -10% 5% Quality/Condition 0% 0% 0% 0% 0% 0% Location 0% -15% -10% -15% -15% 0% Average Unit Size -5% 5% 0% 5% 5% 0% ------------ ------------ ------------ ------------ ------------ ------------ Total Other Adjustments -5% -10% -10% -20% -20% 5% ============ ============ ============ ============ ============ ============ INDICATED VALUE PER UNIT $ 53,200 $ 49,963 $ 57,106 $ 55,628 $ 55,885 $ 78,125 ============ ============ ============ ============ ============ ============ INDICATED VALUE PER SF $ 44.92 $ 58.41 $ 50.37 $ 74.54 $ 71.76 N/A ============ ============ ============ ============ ============ ============
Source: CB Richard Ellis, Inc. SALES COMPARISON APPROACH CONCLUSION A price per unit indication near the lower portion of the range indicated by the comparables is considered most appropriate for the subject. The following table presents the estimated value for the subject as indicated by the Sales Comparison Approach. 64 PLANTATION CROSSING APARTMENTS SALES COMPARISON APPROACH SALES COMPARISON APPROACH
TOTAL UNITS X VALUE PER UNIT = VALUE - ----------- -- -------------- -- ----- 180 X $ 52,000 = $ 9,360,000
VALUE CONCLUSION INDICATED STABILIZED VALUE $ 9,360,000 ROUNDED $ 9,350,000 VALUE PER UNIT $ 51,944 VALUE PER SF $ 49.20
Source: CB Richard Ellis, Inc. 65 PLANTATION CROSSING APARTMENTS INCOME CAPITALIZATION APPROACH insert rent comp map here 66 PLANTATION CROSSING APARTMENTS INCOME CAPITALIZATION APPROACH INCOME CAPITALIZATION APPROACH Within the Income Capitalization Approach, a value indication for the subject has been derived via the direct capitalization method. The following table summarizes the most comparable data utilized in the analysis with a comparable map presented on the previous page. A more detailed description of each comparable is included in the Addenda. SUMMARY OF COMPARABLE APARTMENT RENTALS
COMP. NO. AVG. RENT NO. NAME LOCATION YEAR BUILT UNITS PER UNIT OCC. - ------- ------------------------------------- ----------------------- ---------- ----- -------- ---- 1 Stone Mill 2575 Delk Road, 1973 200 $ 887 95% Marietta, GA 2 Signature Place Apartments 1049 Powers Ferry Road, 1973 414 $ 842 80% Marietta, GA 3 Highland Falls 2560 Delk Road, 1972 446 $ 761 85% Marietta, GA 4 Concepts 21 Delk 2600 Bentley Road, 1984 249 $ 769 85% Marietta, GA 5 Bentley Manor 2605 Bentley Road, 1984 170 $ 761 89% Marietta, GA 6 Gardens At East Cobb (fka Park Knoll) 2850 Delk Road, SE, 1983 484 $ 917 91% Marietta, GA Subject Plantation Crossing Apartments 2703 Delk Road, 1979 180 --- 96% Marietta, GA
Source: CB Richard Ellis, Inc. ANALYSIS OF RENT COMPARABLES RENT COMPARABLE ONE This comparable represents a 200-unit apartment property, located along Delk Road. The property, identified as Stone Mill, was developed in 1973 and is currently 95% occupied. The property offers one-, two- and three-bedroom floor plans, with an average unit size of 1,283 square feet. Water, sewer, and trash removal expenses are included in the quoted rental rates. Currently, as a concession, management is offering one-month of free rent on a 12-month lease. As compared to the subject, this project is considered inferior with respect to age, quality, and condition, warranting an upward adjustment to its rental rates. RENT COMPARABLE TWO This comparable represents a 414-unit apartment property, located along Powers Ferry Road. The property, identified as Signature Place, was developed in 1973 and is currently 80% occupied. The 67 PLANTATION CROSSING APARTMENTS INCOME CAPITALIZATION APPROACH property offers one- and two-bedroom floor plans, with an average unit size of 1,263 square feet. Trash removal expenses are included in the quoted rental rates. Currently, the property is offering reduced rental rates on all unit types as a concession. As compared to the subject, this project is considered inferior with respect to age, quality, and condition, warranting an upward adjustment to its rental rates. RENT COMPARABLE THREE This comparable represents a 446-unit apartment property, located along Delk Road. The property, identified as Highland Falls, was developed in 1972 and is currently 85% occupied. The property offers one-, two-, three- and four-bedroom floor plans, with an average unit size of 1,288 square feet. Trash removal expenses are included in the quoted rental rates. Currently, as a concession, management is offering reduced rental rates on the one-, two- and three-bedroom units. As compared to the subject, this project is considered inferior with respect to age, quality, and condition, warranting an upward adjustment to its rental rates. RENT COMPARABLE FOUR This comparable represents a 249-unit apartment property, located along Bentley Road. The property, identified as Concepts 21 Delk, was developed in 1984 and is currently 85% occupied. The property offers one-, two-, and three-bedroom floor plans, with an average unit size of 1,046 square feet. Cold water, sewer, and trash removal expenses are included in the quoted rental rates. Currently, as a concession, the property is offering one- to three-months of free rent on a 12-month lease. This project is considered quite similar to the subject, with no adjustments warranted to its rental rates. RENT COMPARABLE FIVE This comparable represents a 170-unit apartment property, located along Bentley Road. The property, identified as Bentley Manor, was developed in 1984 and is currently 89% occupied. The property offers efficiency, one-, two- and three-bedroom floor plans. Water, sewer, and trash removal expenses are included in the quoted rental rates. Currently, management is offering one- to three-months of free rent on all remaining units as a concession. This project is considered quite similar to the subject, with no adjustments warranted to its rental rates. RENT COMPARABLE SIX This comparable represents a 484-unit apartment property, located along Delk Road. The property, identified as Gardens at East Cobb, was developed in 1983 and is currently 91% occupied. The property offers one- and two-bedroom floor plans, with an average unit size of 1,211 square feet. Trash removal expenses are included in the quoted rental rates. Currently, as a concession, management is offering reduced rental rates on select units, which equates to three-months of free rent 68 PLANTATION CROSSING APARTMENTS INCOME CAPITALIZATION APPROACH prorated over a 12-month lease. This project is considered quite similar to the subject, with no adjustments warranted to its rental rates. SUBJECT QUOTED RENTS The following table depicts the subject's unit mix and quoted rental rates. QUOTED RENTS
No. of Unit Quoted Rent Type Units Size (SF) Rents Per SF - -------- ------ --------- ------ ------ 1BR/1BA 60 820 SF $ 599 $ 0.73 2BR/1BA 40 1,070 SF $ 669 $ 0.63 2BR/2BA 40 1,135 SF $ 699 $ 0.62 2BR/2BA 22 1,300 SF $ 889 $ 0.68 2BR/2BA 18 1,335 SF $ 904 $ 0.68 Average: 180 1,056 SF $ 703 $ 0.67
Source: Property Management Rent includes trash removal and pest control expenses; all other utilities are paid directly by tenants to the respective providers. The subject's rental rates increased $10 per month on each unit type at the beginning of May 2003, and are included in the rental rates shown above. Currently, as a concession, management is offering one month of free rent with a 12-month lease. ESTIMATE OF MARKET RENT In order to estimate the market rates for the various floor plans, the subject unit types have been compared with similar units in the comparable projects. The following is a discussion of each unit type. 69 PLANTATION CROSSING APARTMENTS INCOME CAPITALIZATION APPROACH ONE-BEDROOM UNITS SUMMARY OF COMPARABLE RENTALS ONE BEDROOM UNITS
RENTAL RATES COMPARABLE SIZE $/MO. $/SF - ------------------------------------- -------- ----- ------ Subject 820 SF $ 599 $ 0.73 Signature Place Apartments 1,000 SF $ 765 $ 0.77 Stone Mill 960 SF $ 740 $ 0.77 Concepts 21 Delk 745 SF $ 580 $ 0.78 Highland Falls 842 SF $ 662 $ 0.79 Gardens At East Cobb (fka Park Knoll) 945 SF $ 760 $ 0.80 Bentley Manor 840 SF $ 695 $ 0.83 Concepts 21 Delk 830 SF $ 693 $ 0.83 Bentley Manor 830 SF $ 695 $ 0.84 Concepts 21 Delk 840 SF $ 710 $ 0.85 Signature Place Apartments 850 SF $ 745 $ 0.88 Signature Place Apartments 800 SF $ 710 $ 0.89 Bentley Manor 745 SF $ 665 $ 0.89 Gardens At East Cobb (fka Park Knoll) 770 SF $ 701 $ 0.91 Gardens At East Cobb (fka Park Knoll) 660 SF $ 683 $ 1.03
Source: CB Richard Ellis, Inc. As illustrated, the subject's quoted one-bedroom rental rate is at the low end of the range in terms of rental rates on a square footage basis. However, the large proportion of one-bedroom units allocates a requirement for market penetration. Therefore, it is reasonable to assume that the one-bedroom rental rates are at the low end of the competitive range. Thus, we have included the rental rates for the one-bedroom units at the quoted rent levels. 70 PLANTATION CROSSING APARTMENTS INCOME CAPITALIZATION APPROACH TWO-BEDROOM UNITS SUMMARY OF COMPARABLE RENTALS TWO BEDROOM UNITS
RENTAL RATES COMPARABLE SIZE $/MO. $/SF - ------------------------------------- -------- ------ ------ Highland Falls 1,279 SF $ 720 $ 0.56 Signature Place Apartments 1,400 SF $ 855 $ 0.61 Gardens At East Cobb (fka Park Knoll) 2,100 SF $1,286 $ 0.61 Subject 1,135 SF $ 699 $ 0.62 Signature Place Apartments 1,450 SF $ 895 $ 0.62 Highland Falls 1,100 SF $ 680 $ 0.62 Signature Place Apartments 1,600 SF $ 995 $ 0.62 Subject 1,070 SF $ 669 $ 0.63 Stone Mill 1,310 SF $ 875 $ 0.67 Subject 1,335 SF $ 904 $ 0.68 Subject 1,300 SF $ 889 $ 0.68 Stone Mill 1,160 SF $ 820 $ 0.71 Concepts 21 Delk 1,100 SF $ 795 $ 0.72 Gardens At East Cobb (fka Park Knoll) 1,195 SF $ 865 $ 0.72 Bentley Manor 1,100 SF $ 800 $ 0.73 Concepts 21 Delk 1,090 SF $ 795 $ 0.73 Bentley Manor 1,005 SF $ 740 $ 0.74 Concepts 21 Delk 1,005 SF $ 740 $ 0.74 Bentley Manor 1,090 SF $ 810 $ 0.74 Gardens At East Cobb (fka Park Knoll) 1,590 SF $1,186 $ 0.75 Gardens At East Cobb (fka Park Knoll) 1,320 SF $ 995 $ 0.75
Source: CB Richard Ellis, Inc. As illustrated, the subject's quoted two-bedroom rental rates are within the range indicated by the rent comparables on both a per unit and per square foot basis. Therefore, we believe the quoted levels are representative of a market level, and we have used the quoted rates within our analysis. As further support for these levels, we recognize that several leases have been signed recently at the quoted levels. MARKET RENT CONCLUSIONS Based on the foregoing analysis and discussion, the following is our estimate of potential rental income for the subject property at market rates: 71 PLANTATION CROSSING APARTMENTS INCOME CAPITALIZATION APPROACH MARKET RENT CONCLUSIONS
No. Unit Monthly Rent Annual Rent Annual Units Unit Type Size Total SF $/Unit $/SF PRI $/Unit $/SF Total - ----- --------- -------- ---------- ------------ ------ --------- ----------- ------ ----------- 60 1BR/1BA 820 SF 49,200 SF $ 599 $ 0.73 $ 35,940 $ 7,188 $ 8.77 $ 431,280 40 2BR/1BA 1,070 SF 42,800 SF $ 669 $ 0.63 $ 26,760 $ 8,028 $ 7.50 $ 321,120 40 2BR/2BA 1,135 SF 45,400 SF $ 699 $ 0.62 $ 27,960 $ 8,388 $ 7.39 $ 335,520 22 2BR/2BA 1,300 SF 28,600 SF $ 889 $ 0.68 $ 19,558 $ 10,668 $ 8.21 $ 234,696 18 2BR/2BA 1,335 SF 24,030 SF $ 904 $ 0.68 $ 16,272 $ 10,848 $ 8.13 $ 195,264 - --------------------------------------------------------------------------------------------------------- 180 1,056 SF 190,030 SF $ 703 $ 0.67 $ 126,490 $ 8,433 $ 7.99 $ 1,517,880 - ---------------------------------------------------------------------------------------------------------
Source: CB Richard Ellis, Inc. RENT ADJUSTMENTS Rent adjustments are sometimes necessary to account for differences in rental rates applicable to different units within similar floor plans due to items such as location within the property, view and level of amenities. These rental adjustments may be in the form of rent premiums or rent discounts. In the case of the subject, rent adjustments are not applicable. RENT SUBSIDIES There are not any known rent subsidies at the subject property. RENT ROLL ANALYSIS The rent roll analysis serves as a cross check to the estimate of market rent for the subject. The collections shown on the rent roll include rent premiums and/or discounts. RENT ROLL ANALYSIS
Total Total Revenue Component Monthly Rent Annual Rent - ------------------------------------ ------------ ----------- 172 Occupied Units at Contract Rates $ 116,150 $ 1,393,800 8 Vacant Units at Quoted Rates $ 5,642 $ 67,704 - --------------------------------------------------------------- 180 Total Units $ 121,792 $ 1,461,504 - ---------------------------------------------------------------
Source: Property Management The minimal variance between the current rent roll and our estimate of market rent is negligible (3.71%). Therefore, a loss-to-lease is not warranted. POTENTIAL RENTAL INCOME CONCLUSION Within this analysis, potential rental income is estimated based on market rental rates over the next twelve months. This method of calculating rental income is most prevalent in the local market and is consistent with the method used to derive overall capitalization rates from the comparable sales data. 72 PLANTATION CROSSING APARTMENTS INCOME CAPITALIZATION APPROACH VACANCY AND COLLECTION LOSS Vacancy and collection loss is a function of the interrelationship between absorption, lease expiration, renewal probability, estimated downtime between leases and a collection loss factor based on the relative stability and credit of the subject's tenant base. As shown on the Summary of Comparable Rentals, the comparable properties reported occupancy rates ranging from 80% to 95%. Furthermore, the subject is currently [OBJECT OMITTED] occupied. Based on current conditions at comparable properties and considering data contained in the Market Analysis, a stabilized vacancy rate of 7.0% has been estimated for the subject. In addition, a 1.0% collection loss allowance has been included, for a total vacancy and collection loss of 8.0%. CONCESSION LOSS Currently, as a concession, management is offering one-month of free rent when signing a 12-month lease. Furthermore, all of the comparable properties are currently offering concessions. Some of the concessions are considered cyclical to the normal pattern of leasing activity and some level owes to the current economic conditions. Based on the foregoing, we have incorporated a concession loss of 4.0% in our analysis, as a reasonable stabilized projection. UTILITY REIMBURSEMENTS Residents at the subject property are responsible for paying their respective electric, gas, water and sewer usage. The subject's revenue history and our concluded stabilized estimate of this item are detailed as follows: UTILITY REIMBURSEMENT
Year Total $/Unit - ------------------------------- -------- ------ 2000 $ 1,982 $ 11 2001 $ 41,261 $ 229 2002 $ 58,349 $ 324 2003 Annualized $ 65,236 $ 362 CB RICHARD ELLIS, INC. ESTIMATE $ 58,320 $ 324
Source: Operating Statements & CB Richard Ellis, Inc. Utility Reimbursement Income is very property specific. At the subject property, tenants reimburse the electric, water and sewer, and natural gas expenses. The recovery of these expenses is a common practice among other properties in the market. In estimating a stabilized utility reimbursement level, we have taken into account the subject's historical reimbursements. Therefore, we have estimated the utility reimbursement income at $324 per unit, or $58,320 annually. 73 PLANTATION CROSSING APARTMENTS INCOME CAPITALIZATION APPROACH OTHER INCOME Other income is supplemental to that derived from leasing of the improvements. This includes income from a variety of sources, including application fees, laundry income, late payment fees, vending machines, termination fees, pet fees, lock-out fees, appliance rental fees, corporate income fees, furniture rental fees and various other similar sources. We have found this source of income normally varies from approximately $15 to $25 per unit per month, which equates to $180 to $300 per unit annually. Furthermore, we have found that most properties witness Other Income levels near the middle to higher end of this range. The subject's historical and projected Other Income is detailed as follows: OTHER INCOME
Year Total $/Unit - ------------------------------- -------- ------ 2000 $ 58,381 $ 324 2001 $ 76,907 $ 427 2002 $ 63,982 $ 355 2003 Annualized $100,028 $ 556 CB RICHARD ELLIS, INC. ESTIMATE $ 64,800 $ 360
Source: Operating Statements & CB Richard Ellis, Inc. As illustrated, the historical levels are within the upper portion and above the typical range. Thus, we have included this source of income in-line with comparable properties, concluded at $64,800, or $360 per unit. EFFECTIVE GROSS INCOME The subject's historical and pro forma effective gross income is detailed as follows: EFFECTIVE GROSS INCOME
Year Total % Change - ------------------------------- ----------- -------- 2000 $ 1,490,334 -- 2001 $ 1,417,974 -4.9% 2002 $ 1,397,898 -1.4% 2003 Annualized $ 1,462,760 4.6% CB RICHARD ELLIS, INC. ESTIMATE $ 1,458,854 -0.3%
Source: Operating Statements & CB Richard Ellis, Inc. Our estimate of effective gross income is generally in-line with the demonstrated historical levels. We have incorporated a concession loss, which has become increasingly prevalent in the market over the past year and is reflected in the year-to-date operating data. Given these considerations, we believe our estimate is reasonable. 74 PLANTATION CROSSING APARTMENTS INCOME CAPITALIZATION APPROACH OPERATING EXPENSE ANALYSIS In estimating the operating expenses for the subject, the actual operating history has been analyzed, along with expense data from comparable apartment properties. The following table presents the available operating expense history for the subject. OPERATING HISTORY
2000 2001 2002 2003 Annualized -------------------- -------------------- -------------------- -------------------- Total $/Unit Total $/Unit Total $/Unit Total $/Unit -------------------- -------------------- -------------------- -------------------- INCOME Rental Income $ 1,429,971 $ 7,944 1,299,806 $ 7,221 1,275,567 $ 7,086 $ 1,297,496 $ 7,208 Utility Reimbursement 1,982 11 41,261 229 58,349 324 $ 65,236 362 Other Income 58,381 324 76,907 427 63,982 355 $ 100,028 556 -------------------- -------------------- -------------------- -------------------- Effective Gross Income $ 1,490,334 $ 8,280 $ 1,417,974 $ 7,878 $ 1,397,898 $ 7,766 $ 1,462,760 $ 8,126 EXPENSES Real Estate Taxes $ 90,652 $ 504 $ 81,918 $ 455 $ 96,542 $ 536 87,392 $ 486 Insurance 16,580 92 32,944 183 33,347 185 $ 34,412 191 Natural Gas 7,300 41 22,566 125 9,902 55 $ 23,308 129 Electricity 31,045 172 31,207 173 32,257 179 $ 31,780 177 Water and Sewer 62,952 350 61,123 340 67,733 376 $ 59,392 330 Cable Television - - - - - - - - Trash Removal 6,957 39 21,418 119 11,089 62 $ 10,352 58 Maintenance and Repairs 27,006 150 44,504 247 35,709 198 $ 49,976 278 Painting and Decorating 43,807 243 77,934 433 60,197 334 $ 116,240 646 Grounds 17,918 100 28,807 160 27,475 153 $ 18,900 105 Management Fee 77,833 432 84,354 469 72,524 403 $ 65,880 366 Administrative Payroll 63,506 353 69,530 386 68,984 383 $ 54,622 303 Maintenance Payroll 59,164 329 56,094 312 23,766 132 $ 27,282 152 Employee Taxes & Benefits 21,811 121 30,040 167 34,635 192 $ 43,224 240 Employee Apartments 13,214 73 21,513 120 21,635 120 $ 19,648 109 Security 8,666 48 9,160 51 8,829 49 $ 2,460 14 Advertising and Leasing 47,329 263 63,890 355 28,127 156 $ 40,604 226 General and Administrative 46,034 256 47,158 262 40,782 227 $ 50,196 279 Reserves for Replacement - - - - - - - - -------------------- -------------------- -------------------- -------------------- Operating Expenses $ 641,774 $ 3,565 $ 784,160 $ 4,356 $ 673,532 $ 3,742 $ 735,668 $ 4,087 -------------------- -------------------- -------------------- -------------------- NET OPERATING INCOME $ 848,560 $ 4,714 $ 633,814 $ 3,521 $ 724,366 $ 4,024 $ 727,092 $ 4,039
Source: Operating statements EXPENSE COMPARABLES The following table indicates the actual operating history for comparable apartment properties. 75 PLANTATION CROSSING APARTMENTS INCOME CAPITALIZATION APPROACH EXPENSE COMPARABLES
Comparable Number 1 2 IREM - ----------------- ------------- ------------- ------------- Location Metro Atlanta Metro Atlanta Metro Atlanta Units 200 240 Year Built 1996 1995 GLA (SF) 217,616 282,398 Expense Year 2001 2001 2001
Expenses $/Unit* $/Unit* $/Unit* - --------------------------- ------- ------- ------- Real Estate Taxes $ 680 $ 817 $ 506 Property Insurance 64 117 84 Natural Gas - 17 10 Electricity 242 896 113 Water and Sewer 289 248 321 Cable Television - - - Trash Removal 55 46 85 Maintenance and Repairs 233 184 182 Painting and Decorating 194 299 212 Grounds 266 209 199 Management Fee 351 552 315 Administrative Payroll 409 784 - Maintenance Payroll 322 20 - Employee Taxes & Benefits 191 108 401 Employee Apartments 50 164 - Security 52 31 42 Advertising and Leasing 125 197 - General and Administrative 180 279 705 Reserves for Replacement - - - ------- ------- ------- Operating Expenses $ 3,703 $ 4,969 $ 3,922**
* Expenses shown in $/unit, with the exception of Management Fee which is shown as % EGI. ** The IREM median total differs from the sum of the individual amounts. Source: Actual operating statements and IREM Income and Expense Report: 2001 EXPENSE ESTIMATE The following subsections represent the analysis for the pro forma estimate of each category of the subject's stabilized expenses. REAL ESTATE TAXES The real estate taxes for the subject were previously discussed and have been included at the 2003 actual level of $102,784. This level is well supported by comparable properties in the subject's area. 76 PLANTATION CROSSING APARTMENTS INCOME CAPITALIZATION APPROACH PROPERTY INSURANCE Property insurance expenses typically include fire and extended coverage and owner's liability coverage. The subject's expense history and pro forma estimate are detailed as follows: INSURANCE
Year Total $/Unit - ------------------------------- -------- ------ 2000 $ 16,580 $ 92 2001 $ 32,944 $ 183 2002 $ 33,347 $ 185 2003 Annualized $ 34,412 $ 191 CB RICHARD ELLIS, INC. ESTIMATE $ 36,000 $ 200
Source: Operating Statements & CB Richard Ellis, Inc. We have found that insurance expenses for apartment properties in the area typically range from $100 to $200 per unit, with levels near the upper portion of the range being witnessed in recent years. Thus, we have estimated this expense at the high end of a typical level, concluded at $36,000, or $200 per unit. NATURAL GAS Like other utility expenses, natural gas is typically very property specific, and comparables offer a limited indication of an appropriate level. The subject's historical and projected electricity expense is identified in the following table. NATURAL GAS
Year Total $/Unit - ------------------------------- -------- ------ 2000 $ 7,300 $ 41 2001 $ 22,566 $ 125 2002 $ 9,902 $ 55 2003 Annualized $ 23,308 $ 129 CB RICHARD ELLIS, INC. ESTIMATE $ 9,900 $ 55
Source: Operating Statements & CB Richard Ellis, Inc. As illustrated, the subject's historical levels have increased in recent years. It should be noted that the annualized amount does not provide a good indication of the natural gas expenses at the subject property. Further, we are not aware of any planned utility increases. Therefore, we have included this expense in-line with the 2002 historical level, concluded at $9,900, or $55 per unit. 77 PLANTATION CROSSING APARTMENTS INCOME CAPITALIZATION APPROACH ELECTRICITY Like other utility expenses, electricity is typically very property specific, and comparables offer a limited indication of an appropriate level. The subject's historical and projected electricity expense is identified in the following table. ELECTRICITY
Year Total $/Unit - ------------------------------- -------- ------ 2000 $ 31,045 $ 172 2001 $ 31,207 $ 173 2002 $ 32,257 $ 179 2003 Annualized $ 31,780 $ 177 CB RICHARD ELLIS, INC. ESTIMATE $ 32,220 $ 179
Source: Operating Statements & CB Richard Ellis, Inc. As illustrated, the subject's historical levels have been consistent. We are not aware of any planned utility increases. Therefore, we have included this expense in-line with the historical levels, and within the range indicated by the expense comparables, concluded at $32,220, or $179 per unit. WATER AND SEWER As with the other utility expenses, water and sewer costs are typically very property specific. The subject's historical and projected water and sewer expense is identified in the following table. WATER AND SEWER
Year Total $/Unit - ------------------------------- -------- ------ 2000 $ 62,952 $ 350 2001 $ 61,123 $ 340 2002 $ 67,733 $ 376 2003 Annualized $ 59,392 $ 330 CB RICHARD ELLIS, INC. ESTIMATE $ 67,680 $ 376
Source: Operating Statements & CB Richard Ellis, Inc. This expense typically ranges from $150 to $500 per unit annually. The historical levels have been generally consistent and are within the typical range. We are not aware of any planned utility increases. Therefore, we have estimated this expense at the 2002 historical level of $67,680 annually, or $376 per unit. CABLE TELEVISION The subject property has not historically incurred a cable television expense, nor have we included one within our analysis. 78 PLANTATION CROSSING APARTMENTS INCOME CAPITALIZATION APPROACH TRASH REMOVAL The subject's historical and projected trash removal expense is identified in the following table. TRASH REMOVAL
Year Total $/Unit - ------------------------------- -------- ------ 2000 $ 6,957 $ 39 2001 $ 21,418 $ 119 2002 $ 11,089 $ 62 2003 Annualized $ 10,352 $ 58 CB RICHARD ELLIS, INC. ESTIMATE $ 11,160 $ 62
Source: Operating Statements & CB Richard Ellis, Inc. As with other utility expenses, trash removal expenses are typical property specific. The subject`s historical trash expense has varied significantly. Therefore, we have included this expense in-line with the 2002 historical level, concluded at $11,160, or $62 per unit. MAINTENANCE AND REPAIRS This expense category includes the cost of minor repairs to the apartments units. The subject's historical and projected maintenance and repairs expense is identified in the following table. MAINTENANCE AND REPAIRS
Year Total $/Unit - ------------------------------- -------- ------ 2000 $ 27,006 $ 150 2001 $ 44,504 $ 247 2002 $ 35,709 $ 198 2003 Annualized $ 49,976 $ 278 CB RICHARD ELLIS, INC. ESTIMATE $ 45,000 $ 250
Source: Operating Statements & CB Richard Ellis, Inc. This expense typically approximates $150 to $250 per unit. The subject's historical maintenance and repair expenses have varied somewhat, and have been within and slightly above the typical range. Thus, we have estimated this expense at the high end of the typical range and in-line with the historical levels, concluded at $45,000, or $250 per unit. PAINTING AND DECORATING This expense category includes normal painting and decorating items associated with repairing the units prior to the initial move-in of a new tenant. The subject's historical and projected painting and decorating expense is identified in the following table. 79 PLANTATION CROSSING APARTMENTS INCOME CAPITALIZATION APPROACH PAINTING AND DECORATING
Year Total $/Unit - ------------------------------- -------- ------ 2000 $ 43,807 $ 243 2001 $ 77,934 $ 433 2002 $ 60,197 $ 334 2003 Annualized $116,240 $ 646 CB RICHARD ELLIS, INC. ESTIMATE $ 60,120 $ 334
Source: Operating Statements & CB Richard Ellis, Inc. This expense typically approximates $150 to $250 per unit. The subject's historical painting and decorating expenses have generally been above the typical range. Thus, we have estimated this expense at the 2002 level, concluded at $60,120, or $334 per unit. GROUNDS (LANDSCAPING) This expense item covers normal landscaping and grounds maintenance of the property. The subject's historical and projected grounds expense is identified in the following table. GROUNDS
Year Total $/Unit - ------------------------------- -------- ------ 2000 $ 17,918 $ 100 2001 $ 28,807 $ 160 2002 $ 27,475 $ 153 2003 Annualized $ 18,900 $ 105 CB RICHARD ELLIS, INC. ESTIMATE $ 27,540 $ 153
Source: Operating Statements & CB Richard Ellis, Inc. This expense typically approximates $75 to $150 per unit. The subject's historical landscaping expenses have been relatively consistent, and are within and slightly above the typical range. Thus, we have included this expense at the 2002 level, concluded at $27,540, or $153 per unit. MANAGEMENT FEE Management expenses for an apartment complex are typically negotiated as a percentage of collected revenues (effective gross income). This percentage typically is negotiated from 3.0% to 5.0% for similar quality apartment complexes, with levels in the lower portion of the range being more common in the last few years. Given the subject's size and the competitive management company market, we believe an appropriate management expense for the subject would be near the middle of the typical range. Therefore, we have estimated the subject's management fee at 4.0% of the effective gross income, which equates to $58,354 per year. 80 PLANTATION CROSSING APARTMENTS INCOME CAPITALIZATION APPROACH ADMINISTRATIVE PAYROLL This expense item includes the administrative payroll for the subject property. The subject's historical and projected administrative payroll expense is demonstrated in the following table. ADMINISTRATIVE PAYROLL
Year Total $/Unit - ------------------------------- -------- ------ 2000 $ 63,506 $ 353 2001 $ 69,530 $ 386 2002 $ 68,984 $ 383 2003 Annualized $ 54,622 $ 303 CB RICHARD ELLIS, INC. ESTIMATE $ 68,940 $ 383
Source: Operating Statements & CB Richard Ellis, Inc. The administrative payroll expense typically approximates $250 to $500 per unit at most similar properties. The subject's historical levels have been consistent and are within the typical range. With support from the historical levels, we have included this expense at $68,940, or $383 per unit. MAINTENANCE PAYROLL This expense item includes the maintenance payroll for the subject property. The subject's historical and projected maintenance payroll expense is demonstrated in the following table. MAINTENANCE PAYROLL
Year Total $/Unit - ------------------------------- -------- ------ 2000 $ 59,164 $ 329 2001 $ 56,094 $ 312 2002 $ 23,766 $ 132 2003 Annualized $ 27,282 $ 152 CB RICHARD ELLIS, INC. ESTIMATE $ 45,000 $ 250
Source: Operating Statements & CB Richard Ellis, Inc. This expense typically approximates $250 to $400 per unit. The subject's historical levels have varied significantly, and are below and within the typical range. Thus, we have relied on comparable properties and estimated at the low end of a typical range, concluded at $45,000, or $250 per unit. EMPLOYEE TAXES AND BENEFITS This expense item includes the employee taxes and benefits for the subject property. The subject's historical and projected employee taxes and benefits are demonstrated in the following table. 81 PLANTATION CROSSING APARTMENTS INCOME CAPITALIZATION APPROACH EMPLOYEE TAXES & BENEFITS
Year Total $/Unit - ------------------------------- -------- ------ 2000 $ 21,811 $ 121 2001 $ 30,040 $ 167 2002 $ 34,635 $ 192 2003 Annualized $ 43,224 $ 240 CB RICHARD ELLIS, INC. ESTIMATE $ 22,788 $ 127
Source: Operating Statements & CB Richard Ellis, Inc. This expense typically approximates 15% to 20% of the combined payroll expense. Therefore, we have estimated this expense at $22,788 annually, or $127 per unit, which is approximately 20% of the combined administrative and maintenance salaries. EMPLOYEE APARTMENTS (NON-REVENUE UNITS) Apartment properties typically have units which are non-revenue producing. These include model units, units for security officers and units for leasing and management personnel. The historical and projected non-revenue units expenses are demonstrated in the following table. EMPLOYEE APARTMENTS
Year Total $/Unit - ------------------------------- -------- ------ 2000 $ 13,214 $ 73 2001 $ 21,513 $ 120 2002 $ 21,635 $ 120 2003 Annualized $ 19,648 $ 109 CB RICHARD ELLIS, INC. ESTIMATE $ 16,872 $ 94
Source: Operating Statements & CB Richard Ellis, Inc. As illustrated, the historical levels have varied slightly. According to property management, there are currently four employees and one courtesy officer living at the property. We have found that this expense normally approximates one unit per every 100 units at a property. Therefore, we have estimated this expense based on two units at an assumed monthly rent of $703 (weighted average rental rate) per month, which equates to $16,872 annually, or $94 per unit. SECURITY This expense item includes the security expense for the subject property. The subject's historical and projected security expense is demonstrated in the following table. 82 PLANTATION CROSSING APARTMENTS INCOME CAPITALIZATION APPROACH SECURITY
Year Total $/Unit - ------------------------------- -------- ------ 2000 $ 8,666 $ 48 2001 $ 9,160 $ 51 2002 $ 8,829 $ 49 2003 Annualized $ 2,460 $ 14 CB RICHARD ELLIS, INC. ESTIMATE $ 9,000 $ 50
Source: Operating Statements & CB Richard Ellis, Inc. We have included this expense in-line with historical levels, concluded at $9,000, or $50 per unit. ADVERTISING AND LEASING This expense category accounts for placement of advertising, commissions, signage, brochures and newsletters. The historical and projected advertising and promotion expense for the subject property is demonstrated in the following table. ADVERTISING AND LEASING
Year Total $/Unit - ------------------------------- -------- ------ 2000 $ 47,329 $ 263 2001 $ 63,890 $ 355 2002 $ 28,127 $ 156 2003 Annualized $ 40,604 $ 226 CB RICHARD ELLIS, INC. ESTIMATE $ 31,500 $ 175
Source: Operating Statements & CB Richard Ellis, Inc. This expense typically approximates $75 to $175 per unit. The subject's historical levels have been within and above the high end of this range. Therefore, we have included this expense at the high end of a typical range, concluded at $31,500, or $175 per unit. GENERAL AND ADMINISTRATIVE Administrative expenses typically include legal costs, accounting, items which are not provided by off-site management, telephone, supplies, furniture and temporary help. The subject's expense history and pro forma estimate are detailed as follows: 83 PLANTATION CROSSING APARTMENTS INCOME CAPITALIZATION APPROACH GENERAL AND ADMINISTRATIVE
Year Total $/Unit - ------------------------------- -------- ------ 2000 $ 46,034 $ 256 2001 $ 47,158 $ 262 2002 $ 40,782 $ 227 2003 Annualized $ 50,196 $ 279 CB RICHARD ELLIS, INC. ESTIMATE $ 40,860 $ 227
Source: Operating Statements & CB Richard Ellis, Inc. This expense typically approximates $75 to $200 per unit. The subject's historical general and administrative expenses have been above the typical range. Thus, we have included this expense at the 2002 level, concluded at $40,860, or $227 per unit. RESERVES FOR REPLACEMENT Based on discussions with knowledgeable market participants, reserves for replacement typically range from $150 to $250 per unit for comparable properties. However, based on an engineering report provided for the subject, the property is projected to require an annual reserve, which is adjusted for inflation over a 12-year period, of $687 per unit. This is significantly above a typical level and we believe it includes reserve items which would typically not be included in the calculation of a typical reserve level, but we believe an appropriate level of reserves would be above the indicated range. Therefore, we included reserves based on $450 per unit annually. OPERATING EXPENSE CONCLUSION The subject's expense history and the pro forma estimate are detailed as follows: OPERATING EXPENSES
Year Total $/Unit - ------------------------------- -------- ------ 2000 $641,774 $3,565 2001 $784,160 $4,356 2002 $673,532 $3,742 2003 Annualized $735,668 $4,087 CB RICHARD ELLIS, INC. ESTIMATE $766,718 $4,260
Source: Operating Statements & CB Richard Ellis, Inc. Our estimate is generally in-line with the demonstrated historical data. Our estimate of $4,260 per unit represents 52.56% of the effective gross income, which is typical for similar apartment properties in the metropolitan area. Additionally, it should be noted that the historical data did not include reserves. Therefore, we have concluded that the expense estimate is reasonable and supported, as considered on a line-by-line basis. 84 PLANTATION CROSSING APARTMENTS INCOME CAPITALIZATION APPROACH NET OPERATING INCOME CONCLUSION The subject's net operating income history and the pro forma estimate are detailed as follows: NET OPERATING INCOME
Year Total $/Unit - ------------------------------- -------- ------ 2000 $848,560 $4,714 2001 $633,814 $3,521 2002 $724,366 $4,024 2003 Annualized $727,092 $4,039 CB RICHARD ELLIS, INC. ESTIMATE $692,137 $3,845
Source: Operating Statements & CB Richard Ellis, Inc. Our net operating income estimate is generally in-line with the historical data. Overall, we believe that our estimates are reasonable and consistent with the indication of comparable properties and the subject's historical operations. DIRECT CAPITALIZATION Direct capitalization is a method used to convert a single year's estimated stabilized net operating income into a value indication. The following subsections represent different techniques for deriving an overall capitalization rate for direct capitalization. COMPARABLE SALES The OAR's confirmed for the comparable sales analyzed in the Sales Comparison Approach are as follows: COMPARABLE CAPITALIZATION RATES
Sale Sale Price Pro Forma Sale Date $/Unit OAR - ---- ------ ---------- --------- 1 Dec-02 $ 56,000 8.00% 2 Dec-02 $ 55,514 7.50% 3 Nov-02 $ 63,451 7.94% 4 Jun-02 $ 69,534 7.50% 5 Jun-02 $ 69,856 7.50% 6 Feb-02 $ 74,404 7.94%
Source: CB Richard Ellis, Inc. Based on the subject's competitive position in the market, an OAR near the low end of the range indicated by the comparables is considered appropriate. 85 PLANTATION CROSSING APARTMENTS INCOME CAPITALIZATION APPROACH PUBLISHED INVESTOR SURVEYS The results of the most recent National Investor Survey, published by CB Richard Ellis, Inc., are summarized in the following table. OVERALL CAPITALIZATION RATES - APARTMENT
National Investor Survey, 2003 OAR Range Average - ------------------------------ ------------- ------- Class A 6.00% - 9.00% 7.44% Class B 6.00% - 10.25% 7.96% Class C 7.25% - 10.00% 8.98%
Source: CB Richard Ellis, Inc. The subject is considered to be a Class B property. Recent changes in the capital markets have been placing downward pressure on returns and an OAR within the middle of the range indicated in the preceding table is considered appropriate. MARKET PARTICIPANTS The results of recent interviews with knowledgeable real estate professionals are summarized in the following table. OVERALL CAPITALIZATION RATES - APARTMENT
Respondent Company OAR Date of Survey Kevin Geiger, Broker CB Richard Ellis, Inc. 7.25% to 7.75% May-03
Source: CB Richard Ellis, Inc. BAND OF INVESTMENT The band of the investment technique has been utilized as a cross check to the foregoing techniques. The analysis is shown in the following table. BAND OF INVESTMENT Mortgage Interest Rate 5.00% Mortgage Term (Amortization Period) 30 Years Mortgage Ratio (Loan-to-Value) 80% Mortgage Constant 0.06442 Equity Dividend Rate (EDR) 12.0% Mortgage Requirement 80% x 0.06442 = 0.05154 Equity Requirement 20% x 0.12000 = 0.02400 -------- ------- 100% 0.07554 INDICATED OAR: 7.60%
Source: CB Richard Ellis, Inc. 86 PLANTATION CROSSING APARTMENTS INCOME CAPITALIZATION APPROACH CAPITALIZATION RATE CONCLUSION The following table summarizes the OAR conclusions. OVERALL CAPITALIZATION RATE - CONCLUSION
Source Indicated OAR - -------------------------------- -------------- Comparable Sales (Range) 7.50% to 8.00% National Investor Survey (Range) 6.00% to 10.25% Market Participants 7.25% to 7.75% Band of Investment 7.60% CB RICHARD ELLIS, INC. ESTIMATE 7.50%
Source: CB Richard Ellis, Inc. DIRECT CAPITALIZATION SUMMARY A summary of the direct capitalization of the subject at stabilized occupancy is illustrated in the following table. 87 PLANTATION CROSSING APARTMENTS INCOME CAPITALIZATION APPROACH DIRECT CAPITALIZATION SUMMARY
$/Unit/Yr Total --------- ----------- INCOME Market Rent $ 8,433 $ 1,517,880 Vacancy and Collection Loss 8.0% (675) (121,430) Concession Loss 4.0% (337) (60,715) ---------------------- NET RENTAL INCOME $ 7,421 $ 1,335,734 Utility Reimbursement 324 58,320 Other Income 360 64,800 ---------------------- EFFECTIVE GROSS INCOME $ 8,105 $ 1,458,854 EXPENSES Real Estate Taxes $ 571 $ 102,784 Insurance 200 36,000 Natural Gas 55 9,900 Electricity 179 32,220 Water and Sewer 376 67,680 Cable Television 0 - Trash Removal 62 11,160 Maintenance and Repairs 250 45,000 Painting and Decorating 334 60,120 Grounds 153 27,540 Management Fee 4.0% 324 58,354 Administrative Payroll 383 68,940 Maintenance Payroll 250 45,000 Employee Taxes & Benefits 127 22,788 Employee Apartments 94 16,872 Security 50 9,000 Advertising and Leasing 175 31,500 General and Administrative 227 40,860 Reserves for Replacement 450 81,000 ---------------------- OPERATING EXPENSES $ 4,260 $ 766,718 ---------------------- OPERATING EXPENSE RATIO 52.56% NET OPERATING INCOME $ 3,845 $ 692,137 OAR 7.50% ----------- INDICATED STABILIZED VALUE $ 9,228,489 ROUNDED $ 9,200,000 VALUE PER UNIT $ 51,269 VALUE PER SF $ 48.41
MATRIX ANALYSIS CAP RATE VALUE - -------------------------------- -------- ------------ 7.25% $ 9,546,700 7.50% $ 9,228,500 7.75% $ 8,930,800
Source: CB Richard Ellis, Inc. 88 PLANTATION CROSSING APARTMENTS RECONCILIATION OF VALUE RECONCILIATION OF VALUE The value indications from the approaches to value are summarized as follows: SUMMARY OF VALUE CONCLUSIONS Cost Approach $ 9,900,000 Sales Comparison Approach $ 9,350,000 Income Capitalization Approach $ 9,200,000 ----------- Reconciled Value $ 9,200,000 -----------
Source: CB Richard Ellis, Inc. The Cost Approach typically gives a reliable value indication when there is evidence for the replacement cost estimate and when there is minimal depreciation contributing to a loss in value which must be estimated. Although the subject improvements represent the highest and best use of the site, there was some depreciation noted. In addition, estimating a level of entrepreneurial profit is somewhat subjective. As a result, the reliability of the Cost Approach is diminished. Therefore, the Cost Approach is considered less applicable to the subject and is used primarily as a test of reasonableness against the other valuation techniques. Further, similar properties are normally purchased on the basis of their investment attributes as opposed to depreciated replacement costs. In the Sales Comparison Approach, the subject property is compared to similar properties that have been sold recently. The sales used in this analysis are considered fairly comparable to the subject, and the required adjustments were based on reasonable and well supported rationale. In addition, market participants are currently analyzing purchase prices on investment properties as they relate to available substitutes in the market. Therefore, the Sales Comparison Approach is considered to provide a reliable value indication. However, this approach to value has been given secondary emphasis in the final value reconciliation. The Income Capitalization Approach is applicable to the subject property since it is an income producing property leased in the open market. Market participants are currently analyzing properties based on their income generating capability. Therefore, the Income Capitalization Approach is considered to be a reasonable and substantiated value indicator and has been given primary emphasis in the final value estimate. Based on the foregoing, the market value of the subject has been concluded as follows: MARKET VALUE CONCLUSION
APPRAISAL PREMISE INTEREST APPRAISED DATE OF VALUE VALUE CONCLUSION - ------------------ ------------------ ------------- ---------------- Market Value As Is Fee Simple May 15, 2003 $ 9,200,000
Source: CB Richard Ellis, Inc. 89 PLANTATION CROSSING APARTMENTS ASSUMPTIONS AND LIMITING CONDITIONS ASSUMPTIONS AND LIMITING CONDITIONS 1. Unless otherwise specifically noted in the body of the report, it is assumed that title to the property or properties appraised is clear and marketable and that there are no recorded or unrecorded matters or exceptions to total that would adversely affect marketability or value. CB Richard Ellis, Inc. is not aware of any title defects nor has it been advised of any unless such is specifically noted in the report. CB Richard Ellis, Inc., however, has not examined title and makes no representations relative to the condition thereof. Documents dealing with liens, encumbrances, easements, deed restrictions, clouds and other conditions that may affect the quality of title have not been reviewed. Insurance against financial loss resulting in claims that may arise out of defects in the subject property's title should be sought from a qualified title company that issues or insures title to real property. 2. Unless otherwise specifically noted in the body of this report, it is assumed: that the existing improvements on the property or properties being appraised are structurally sound, seismically safe and code conforming; that all building systems (mechanical/electrical, HVAC, elevator, plumbing, etc.) are in good working order with no major deferred maintenance or repair required; that the roof and exterior are in good condition and free from intrusion by the elements; that the property or properties have been engineered in such a manner that the improvements, as currently constituted, conform to all applicable local, state and federal building codes and ordinances. CB Richard Ellis, Inc. professionals are not engineers and are not competent to judge matters of an engineering nature. CB Richard Ellis, Inc. has not retained independent structural, mechanical, electrical, or civil engineers in connection with this appraisal and, therefore, makes no representations relative to the condition of improvements. Unless otherwise specifically noted in the body of the report: no problems were brought to the attention of CB Richard Ellis, Inc. by ownership or management; CB Richard Ellis, Inc. inspected less than 100% of the entire interior and exterior portions of the improvements; and CB Richard Ellis, Inc. was not furnished any engineering studies by the owners or by the party requesting this appraisal. If questions in these areas are critical to the decision process of the reader, the advice of competent engineering consultants should be obtained and relied upon. It is specifically assumed that any knowledgeable and prudent purchaser would, as a precondition to closing a sale, obtain a satisfactory engineering report relative to the structural integrity of the property and the integrity of building systems. Structural problems and/or building system problems may not be visually detectable. If engineering consultants retained should report negative factors of a material nature, or if such are later discovered, relative to the condition of improvements, such information could have a substantial negative impact on the conclusions reported in this appraisal. Accordingly, if negative findings are reported by engineering consultants, CB Richard Ellis, Inc. reserves the right to amend the appraisal conclusions reported herein. 3. Unless otherwise stated in this report, the existence of hazardous material, which may or may not be present on the property was not observed by the appraisers. CB Richard Ellis, Inc. has no knowledge of the existence of such materials on or in the property. CB Richard Ellis, Inc., however, is not qualified to detect such substances. The presence of substances such as asbestos, urea formaldehyde foam insulation, contaminated groundwater or other potentially hazardous materials may affect the value of the property. The value estimate is predicated on the assumption that there is no such material on or in the property that would cause a loss in value. No responsibility is assumed for any such conditions, or for any expertise or engineering knowledge required to discover them. The client is urged to retain an expert in this field, if desired. We have inspected, as thoroughly as possible by observation, the land; however, it was impossible to personally inspect conditions beneath the soil. Therefore, no representation is made as to these matters unless specifically considered in the appraisal. 4. All furnishings, equipment and business operations, except as specifically stated and typically considered as part of real property, have been disregarded with only real property being considered in the report unless otherwise stated. Any existing or proposed improvements, on or off-site, as well as any alterations or repairs considered, are assumed to be completed in a workmanlike manner according to standard practices based upon the information submitted to CB Richard Ellis, Inc. This report may be subject to amendment upon re-inspection of the subject property subsequent to repairs, modifications, alterations and completed new construction. Any estimate of Market Value is as of the date indicated; based upon the information, conditions and projected levels of operation. 5. It is assumed that all factual data furnished by the client, property owner, owner's representative, or persons designated by the client or owner to supply said data are accurate and correct unless otherwise specifically noted in the appraisal report. Unless otherwise specifically noted in the appraisal report, CB Richard Ellis, Inc. has no reason to believe that any of the data furnished contain any material error. Information and data referred to in this paragraph include, without being limited to, numerical street addresses, lot and block numbers, Assessor's Parcel Numbers, land dimensions, square footage area of the land, dimensions of the improvements, gross building areas, net rentable areas, usable areas, unit count, room count, rent schedules, income data, historical operating expenses, budgets and related data. Any material error in any of the above data could have a substantial impact on the conclusions reported. Thus, CB Richard Ellis, Inc. reserves the right to amend conclusions reported if made aware of any such error. Accordingly, 90 PLANTATION CROSSING APARTMENTS ASSUMPTIONS AND LIMITING CONDITIONS the client-addressee should carefully review all assumptions, data, relevant calculations and conclusions within 30 days after the date of delivery of this report and should immediately notify CB Richard Ellis, Inc. of any questions or errors. 6. The date of value to which any of the conclusions and opinions expressed in this report apply, is set forth in the Letter of Transmittal. Further, that the dollar amount of any value opinion herein rendered is based upon the purchasing power of the American Dollar on that date. This appraisal is based on market conditions existing as of the date of this appraisal. Under the terms of the engagement, we will have no obligation to revise this report to reflect events or conditions which occur subsequent to the date of the appraisal. However, CB Richard Ellis, Inc. will be available to discuss the necessity for revision resulting from changes in economic or market factors affecting the subject. 7. CB Richard Ellis, Inc. assumes no private deed restrictions, limiting the use of the subject property in any way. 8. Unless otherwise noted in the body of the report, it is assumed that there are no mineral deposit or subsurface rights of value involved in this appraisal, whether they be gas, liquid, or solid. Nor are the rights associated with extraction or exploration of such elements considered unless otherwise stated in this appraisal report. Unless otherwise stated it is also assumed that there are no air or development rights of value that may be transferred. 9. CB Richard Ellis, Inc. is not aware of any contemplated public initiatives, governmental development controls, or rent controls that would significantly affect the value of the subject. 10. The estimate of Market Value, which may be defined within the body of this report, is subject to change with market fluctuations over time. Market value is highly related to exposure, time promotion effort, terms, motivation and conclusions surrounding the offering. The value estimate(s) consider the productivity and relative attractiveness of the property, both physically and economically, on the open market. 11. Any cash flows included in the analysis are forecasts of estimated future operating characteristics are predicated on the information and assumptions contained within the report. Any projections of income, expenses and economic conditions utilized in this report are not predictions of the future. Rather, they are estimates of current market expectations of future income and expenses. The achievement of the financial projections will be affected by fluctuating economic conditions and is dependent upon other future occurrences that cannot be assured. Actual results may vary from the projections considered herein. CB Richard Ellis, Inc. does not warrant these forecasts will occur. Projections may be affected by circumstances beyond the current realm of knowledge or control of CB Richard Ellis, Inc. 12. Unless specifically set forth in the body of the report, nothing contained herein shall be construed to represent any direct or indirect recommendation of CB Richard Ellis, Inc. to buy, sell, or hold the properties at the value stated. Such decisions involve substantial investment strategy questions and must be specifically addressed in consultation form. 13. Also, unless otherwise noted in the body of this report, it is assumed that no changes in the present zoning ordinances or regulations governing use, density, or shape are being considered. The property is appraised assuming that all required licenses, certificates of occupancy, consents, or other legislative or administrative authority from any local, state, nor national government or private entity or organization have been or can be obtained or renewed for any use on which the value estimates contained in this report is based, unless otherwise stated. 14. This study may not be duplicated in whole or in part without the specific written consent of CB Richard Ellis, Inc. nor may this report or copies hereof be transmitted to third parties without said consent, which consent CB Richard Ellis, Inc. reserves the right to deny. Exempt from this restriction is duplication for the internal use of the client-addressee and/or transmission to attorneys, accountants, or advisors of the client-addressee. Also exempt from this restriction is transmission of the report to any court, governmental authority, or regulatory agency having jurisdiction over the party/parties for whom this appraisal was prepared, provided that this report and/or its contents shall not be published, in whole or in part, in any public document without the express written consent of CB Richard Ellis, Inc. which consent CB Richard Ellis, Inc. reserves the right to deny. Finally, this report shall not be advertised to the public or otherwise used to induce a third party to purchase the property or to make a "sale" or "offer for sale" of any "security", as such terms are defined and used in the Securities Act of 1933, as amended. Any third party, not covered by the exemptions herein, who may possess this report, is advised that they should rely on their own independently secured advice for any decision in connection with this property. CB Richard Ellis, Inc. shall have no accountability or responsibility to any such third party. 15. Any value estimate provided in the report applies to the entire property, and any pro ration or division of the title into fractional interests will invalidate the value estimate, unless such pro ration or division of interests has been set forth in the report. 16. The distribution of the total valuation in this report between land and improvements applies only under the existing program of utilization. Component values for land and/or buildings are not intended to be used in conjunction with any other property or appraisal and are invalid if so used. 17. The maps, plats, sketches, graphs, photographs and exhibits included in this report are for illustration purposes only and are to be utilized only to assist in visualizing matters discussed within this report. Except as specifically stated, data 91 PLANTATION CROSSING APARTMENTS ASSUMPTIONS AND LIMITING CONDITIONS relative to size or area of the subject and comparable properties has been obtained from sources deemed accurate and reliable. None of the exhibits are to be removed, reproduced, or used apart from this report. 18. No opinion is intended to be expressed on matters which may require legal expertise or specialized investigation or knowledge beyond that customarily employed by real estate appraisers. Values and opinions expressed presume that environmental and other governmental restrictions/conditions by applicable agencies have been met, including but not limited to seismic hazards, flight patterns, decibel levels/noise envelopes, fire hazards, hillside ordinances, density, allowable uses, building codes, permits, licenses, etc. No survey, engineering study or architectural analysis has been made known to CB Richard Ellis, Inc. unless otherwise stated within the body of this report. If the Consultant has not been supplied with a termite inspection, survey or occupancy permit, no responsibility or representation is assumed or made for any costs associated with obtaining same or for any deficiencies discovered before or after they are obtained. No representation or warranty is made concerning obtaining these items. CB Richard Ellis, Inc. assumes no responsibility for any costs or consequences arising due to the need, or the lack of need, for flood hazard insurance. An agent for the Federal Flood Insurance Program should be contacted to determine the actual need for Flood Hazard Insurance. 19. Acceptance and/or use of this report constitutes full acceptance of the Contingent and Limiting Conditions and special assumptions set forth in this report. It is the responsibility of the Client, or client's designees, to read in full, comprehend and thus become aware of the aforementioned contingencies and limiting conditions. Neither the Appraiser nor CB Richard Ellis, Inc. assumes responsibility for any situation arising out of the Client's failure to become familiar with and understand the same. The Client is advised to retain experts in areas that fall outside the scope of the real estate appraisal/consulting profession if so desired. 20. CB Richard Ellis, Inc. assumes that the subject property analyzed herein will be under prudent and competent management and ownership; neither inefficient or super-efficient. 21. It is assumed that there is full compliance with all applicable federal, state and local environmental regulations and laws unless noncompliance is stated, defined and considered in the appraisal report. 22. No survey of the boundaries of the property was undertaken. All areas and dimensions furnished are presumed to be correct. It is further assumed that no encroachments to the realty exist. 23. The Americans with Disabilities Act (ADA) became effective January 26, 1992. Notwithstanding any discussion of possible readily achievable barrier removal construction items in this report, CB Richard Ellis, Inc. has not made a specific compliance survey and analysis of this property to determine whether it is in conformance 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 ADA. If so, this fact could have a negative effect on the value estimated herein. Since CB Richard Ellis, Inc. has no specific information relating to this issue, nor is CB Richard Ellis, Inc. qualified to make such an assessment, the effect of any possible non-compliance with the requirements of the ADA was not considered in estimating the value of the subject property. 24. Client shall not indemnify Appraiser or hold Appraiser harmless unless and only to the extent that the Client misrepresents, distorts, or provides incomplete or inaccurate appraisal results to others, which acts of the Client proximately result in damage to Appraiser. The Client shall indemnify and hold Appraiser harmless from any claims, expenses, judgments or other items or costs arising as a result of the Client's failure or the failure of any of the Client's agents to provide a complete copy of the appraisal report to any third party. In the event of any litigation between the parties, the prevailing party to such litigation shall be entitled to recover from the other reasonable attorney fees and costs. 92 PLANTATION CROSSING APARTMENTS ADDENDA ADDENDA PLANTATION CROSSING APARTMENTS ADDENDUM A GLOSSARY OF TERMS ADDENDUM A GLOSSARY OF TERMS PLANTATION CROSSING APARTMENTS ADDENDUM A GLOSSARY OF TERMS ASSESSED VALUE Assessed value applies in ad valorem taxation and refers to the value of a property according to the tax rolls. Assessed value may not conform to market value, but it is usually calculated in relation to a market value base. + CASH EQUIVALENCY The procedure in which the sale prices of comparable properties sold with atypical financing are adjusted to reflect typical market terms. CONTRACT, COUPON, FACE, OR NOMINAL RENT The nominal rent payment specified in the lease contract. It does not reflect any offsets for free rent, unusual tenant improvement conditions, or other factors that may modify the effective rent payment. COUPON RENT See Contract, Coupon, Face, or Nominal Rent EFFECTIVE RENT 1) The rental rate net of financial concessions such as periods of no rent during a lease term; may be calculated on a discounted basis, reflecting the time value of money, or on a simple, straight-line basis. -- 2) The economic rent paid by the lessee when normalized to account for financial concessions, such as escalation clauses, and other factors. Contract, or normal, rents must be converted to effective rents to form a consistent basis of comparison between comparables. FACE RENT See Contract, Coupon, Face, or Nominal Rent FEE SIMPLE ESTATE 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. -- FLOOR AREA RATIO (FAR) The relationship between the above-ground floor area of a building, as described by the building code, and the area of the plot on which it stands; in planning and zoning, often expressed as a decimal, e.g., a ratio of 2.0 indicates that the permissible floor area of a building is twice the total land area; also called building-to-land ratio. -- FULL SERVICE LEASE A lease in which rent covers all operating expenses. Typically, full service leases are combined with an expense stop, the expense level covered by the contract lease payment. Increases in expenses above the expense stop level are passed through to the tenant and are known as expense pass-throughs. GOING CONCERN VALUE Going concern value is the value of a proven property operation. It includes the incremental value associated with the business concern, which is distinct from the value of the real estate only. Going concern value includes an intangible enhancement of the value of an operating business enterprise which is produced by the assemblage of the land, building, labor, equipment and marketing operation. This process creates an economically viable business that is expected to continue. Going concern value refers to the total value of a property, including both real property and intangible personal property attributed to the business value. + GROSS BUILDING AREA (GBA) The sum of all areas at each floor as measured to the exterior walls. INSURABLE VALUE Insurable Value is based on the replacement and/or reproduction cost of physical items that are subject to loss from hazards. Insurable value is that portion of the value of an asset or asset group that is acknowledged or recognized under the provisions of an applicable loss insurance policy. This value is often controlled by state law and varies from state to state. + INVESTMENT VALUE Investment value is the value of an investment to a particular investor based on his or her investment requirements. In contrast to market value, investment value is value to an individual, not value in the marketplace. Investment value reflects the subjective relationship between a particular investor and a given investment. When measured in dollars, investment value is the price an investor would pay for an investment in light of its perceived capacity to satisfy his or her desires, needs, or investment goals. To estimate investment value, specific investment criteria must be known. Criteria to evaluate a real estate investment are not necessarily set down by the individual investor; they may be established by an expert on real estate and its value, that is, an appraiser. + LEASED FEE See leased fee estate LEASED FEE ESTATE An ownership interest held by a landlord with the right of use and occupancy conveyed by lease to others. The rights of the lessor (the leased fee owner) and the leased fee are specified by contract terms contained within the lease. -- LEASEHOLD See leasehold estate LEASEHOLD ESTATE The interest held by the lessee (the tenant or renter) through a lease conveying the rights of use and occupancy for a stated term under certain conditions. -- LOAD FACTOR The amount added to usable area to calculate the rentable area. It is also referred to as a "rentable add-on factor" which, according to BOMA, "is computed by dividing the difference between the PLANTATION CROSSING APARTMENTS ADDENDUM A GLOSSARY OF TERMS usable square footage and rentable square footage by the amount of the usable area. Convert the figure into a percentage by multiplying by 100. MARKET VALUE "AS IF COMPLETE" ON THE APPRAISAL DATE Market value as if complete on the appraisal date is an estimate of the market value of a property with all construction, conversion, or rehabilitation hypothetically completed, or under other specified hypothetical conditions as of the date of the appraisal. With regard to properties wherein anticipated market conditions indicate that stabilized occupancy is not likely as of the date of completion, this estimate of value should reflect the market value of the property as if complete and prepared for occupancy by tenants. MARKET VALUE "AS IS" ON THE APPRAISAL DATE Market value "as is" on the appraisal date is an estimate of the market value of a property in the condition observed upon inspection and as it physically and legally exists without hypothetical conditions, assumptions, or qualifications as of the date of appraisal. MARKET VALUE Market value is one of the central concepts of the appraisal practice. Market value is differentiated from other types of value in that it is created by the collective patterns of the market. Market value means the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: 1) A reasonable time is allowed for exposure in the open market; 2) Both parties are well informed or well advised, and acting in what they consider their own best interests; 3) Buyer and seller are typically motivated; 4) Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and 5) The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. (ss) MARKETING PERIOD The time it takes an interest in real property to sell on the market subsequent to the date of an appraisal. -- NET LEASE Lease in which all or some of the operating expenses are paid directly by the tenant. The landlord never takes possession of the expense payment. In a Triple Net Lease all operating expenses are the responsibility of the tenant, including property taxes, insurance, interior maintenance and other miscellaneous expenses. However, management fees and exterior maintenance are often the responsibility of the lessor in a triple net lease. A modified net lease is one in which some expenses are paid separately by the tenant and some are included in the rent. NET RENTABLE AREA (NRA) 1) The area on which rent is computed. 2) The Rentable Area of a floor shall be computed by measuring to the inside finished surface of the dominant portion of the permanent outer building walls, excluding any major vertical penetrations of the floor. No deductions shall be made for columns and projections necessary to the building. Include space such as mechanical room, janitorial room, restrooms and lobby of the floor. * NOMINAL RENT See Contract, Coupon, Face, or Nominal Rent PROSPECTIVE FUTURE VALUE "UPON COMPLETION OF CONSTRUCTION" Prospective future value "upon completion of construction" is the prospective value of a property on the future date that construction is completed, based upon market conditions forecast to exist, as of that completion date. The value estimate at this stage is stated in current dollars unless otherwise indicated. PROSPECTIVE FUTURE VALUE "UPON REACHING STABILIZED OCCUPANCY" Prospective future value "upon reaching stabilized occupancy" is the prospective value of a property at a future point in time when all improvements have been physically constructed and the property has been leased to its optimum level of long-term occupancy. The value estimate at this stage is stated in current dollars unless otherwise indicated. REASONABLE EXPOSURE TIME The estimated length of time the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal; a retrospective estimate based upon an analysis of past events assuming a competitive and open market. ++ RENT see full service lease net lease contract, coupon, face, or nominal rent effective rent SHELL SPACE Space which has not had any interior finishing installed, including even basic improvements such as ceilings and interior walls, as well as partitions, floor coverings, wall coverings, etc.. USABLE AREA 1) The area actually used by individual tenants. 2) The Usable Area of an office building is computed by measuring to the finished surface of the PLANTATION CROSSING APARTMENTS ADDENDUM A GLOSSARY OF TERMS office side of corridor and other permanent walls, to the center of partitions that separate the office from adjoining usable areas, and to the inside finished surface of the dominant portion of the permanent outer building walls. Excludes areas such as mechanical rooms, janitorial room, restrooms, lobby and any major vertical penetrations of a multi-tenant floor. * USE VALUE Use value is a concept based on the productivity of an economic good. Use value is the value a specific property has for a specific use. Use value focuses on the value the real estate contributes to the enterprise of which it is a part, without regard to the property's highest and best use or the monetary amount that might be realized upon its sale. + VALUE APPRAISED During the real estate development process, a property typically progresses from a state of unimproved land to construction of improvements to stabilized occupancy. In general, the market value associated with the property increases during these stages of development. After reaching stabilized occupancy, ongoing forces affect the property during its life, including a physical wear and tear, changing market conditions, etc. These factors continually influence the property's market value at any given point in time. See also market value "as is" on the appraisal date market value "as if complete" on the appraisal date prospective future value "upon completion of construction" prospective future value "upon reaching stabilized occupancy" - -------------- + The Appraisal of Real Estate, Eleventh Edition, Appraisal Institute, 1996. - -- The Dictionary of Real Estate Appraisal, Third Edition, 1993. (ss) The Office of the Comptroller of the Currency, 12 CFR Part 34, Subpart C, - 34.42(f), August 24, 1990. This definition is compatible with the definition of market value contained in The Dictionary of Real Estate Appraisal, Third Edition, and the Uniform Standards of Professional Appraisal Practice adopted by the Appraisal Standards Board of The Appraisal Foundation, 1992 edition. This definition is also compatible with the OTS, RTC, FDIC, NCUA, and the Board of Governors of the Federal Reserve System definition of market value. * 1990 BOMA Experience Exchange Report, Income/Expense Analysis for Office Buildings (Building Owners and Managers Association, 1990) ++ Statement on Appraisal Standard No. 6, Appraisal Standards Board of The Appraisal Foundation, September 19, 1992. PLANTATION CROSSING APARTMENTS ADDENDUM B ADDITIONAL SUBJECT PHOTOGRAPHS ADDENDUM B ADDITIONAL SUBJECT PHOTOGRAPHS PLANTATION CROSSING APARTMENTS ADDENDUM C COMPARABLE LAND SALES ADDENDUM C COMPARABLE LAND SALES PLANTATION CROSSING APARTMENTS ADDENDUM D IMPROVED COMPARABLE SALES ADDENDUM D IMPROVED COMPARABLE SALES PLANTATION CROSSING APARTMENTS ADDENDUM E RENT COMPARABLES ADDENDUM E RENT COMPARABLES PLANTATION CROSSING APARTMENTS ADDENDUM F DEMOGRAPHICS ADDENDUM F DEMOGRAPHICS PLANTATION CROSSING APARTMENTS ADDENDUM G RENT ROLL ADDENDUM G RENT ROLL PLANTATION CROSSING APARTMENTS ADDENDUM H HISTORICAL OPERATING STATEMENTS ADDENDUM H HISTORICAL OPERATING STATEMENTS PLANTATION CROSSING APARTMENTS ADDENDUM I FREDDIE MAC FORM 439 ADDENDUM I FREDDIE MAC FORM 439 PLANTATION CROSSING APARTMENTS ADDENDUM J LEGAL DESCRIPTION ADDENDUM J LEGAL DESCRIPTION PLANTATION CROSSING APARTMENTS ADDENDUM K QUALIFICATIONS ADDENDUM K QUALIFICATIONS PLANTATION CROSSING APARTMENTS ADDENDUM J QUALIFICATIONS EX-99.(C)(9) 6 d18178a5exv99wxcyx9y.txt APPRAISAL OF VININGS PEAK [CB RICHARD ELLIS LOGO] COMPLETE APPRAISAL SELF-CONTAINED REPORT OF THE VININGS PEAK APARTMENTS 100 Woodridge Drive Unincorporated Cobb County, Metropolitan Atlanta, Georgia CBREI File No. 03-341AT-9359-000 DATE OF VALUE May 15, 2003 PREPARED FOR Mr. James Ashmun KEYCORP CAPITAL REAL ESTATE MARKETS, INC. 127 Public Square, Mailcode: OH-01-27-0824 Cleveland, Ohio 44114 PREPARED BY CB RICHARD ELLIS, INC. VALUATION & ADVISORY SERVICES 3225 Cumberland Boulevard, Suite 450 Atlanta, Georgia 30339 June 12, 2003 Mr. James Ashmun KEYCORP CAPITAL REAL ESTATE MARKETS, INC. 127 Public Square, Mailcode: OH-01-27-0824 Cleveland, Ohio 44114 RE: Appraisal of the Vinings Peak Apartments 100 Woodridge Drive Unincorporated Cobb County, Metropolitan Atlanta, Georgia CBREI File No. 03-341AT-9359-000 Dear Mr. Ashmun: At your request and authorization, CB Richard Ellis, Inc. has prepared a Complete Appraisal presented in a self-contained appraisal report of the market value of the referenced real property. The subject is a 280-unit garden apartment property, built in 1980. The property is situated on a 22.0-acre site, in unincorporated Cobb County, metropolitan Atlanta, Georgia. The property has an Atlanta street address of 100 Woodridge Drive, and is currently 92.9% occupied. It should be noted that there were several minor items of deferred maintenance noted at the subject property. However, these items will be cured in the near-term and, at the request of the client, we have not made any deductions for these items. The subject is more fully described, legally and physically, within the enclosed report. Data, information and calculations leading to the value conclusion are incorporated in the report following this letter. The report, in its entirety, including all assumptions and limiting conditions, is an integral part of and inseparable from this letter. Based on the analysis contained in the following report, the market value of the subject is concluded as follows: MARKET VALUE CONCLUSION
APPRAISAL PREMISE INTEREST APPRAISED DATE OF VALUE VALUE CONCLUSION - ------------------ ------------------ ------------- ---------------- Market Value As Is Fee Simple May 15, 2003 $ 16,700,000
Source: CB Richard Ellis, Inc. The following appraisal sets forth the most pertinent data gathered, the techniques employed and the reasoning leading to the opinion of value. The analyses, opinions and conclusions were developed based on, and this report has been prepared in conformance with, our interpretation of the guidelines and recommendations set forth in the Uniform Standards of Professional Appraisal Practice (USPAP), the requirements of the Code of Professional Ethics and Standards of Professional Appraisal Practice Mr. James Ashmun June 12, 2003 Page 2 of the Appraisal Institute, The Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), Title XI Regulations, and according to Freddie Mac underwriting guidelines. It has been a pleasure to assist you in this assignment. If you have any questions concerning the analysis, or if CB Richard Ellis, Inc. can be of further service, please contact us. Respectfully submitted, CB RICHARD ELLIS, INC. VALUATION & ADVISORY SERVICES _______________________________________ _______________________________________ Raymond A. Higgins Ronald A. Neyhart, MAI Vice President Senior Managing Director Georgia State Certification No.CG001388 Georgia State Certification No.CG000490 Phone: 770-984-5007 Phone: 770-984-5020 Fax: 770-984-5001 Fax:770-984-5001 Email: rhiggins@cbre.com Email: rneyhart@cbre.com
RAN/RAH VININGS PEAK APARTMENTS CERTIFICATION OF THE APPRAISAL CERTIFICATION OF THE APPRAISAL We certify to the best of our knowledge and belief: 1. The statements of fact contained in this report are true and correct. 2. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions and are our personal, impartial and unbiased professional analyses, opinions, and conclusions. 3. We have no present or prospective interest in or bias with respect to the property that is the subject of this report and have no personal interest in or bias with respect to the parties involved with this assignment. 4. Our engagement in this assignment was not contingent upon developing or reporting predetermined results. 5. Our compensation for completing this assignment is not contingent upon the development or reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal. 6. This appraisal assignment was not based upon a requested minimum valuation, a specific valuation, or the approval of a loan. 7. Our analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice of The Appraisal Foundation and the EQUIREMENTS of the Code of Professional Ethics and the Standards of Professional Appraisal Practice of the Appraisal Institute, as well as the requirements of the State of Georgia relating to review by its duly authorized representatives. This report also conforms to the requirements of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA). 8. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. 9. Ronald A. Neyhart, MAI has completed the requirements of the continuing education program of the Appraisal Institute. 10. Raymond A. Higgins has made a personal inspection of the property that is the subject of this report. Ronald A. Neyhart, MAI has not made a personal inspection of the subject property. 11. No one provided significant real property appraisal assistance to the persons signing this report. 12. Raymond A. Higgins and Ronald A. Neyhart, MAI have extensive experience in the appraisal/review of similar property types. 13. Raymond A. Higgins and Ronald A. Neyhart, MAI are currently certified in the state where the subject is located. 14. Valuation & Advisory Services operates as an independent economic entity within CB Richard Ellis, Inc. Although employees of other CB Richard Ellis, Inc. divisions may be contacted as a part of our routine market research investigations, absolute client confidentiality and privacy are maintained at all times with regard to this assignment without conflict of interest. ________________________________________ ________________________________________ Raymond A. Higgins Ronald A. Neyhart, MAI Vice President Senior Managing Director Georgia State Certification No. CG001388 Georgia State Certification No. CG000490
i VININGS PEAK APARTMENTS SUBJECT PHOTOGRAPHS SUBJECT PHOTOGRAPHS Insert digital photo pages here ii VININGS PEAK APARTMENTS SUMMARY OF SALIENT FACTS iii VININGS PEAK APARTMENTS SUMMARY OF SALIENT FACTS SUMMARY OF SALIENT FACTS PROPERTY NAME Vinings Peak Apartments LOCATION 100 Woodridge Drive, Atlanta, GA ASSESSOR'S PARCEL NUMBER 17-0910-006 HIGHEST AND BEST USE As Though Vacant Apartment As Improved Apartment PROPERTY RIGHTS APPRAISED Fee Simple DATE OF INSPECTION May 15, 2003 LAND AREA 22.0 AC IMPROVEMENTS Number of Buildings 14 Number of Stories 2 & 3 Gross Building Area 277,300 SF Net Rentable Area 275,000 SF Number of Units 280 Average Unit Size 982 SF Year Built 1980 Condition Good ESTIMATED EXPOSURE TIME 9 Months FINANCIAL INDICATORS Current Overall Occupancy 92.9% Stabilized Overall Occupancy 90.0% Overall Capitalization Rate 7.75%
TOTAL PER UNIT ----------- -------- STABILIZED OPERATING DATA ON MAY 15, 2003 Effective Gross Income $ 2,316,110 $ 8,272 Operating Expenses $ 1,020,062 $ 3,643 Expense Ratio 44.04% Net Operating Income $ 1,296,048 $ 4,629 VALUATION MARKET VALUE AS IS ON MAY 15, 2003 Land Value $ 3,500,000 $ 12,500 Cost Approach $17,600,000 $ 62,857 Sales Comparison Approach $16,800,000 $ 60,000 Income Capitalization Approach $16,700,000 $ 59,643
CONCLUDED MARKET VALUE
APPRAISAL PREMISE INTEREST APPRAISED DATE OF VALUE VALUE - ------------------ ------------------ ------------- ----------- Market Value As Is Fee Simple May 15, 2003 $16,700,000
Source: CB Richard Ellis, Inc. iv VININGS PEAK APARTMENTS SUMMARY OF SALIENT FACTS SPECIAL ASSUMPTIONS It should be noted that the property currently has four down units from foundation leaks that will be repaired in the near-term. The damages are minor and have not been taken into consideration in our analysis. v VININGS PEAK APARTMENTS TABLE OF CONTENTS TABLE OF CONTENTS CERTIFICATION OF THE APPRAISAL ......................... i SUBJECT PHOTOGRAPHS .................................... ii SUMMARY OF SALIENT FACTS ............................... iv TABLE OF CONTENTS ...................................... vi INTRODUCTION ........................................... 1 AREA ANALYSIS .......................................... 6 NEIGHBORHOOD ANALYSIS .................................. 17 MARKET ANALYSIS ........................................ 21 SITE ANALYSIS .......................................... 41 IMPROVEMENT ANALYSIS ................................... 44 ZONING ................................................. 50 TAX AND ASSESSMENT DATA ................................ 51 HIGHEST AND BEST USE ................................... 53 APPRAISAL METHODOLOGY .................................. 55 LAND VALUE ............................................. 57 COST APPROACH .......................................... 61 SALES COMPARISON APPROACH .............................. 65 INCOME CAPITALIZATION APPROACH ......................... 70 RECONCILIATION OF VALUE ................................ 92 ASSUMPTIONS AND LIMITING CONDITIONS .................... 94
ADDENDA A Glossary of Terms B Additional Subject Photographs C Comparable Land Sales D Improved Comparable Sales E Rent Comparables F Demographics G Rent Roll H Historical Operating Statements I Freddie Mac Form 439 J Qualifications vi VININGS PEAK APARTMENTS INTRODUCTION INTRODUCTION PROPERTY IDENTIFICATION The subject is a 280-unit garden apartment property, built in 1980. The property is situated on a 22.0-acre site, in unincorporated Cobb County, metropolitan Atlanta, Georgia. The subject has an Atlanta street address of 100 Woodridge Drive and is identified as parcel 17-0910-006 by the Cobb County Tax Assessor's office. OWNERSHIP AND PROPERTY HISTORY According to Cobb County records, title to the property is currently vested in the name of Century Properties Fund XIX. CB Richard Ellis is not aware of any ownership transfers of the property in the last three years. Furthermore, the property is not reportedly under contract or being marketed for sale at the time of this appraisal. DATE OF INSPECTION The subject was inspected on May 15, 2003. DATE OF VALUE The date of appraisal for the "as is" value is May 15, 2003. DATE OF REPORT The date of report is the date indicated on the letter of transmittal. PURPOSE OF THE APPRAISAL The purpose of this appraisal is to estimate the market value of the subject property. The current economic definition agreed upon by agencies that regulate federal financial institutions in the U.S. (and used herein) is as follows: The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: 1. buyer and seller are typically motivated; 2. both parties are well informed or well advised, and acting in what they consider their own best interests; 3. a reasonable time is allowed for exposure in the open market; 4. payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and, 1 VININGS PEAK APARTMENTS INTRODUCTION 5. the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. (1) PREMISE OF THE APPRAISAL The premise of this appraisal valuation is "as is" on the date of value. TERMS AND DEFINITIONS The Glossary of Terms in the Addenda provides definitions for terms that are, and may be used, in this appraisal. INTENDED USE AND USER OF REPORT This appraisal is to be used in the underwriting of the property for a mortgage loan. PROPERTY RIGHTS APPRAISED The interest appraised represents the fee simple estate. SCOPE OF WORK The scope of the assignment relates to the extent and manner in which research is conducted, data is gathered and analysis is applied, all based upon the purpose of the appraisal and its intended use, as previously outlined. CB Richard Ellis, Inc. completed the following steps for this assignment: 1. physically identified and inspected both the interior and exterior of the subject property, as well as its surrounding environs; identified and considered those characteristics that may have a legal, economic or physical impact on the subject; 2. physically inspected the micro and/or macro market environments with respect to physical and economic factors relevant to the valuation process; expanded this knowledge through interviews with regional and/or local market participants, available published data and other various resources; 3. conducted regional and/or local research with respect to applicable tax data, zoning requirements, flood zone status, demographics, income and expense data, and comparable listing, sale and rental information; 4. analyzed the data gathered through the use of appropriate and accepted appraisal methodology to arrive at a probable value indication via each applicable approach to value; 5. correlated and reconciled the results into a reasonable and defensible value conclusion, as defined herein; and, - ------------------ (1) Appraisal Standards Board of The Appraisal Foundation, Uniform Standards of Professional Appraisal Practice, 2002 ed. (Washington, DC: The Appraisal Foundation, 2002), 219; Appraisal Institute, The Dictionary of Real Estate Appraisal, 3rd ed. (Chicago: Appraisal Institute, 1993), 222-223. This definition is also compatible with the OTS, OCC, RTC, FDIC, FRS and NCUA definitions of market value. 2 VININGS PEAK APARTMENTS INTRODUCTION 6. estimated a reasonable exposure time and marketing time associated with the value estimate presented. To develop the opinion of value, CB Richard Ellis, Inc. performed a Complete Appraisal as defined by the Uniform Standards of Professional Appraisal Practice (USPAP). This means that no departures from Standard 1 were invoked. In this Complete Appraisal, CB Richard Ellis, Inc. used all appropriate approaches to value. Furthermore, the value conclusion reflects all known information about the subject, market conditions, and available data. This appraisal of the subject has been presented in the form of a Self-Contained Appraisal Report, which is intended to comply with the reporting requirements set forth under Standards Rule 2-2(a) of the USPAP. That is, this report incorporates, to the fullest extent possible, practical explanation of the data, reasoning and analysis that were used to develop the opinion of value. This report also includes thorough descriptions of the subject and the market for the property type. SPECIAL APPRAISAL INSTRUCTIONS There have been no special appraisal instructions for this assignment. EXPOSURE TIME An estimate of exposure time is not intended to be a prediction of a date of sale or a simple one-line statement. Instead, it is an integral part of the appraisal analysis and is based on one or more of the following: - statistical information about days on the market - information gathered through sales verification - interviews of market participants. The reasonable exposure period is a function of price, time, and use. It is not an isolated estimate of time alone. Exposure time is different for various types of real estate and under various market conditions. Exposure time is the estimated length of time the property would have been offered prior to a hypothetical market value sale on the effective date of appraisal. It is a retrospective estimate based on an analysis of recent past events, assuming a competitive and open market. It assumes not only adequate, sufficient, and reasonable time but also adequate, sufficient, and reasonable marketing effort. Exposure time is therefore interrelated with appraisal conclusion of value. In consideration of these factors, we have analyzed the following: - exposure periods of comparable sales revealed during the course of this appraisal; - the CB Richard Ellis, Inc. National Investor Survey; and, - knowledgeable real estate professionals. 3 VININGS PEAK APARTMENTS INTRODUCTION The following table presents the information derived from these sources: EXPOSURE TIME INFORMATION - APARTMENT PROPERTIES
Exposure Time (Months) Data Source Range Average - ------------------------------ ---------- ------- National Investor Survey, 2003 Class A 2.0 - 36.0 6.64 Class B 3.0 - 24.0 6.68 Class C 3.0 - 24.0 6.89
Source: CB Richard Ellis, Inc. National Investor Survey Based on the foregoing analysis, an exposure time of nine months is reasonable, defensible, and appropriate. CB Richard Ellis, Inc. assumes the subject would have been competitively priced and aggressively promoted regionally. MARKETING TIME Marketing time is the period a prospective investor would forecast to sell the subject property immediately after the date of value, at the value estimated. The marketing time is an estimate of the number of months it will require to sell the subject from the date of value, into the future. The anticipated marketing time is essentially a measure of the perceived level of risk associated with the marketability, or liquidity, of the subject property. The marketing time estimate is based on the data used in estimating the reasonable exposure time, in addition to an analysis of the anticipated changes in market conditions following the date of appraisal. The future price for the subject (at the end of the marketing time) may or may not equal the appraisal estimate. The future price depends on unpredictable changes in the physical real estate, demographic and economic trends, real estate markets in general, supply/demand characteristics for the property type, and many other factors. 4 VININGS PEAK APARTMENTS AREA ANALYSIS AREA MAP (NOT A FACING PAGE) Replace this page with the indicated exhibit. 5 VININGS PEAK APARTMENTS AREA ANALYSIS AREA ANALYSIS LOCATION The subject property is located in the Atlanta metropolitan statistical area (MSA). The 20-county MSA includes the state capital and the state's largest city, Atlanta. POPULATION The following table of population statistics shows changes in population from the 1990 and 2000 censuses, estimates for the current year, and forward projections for the MSA. As these data demonstrate, there has been a significant increase in the area population during the last two decades and that growth is projected to continue into the foreseeable future. POPULATION OF MSA BY COUNTY
1990 2000 1990-2000 Percentage 2002 2007 2002-2007 County Census Census Ann. Growth of MSA Estimate Projection Ann. Growth - --------- --------- --------- ----------- ---------- --------- ---------- ----------- Barrow 29,721 46,144 4.6% 1% 49,513 57,868 3.4% Bartow 55,897 76,019 3.0% 2% 80,163 90,410 2.6% Carroll 71,422 87,268 1.8% 2% 90,666 98,986 1.8% Cherokee 90,204 141,903 4.8% 4% 153,097 180,614 3.6% Clayton 182,052 236,517 2.5% 6% 246,304 271,171 2.0% Cobb 447,745 607,751 3.0% 15% 635,495 706,631 2.2% Coweta 53,853 89,215 5.5% 2% 95,939 112,898 3.5% DeKalb 545,837 665,865 1.8% 16% 687,557 742,650 1.6% Douglas 71,120 92,174 2.5% 2% 95,966 105,658 2.0% Fayette 62,415 91,263 3.9% 2% 96,516 109,878 2.8% Forsyth 44,083 98,407 10.3% 3% 110,512 140,083 5.4% Fulton 648,951 816,006 2.1% 19% 842,615 911,700 1.6% Gwinnett 352,910 588,448 5.6% 15% 632,751 744,477 3.5% Henry 58,741 119,341 8.6% 3% 132,112 163,684 4.8% Newton 41,808 62,001 4.0% 2% 66,335 76,985 3.2% Paulding 41,611 81,678 8.0% 2% 89,818 110,082 4.5% Pickens 14,432 22,983 4.9% 1% 24,957 29,751 3.8% Rockdale 54,091 70,111 2.5% 2% 72,322 78,309 1.7% Spalding 54,457 58,417 0.6% 1% 59,047 60,703 0.6% Walton 38,586 60,687 4.8% 2% 65,752 78,059 3.7% --------- --------- ---- --------- --------- --- Total MSA 2,959,936 4,112,198 3.2% 4,327,437 4,870,597 2.5% --------- --------- ---- --------- --------- ---
Source: Claritas, Inc. The following list provides comparative metropolitan population gain for the top 10 MSA's plus other selected metropolitan areas in the southeast across the previous decade. Atlanta has consistently ranked among the top 10. 6 VININGS PEAK APARTMENTS AREA ANALYSIS POPULATION GROWTH IN SELECTED METROPOLITAN AREAS
Rank Metropolitan Statistical Area % Gain Rank Metropolitan Statistical Area % Gain - ---- ------------------------------- ------ ---- ------------------------------- ------ 1 Las Vegas, NV 83.3% 12 Charlotte-Gastonia, NC 29.0% 2 McAllen-Edinburg-Mission, TX 48.5% 16 Nashville, TN 25.0% 3 Austin-San Marcos, TX 47.7% 27 Greensboro-Winston-Salem, NC 19.2% 4 Phoenix-Mesa, AZ 45.3% 28 Columbia, SC 18.4% 5 Atlanta, GA 38.9% 29 Knoxville, TN 17.3% 6 Raleigh-Durham-Chapel Hill, NC 38.9% 34 Greenville-Spartanburg, SC 15.9% 7 Orlando, FL 34.3% 45 Memphis, Tennessee 12.7% 8 W Palm Beach-Boca Raton, FL 31.0% 54 Birmingham, AL 9.6% 9 Denver-Boulder-Greeley, CO 30.4% 58 Charleston-North Charleston, SC 8.3% 10 Colorado Springs, CO 30.2% 59 Louisville, KY 8.1%
Population growth for 82 metropolitan areas with total population exceeding 500,000, ranked by percent change, based on total population estimates for 1990 to 2000. Source: US Census Bureau; Compiled by CB Richard Ellis The overall percentage gain for all metropolitan markets is 13.8%, representing the addition of approximately 27.8 million people in metropolitan areas. HOUSEHOLDS The following table shows changes in demographic statistics by household based on the 2000 Census. 7 VININGS PEAK APARTMENTS AREA ANALYSIS MSA HOUSEHOLD PROFILES BY COUNTY
Households Housing Median Income -------------------------------- --------------------- -------------------- 2000 2002 2007 Owner Persons per Per Per County Census Estimate Projection Occupied HH Household Capita - --------- --------- --------- ---------- -------- ----------- --------- --------- Barrow 16,354 17,530 20,429 76% 2.79 $ 41,235 $ 17,674 Bartow 27,176 28,671 32,365 75% 2.76 $ 45,976 $ 20,846 Carroll 31,568 32,929 36,298 71% 2.66 $ 39,089 $ 18,705 Cherokee 49,495 53,453 63,201 84% 2.85 $ 63,091 $ 26,204 Clayton 82,243 85,324 93,049 61% 2.84 $ 49,738 $ 20,653 Cobb 227,487 237,409 262,668 68% 2.64 $ 70,401 $ 33,539 Coweta 31,442 33,846 39,917 78% 2.81 $ 48,087 $ 22,476 DeKalb 249,339 256,889 275,903 58% 2.62 $ 60,211 $ 29,226 Douglas 32,822 34,397 38,500 75% 2.78 $ 56,998 $ 24,368 Fayette 31,524 33,487 38,546 86% 2.88 $ 77,551 $ 32,664 Forsyth 34,565 38,687 48,605 88% 2.83 $ 68,123 $ 30,342 Fulton 321,242 332,031 360,034 52% 2.44 $ 56,956 $ 35,544 Gwinnett 202,317 216,464 251,462 72% 2.88 $ 75,504 $ 31,156 Henry 41,373 45,923 57,255 85% 2.87 $ 50,486 $ 21,083 Newton 21,997 23,663 27,825 78% 2.77 $ 40,927 $ 18,743 Paulding 28,089 30,894 37,866 87% 2.89 $ 42,686 $ 17,191 Pickens 8,960 9,797 11,880 82% 2.54 $ 42,074 $ 22,149 Rockdale 24,052 24,888 27,160 75% 2.87 $ 57,698 $ 25,081 Spalding 21,519 21,859 22,755 63% 2.67 $ 40,925 $ 19,618 Walton 21,307 23,129 27,579 77% 2.82 $ 38,321 $ 17,425 --------- --------- --------- -- ---- --------- --------- Total MSA 1,504,871 1,581,270 1,773,297 66% 2.68 $ 59,964 $ 29,037 --------- --------- --------- -- ---- --------- ---------
Source: Claritas, Inc. EMPLOYMENT Atlanta continues to lead the southeast region of the United States in commercial, industrial, and financial sectors. The following chart presents the diversity of Atlanta's economic base. Compared with employment distribution for the US, Atlanta is less dependent on services but more dependent on retail trade, with resources being evenly distributed to other sectors. 8 VININGS PEAK APARTMENTS AREA ANALYSIS EMPLOYMENT BY SECTORS [PIE CHART] Agriculture, Mining, Construction, Other 8% Manufacturing 11% Transport,/Utility 7% Wholesale Trade 7% Government 5% Retail Trade 21% Finance, Insurance, Real Estate 8% Services 33%
Source: Bureau of Economic Analysis Entering the second half of 2002, job growth appeared to be negligible at the national level. Georgia and metro Atlanta seem to be consistent in reflecting this trend. The top 25 public companies in Georgia have announced layoffs or scaled back operations, having suffered setbacks in market valuation. However, owing to its diverse economy, Atlanta has undergone growth in defense, health services, and retail (discount stores) employment. During 1993, 1994, 1996, and 1999, Atlanta led the nation in job growth - ranking among the top 10 cities in the nation for job growth in the previous decade. Following these years of expansion, the recession that began in 2001 hit Atlanta hard. Job growth was reduced to negligible levels in 2001 and losses accumulated through 2002. On a seasonally adjusted basis, nonagricultural employment in metro Atlanta stands at just over 2.1 million. The current national economic climate, aggravated by geopolitical tensions around the world, continues to have a detrimental effect on the regional economy. Prospects for resumption of positive levels of job creation are just beginning to be apparent, and near-term prospects reflect the beginning of slow recovery through 2003. The following table summarizes job creation trends, according to the quarterly economic forecast published by Georgia State University's (GSU) Economic Forecasting Center. 9 VININGS PEAK APARTMENTS AREA ANALYSIS METRO ATLANTA JOB GROWTH [BAR CHART]
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 ----- ----- ----- ---- ----- ----- ---- ---- ------ ---- ---- ---- Georgia 156.8 137.2 125.2 87.0 124.5 143.3 66.5 8.1 (86.7) (5.0) 63.6 84.4 Atlanta 97.5 84.0 86.0 56.0 83.6 87.2 52.2 9.1 (54.3) 2.8 45.9 56.0
Source: Georgia State University Economic Forecasting Center (February 2003) According to GSU's Economic Forecasting Center, job losses for 2002 in Atlanta totaled 54,300. The growth sectors that had continued strength through the 1990's - tourism, transportation, and telecommunications - were all negatively impacted by the recession, the attacks on September 11, 2001, or both. Passenger traffic at major airlines remains below peak. Convention business is slow, and hotel room rates have not begun to grow following competitive reductions. Telecom remains saturated with excess capacity. Thus, according to Rajeev Dhawan, Director of the Economic Forecasting Center, while the regional economy grew faster than the national average over the past decade, Atlanta may lag behind the nation in near-term recovery. Dhawan projects that the US economy will begin to grow by early Fourth Quarter 2003, assuming a quick victory in engaging Iraq. A quick victory in Iraq is generally perceived to be in the near-term. With perceptions evolving to a diminished threat of terrorism, corporate decision makers are anticipated to begin reengaging and expand hiring. As job growth picks up, fundamental reasons for increases in consumption and income growth will replace the current patchwork of credit and home equity cash-outs, according to the forecast. We note from our own observations that the Atlanta economy has continued to outperform expectations year after year. While the prospects for near-term expansion year after year. While the prospects for near-term expansion continue to be modest, in long-term projections, the Atlanta metropolitan area is forecast to remain a national leader in job creation. 10 VININGS PEAK APARTMENTS AREA ANALYSIS The following table shows the historic strength of the local employment market, comparing the unemployment rate for the metropolitan area to that of the state and country. ANNUAL UNEMPLOYMENT RATE
MSA STATE US ---- ----- ---- 1995 4.3% 4.9% 5.6% 1996 3.8% 4.6% 5.4% 1997 3.7% 4.5% 4.9% 1998 3.3% 4.2% 4.5% 1999 3.1% 4.0% 4.2% 2000 3.0% 3.7% 4.0% 2001 3.5% 4.0% 4.8% 2002 4.8% 4.6% 5.8%
Source: US Bureau of Labor Statistics Preliminary data reported for indicate that the annual average unemployment rate for Atlanta was 5.8% in 2002, which represents a noticeable increase over the prior year. The metropolitan area is home to operations for over 700 of the Fortune 1,000 - 24 of the Fortune 1,000 companies are headquartered in the metro area. The largest corporate employers are listed in the following table. LARGEST CORPORATE EMPLOYERS
COMPANY INDUSTRY SCOPE OF OPERATIONS EMPLOYEES - ------------------------- ------------------- ------------------- --------- 1. Delta Air Lines Transportation Headquarters 26,200 2. BellSouth Telecommunication Headquarters 22,000 3. Wal-Mart Stores Retail Merchandiser Regional 15,100 4. AT&T Corporation Telecommunication Regional 10,000 5. The Home Depot Retail Merchandiser Headquarters 9,700 6. IBM Corporation Technology Regional 8,400 7. United Parcel Service Transportation Headquarters 8,100 8. SunTrust Finance Headquarters 6,700 9. Cox Enterprises Media Headquarters 6,200 10. Wachovia Finance Regional 6,000
Source: Atlanta Business Chronicle, March 2002 COMMERCIAL PROPERTY PRICE AND RENT TRENDS With growth in the population and employment, there have been corresponding steady rises in prices for real estate. The following tables provide information for various property types, comparing metro Atlanta with national averages. 11 VININGS PEAK APARTMENTS AREA ANALYSIS AVERAGE SALES PRICE COMPARISON
Period CBD Office Suburban Office Industrial Retail Apartment (Year/Qtr) Atlanta US Atlanta US Atlanta US Atlanta US Atlanta US - ---------- ------- --- ------- --- ------- -- ------- --- ------- -- 1995 / 4 133 143 112 110 30 34 105 100 60 67 1996 / 4 137 148 125 123 33 36 116 105 67 74 1997 / 4 141 166 145 142 33 39 108 113 72 81 1998 / 4 138 190 142 152 36 42 112 117 77 89 1999 / 4 144 194 153 163 35 43 121 120 86 95 2000 / 4 159 216 170 180 38 45 122 122 85 104 2001 / 4 146 204 156 174 34 44 115 118 81 104 2002 / 4 139 210 151 179 36 44 115 123 81 106
Note: Prices are given in dollars per square foot, rounded, for Class A property sectors. Source: CB Richard Ellis/National Real Estate Index Market Monitor, 415 733 5300 AVERAGE RENTAL RATE COMPARISON
Period CBD Office Suburban Office Industrial Retail Apartment (Year/Qtr) Atlanta US Atlanta US Atlanta US Atlanta US Atlanta US - ---------- ------- ----- ------- ----- ------- ---- ------- ----- ------- ----- 1995 / 4 23.57 22.49 19.27 19.30 3.80 4.69 14.99 14.72 9.94 11.10 1996 / 4 23.42 23.97 22.36 21.06 4.01 4.95 15.17 15.42 10.06 11.71 1997 / 4 24.58 27.12 23.75 23.19 4.09 5.14 15.50 16.33 10.24 12.21 1998 / 4 25.46 29.72 23.23 24.28 4.07 5.33 16.11 16.91 10.47 13.02 1999 / 4 25.90 31.50 22.75 24.89 4.28 5.57 17.00 17.31 10.62 13.58 2000 / 4 27.00 35.51 23.12 28.17 4.42 5.80 17.07 17.80 11.33 14.43 2001 / 4 25.80 32.63 21.36 25.47 4.26 5.61 16.60 17.49 10.94 14.54 2002 / 4 24.15 30.04 19.61 23.46 3.93 5.37 16.55 17.47 10.13 14.12
Note: Rents are presented in dollars per square foot for Class A properties. Office, industrial, and apartment properties are given on an effective gross basis; retail properties, on a triple net basis. Source: CB Richard Ellis/National Real Estate Index Market Monitor, 415 733 5300 CAPITALIZATION RATE COMPARISON
Period CBD Office Suburban Office Industrial Retail Apartment (Year/Qtr) Atlanta US Atlanta US Atlanta US Atlanta US Atlanta US - ---------- ------- ---- ------- ----- ------- ---- ------- ---- ------- ---- 1995 / 4 8.3% 9.0% 9.3% 9.6% 9.1% 9.3% 8.6% 9.4% 8.3% 9.1% 1996 / 4 8.7% 9.0% 9.2% 9.2% 8.8% 9.2% 8.3% 9.3% 7.8% 8.9% 1997 / 4 8.9% 8.9% 9.2% 9.1% 9.1% 9.0% 9.4% 9.2% 8.5% 8.9% 1998 / 4 9.5% 8.6% 9.7% 9.0% 8.9% 8.9% 9.1% 9.1% 8.4% 8.8% 1999 / 4 9.2% 8.9% 8.9% 8.7% 9.3% 9.1% 8.7% 9.0% 8.1% 8.7% 2000 / 4 9.0% 8.7% 8.1% 8.6% 8.5% 9.0% 9.1% 9.1% 7.6% 8.4% 2001 / 4 9.6% 8.9% 8.5% 8.6% 9.5% 9.1% 9.4% 9.3% 8.3% 8.5% 2002 / 4 9.8% 7.6% 8.0% 7.4% 8.6% 8.7% 9.5% 8.9% 7.6% 7.9%
Note: Cap rates are determined from actual net operating income either from actual sales or from representative prototypes for Class A property sectors. Source: CB Richard Ellis/National Real Estate Index Market Monitor, 415 733 5300 RESIDENTIAL HOME COSTS The following chart compares the median home price for Atlanta and the nation. 12 VININGS PEAK APARTMENTS AREA ANALYSIS SINGLE FAMILY MEDIAN HOME PRICE [BAR CHART]
1997 1998 1999 2000 2001 2002 Atlanta $ 108,400 $ 115,400 $ 123,700 $ 131,200 $ 138,800 $ 146,500 US $ 121,800 $ 128,400 $ 133,300 $ 139,100 $ 147,500 $ 158,300
Source: National Association of Realtors COST OF LIVING The Cost of Living Index, published by the American Chamber of Commerce Researchers Association, measures relative price levels for consumer goods and services in participating areas. The average of all participating municipalities equals 100, and the Atlanta index is read as a percentage against that national measure, shown along with other Southeastern metropolitan areas in the table below. COST OF LIVING
Location Total Grocery Housing Utilities Trans Health Misc. - ------------------------- ----- ------- ------- --------- ----- ------ ----- Memphis 87.1 90.9 78.3 78.5 94.1 90.2 92.3 Knoxville 89.1 95.4 78.3 91.8 86.1 88.1 95.7 Augusta - Aiken 91.0 104.4 71.9 91.2 99.8 94.3 97.5 Winston - Salem 91.7 94.7 85.9 91.9 92.3 85.6 95.7 Nashville - Franklin 91.7 99.1 81.7 80.4 93.3 82.9 100.3 Greenville 94.7 96.7 78.3 103.7 100.8 91.9 104.0 Columbia 95.1 99.2 85.4 114.7 88.8 89.7 99.2 Charlotte 95.7 94.9 88.5 91.3 102.7 95.5 101.2 Birmingham 97.6 107.1 84.4 102.8 97.4 87.1 104.7 Atlanta 98.1 101.9 94.5 92.1 101.8 106.3 98.3 Charleston-N Charleston 100.7 98.9 100.9 96.8 99.3 97.7 103.3 Raleigh 101.0 108.0 96.8 99.5 97.4 102.0 102.4
Source: ACCRA Cost of Living Index 13 VININGS PEAK APARTMENTS AREA ANALYSIS RETAIL SALES Atlanta has shown consistent, strong growth in retail sales, ranking in the top 10 national markets for retail sales over the past five years. Annual sales volumes for the metropolitan area, prepared by Claritas are depicted in the following chart. Note that data reported prior to 1999 are not comparable with data in 2000 and following; the adoption of NAFTA required replacement of SIC codes with NAICS codes. RETAIL SALES GROWTH [BAR CHART] 1995 1996 1997 1998 2000 2001 2002 $ 34.9 $ 37.6 $ 40.2 $ 43.7 $ 59.6 $ 64.6 $ 64.7
Numbers shown are $billion. Source: Sales & Marketing Management (to 1998) and Claritas, Inc. (2000 and following) Based on population, current spending trends and total sales, and other demographic factors, Claritas projects that total retail sales for the metro area will reach $88.8 billion by the year 2007, a growth rate of 7.5% per annum. TRANSPORTATION Atlanta began in the nineteenth century as a railway and manufacturing center and continues to maintain and improve its transportation systems, enhancing a primary reason for the area's economic growth and development. Air transportation continues to recover at Hartsfield-Atlanta International Airport, which remains the world's busiest passenger airport. Surpassing Chicago O'Hare (66.56 million passengers) and Los Angeles International (56.22 million passengers), Atlanta Hartsfield has maintained its top ranking in measures of passenger traffic and aircraft movement since 1998. More than 80% of the US population is reachable by air within two hours of Atlanta. 14 VININGS PEAK APARTMENTS AREA ANALYSIS ATLANTA HARTSFIELD INTERNATIONAL AIRPORT
Activity 1997 1998 1999 2000 2001 2002 - --------------------------- ------- ------- ------- ------- ------- ------- Passengers (million) 68.21 73.47 78.09 80.16 75.86 76.88 Cargo (metric tons) 864,474 907,208 882,994 894,471 735,796 734,083 Movements (landing/takeoff) 794,447 846,881 909,911 915,454 890,494 889,966
Source: Airports Council International The airport has begun a 10-year facility expansion that will add a fifth runway by 2005. The new runway, which will measure either 6,000 or 9,000 feet in length, is projected to decrease the present average delay of 9:00 minutes per flight to 6:12 per flight. Additional enhancements will include a new rental car facility, international terminal, control tower, and possibly third major terminal. The economic impact of Hartsfield International Airport has been estimated at $16 billion annually for the metro Atlanta economy. Seven interstates serve metro Atlanta, including Interstates 75, 85, and 20, which run through the city, varying in width from four to fourteen lanes. In addition, a number of US and state highways, including Georgia Highway 400 (a primary north-south corridor, extending from the central business district northward), provide excellent regional access. Georgia has a historically strong commitment to maintaining its regional roads, and major interstate highway construction continues to meet projected growth and future needs. The Metropolitan Atlanta Rapid Transit Authority (MARTA) provides a 37-mile rapid rail transit system and extensive connector bus routes. Other available sources of commercially available ground transportation include Amtrak and Greyhound. CONCLUSION The Atlanta metropolitan region has played a major role in the growth of Georgia and the southeastern United States. A strong economic base has been shown in steady increases in population, in the diversity of the work force, and in job growth. Atlanta continues to gain new jobs faster and to maintain unemployment levels lower than most areas of the US. These demographic and employment trends indicate the primary drive for housing demand, retail sales, and commercial construction, and Atlanta continues to experience an exceptionally high level of economic prosperity. Atlanta has experienced tremendous growth in recent decades and taken its place as an international city. Despite modest slowing indicated by certain economic indicators, Atlanta's fundamentals remain strong and a pattern of stable growth should continue well into the foreseeable future. 15 VININGS PEAK APARTMENTS NEIGHBORHOOD ANALYSIS NEIGHBORHOOD MAP (NOT A FACING PAGE) 16 VININGS PEAK APARTMENTS NEIGHBORHOOD ANALYSIS NEIGHBORHOOD ANALYSIS LOCATION The subject property is located along the north side of Mt. Wilkinson Parkway on Woodridge Drive, approximately one-mile south of Cumberland Mall. This location is approximately 10 miles northwest of the Atlanta Central Business District (CBD). The subject's neighborhood is generally defined by the following boundaries: North: Windy Hill Road South: Atlanta Road East: Interstate 75 West: South Cobb Drive The defined area generally encompasses a two- to three-mile radius from the subject property. LAND USE The neighborhood is an older, established area of northwest metropolitan Atlanta. The subject and its neighborhood are located in the southeastern portion of Cobb County, just south of the Interstate 75/Interstate 285 interchange. There are two major influences effecting the area: the development around Cumberland Mall/Galleria and Dobbins Air Reserve Base. The most intense development in the area is located in the northern portion of the defined neighborhood, in the area surrounding the intersection of Interstate 75 and Interstate 285. The development in this area has a heavy concentration of office and retail uses. The retail uses are anchored by Cumberland Mall and the Atlanta Galleria Specialty Mall. Cumberland Mall, a 1,200,000-square foot super regional facility, opened in 1973 and was the original catalyst of the significant level of real estate development in the area. This facility is located within the southwest quadrant of Interstate 285 and Cobb Parkway (U.S. Highway 41), just west of Interstate 75. This property was renovated in 1983, and is anchored by Rich's-Macy's, JC Penney and Sears. The other major retail development, the Galleria Specialty Mall, is located within the southeast quadrant of Interstate 285 and Cobb Parkway. Developed in 1983, the mall also includes an adjacent attached hotel, the Waverly. After lackluster retail performance, the upscale mall's owner renovated the center in 1994 in conjunction with the addition of approximately 300,000 square feet of convention and exhibit space. The new convention portion was named Cobb Galleria Centre. This project was the result of the combined efforts of the mall owners and the Cobb -Marietta Coliseum and Exhibit Hall Authority. The project was funded through a $48 million revenue bond issue. 17 VININGS PEAK APARTMENTS NEIGHBORHOOD ANALYSIS Another major development in the area is located several miles north of the subject. Dobbins Air Reserve Base, located on approximately 3,500 acres, is utilized by the U.S. Air Force, U.S. Navy and the Georgia Air National Guard. In addition, at the northwest portion of this facility is a Lockheed-Martin factory, which manufactures military aircraft, including the F-22, C-130 and previously the C5-A&B transport planes. This plant is one of the major employers of the area, with approximately 10,000 employees. Significant office developments in or near the neighborhood include: Atlanta Galleria, Wildwood Office Park, Interstate North, Circle 75 Office Park, Cumberland Office Park, Parkwood Office Park, Galleria 75 Office Park and Powers Ferry Landing Office Park. This submarket is the second largest office submarket in the metropolitan area. The remaining commercial development in the neighborhood consists of numerous community and neighborhood shopping centers, franchise restaurants, banking facilities, single-tenant retail facilities, automobile sales and service facilities, convenience stores and numerous similar uses. These developments are almost exclusively located along the primary local traffic arteries. The industrial development in the neighborhood consists almost exclusively of business parks and business service facilities. These developments are typically located along secondary roadways, but are positioned for convenient access to the interstate highways. The majority of these developments were constructed in the mid-1970's and mid-1980's. The residential development of the neighborhood consists of multi- and single-family uses. The area just inside Interstate 285 along Paces Ferry Road, identified as Vinings, has experienced considerable growth for a small, highly developed area. However, in-fill development has occurred throughout the neighborhood, wherever developable land is available. This in-fill trend has occurred due to the desire of many people to be close to their places of employment and avoid lock commutes. In the current economic cycle, developers have built patio homes ranging in price from $250,000 to $1,000,000. The multi-family uses in the area are generally apartment complexes, but there are also various condominium uses in the area. There has been recent construction of apartments in the immediate area, consisting primarily of excellent quality Class A properties with a significant amount of amenities. The other area apartment complexes consist primarily of two product types. The properties developed in the mid- to late-1980's are typically class "A-" and "B", whereas the properties which were developed in the 1960's and 1970's are generally categorized as "B" and "C" grade developments. Neighborhood apartment development is located along primary and secondary roadways. 18 VININGS PEAK APARTMENTS NEIGHBORHOOD ANALYSIS The neighborhood also has a good level of supportive developments, including schools, parks and Houses of Worship. A discussion of the demographic nature of the neighborhood is included in the following Market Analysis. ACCESS The accessibility to the area in general, and the subject property in particular, is excellent. Interstate 75 extends through the neighborhood in a general northwest to southeast direction, providing direct access into the Atlanta Central Business District (CBD). Interstate 285 extends through the neighborhood from the northeast to the southwest, and forms Atlanta's circumferential bypass highway. Interstate 285 provides access throughout the metropolitan area. Access to Interstate 75 is provided at Cumberland Boulevard and Northside Drive, while access to Interstate 285 is provided at Paces Ferry Road and Cobb Parkway (U.S. Highway 41). Major secondary roadways in the neighborhood include Cobb Parkway (U.S. Highway 41), Paces Ferry Road, Atlanta Road, Cumberland Parkway, South Cobb Drive, Spring Road, Windy Hill Road, Akers Mill Road and Powers Ferry Road. These roadways extend in all directions and further enhance accessibility within the neighborhood. In addition to the primary thoroughfares, the neighborhood is served by the Cobb Community Transit bus service, which connects with the Atlanta MARTA bus and rail system. Bus service is available along most major roads in the immediate area. DEMOGRAPHICS Population growth and new household formations have been on an upward trend within the subject neighborhood. Selected neighborhood demographics in a one-, three-, and five-mile radius from the subject are shown in the following table: 19 VININGS PEAK APARTMENTS NEIGHBORHOOD ANALYSIS SELECTED NEIGHBORHOOD DEMOGRAPHICS
100 WOODRIDGE DR Radius 1.0 Radius 3.0 Radius 5.0 ATLANTA, GA 30339-3638 Mile Miles Miles - ---------------------------------- ---------- ---------- ----------- Population 2007 Projection 10,699 69,670 189,322 2002 Estimate 9,652 64,148 174,569 2000 Census 9,244 62,037 168,928 2002 - 2007 % Change 10.8% 8.6% 8.5% Households 2007 Projection 6,022 35,244 84,003 2002 Estimate 5,470 32,485 77,876 2000 Census 5,239 31,397 75,570 2002 - 2007 % Change 10.1% 8.5% 7.9% 2002 Average Household Income $ 92,816 $102,697 $ 106,711 2002 Median Household Income $ 63,724 $ 62,016 $ 64,884 2002 Per Capita Income $ 53,136 $ 52,985 $ 47,460 2002 Median Owner Occ. Prop. Value $ 264,824 $178,377 $ 180,730 % College Graduates 67.0% 54.7% 48.9%
Source: Claritas, Inc. The neighborhood currently has an above average income demographic profile. The outlook for the neighborhood is for stable performance with continued improvement over the next several years. As a result, the demand for existing and proposed developments is expected to be good. 20 VININGS PEAK APARTMENTS MARKET ANALYSIS MARKET ANALYSIS Marketability refers to the posture of the subject property within its marketplace and its ability to be leased, sold or marketed relative to its competition and current conditions. Within this section, the overall market trends influencing the Atlanta apartment market are analyzed, along with trends occurring in the local submarket, investment trends for multi-family properties, and demographic influences affecting the subject property. The primary data sources utilized for this analysis are the Atlanta Apartment Market Tracker Year-End 2002 and the Atlanta Apartment Pipeline Report Year-End 2002, published by Dale Henson Associates, Inc. The Atlanta Apartment Market Tracker focuses on apartment trends occurring within the nine of the 20 counties comprising the Atlanta metropolitan statistical area (MSA). These counties - Fulton, DeKalb, Cobb, Gwinnett, Clayton, Cherokee, Henry, Douglas, and Rockdale - - are subdivided into 17 apartment submarkets. The Atlanta Apartment Pipeline Report focuses on apartment projects that are recently completed, under construction or planned for development, as well as the lease-up and absorption levels witnessed at these properties. The Atlanta Apartment Pipeline Report covers all 20 counties within the MSA. The subject is located within the Cobb County submarket, as defined by the Dale Henson reports. A demographic study prepared by Claritas, Inc. has also been used to project probable future market demand for the subject property. The demographic study is included as an exhibit in the Addenda. METROPOLITAN ATLANTA APARTMENT MARKET OVERVIEW HISTORICAL TRENDS Metropolitan Atlanta has witnessed tremendous expansion in the past few decades, becoming the center of economic growth in the southeastern United States. Recognizing the area's growth potential, apartment developers from around the nation focused on Atlanta during the mid-1980's. The strong national economic conditions of the times provided ample demand, which increased rental rates and occupancy rates to record levels. However, the deep national recession of the early 1990's resulted in low occupancy and rent levels, and an extreme over-supply. The Atlanta market began its recovery in early 1992 and generally maintained stable occupancy levels, even as steady expansion continued through 2000. However, with the economic downturn that began in early 2001, the apartment market began slowing. The following table illustrates overall metro Atlanta apartment occupancy levels over the past several years. 21 VININGS PEAK APARTMENTS MARKET ANALYSIS ATLANTA APARTMENT MARKET - HISTORICAL OCCUPANCY [BAR CHART]
1985 94% 1986 94% 1987 94% 1988 90% 1989 88% 1990 88% 1991 87% 1992 91% 1993 94% 1994 96% 1995 96% 1996 93.5% 1997 94.2% 1998 95.3% 1999 95.4% 2000 95.7% 2001 91.1% 2002 89.4%
Source: The Atlanta Apartment Tracker, Dale Henson Associates, Inc. Occupancy levels have decreased from the levels witnessed over the end of the 1990's, declining as regional job growth turned negative. The largest drop was recorded in the year-end change from 2000 to 2001. Also, it is significant to note that occupancy levels remain somewhat stronger than the low points set in 1989 to 1991. The change reported for year-end 2001 to 2002 was relatively minor, and outperformed the generally grim expectations of many observers. Whether occupancy levels have indeed "bottomed out" remains unclear, as significant levels of job creation have not yet exceeded job reductions. Downward pressure on occupancy has placed competitive pressure on rental rates and upward pressure on the level of concessions offered. The following table illustrates the apartment market trends within the Atlanta metropolitan area over the past several years. METROPOLITAN ATLANTA APARTMENT MARKET - HISTORICAL TRENDS
Reported Street Rent Street Rent Effective Rent Reported Units Units Units Year Occupancy ($/SF) ($/Unit/Mo.) ($/Unit/Mo.) Concessions Started Delivered Absorbed - ---- --------- ----------- ------------ -------------- ----------- ------- --------- --------- 1995 96.0% $0.64 $646 $621 $ 2 13,775 7,580 7,500 1996 93.5% $0.67 $678 $617 $17 11,073 11,800 10,050 1997 94.2% $0.69 $701 $639 $21 12,572 10,040 9,880 1998 95.3% $0.71 $725 $680 $12 12,569 11,930 12,090 1999 95.4% $0.74 $759 $707 $17 14,828 12,000 11,350 2000 95.7% $0.78 $792 $743 $14 11,288 12,820 12,800 2001 91.1% $0.79 $814 $679 $63 10,770 12,235 10,240 2002 89.4% $0.79 $814 $631 $98 7,750 12,641 4,961
Notes: Including properties with 50 units or more within the nine-county core area. Source: The Atlanta Apartment Tracker, Dale Henson Associates, Inc. 22 VININGS PEAK APARTMENTS MARKET ANALYSIS As illustrated, the overall occupancy level declined sharply from year-end 2000 to year-end 2001, from 95.7% to 91.1%. This deterioration is attributed to the general economic downturn, reflected in declining job growth in the Atlanta area. Since year-end 2001, the overall occupancy level witnessed an additional but more moderate decrease to 89.4% at year-end 2002. This slowing rate of decline is positive for the market, but recovery remains dependent on the return of economic expansion and positive levels of job creation. The previous table illustrates that metro Atlanta average street rental rates have remained nearly unchanged, despite the slowing economy. However, substantial change has been occurring in effective rents, which have deteriorated over the past two years. Changes have occurred primarily in the level of concessions and occupancy, which have reduced effective rental rates. Average effective rental rates decreased $64 from year-end 2000 to 2001, and $48 from year-end 2001 to 2002. These declines returned effective rents to 1997 levels. The market is perceived to be in a stronger position to return to growth in rents and occupancy when general economic expansion resumes, as the level of apartment starts is well below recent levels. Developers have delayed their construction schedules due to the slowing economy, which will prevent extreme overbuilding from occurring. Considering consensus economic projections that indicate positive job growth will resume by mid- to late-2003 and the absence of strong levels of new construction, projected occupancy is likely to return to 90%+ levels by late-2003 or mid-2004. In addition, Atlanta is generally well positioned to emerge successfully from the current recession, due to its high level of diversity, strong in-migration, and low business costs. The Atlanta metropolitan area witnessed tremendous job growth over the past decade and is expected to continue as the regional growth area over the long-term. SUPPLY COMPONENT The following table summarizes the metropolitan apartment supply by submarket, as of year-end. 23 VININGS PEAK APARTMENTS MARKET ANALYSIS METROPOLITAN ATLANTA APARTMENT MARKET
Total Percent of Reported Units Units Units Street Rent Street Rent Effective Rent Reported Submarket Units * Market Occupancy Delivered Absorbed Started (PSF) (Unit/Mo.) (Unit/Mo.) Concession - --------- ------- ---------- --------- --------- -------- ------- ---------- ---------- -------------- ---------- Buckhead/Brookhaven 19,770 5.7% 91.7% 520 217 586 $ 1.06 $ 1,137 $ 876 $ 167 Cherokee County 5,649 1.6% 90.7% 484 981 0 $ 0.75 $ 817 $ 637 $ 104 Clayton County 26,871 7.8% 90.5% 814 34 672 $ 0.68 $ 688 $ 581 $ 42 Cobb County 62,687 18.1% 89.1% 1,195 41 543 $ 0.79 $ 810 $ 621 $ 101 Decatur 10,826 3.1% 88.4% 355 (230) 255 $ 0.88 $ 873 $ 681 $ 91 Douglas County 6,325 1.8% 91.1% 364 117 932 $ 0.77 $ 781 $ 655 $ 56 East Dekalb County 10,658 3.1% 88.5% 483 122 0 $ 0.68 $ 724 $ 560 $ 81 Gwinnett County 48,642 14.0% 88.8% 2,977 1,938 992 $ 0.79 $ 810 $ 599 $ 121 Henry County 4,790 1.4% 90.0% 409 302 338 $ 0.71 $ 771 $ 639 $ 56 Midtown/Brookwood 15,000 4.3% 90.2% 1,228 1,217 1,088 $ 1.03 $ 937 $ 758 $ 87 North Dekalb County 31,311 9.0% 90.8% 614 (263) 0 $ 0.82 $ 833 $ 655 $ 101 North Fulton County 19,651 5.7% 90.2% 706 654 0 $ 0.81 $ 894 $ 681 $ 126 Rockdale County 2,827 0.8% 89.9% 176 22 0 $ 0.73 $ 741 $ 608 $ 57 Sandy Springs/Dunwoody 27,215 7.9% 91.2% 818 489 398 $ 0.88 $ 930 $ 713 $ 135 Southeast Dekalb County 10,284 3.0% 87.7% 730 239 964 $ 0.69 $ 762 $ 594 $ 74 Southwest Dekalb County 14,951 4.3% 88.0% 154 (396) 0 $ 0.65 $ 633 $ 526 $ 30 South Atlanta/South 28,761 8.3% 85.2% 614 (523) 982 $ 0.64 $ 618 $ 489 $ 38 Fulton ------- ---------- --------- --------- -------- ------ --------- --------- ------------- --------- Totals/Average** 346,218 89.4% 12,641 4,961 7,750 $ 0.79 $ 814 $ 631 $ 98 ------- ---------- --------- --------- -------- ------ --------- --------- ------------- ---------
Notes: * Including properties with 50 units or more. **Averages are weighted based on percent of overall market. Source: The Atlanta Apartment Tracker, Dale Henson Associates, Inc. As illustrated, there is a current overall supply of approximately 346,200 apartment units in the nine-county core of metropolitan Atlanta, taking into account only properties with 50 units or more. Cobb and Gwinnett Counties make-up the largest submarkets, with approximately 18% and 14% of the overall supply, respectively. However, Fulton and DeKalb Counties would account for the largest apartment inventories, if they were not divided into multiple submarkets. Submarkets located primarily in Fulton County combine for a total of approximately 110,400 units, or 32% of the metropolitan market. Submarkets located primarily in DeKalb County contain approximately 78,000 units, or 23% of the metropolitan market. All of the metropolitan Atlanta submarkets are currently witnessing average occupancy levels between 88% and 92%. Buckhead/Brookhaven, Sandy Springs/Dunwoody, and Douglas County reported the highest occupancy levels among all submarkets, with reported occupancy over 91% at year-end. The highest effective rental rates on a per square foot are being achieved in the Buckhead/Brookhaven and Midtown/Brookwood submarkets, which were both over $1.00 at year-end. The market average was $0.79 per square foot as of year-end. The Gwinnett County submarket witnessed the most apartment deliveries during 2002, with 2,977 units completed. The Midtown/Brookwood and Cobb County submarkets also saw significant deliveries during the year, with 1,228 and 1,195 new units added, respectively. Net absorption during 2002 was negative in only four of the 17 submarkets, as compared to nine submarkets with negative net absorption during 2001. This indicates that the market is in a better position to recover. The Gwinnett and Midtown/Brookwood submarkets had the highest levels of net absorption, with 1,938 and 1,217 units absorbed, respectively. 24 VININGS PEAK APARTMENTS MARKET AMAYSIS Construction starts were moderate compared to prior years. The Midtown/Brookwood submarket led with 1,088 units begun during 2002. Douglas County, Gwinnett County, Southeast DeKalb County, and South Atlanta/South Fulton also had relatively strong levels of starts, with over 900 units begun in each. (Note that Gwinnett County, which had 992 units started, was moderate compared with prior years, when 2,500 to 3,000 units were started.) Six of the 17 submarkets had no starts. With regard to future increases to apartment supply in metro Atlanta, the most important factor is the availability of suitable sites. Currently, developers are facing challenges in obtaining appropriately zoned apartment sites in areas with rent levels that can support new construction. The availability of apartment sites is being restricted, primarily by area governing authorities, which are resistant to new construction. Contributing to the governing authority's restrictive tendencies is the perception that apartments will eventually end-up oriented to lower-income groups within 20 or so years. Apartments are also perceived as contributing to overcrowding of area schools and a drain on the overall infrastructure (i.e. utilities, roads, etc.). As a result, several zoning authorities have instituted moratoriums on the rezoning of land for apartments, particularly in the northern portion of the metropolitan area. The decreasing supply of available apartment sites, along with the unwillingness of governmental bodies to approve re-zonings, has had a visible impact on developers, shown in the decreased level of starts. Another consideration in the supply picture is that the majority of new apartment construction is concentrated in several high-growth areas. Conversely, a large portion of the metro area is experiencing minimal or no new construction. The majority of the new apartment development, as with most other types of commercial development, has been in the area extending north of Atlanta's central business district, between Interstates 75 and 85. In the slower growth areas, rent levels are generally lower than in the northern portions of metropolitan Atlanta, making apartment development less attractive. These trends are expected to continue. DEMAND Demand for multi-family communities is primarily correlated to population and employment shifts. More recently, changes in capital markets, particularly the home mortgage market, have had an additional impact on demand. The primary indicator of apartment demand is changes in job growth, as the addition of new jobs ultimately provides the catalyst for new apartment construction. In the Atlanta area, the overall demand for apartments, as with all types of real estate, declined significantly during the early 1990s, a direct result of the decline in job growth. During 1993, 1994, 1996, and 1999, Atlanta led the nation in job growth - ranking among the top 10 cities in the nation for job growth in the previous decade. Following these years of expansion, the 25 VININGS PEAK APARTMENTS MARKET ANALYSIS recession that began in 2001 hit Atlanta hard. Job growth was reduced to negligible levels in 2001 and losses accumulated through 2002. On a seasonally adjusted basis, nonagricultural employment in metro Atlanta stands at just over 2.1 million. The current national economic climate, aggravated by geopolitical tensions around the world, continues to have a detrimental effect on the regional economy. Prospects for resumption of positive levels of job creation are just beginning to be apparent, and near-term prospects reflect the beginning of slow recovery through 2003. The following table summarizes job creation trends, according to the quarterly economic forecast published by Georgia State University's (GSU) Economic Forecasting Center. METRO ATLANTA JOB GROWTH [BAR CHART]
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Georgia 156.8 137.2 125.2 87.0 124.5 143.3 66.5 8.1 (86.7) (5.0) 63.6 84.4 Atlanta 97.5 84.0 86.0 56.0 83.6 87.2 52.2 9.1 (54.3) 2.8 45.9 56.0
Source: Georgia State University Economic Forecasting Center (February 2003) According to GSU's Economic Forecasting Center, job losses for 2002 in Atlanta totaled 54,300. The growth sectors that had continued strength through the 1990's - tourism, transportation, and telecommunications - were all negatively impacted by the recession, the attacks on September 11, 2001, or both. Passenger traffic at major airlines remains below peak. Convention business is slow, and hotel room rates have not begun to grow following competitive reductions. Telecom remains saturated with excess capacity. Thus, according to Rajeev Dhawan, Director of the Economic Forecasting Center, while the regional economy grew faster than the national average over the past decade, Atlanta may lag behind the nation in near-term recovery. Dhawan projects that the US economy will begin to grow by early Fourth Quarter 2003, assuming a quick victory in engaging Iraq. With perceptions evolving to a diminished threat of terrorism, corporate decision makers are anticipated to begin reengaging and expand hiring. As job growth 26 VININGS PEAK APARTMENTS MARKET ANALYSIS picks up, fundamental reasons for increases in consumption and income growth will replace the current patchwork of credit and home equity cash-outs, according to the forecast. We note from our own observations that the Atlanta economy has continued to outperform expectations year after year. While the prospects for near-term expansion continue to be modest, in long-term projections, the Atlanta metropolitan area is forecast to remain a national leader in job creation. First time home ownership has been increasingly competing with the multi-family rental market, and property occupancy has suffered directly as a result of the record low interest rate environment. The decline in interest rates that continued through 2002 made home ownership more attainable for an increasingly larger pool of prospects, allowing renters to buy homes and removing them from the rental market. In a rating action released in early 2003, Moody's Investor Service cited the economy and credit trends as having negatively impacted the multi-family market over the past year. With a shrinking pool of renters, revenue has declined through reduced occupancy levels. Typically, Class A resident pools can qualify for mortgage loans, both in terms of credit profile and income. In order to compete for the remaining renters, Class A properties have increased concessions and rent discounts. In some cases this makes the product affordable to the typical B and C class tenants, attracting them away from affordable properties. Even among the Class B and C resident pools, with various private and public programs, renters are finding themselves in a position to purchase a home. In Atlanta, with lower-cost starter homes readily available, a noticeable impact on multi-family occupancy has been attributed to changes in mortgage rates and terms. Interest rates are generally anticipated to be increased with the return of economic expansion, generally projected for mid- to late-2003. Residential mortgage rates will most likely increase in corresponding fashion. 27 VININGS PEAK APARTMENTS MARKET ANALYSIS PERFORMANCE MEASURES METROPOLITAN ATLANTA APARTMENT MARKET
YE % YE % YE % YE % YE CLASS "A" PROPERTIES 1998 Change 1999 Change 2000 Change 2001 Change 2002 - -------------------- ------ ------ ------- ------ ------- ------ ------- ------ ------ Effective Rent $ 796 4.8% $ 834 6.4% $ 887 -11.4% $ 786 -5.5% $ 743 Street Rent (per Unit) $ 860 5.2% $ 905 4.2% $ 943 1.8% $ 960 -0.1% $ 959 Street Rent (per Sf) $ 0.79 5.1% $ 0.83 3.6% $ 0.86 1.2% $ 0.87 -1.1% $ 0.86 Reported Occupancy 95.0% 0.1% 95.1% 0.8% 95.9% -5.0% 91.1% -0.1% 91.0% Reported Concessions $ 21 -- $ 26 -- $ 18 -- $ 89 -- $ 130
YE % YE % YE % YE % YE CLASS "B" PROPERTIES 1998 Change 1999 Change 2000 Change 2001 Change 2002 - -------------------- ------ ------ ------- ------ ------- ------ ------- ------ ------ Effective Rent $ 693 2.7% $ 712 5.2% $ 749 -8.0% $ 689 -7.8% $ 635 Street Rent (per Unit) $ 742 3.1% $ 765 4.8% $ 802 3.2% $ 828 0.0% $ 828 Street Rent (per Sf) $ 0.72 2.8% $ 0.74 4.1% $ 0.77 3.9% $ 0.80 0.0% $ 0.80 Reported Occupancy 95.2% 0.0% 95.2% 0.2% 95.4% -4.8% 90.8% -1.5% 89.4% Reported Concessions $ 13 -- $ 17 -- $ 16 -- $ 64 -- $ 106
YE % YE % YE % YE % YE CLASS "C" PROPERTIES 1998 Change 1999 Change 2000 Change 2001 Change 2002 - -------------------- ------ ------ ------- ------ ------- ------ ------- ------ ------ Effective Rent $ 629 3.7% $ 652 4.1% $ 679 -8.2% $ 623 -7.4% $ 577 Street Rent (per Unit) $ 665 4.2% $ 693 4.6% $ 725 1.8% $ 738 -0.1% $ 737 Street Rent (per Sf) $ 0.68 4.4% $ 0.71 4.2% $ 0.74 1.4% $ 0.75 0.0% $ 0.75 Reported Occupancy 96.0% -0.1% 95.9% -0.6% 95.3% -3.9% 91.6% -2.6% 89.2% Reported Concessions $ 9 -- $ 12 -- $ 12 -- $ 52 -- $ 81
YE % YE % YE % YE % YE OVERALL MARKET 1998 Change 1999 Change 2000 Change 2001 Change 2002 - -------------- ------ ------ ------- ------ ------- ------ ------- ------ ------ Effective Rent $ 678 4.3% $ 707 5.1% $ 743 -8.6% $ 679 -7.1% $ 631 Street Rent (per Unit) $ 725 4.7% $ 759 4.3% $ 792 2.8% $ 814 0.0% $ 814 Street Rent (per Sf) $ 0.71 4.2% $ 0.74 5.4% $ 0.78 1.3% $ 0.79 0.0% $ 0.79 Reported Occupancy 95.3% 0.1% 95.4% 0.1% 95.5% -4.6% 91.1% -1.9% 89.4% Reported Concessions $ 13 -- $ 17 -- $ 14 -- $ 63 -- $ 98
Note: The survey is based on properties with 50 units or more, and covers a nine-county core area. Source: The Atlanta Apartment Tracker, Dale Henson Associates, Inc. As illustrated, all classes of apartments witnessed an occupancy decrease from year-end 2001 to year-end 2002. Class B and C properties saw the largest decreases. Class C properties declined from reported occupancy of 91.6% at year-end 2001 to 89.2% at year-end 2002. Class B properties were down from reported occupancy of 90.8% to 89.4%. Class A apartments witnessed a negligible occupancy decline, from 91.1% to 91.0% at year-end 2002. Effective rental rates decreased in all sectors as well, while reported concessions increased. Again, the largest declines came among Class B and C properties, which recorded decreases of over 7.8% and 7.4%, respectively, while Class A effective rents declined approximately 5.5%. OUTLOOK FOR THE OVERALL ATLANTA APARTMENT MARKET During the late 1990's, the Atlanta apartment market showed resilient strength and tremendous growth. However, the current national recession has produced decreasing employment growth in 28 VININGS PEAK APARTMENTS MARKET ANALYSIS metro Atlanta, resulting in lower apartment occupancy levels, increased concessions and declines in effective rental rates. While the data considered indicate that the Atlanta market continued a moderate decline through 2002, the rate of decline has slowed significantly compared to the prior year. Consideration of the various data suggest some submarkets are stabilizing, while others may erode slightly further. In addition, the Atlanta area is projected to begin recovery over the coming year, with positive levels of job growth returning by year-end. Moreover, due to the lack of suitable apartment sites and discouragement of apartment development by local municipalities, the Atlanta area should avoid reaching an extreme oversupply of units. The result should be improving occupancy levels and moderate rental rate growth over the long-term. COBB COUNTY SUBMARKET ANALYSIS The subject is located within the Cobb County submarket. A summary of the recent operating characteristics of this submarket is presented in the following table in the Cobb County submarket. 29 VININGS PEAK APARTMENTS MARKET ANALYSIS COBB COUNTY APARTMENT SUBMARKET
Annual Annual Annual YE % YE % YE % YE % Mid- % YE CLASS "A" PROPERTIES 1998 Change 1999 Change 2000 Change 2001 Change 2002 Change 2002 - -------------------- ----- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Effective Rent $ 843 1.4% $ 855 7.1% $ 916 -10.6% $ 819 -3.1% $ 794 -5.7% $ 749 Street Rent (Per Unit) $ 899 3.2% $ 928 4.8% $ 973 0.9% $ 982 0.2% $ 984 0.8% $ 992 Street Rent (Per SF) $0.81 3.7% $0.84 3.6% $0.87 1.1% $0.88 1.1% $0.89 0.0% $0.89 Reported Occupancy 95.5% -0.2% 95.3% 0.8% 96.1% -4.4% 91.9% -0.5% 91.4% -0.4% 91.0% Reported Concessions $ 16 -- $ 29 -- $ 19 -- $ 83 -- $ 105 -- $ 154
Annual Annual Annual YE % YE % YE % YE % Mid- % YE CLASS "B" PROPERTIES 1998 Change 1999 Change 2000 Change 2001 Change 2002 Change 2002 - -------------------- ----- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Effective Rent $ 737 1.9% $ 751 3.1% $ 774 -9.2% $ 703 -5.1% $ 667 -2.8% $ 648 Street Rent (Per Unit) $ 780 3.2% $ 805 3.5% $ 833 0.7% $ 839 -1.4% $ 827 1.5% $ 839 Street Rent (Per SF) $0.74 4.1% $0.77 5.2% $0.81 0.0% $0.81 -1.2% $0.80 1.3% $0.81 Reported Occupancy 95.5% -0.1% 95.4% -0.1% 95.3% -4.4% 91.1% -2.0% 89.3% 0.2% 89.5% Reported Concessions $ 8 -- $ 18 -- $ 21 -- $ 61 -- $ 72 -- $ 103
Annual Annual Annual YE % YE % YE % YE % Mid- % YE CLASS "C" PROPERTIES 1998 Change 1999 Change 2000 Change 2001 Change 2002 Change 2002 - -------------------- ----- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Effective Rent $ 648 2.8% $ 666 3.3% $ 688 -12.2% $ 604 -3.3% $ 584 -0.3% $ 582 Street Rent (Per Unit) $ 682 5.1% $ 717 3.8% $ 744 -0.3% $ 742 0.3% $ 744 0.3% $ 746 Street Rent (Per SF) $0.68 4.4% $ 0.71 2.8% $ 0.73 1.4% $ 0.74 0.0% $ 0.74 0.0% $ 0.74 Reported Occupancy 95.9% -0.5% 95.4% -0.1% 95.3% -4.5% 91.0% -1.8% 89.4% 0.1% 89.5% Reported Concessions $ 6 -- $ 18 -- $ 21 -- $ 71 -- $ 81 -- $ 86
Annual Annual Annual YE % YE % YE % YE % Mid- % YE OVERALL SUBMARKET 1998 Change 1999 Change 2000 Change 2001 Change 2002 Change 2002 - ----------------- ----- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Effective Rent $ 700 1.4% $ 710 4.8% $ 744 -9.9% $ 670 -3.0% $ 650 -4.5% $ 621 Street Rent (Per Unit) $ 741 3.1% $ 764 4.8% $ 801 0.9% $ 808 -0.6% $ 803 0.9% $ 810 Street Rent (Per SF) $0.72 2.8% $0.74 5.4% $ 0.78 0.0% $0.78 0.0% $ 0.78 1.3% $0.79 Reported Occupancy 95.6% -0.3% 95.3% 0.0% 95.3% -4.7% 90.8% -0.9% 90.0% -1.0% 89.1% Reported Concessions $ 9 -- $ 18 -- $ 19 -- $ 64 -- $ 73 -- $ 101
Source: The Atlanta Apartment Tracker, Dale Henson Associates, Inc. As the previous table identifies, the average occupancy in the Cobb County submarket is currently 89.1% for all apartments, which represents a minimal decrease over the previous mid-year level of 90.0%. Prior to year-end 2001, the Cobb County submarket average occupancy level remained relatively consistent in the mid 90% range. In the subject submarket, there were minimal decreases in all apartment classes. The average effective rental rate within the Cobb County submarket decreased 4.5% between mid-year 2002 and year-end 2002. Effective rent decreased in all classes. Furthermore, all sectors reported an increase in their level of concessions being offered. The general perception among property owners is that rent and occupancy levels will begin to rebound during 2003, as the national economy improves and job growth returns. 30 VININGS PEAK APARTMENTS MARKET ANALYSIS ABSORPTION Apartment activity during 2002 shows that the Cobb County submarket recorded net absorption of 41 units and new deliveries of 1,195 units. The following table illustrates absorption rates at recently completed apartment properties within the submarket: COBB COUNTY APARTMENT SUBMARKET RECENT ABSORPTION
Begin # Construction Leasing Property Developer Units Start Date Date - -------------------------------------------------- --------------------------- ----- ---------- -------- Caswyck Parkside, 1615 Cobb Parkway Cannon Company 234 Apr-01 Jun-02 AMLI at Barrett Walk, 2055 Barrett Lakes Boulevard AMLI Residential Properties 310 Dec-01 Aug-02 Trees at Kennesaw, Old U.S. 41/Stanley Rd. Wilwat Properties 166 Mar-01 Feb-02 Estates at Ridenour, U.S. 41/Barrett Pkwy. Estates, Inc. 300 Feb-00 Sep-00 Stanton Place, Baker Grove, Acworth Andrews Properties 240 Feb-00 Jan-01 Caswyck Town Center, Williams Drive Cannon Company 358 Jun-00 May-01 Walden Ridge, Highway 41, Acworth United Residential Properties 210 Dec-00 Jul-01 Shiloh Valley Overlook, Greer Chapel Rd./I-75 Hayes Development Corporation 300 Mar-00 May-01 Summit Shiloh Phase II, 4044 Busbee Parkway Summit Properties 50 May-01 Jan-02 Alta Green, Shiloh Rd./Wade Green Rd./1-75 Wood Partners 498 Dec-00 Oct-01
Source: Atlanta Apartment Pipeline Report, Year-End 2002, Dale Henson & Associates, Inc. The data illustrates absorption ranging from 7.4 to 24.4 units per month, with the median being 13.6 units per month. This is considered a good level of absorption. NEW DEVELOPMENT The number of apartment units under construction as of year-end 2002 totaled 836 units in 4 properties within the Cobb County submarket. This is considered a relatively small amount of activity, given the geographic area that the submarket encompasses. These properties are summarized in the following table. COBB COUNTY APARTMENT SUBMARKET APARTMENTS UNDER CONSTRUCTION
Comp. Const. First Units Expected Property Developer # Units Start Date Avail. Date - ------------------------------------------------ --------------------------- ------- ---------- ----------- -------- Galleria No apartments under construction in this subarea South Cobb No apartments under construction in this subarea Town Center Caswyck Parkside, 1615 Cobb Pkwy. Cannon Company 234 Apr-01 Jul-02 Oct-02 Cobblestone Landing, U.S. 41 PRS Construction 172 Jun-02 Jan-03 Jun-03 AMLI at Barrett Walk, 2055 Barrett Lakes Blvd. AMLI Residential Properties 310 Dec-01 Aug-02 Jul-03 Highland Court, Goerge Busbee Parkway/wade Green Norsouth 120 Nov-02 Jul-03 -- East Marietta No apartments under construction in this subarea West Cobb No apartments under construction in this subarea ------- Total 836 -------
Source: Atlanta Apartment Pipeline Report, Year-End 2002, Dale Henson & Associates, Inc. 31 VININGS PEAK APARTMENTS MARKET ANALYSIS There are no proposed apartment properties in the subject's immediate area. However, there are multiple properties which are currently under construction in the Town Center area. However, these properties will not provide competition for the subject, as they will be Class "A" properties and will appeal to a different type of tenant. In addition, the identified properties are located over a very large geographical area, which decreases the potential negative impact of the new product being added to the apartment housing stock. Furthermore, there is little, if any, remaining developable land for apartments. In addition to projects currently under construction, there is one known project in various stages of planning. This number of proposed projects is also considered a relatively moderate level of activity, given the large geographic area that the submarket encompasses. The properties proposed for development in the near-term are summarized in the following table. COBB COUNTY APARTMENT SUBMARKET PROPOSED APARTMENTS
# Property Developer Units # Acres Remarks - -------------------------------------- --------------------- ----- ------- ------- Galleria No apartments planned for this subarea South Cobb No apartments planned for this subarea Town Center Hillside Vista, 2155 Cobb Parkway Vista Realty Partners 212 --- Construction Start 01/03 East Marietta No apartments planned for this subarea West Cobb No apartments planned for this subarea --- Total 212 ---
Source: Atlanta Apartment Pipeline Report, Year-end 2002, Dale Henson & Associates, Inc. After publication of the Dale Henson report, commencement of construction was delayed for the property listed above. Based on our discussions with the developer of this site, we believe that this property will be constructed. As mentioned previously, new construction in the submarket will not compete with the subject, therefore there is sufficient demand for this product. Furthermore, there are no proposed apartment properties in the subject's immediate area. CUMBERLAND/GALLERIA PRIMARY MARKET AREA Although Cobb County is identified as only one submarket by the Atlanta Apartment Market Tracker, it subdivides the county into five primary market areas. These areas are identified as Cumberland/Galleria, South Cobb, Town Center, East Marietta and West Cobb. The subject is located within the Cumberland/Galleria primary market area, as defined by the report. The following table illustrates changes in rental rates, occupancy levels and concessions with the Cumberland/Galleria primary market area over the past three years. 32 VININGS PEAK APARTMENTS MARKET ANALYSIS CUMBERLAND/GALLERIA PRIMARY MARKET AREA
CLASS "A" YE % Mid- % YE % Mid- % 3d Qtr % YE % Mid- % YE PROPERTIES 1999 Change 2000 Change 2000 Change 2001 Change 2001 Change 2001 Change 2002 Change 2002 - ---------- ------- ------ ------- ------ ------- ------ ------- ------ ------- ------ ------- ------ ------- ------ ------- Effective Rent $ 941 4.7% $ 985 3.2% $1,017 -6.2% $ 954 -2.7% $ 928 -1.8% $ 911 -4.4% $ 871 -3.9% $ 837 Street Rent (per Unit) $ 991 3.1% $1,022 2.7% $1,050 1.0% $1,061 -1.3% $1,047 -0.3% $1,044 1.5% $1,060 0.8% $1,068 Street Rent (per SF) $ 0.90 3.3% $ 0.93 2.2% $ 0.95 1.1% $ 0.96 -3.1% $ 0.93 0.0% $ 0.93 1.1% $ 0.94 1.1% $ 0.95 Reported Occupancy 95.6% 2.0% 97.5% -0.2% 97.3% -4.1% 93.3% 1.1% 94.3% -1.0% 93.4% -0.3% 93.1% -0.9% 92.3% Reported Concessions $ 6 -- $ 11 -- $ 5 -- $ 36 -- $ 59 -- $ 64 -- $ 116 -- $ 169
YE % Mid- % YE % Mid- % 3d Qtr % YE % Mid- % YE CLASS "B" PROPERTIES 1999 Change 2000 Change 2000 Change 2001 Change 2001 Change 2001 Change 2002 Change 2002 - -------------------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ----- Effective Rent $ 782 5.4% $ 824 1.0% $ 832 -2.3% $ 813 -5.3% $ 770 1.0% $ 778 -9.1% $ 707 0.8% $ 713 Street Rent (per Unit) $ 837 3.1% $ 863 2.4% $ 884 1.9% $ 901 -0.6% $ 896 1.3% $ 908 -0.4% $ 904 -1.3% $ 892 Street Rent (per SF) $0.81 4.9% $0.85 2.4% $0.87 1.1% $0.88 0.0% $0.88 1.1% $0.89 0.0% $0.89 -1.1% $0.88 Reported Occupancy 95.6% 0.6% 96.2% -0.1% 96.1% -2.6% 93.6% 0.0% 93.6% -1.2% 92.5% -1.9% 90.7% 0.0% 90.7% Reported Concessions $ 18 -- $ 6 -- $ 18 -- $ 30 -- $ 69 -- $ 62 -- $ 113 -- $ 119
YE % Mid- % YE % Mid- % 3d Qtr % YE % Mid- % YE CLASS "C" PROPERTIES 1999 Change 2000 Change 2000 Change 2001 Change 2001 Change 2001 Change 2002 Change 2002 - -------------------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Effective Rent $ 697 2.9% $ 717 2.9% $ 738 -2.2% $ 722 -9.0% $ 657 -2.7% $ 639 -1.9% $ 627 3.8% $ 651 Street Rent (per Unit) $ 740 1.4% $ 750 2.8% $ 771 2.3% $ 789 0.1% $ 790 -0.4% $ 787 -3.9% $ 756 6.5% $ 805 Street Rent (per SF) $0.75 -2.7% $0.73 8.2% $0.79 1.3% $0.80 0.0% $0.80 -1.3% $0.79 -3.8% $0.76 5.3% $0.80 Reported Occupancy 96.4% 1.0% 97.4% -0.1% 97.3% -2.7% 94.7% -1.8% 93.0% -1.0% 92.1% -2.9% 89.4% 0.9% 90.2% Reported Concessions $ 16 -- $ 14 -- $ 12 -- $ 25 -- $ 78 -- $ 86 -- $ 49 -- $ 85
YE % Mid- % YE % Mid- % 3d Qtr % YE % Mid- % YE OVERALL SUBMARKET 1999 Change 2000 Change 2000 Change 2001 Change 2001 Change 2001 Change 2002 Change 2002 - ----------------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Effective Rent $ 754 4.5% $ 788 1.6% $ 801 -2.1% $ 784 -5.5% $ 741 -1.9% $ 727 -5.6% $ 686 0.0% $ 686 Street Rent (per Unit) $ 803 2.7% $ 825 2.3% $ 844 2.0% $ 861 -0.1% $ 860 0.3% $ 862 -0.9% $ 854 1.2% $ 864 Street Rent (per SF) $0.79 2.5% $0.81 2.5% $0.83 2.4% $0.85 -1.2% $0.84 1.2% $0.85 -1.2% $0.84 1.2% $0.85 Reported Occupancy 95.7% 0.9% 96.6% -0.1% 96.5% -2.5% 94.1% -0.7% 93.4% -1.3% 92.2% -1.7% 90.6% -0.7% 90.0% Reported Concessions $ 14 -- $ 9 -- $ 13 -- $ 26 -- $ 62 -- $ 68 -- $ 89 -- $ 111
Source: The Atlanta Apartment Tracker, Dale Henson Associates, Inc. As illustrated, the Cumberland/Galleria primary market area has performed better than the overall Cobb County submarket, with a reported year-end occupancy level of 90.0%. It appears that Class "A" properties are fairing better than Class "B" and "C" properties, with reported occupancy levels of 90.7% and 90.2%, respectively. However, overall properties showed a decrease of 90.0% in occupancy from mid-year 2002 figures. We expect conditions to improve rather quickly within this area, however, as there is no new construction occurring or planned, and there is little, if any, remaining developable land for apartments. CONCLUSIONS FOR THE COBB COUNTY APARTMENT SUBMARKET Based on our analysis, we have found the Cobb County and Cumberland/Galleria apartment market is experiencing operating characteristics which are similar to those found in the overall metro Atlanta market. In addition, the area is expected to continue receiving a good level of job creations, following the current recession. Therefore, we believe the Cobb County submarket provides a very viable location for a well located apartment complex, such as the subject property. INVESTMENT TRENDS Generally, there remains a divide between sellers' pricing and buyers' offers. Given softened occupancies and reductions in rental rates, the attractiveness of multi-family acquisitions has been temporarily diminished somewhat. This trend may continue through 2003, which holds subdued prospects for rent increases until sustained job growth resumes. 33 VININGS PEAK APARTMENTS MARKET ANALYSIS Over the longer-term, apartments are anticipated to recover strongly and continue to be commodity investments. For 5- and 10-year periods, apartments are anticipated to outperform other property sectors. Regionally, reflecting the softer apartment operating environment, the volume of multi-family sales in metropolitan Atlanta slowed over the past year. Total volume for the year 2002 was reported at $700 million, down 41% from 2001 and 51% from 2002 levels. Although the number of sales fell, overall values did not appear to be significantly negatively impacted, as lower rates and yields have offset property performance issues. The following charts present the average selling price per apartment unit over the recent past. Among Class A properties, there continues to be appreciation for properties built in infill locations, while suburban properties have fluctuated downward over the past four years. Among Class B properties, prices have declined for properties in infill locations, while suburban properties have generally shown a net increase over the recent past. CLASS A - AVERAGE SELLING PRICE PER UNIT [BAR CHART]
1999 2000 2001 2002 Infill $109,000 $103,368 $106,232 $118,721 Suburban $ 79,964 $ 75,005 $ 78,620 $ 74,568
Source: CB Richard Ellis, Inc. 34 VININGS PEAK APARTMENTS MARKET ANALYSIS CLASS B - AVERAGE SELLING PRICE PER UNIT [BAR CHART]
1999 2000 2001 2002 Infill $78,254 $65,413 $70,473 $66,870 Suburban $49,997 $57,980 $57,070 $54,645
Source: CB Richard Ellis, Inc. DEMOGRAPHIC ANALYSIS Demand for additional residential property is a direct function of population change. Multi-family communities are products of a clearly definable demand relating directly to population shifts. HOUSING, POPULATION AND HOUSEHOLD FORMATION The following table illustrates the population and household changes for the subject neighborhood. POPULATION AND HOUSEHOLD PROJECTIONS
100 WOODRIDGE DR Radius 1.0 Radius 3.0 Radius 5.0 ATLANTA, GA 30339-3638 Mile Miles Miles - ----------------------- ---------- --------- ---------- Population 2007 Projection 10,699 69,670 189,322 2002 Estimate 9,652 64,148 174,569 2000 Census 9,244 62,037 168,928 2002 - 2007 % Change 10.8% 8.6% 8.5% Households 2007 Projection 6,022 35,244 84,003 2002 Estimate 5,470 32,485 77,876 2000 Census 5,239 31,397 75,570 2002 - 2007 % Change 10.1% 8.5% 7.9%
Source: Claritas, Inc. Households represent the basic unit of demand in the housing market. According to the data, the subject's neighborhood is experiencing continuing strong levels of increase in population and households. 35 VININGS PEAK APARTMENTS MARKET ANALYSIS INCOME DISTRIBUTIONS Household income available for expenditure on housing and other consumer items is a primary factor in determining the price/rent level of housing demand in a market area. In the case of this study, projections of household income, particularly for renters, identifies in gross terms the market from which the subject submarket draws. The following table illustrates estimated household income distribution for the subject neighborhood. HOUSEHOLD INCOME DISTRIBUTION
100 WOODRIDGE DR Radius 1.0 Radius 3.0 Radius 5.0 ATLANTA, GA 30339-3638 Mile Miles Miles - ---------------------------------------- ---------- ---------- ---------- 2002 Est. Households by Household Income $150,000 - or More 36.24% 27.10% 15.01% $100,000 - $149,999 12.07% 10.60% 11.54% $ 75,000 - $ 99,999 15.92% 14.26% 13.94% $ 50,000 - $ 74,999 28.55% 25.11% 23.50% $ 35,000 - $ 49,999 20.17% 19.56% 15.87% $ 25,000 - $ 34,999 6.27% 8.46% 8.21% $ 15,000 - $ 24,999 4.22% 5.60% 6.11% Under $15,000 3.66% 4.31% 5.81%
Source: Claritas, Inc. The following table illustrates the median and average household income levels for the subject neighborhood. HOUSEHOLD INCOME LEVELS
100 WOODRIDGE DR Radius 1.0 Radius 3.0 Radius 5.0 ATLANTA, GA 30339-3638 Mile Miles Miles - ----------------------------- ---------- ---------- ---------- 2002 Average Household Income $92,816 $102,697 $106,711 2002 Median Household Income $63,724 $ 62,016 $ 64,884 2002 Per Capita Income $53,136 $ 52,985 $ 47,460
Source: Claritas, Inc. An analysis of the income data indicates that the submarket is generally comprised of middle to upper middle income groups, which are the same groups to which the subject property is oriented. EMPLOYMENT An employment breakdown typically indicates the working class characteristics for a given market area. The specific employment population within the indicated radii of the subject is as follows: 36 VININGS PEAK APARTMENTS MARKET ANALYSIS POPULATION BY OCCUPATION
100 WOODRIDGE DR Radius 1.0 Radius 3.0 Radius 5.0 ATLANTA, GA 30339-3638 Mile Miles Miles - --------------------------------------------- ---------- ---------- ---------- Occupation Managerial and Professional Specialty 46.94% 38.28% 37.54% Technical, Sales and Administrative Support 39.57% 40.61% 39.00% Service 6.52% 9.61% 9.70% Farming, Forestry and Fishing 0.36% 0.74% 0.71% Precision, Production, Craft and Repair 3.79% 5.03% 6.56% Operators, Fabricators and Laborers 2.83% 5.73% 6.50%
Source: Claritas, Inc. The previous table illustrates the employment character of the submarket, indicating a predominantly `white-collar' employment profile. Within a three-mile radius of the subject, executive and managerial, professional specialty, sales, and administrative support are the largest employment categories. MARKET ACCEPTANCE OF THE SUBJECT The subject property is located ten miles northwest of the CBD and situated east of Dobbins Air Reserve Base, the area is conveniently located near many of the Atlanta area's primary employment centers. The area is an established residential community within northwest Atlanta, estimated to be approximately 90% developed. The subject is well located for an apartment complex, with good accessibility, and conveniently located relative to employment centers. Further, the area is continuing to experience a good level of growth relative to new development, which is viewed as very positive for the long-term market acceptance of the subject property. Given these factors, as well as the other considerations of the area, the subject appears to possess very good locational characteristics for an apartment complex. OCCUPANCY COMPARABLE PROPERTIES Comparable properties have been surveyed in order to identify the occupancy trends within the immediate submarket. The comparable data is summarized in the following table: 37 VININGS PEAK APARTMENTS MARKET ANALYSIS SUMMARY OF COMPARABLE APARTMENT RENTALS
COMP. No. NAME LOCATION OCC - ----- ------------------------------------- ---------------------- ----- 1 The Woods At Overlook 100 Pinehurst Drive, 93% Atlanta, GA 2 Post Vinings 3385 Atlanta Road, WND Smyrna, GA 3 Post Village 2189 Lake Park Drive, 95% Smyrna, GA 4 Archstone Woodlands (Fka - Woodlands) 2200 Woodlands Drive, 94% Smyrna, GA 5 Paces Station 3000 Paces Walk, 91% Atlanta, GA 6 The Lakes At Vinings 2800 Paces Ferry Road, 92% Atlanta, GA 7 Wood Lake 100 Pinhurst Drive, 93% Unincorporated, GA ---- Subject Vinings Peak Apartments 100 Woodridge Drive, 93% ---- Atlanta, GA
Compiled by: CB Richard Ellis, Inc. The comparable properties surveyed reported occupancy rates ranging from 91% to 95%. The subject property is currently 92.9% occupied. Currently, management reports rent concessions of one-month free on any 12-month lease, and all of the comparables are using concessions. Accordingly, our estimate for vacancy and collection loss for the subject is illustrated in the following table. CONCLUSION Based on the foregoing analysis, CB Richard Ellis, Inc.'s conclusion of stabilized occupancy for the subject is illustrated in the following table. 38 VININGS PEAK APARTMENTS MARKET ANALYSIS OCCUPANCY CONCLUSIONS Atlanta Area 89.4% Cobb County Submarket 89.1% Cumberland/galleria Primary Market Area 90.0% Rent Comparables (Average) 93.0% Subject's Current Occupancy 92.9% ---- Subject's Stabilized Occupancy 90.0% ----
Source: Cb Richard Ellis, Inc. CONCLUSION We believe the subject property is well located for an apartment complex. The site provides convenient access to Interstate 75 and major employment centers in metropolitan Atlanta. It is located in an area which is experiencing growth similar to that of metropolitan Atlanta. Considering the recent trends in absorption and the prospects for new construction, the local market area should maintain a stabilized occupancy position, with increasing rental rates over the foreseeable future, and the long-term projection is for moderate to strong growth. Given these considerations, we believe the subject will enjoy a very good operating level. 39 VININGS PEAK APARTMENTS SITE ANALYSIS Insert site plan here 40 VININGS PEAK APARTMENTS SITE ANALYSIS SITE ANALYSIS The following chart provides a summary of the salient features relating to the subject site. SITE SUMMARY PHYSICAL DESCRIPTION Net Site Area 22.0 Acres 958,320 Sq. Ft. Primary Road Frontage Mt. Wilkinson Parkway Excess Land Area None Zoning District RM-12, Multi-family Residential Flood Map Panel No. 13067C 0075F Flood Zone X
Source: Various Sources Compiled by Cb Richard Ellis, Inc. LOCATION The subject property is located along the north side of Mt. Wilkinson Parkway, just east of Interstate 285, in unincorporated Cobb County, metropolitan Atlanta, Georgia, with an Atlanta street address of 100 Woodridge Drive. Ingress and egress is available to the site via two curb cuts along Mt. Wilkinson Parkway. The site has a good level of visibility from Mt. Wilkinson Parkway. ASSESSORS PARCEL NUMBER The subject is identified by the Cobb County Tax Assessor's office as parcel 17-0910-006. LAND AREA The site consists of 22.0 gross acres. There is no unusable or excess land area. SHAPE AND FRONTAGE The site is irregular in shape and has a good level of frontage along the north side of Mt. Wilkinson Parkway. TOPOGRAPHY AND DRAINAGE The site has a sloping topography. During the inspection of the property, no drainage problems were observed and none are assumed to exist. 41 VININGS PEAK APARTMENTS SITE ANALYSIS SOILS A soil analysis for the site has not been provided for the preparation of this appraisal. In the absence of a soil report, it is a specific assumption that the site has adequate soils to support the highest and best use. EASEMENTS AND ENCROACHMENTS A title policy for the property has not been provided for the preparation of this appraisal. Based on our visual inspection and review of the site plan, the property does not appear to be adversely affected by any easements or encroachments. It is recommended that the client/reader obtain a current title policy outlining all easements and encroachments on the property, if any, prior to making a business decision. COVENANTS, CONDITIONS AND RESTRICTIONS There are no known covenants, conditions and restrictions impacting the site which are considered to affect the marketability or highest and best use, other than zoning restrictions. UTILITIES AND SERVICES The site is within the jurisdiction of Cobb County and is provided all services, including police, fire and refuse garbage collection. All utilities are available to the site in adequate quality and quantity to service the highest and best use as if vacant and as improved. FLOOD ZONE According to flood hazard maps published by the Federal Emergency Management Agency (FEMA), the site appears to be located within Zone X (outside the 500-year flood hazard area). This information is indicated on Community Map Panel 13067C 0075F, dated August 18, 1992. This zone is defined as follows. FEMA Zone X: Areas determined to be outside the 500-year flood plain. ENVIRONMENTAL ISSUES CB Richard Ellis, Inc. has not observed, yet is not qualified to detect, the existence of potentially hazardous material or underground storage tanks which may be present on or near the site. The existence of hazardous materials or underground storage tanks may have an affect on the value of the property. For this appraisal, CB Richard Ellis, Inc. has specifically assumed that the property is not affected by any hazardous materials and/or underground storage tanks which may be present on or near the property. 42 VININGS PEAK APARTMENTS SITE ANALYSIS CONCLUSION The site is well located and afforded good access, but limited visibility, from roadway frontage. The size of the site is typical for the area and use, and there are no known detrimental uses in the immediate vicinity. Overall, there are no known factors which are considered to prevent the site from development to its highest and best use, as if vacant, or adverse to the existing use of the site. 43 VININGS PEAK APARTMENTS IMPROVEMENT ANALYSIS IMPROVEMENT ANALYSIS The following chart depicts the subject's unit mix and building area. IMPROVEMENT SUMMARY Number of Buildings 14 Number of Stories 2 & 3 Gross Building Area 277,300 Sf Net Rentable Area 275,000 Sf Number of Units 280 Average Unit Size 982 Sf
PERCENT OF UNIT SIZE UNIT MIX NO. OF UNITS TOTAL (SF) NRA (SF) 1BR/1BA 50 17.9% 705 35,250 1BR/1BA 90 32.1% 879 79,110 2BR/2BA 90 32.1% 1,111 99,990 2BR/2BA 50 17.9% 1,213 60,650 --- ----- ----- ------- Total/average: 280 100.0% 982 275,000 --- ----- ----- -------
Source: Property Manager Building plans and specifications were not provided for the preparation of this appraisal. The following is a description of the subject improvements and basic construction features derived from CB Richard Ellis, Inc.'s physical inspection and discussions with property management. YEAR BUILT The subject property was built in 1980. FOUNDATION The foundation consists of poured reinforced concrete/perimeter footings and column pads. CONSTRUCTION COMPONENTS The construction components include a wood frame with wood truss and joist floor structure and plywood floor deck. FLOOR STRUCTURE The floor structure is summarized as follows: 44 VINING PEAK APARTMENTS IMPROVEMENT ANALYSIS GROUND FLOOR: Concrete slab on compacted fill OTHER FLOORS: Plywood decking with light-weight concrete cover EXTERIOR WALLS The exterior wall structure consists of wood trim and brick veneer over wood frame. The units have single-pane windows in aluminum frames. ROOF COVER Roofs consist of a wood truss support system covered with plywood decking, felt paper and composition shingles. PARKING AND DRIVES The subject has 586 normal parking spaces and 11 handicap spaces, which equates to 2.13 parking spaces per unit. This is considered a typical amount of parking as compared to comparable properties in the market. All of the parking areas and driveways are asphalt paved and currently in average condition. LANDSCAPING The project features a combination of grass, planted beds and forested landscaping which is considered to be in average condition. PROJECT AMENITIES The project amenities include a swimming pool, lighted tennis court, exercise facility, hot tub, and laundry facility. UNIT AMENITIES Each unit has washer/dryer connections, walk-in closets and ceiling fans. In addition, select units have fireplaces. FIRE PROTECTION The improvements are not fire sprinklered. However, all units are equipped with smoke detectors and are assumed to have adequate fire alarm systems, fire exits, fire extinguishers, fire escapes and/or other fire protection measures to meet local Fire Marshal requirements. 45 VINING PEAK APARTMENTS IMPROVEMENT ANALYSIS HVAC The units feature individual "central" HVAC units with exterior mounted compressors. The systems are assumed to be in good operating condition and adequate for the respective square footage of each individual unit. UTILITIES The units have gas heat and electric hot water heaters, along with all appliances being electric. The cost of trash removal and pest control is included in the rental rates. Thus, current operations indicate the landlord is responsible for common area utilities, as well as the cost of trash removal and pest control to the individual units. Each resident is responsible for their respective electrical, natural gas, telephone and cable television expenses. All utilities are publicly provided. INTERIOR LIGHTING Each unit features a combination of incandescent and fluorescent lighting in appropriate interior and exterior locations. KITCHENS Each unit features a range/oven, frost-free refrigerator with icemaker, garbage disposal, and dishwasher. Furthermore, each unit features wood cabinets with Formica countertops and vinyl flooring in the kitchen area. BATHROOMS The bathrooms within each unit feature combination garden tub/showers with fiberglass surrounds. Additionally, each bathroom features a commode, wood cabinet with Formica counter and built-in sink, wall-mounted vanity mirror and vinyl tile flooring. QUALITY AND STRUCTURAL CONDITION The overall quality of the project is considered to be good for the neighborhood and age. CB Richard Ellis, Inc. did not observe any evidence of structural fatigue and the improvements appear structurally sound for occupancy. However, CB Richard Ellis, Inc. is not qualified to determine structural integrity and it is recommended that the client/reader retain the services of a qualified, independent engineer or contractor to determine the structural integrity of the improvements prior to making a business decision. There were several minor items of deferred maintenance noted at the subject property, which is discussed below. 46 VINING PEAK APARTMENTS IMPROVEMENT ANALYSIS FUNCTIONAL UTILITY All of the floor plans are considered to feature functional layouts and the overall layout of the project is considered functional in utility. According to property management, each unit within the project receives adequate demand and the project does not have excess demand for any particular floor plan or location. Therefore, the unit mix is also functional and no conversion is warranted. PROJECT DENSITY The project is developed to a density of 12.73 units per acre, which is commensurate with other properties in the neighborhood. ADA COMPLIANCE All common areas of the project are assumed to have handicap accessibility and several of the project's units are assumed to have been designed for handicap occupancy. The client/reader's attention is directed to the specific limiting conditions regarding ADA compliance. FURNITURE, FIXTURES AND EQUIPMENT The apartment units are rented on an unfurnished basis. However, miscellaneous maintenance tools, pool furniture, leasing office furniture, clubhouse furniture and exercise machines are examples of personal property associated with and typically included in the sale of multi-family apartment complexes. The personal property items contained in the project are not considered to contribute significantly to the overall value of the real estate. ENVIRONMENTAL ISSUES CB Richard Ellis, Inc. has not observed, yet is not qualified to detect, the existence of any potentially hazardous materials such as lead paint, asbestos, urea formaldehyde foam insulation, or other potentially hazardous construction materials on or in the improvements. The existence of such substances may have an affect on the value of the property. For the purpose of this assignment, we have specifically assumed that the subject is not affected by any hazardous materials which would cause a loss in value. DEFERRED MAINTENANCE The engineering reports indicated several minor items of deferred maintenance at the subject property. The following chart depicts the deferred maintenance items identified and their respective estimated costs to cure. 47 VINING PEAK APARTMENTS IMPROVEMENT ANALYSIS ANALYSIS OF DEFERRED MAINTENANCE Replace Storage Room Doors $ 14,250 Drainage System Installation $ 5,000 Renovate "Down" Units 312 and 613 $ 15,000 Repair Exterior Meter Banks $ 2,995 Gutter/downspout Repair and Cleaning $ 2,250 Tree Trimming and Removal $ 10,000 Install Downspout Extensions $ 500 Railing Installation $ 750 Retaining Wall Repair $ 10,000 Repair Property Identification Sign $ 750 Siding and Trim Repair $ 56,000 Stucco Repair $ 9,236 Exterior Painting $ 91,000 Roof Replacement $ 46,500 Electrical Disconnect Repair $ 2,995 ---------- Total Deferred Maintenance: $ 267,226 ----------
Source: Engineering Reports The items of deferred maintenance will be cured in the near-term. Therefore, at the request of the client, we have not made any deductions. ECONOMIC AGE AND LIFE CB Richard Ellis, Inc.'s estimate of the subject improvements effective age and remaining economic life is depicted in the following chart: ECONOMIC AGE AND LIFE Actual Age 23 Years Effective Age 15 Years Mvs Expected Life 50 Years Remaining Economic Life 35 Years Accrued Physical Incurable Depreciation 30.0%
Source: Cb Richard Ellis, Inc. The overall life expectancy is based upon our on-site observations and a comparative analysis of typical life expectancies reported for buildings of similar construction as published by Marshall and Swift, Inc., in the Marshall Valuation Service cost guide. While CB Richard Ellis, Inc. did not observe anything to suggest a different economic life, a capital improvement program could extend the life expectancy. 48 VININGS PEAK APARTMENTS IMPROVEMENT ANALYSIS CONCLUSION The improvements are considered to be in good overall condition and are considered to be above average for the age and location with regard to improvement design and layout, as well as amenities. Overall, there are no known factors which could be considered to adversely impact the marketability of any of the subject units or the overall project from a rental standpoint. 49 VININGS PEAK APARTMENTS ZONING ZONING The following chart summarizes the zoning requirements applicable to the subject: ZONING SUMMARY Current Zoning Rm-12, Multi-family Residential Legally Conforming No Uses Permitted Multi-family Residential Zoning Change Not Likely
Source: Cobb County Planning & Zoning Department ANALYSIS AND CONCLUSION The subject has a current density of 12.73, which is greater than the current zoning requirement would allow. Thus, the subject is considered a legally non-conforming use. It should be noted that this will not impact the value of the subject property. In addition, improvements can be restored if damaged or destroyed based on the zoning status. Because the subject property consists of 14 separate buildings, the risk associated with losing more than one structure to a typical loss, such as fire, seems highly unlikely. Further, we are not aware of any code violations. It is recommended that the Cobb County Planning and Zoning personnel be contacted regarding more specific information which might be applicable to the subject. 50 VININGS PEAK APARTMENTS TAX AND ASSESSMENT DATA TAX AND ASSESSMENT DATA The subject property is liable for real estate taxes in Cobb County. Property in Cobb County is assessed at 40% of the assessor's estimated market value. The tax rate for 2002 was $29.87 per $1,000 of assessment. The 2003 millage rate has not yet been determined, but minimal change is expected. The following table identifies the subject's 2003 tax value. These figures do not include any furniture, fixtures and equipment. AD VALOREM TAX INFORMATION
Assessor's Market Value 2003 - ----------------------- ----------- 17-0910-006 $16,929,861 Assessed Value @ 40% $ 6,771,944 Tax Rate (per $1,000 A.V.) 29.87 TOTAL TAXES $ 202,278
Source: Cobb County Tax Assessor's Office TAX COMPARABLES As a crosscheck to the subject's applicable real estate taxes, CB Richard Ellis, Inc. has reviewed the real estate tax information for comparable properties in the immediate area. The following table summarizes the real estate tax comparables employed for this assignment: AD VALOREM TAX COMPARABLES
Comp 1 Comp 2 Comp 3 Subject --------------- --------------- ------------ ------------------------ Property AMLI at Vinings Worthing Crest Wood Lake Vinings Peak Apartments Parcel Number 17-0743-028 17-0773-006 17-0950-061 17-0910-006 Year Built 1986 1988 1983 1980 No. Units 360 378 220 280 Tax Year 2003 2003 2003 2003 TOTAL TAX VALUE $ 19,591,824 $ 27,635,647 $ 13,155,926 $ 16,929,861 PER UNIT $ 54,422 $ 73,110 $ 59,800 $ 60,464
Source: Cobb County Tax Assessor's Office CONCLUSION The tax comparables range in value from $54,422 to $73,110 per unit, with the subject's tax value being within the indicated range. Therefore, we believe the subject's current tax value is appropriate and we have utilized the current tax liability within our analysis. 51 VININGS PEAK APARTMENTS TAX AND ASSESSMENT DATA Another factor we have considered is that the subject's tax value is less than our estimate of market value. However, we have found this to be common of the Tax Assessor's Office, in that tax values typically lag behind market values. 52 VININGS PEAK APARTMENTS HIGHEST AND BEST USE HIGHEST AND BEST USE In appraisal practice, the concept of highest and best use represents the premise upon which value is based. The four criteria the highest and best use must meet are: - legal permissibility; - physical possibility; - financial feasibility; and, - maximum profitability. Highest and best use analysis involves assessing the subject both as if vacant and as improved. AS VACANT LEGAL PERMISSIBILITY The legally permissible uses were discussed in the zoning section of this report. Basically, the site is limited to multi-family residential uses. PHYSICAL POSSIBILITY The physical characteristics of the subject site were discussed in detail in the site analysis. Overall, a wide range of legally permissible uses would be physically possible. FINANCIAL FEASIBILITY The financial feasibility of a specific property is market driven, and is influenced by surrounding land uses. Based on the subject's specific location and physical characteristics, development of the site with a multi-family residential use, which is complimentary to the surrounding land uses would represent the most likely financially feasible option. MAXIMUM PROFITABILITY Based on our analysis of current rents and building costs, it is our opinion that an apartment development would represent the most profitable use. CONCLUSION: HIGHEST AND BEST USE AS VACANT Based on the foregoing, the highest and best use of the site as though vacant would be for apartment development. 53 VININGS PEAK APARTMENTS HIGHEST AND BEST USE AS IMPROVED LEGAL PERMISSIBILITY The subject site was approved for apartment development and the improvements are a legally conforming use. PHYSICAL POSSIBILITY The subject improvements were discussed in detail in the Improvement Analysis. The layout and positioning of the improvements are functional for apartment use based on comparison to neighborhood properties. FINANCIAL FEASIBILITY The financial feasibility for an apartment property is based on the amount of rent which can be generated, less operating expenses required to generate that income; if a residual amount exists then the land is being to a productive use. As will be indicated in the Income Capitalization Approach, the subject is capable of producing a positive net cash flow and continued utilization of the improvements for apartment is considered financially feasible. MAXIMUM PROFITABILITY It appears there are no alternative uses of the existing improvements which would produce a higher net income and/or value over time than the current use, as a rental apartment complex. CONCLUSION: HIGHEST AND BEST USE AS IMPROVED Based on the foregoing, the highest and best use of the property as improved is for continued operation as a rental apartment complex. 54 VININGS PEAK APARTMENTS APPRAISAL METHODOLOGY APPRAISAL METHODOLOGY In appraisal practice, an approach to value is included or omitted based on its applicability to the property type being valued and the quality and quantity of information available. COST APPROACH The Cost Approach is based upon the proposition the informed purchaser would pay no more for the subject than the cost to produce a substitute property with equivalent utility. This approach is particularly applicable when the property being appraised involves relatively new improvements which represent the highest and best use of the land or when relatively unique or specialized improvements are located on the site and for which there exist few sales or leases of comparable properties. SALES COMPARISON APPROACH The Sales Comparison Approach utilizes sales of comparable properties, adjusted for differences, to indicate a value for the subject. Valuation is typically accomplished using physical units of comparison such as price per square foot, price per unit, price per floor, etc., or economic units of comparison such as gross rent multiplier. Adjustments are applied to the physical units of comparison derived from the comparable sale. The unit of comparison chosen for the subject is then used to yield a total value. Economic units of comparison are not adjusted, but rather analyzed as to relevant differences, with the final estimate derived based on the general comparisons. INCOME CAPITALIZATION APPROACH The Income Capitalization Approach reflects the subject's income-producing capabilities. This approach is based on the assumption that value is created by the expectation of benefits to be derived in the future. Specifically estimated is the amount an investor would be willing to pay to receive an income stream plus reversion value from a property over a period of time. The two common valuation techniques associated with the Income Capitalization Approach are direct capitalization and the discounted cash flow (DCF) analysis. METHODOLOGY APPLICABLE TO THE SUBJECT In valuing the subject, all three approaches are applicable and have been utilized. 55 VININGS PEAK APARTMENTS LAND VALUE insert land sale map here 56 VININGS PEAK APARTMENTS LAND VALUE LAND VALUE The following table summarizes the comparable data used in the valuation of the subject site with a comparable map presented on the previous page. A more detailed description of each transaction is included in the Addenda. SUMMARY OF COMPARABLE LAND SALES
TRANSACTION ADJUSTED SALE SIZE PRICE PER PRICE PER NO. PROPERTY LOCATION TYPE DATE PROPOSED USE PRICE (ACRES) ACRE BLDG UNIT - --- ----------------- ----------- ------ ------------ ------------- ------- --------- --------- 1 7850 Lee Road, Sale Aug-01 Apartments $ 1,757,500 36.27 $ 48,456 $ 7,641 Lithia Springs, GA 2 NWQ U.S. Hwy 41 & White Circle Sale Feb-01 Apartments $ 2,381,472 19.85 $ 119,973 $ 10,177 Road, Kennesaw, GA 3 NE/S of Shiloh Road, S of Royal Sale Nov-00 Apartments $ 7,043,400 40.56 $ 173,654 $ 14,143 North Pkwy., Kennesaw, GA 4 1999 Cliff Valley Way, Sale Jun-00 Apartments $ 4,190,000 13.49 $ 310,600 $ 15,519 Atlanta, GA 5 NS of Williams Drive, E of Sale Jan-00 Apartments $ 3,500,000 39.78 $ 87,984 $ 9,777 Bells Ferry Road, Marietta, GA Subject 100 Woodridge Drive, -- -- Apartments -- 22.00 -- -- Atlanta, GA
Source: CB Richard Ellis, Inc. ANALYSIS OF LAND SALES It should be noted that there has been a lack of recent comparable land sales due to the slowing market. We have, therefore, utilized land sales which occurred most recently and that are considered most comparable to the subject. Additionally, we have made an adjustment for any change in market conditions since the date of the comparable land sales. LAND SALE ONE This comparable represents the sale of a 36.27-acre vacant site, purchased for the development of a 230-unit apartment complex. The site is located on the west side of Lee Road (Georgia Highway 5), approximately one-quarter mile south of Interstate 20, in the western portion of metropolitan Atlanta. This sale warrants an upward adjustment to account for improving market conditions (time) since its date of sale, as compared to the subject's date of appraisal. In addition, this sale warrants an upward adjustment to account for its inferior location. An overall upward adjustment is warranted to the price per unit indication of this sale. 57 VININGS PEAK APARTMENTS LAND VALUE LAND SALE TWO This comparable represents the sale of a 19.85-acre vacant site, purchased for the development of a 234-unit apartment complex to be known as Caswyck Battlefield Apartments. The site is located within the northwest quadrant of U.S. Highway 41 and White Circle Road, in the northwestern portion of metropolitan Atlanta. This sale warrants an upward adjustment to account for improving market conditions (time) since its date of sale, as compared to the subject's date of appraisal. In addition, this sale warrants an upward adjustment to account for its inferior location. An overall upward adjustment is warranted to the price per unit indication of this sale. LAND SALE THREE This comparable represents the sale of a 40.56-acre vacant site, purchased for the development of a 498-unit apartment complex to be known as Alta Green. The site is located along the northeast side of Shiloh Road, south of Royal North Parkway, in the northwestern portion of metropolitan Atlanta. This sale warrants an upward adjustment to account for improving market conditions (time) since its date of sale, as compared to the subject's date of appraisal. No additional adjustments are required. LAND SALE FOUR This comparable represents the sale of a 13.49-acre site, purchased for the development of a 270-unit apartment complex to be developed by Archstone. The site was improved as Parkwood Hospital and a $465,000 cost-to-raze adjustment was incorporated in the selling price. The site is located on Cliff Valley way, approximately one-quarter mile north of Briarcliff Road and one-quarter mile south of Interstate 85, in the central portion of metropolitan Atlanta. This sale warrants an upward adjustment to account for improving market conditions (time) since its date of sale, as compared to the subject's date of appraisal. In addition, this sale warrants a downward adjustment to account for its superior location. Overall, a downward adjustment is warranted to the price per unit indication. LAND SALE FIVE This comparable represents the sale of a 39.78-acre vacant site, purchased for the development of a 358-unit apartment complex to be known as Caswyck at Town Center. The site is located along the north side of Williams Drive, east of Bells Ferry Road, in the northwestern portion of metropolitan Atlanta. 58 VININGS PEAK APARTMENTS LAND VALUE This sale warrants an upward adjustment to account for improving market conditions (time) since its date of sale, as compared to the subject's date of appraisal. In addition, this sale warrants a downward adjustment to account for its superior location. Overall, a downward adjustment is warranted to the price per unit indication. SUMMARY OF ADJUSTMENTS Based on the foregoing discussions, the following table presents the adjustments warranted to each sale, as compared to the subject. The following adjustment grid implies a level of accuracy, which may not exist in the current market. However, the grid has been included in order to illustrate the magnitude of the warranted adjustments. Use of an adjustment grid in making quantitative adjustments is only appropriate and reliable when the extent of adjustment for each particular factor is well supported and the dollar or percentage adjustment is derived through either paired sales analysis or other data relevant to the market. In instances where paired sales and market data is not readily available, the appraiser must use his best judgment to make a reasonable estimate for the appropriate warranted adjustment. LAND SALES ADJUSTMENT GRID Comparable Number 1 2 3 4 5 Subject Transaction Type Sale Sale Sale Sale Sale -- Transaction Date Aug-01 Feb-01 Nov-00 Jun-00 Jan-00 -- Proposed Use Apartments Apartments Apartments Apartments Apartments Apartments Adjusted Sale Price $1,757,500 $2,381,472 $7,043,400 $4,190,000 $3,500,000 -- Size (Acres) 36.27 19.85 40.56 13.49 39.78 16.50 Price Per SF $ 1.11 $ 2.75 $ 3.99 $ 7.13 $ 2.02 -- ---------- ---------- ---------- ---------- ---------- Price ($ Per Unit) $ 7,641 $ 10,177 $ 14,143 $ 15,519 $ 9,777 ---------- ---------- ---------- ---------- ---------- Conditions of Sale 0% 0% 0% 0% 0% Market Conditions 2% 2% 3% 4% 5% ---------- ---------- ---------- ---------- ---------- Subtotal $ 7,794 $ 10,381 $ 14,568 $ 16,139 $ 10,265 ---------- ---------- ---------- ---------- ---------- Size 0% 0% 0% 0% 0% Topography 0% 0% 0% 0% 0% Location 20% 10% 0% -15% -5% ---------- ---------- ---------- ---------- ---------- Total Other Adjustments 20% 10% 0% -15% -5% ========== ========== ========== ========== =========- Value Indication for Subject $ 9,353 $ 11,419 $ 14,568 $ 13,718 $ 9,752 ========== ========== ========== ========== ==========
Source: CB Richard Ellis, Inc. CONCLUSION Based on the preceding discussions of each comparable and the foregoing adjustment analysis, a price per unit indication toward the middle of the range indicated by these comparables is the most appropriate for the subject. The following table presents the valuation conclusion: 59 VININGS PEAK APARTMENTS LAND VALUE CONCLUDED LAND VALUE
$ Per Unit Subject Units Total - ---------- ------------- ----- $12,500 X 280 = $3,500,000
Source: CB Richard Ellis, Inc. 60 VININGS PEAK APARTMENTS COST APPROACH COST APPROACH The Cost Approach is based upon the proposition the informed purchaser would pay no more for the subject than the cost to produce a substitute property with equivalent utility. This approach is particularly applicable when the property being appraised involves relatively new improvements which represent the highest and best use of the land, or when relatively unique or specialized improvements are located on the site for which there exist few sales or leases of comparable properties. DIRECT COST The Marshall Valuation Service (MVS) cost guide, published by Marshall and Swift, Inc., has been used to estimate the direct costs for the subject. Salient details regarding the direct costs are summarized in the Cost Approach Schedule which follows this section. The MVS cost estimate include the following: 1. average architect's and engineer's fees for plans, plan check, building permits and survey(s) to establish building line; 2. normal interest in building funds during the period of construction plus a processing fee or service charge; 3. materials, sales taxes on materials and labor costs;. 4. normal site preparation including finish grading and excavation for foundation and backfill; 5. utilities from structure to lot line figured for typical setback; 6. contractor's overhead and profit, including job supervision, workmen's compensation, fire and liability insurance, unemployment insurance, equipment, temporary facilities, security, etc.; 7. site improvements (included as lump sum additions); and, 8. initial tenant improvement costs are included in MVS cost estimate. However, additional lease-up costs such as advertising, marketing and leasing commissions are not included. Base building costs (direct costs), indicated by the MVS cost guide, are adjusted to reflect the physical characteristics of the subject. Making these adjustments, including the appropriate local and current cost multipliers, the Direct Building Cost is indicated. ADDITIONS Items not included in the direct building cost estimate include parking and walks, signage, landscaping and miscellaneous site improvements. The cost for these items is estimated separately using the segregated cost sections of the MVS cost guide. INDIRECT COST Several indirect cost items are not included in the direct building cost figures derived through the MVS cost guide. These items include developer overhead (general and administrative costs), property taxes, legal and insurance costs, local development fees and contingencies, lease-up and marketing costs and miscellaneous costs. Research into these costs leads to the conclusion that an average property requires an allowance for additional indirect costs of about 10% to 15% of the total direct costs. 61 VININGS PEAK APARTMENTS COST APPROACH ENTREPRENEURIAL PROFIT Entrepreneurial profit represents the return to the developer, and is separate from contractor's overhead and profit. This line item, which is a subjective figure, tends to range from 10% to 15% of total direct and indirect costs for this property type, based on discussions with developers active in this market. Based on the subject's location, we believe a rate of entrepreneurial profit near the high end of the range is appropriate. REPLACEMENT COST NEW Based on the quantity and quality of the available cost data, the subject's estimated replacement cost new is based primarily on MVS. ACCRUED DEPRECIATION There are essentially three sources of accrued depreciation: 1. physical deterioration, both curable and incurable; 2. functional obsolescence, both curable and incurable; and, 3. external obsolescence. PHYSICAL DETERIORATION The subject's physical condition was detailed in the Improvement Analysis. With regard to incurable deterioration, the subject improvements are considered to have deteriorated due to normal wear and tear associated with natural aging. Our estimate of the subject improvements effective age and remaining economic life is depicted in the following chart: ECONOMIC AGE AND LIFE Actual Age 23 Years Effective Age 15 Years MVS Expected Life 50 Years Remaining Economic Life 35 Years Accrued Physical Incurable Depreciation 30.0%
Source: CB Richard Ellis, Inc. FUNCTIONAL OBSOLESCENCE Based on a review of the design and layout of the improvements, no forms of curable functional obsolescence were noted. Due to the fact that replacement cost considers the construction of the subject improvements utilizing modern materials and current standards, design and layout, functional incurable obsolescence is not applicable. 62 VININGS PEAK APARTMENTS COST APPROACH EXTERNAL OBSOLESCENCE We have concluded that there is no significant external obsolescence affecting the subject improvements. COST APPROACH CONCLUSION The value estimate is calculated on the Cost Approach Schedule which follows. COST APPROACH SCHEDULE Building Type: Apartment (1-4 Story) Age: 15 YRS Quality/Condition: Good Exterior Wall: Wood Siding & Brick Veneer Number of Unts: 280 Number of Stories: 2 & 3 Height per Story: 10' Number of Buildings: 14 Gross Building Area: 277,300 SF Net Rentable Area: 275,000 SF Average Unit Size: 982 SF
FINAL SQUARE FOOT COST $ 52.69 ------------ BASE BUILDING COST (via Marshall Valuation Service cost data) $14,612,249 ADDITIONS Signage, Landscaping & Misc. Site Improvements $ 400,000 Parking & Driveways $ 400,000 Appliances $ 490,000 ------------ DIRECT BUILDING COST $15,902,249 INDIRECT COSTS 10.0% of Direct Building Cost $ 1,590,225 ------------ DIRECT AND INDIRECT BUILDING COST $17,492,473 ENTREPRENEURIAL PROFIT 15.0% of Total Building Cost $ 2,623,871 ------------ REPLACEMENT COST NEW $20,116,345 ------------ ACCRUED DEPRECIATION Curable Physical Deterioration $ 0 Unfinished Shell Space $ 0 Incurable Physical 30.0% of Replacement Cost New less Deterioration Curable Physical Deterioration ($ 6,034,903) Functional Obsolescence $ 0 External Obsolescence $ 0 ------------ Total Accrued Depreciation 30.0% of Replacement Cost New ($ 6,034,903) DEPRECIATED REPLACEMENT COST $14,081,441 ------------ LAND VALUE $ 3,500,000 ------------ STABILIZED VALUE INDICATION $17,581,441 ROUNDED $17,600,000 VALUE PER SF $ 64.00 VALUE PER UNIT $ 62,857
Source: CB Richard Ellis, Inc. 63 VININGS PEAK APARTMENTS SALES COMPARISON APPROACH insert sale comp map here 64 VININGS PEAK APARTMENTS SALES COMPARISON APPROACH SALES COMPARISON APPROACH The following table summarizes the most comparable data utilized in the analysis with a comparable map presented on the previous page. A more detailed description of each transaction is included in the Addenda. SUMMARY OF COMPARABLE APARTMENT SALES
TRANSACTION YEAR NO. AVG. UNIT ADJ. SALE PRICE PER NOI PER NO. NAME TYPE DATE BUILT UNITS SIZE PRICE UNIT UNIT OAR - --- --------------------------- ----------- ------ ----- ----- ---------- ----------- --------- ------- ---- 1 Cinnamon Ridge, Sale Dec-02 1980 200 1,184 $11,200,000 $ 56,000 $ 4,480 8.00% Marietta, GA 2 Windridge Apartments, Sale Dec-02 1982 272 855 $15,100,000 $ 55,515 $ 4,164 7.50% Atlanta, GA 3 Oakwood Village, Sale Nov-02 1982 184 1,134 $11,675,000 $ 63,451 $ 5,038 7.94% Chamblee, GA 4 Hawthorne Court Sale Jun-02 1990 172 746 $11,960,000 $ 69,535 $ 5,215 7.50% Apartments, Atlanta, GA 5 Hawthorne Town View Sale Jun-02 1990 278 779 $19,419,975 $ 69,856 $ 5,239 7.50% Apartments, Atlanta, GA 6 Oak Park of Vinings, Sale Feb-02 1974 168 N/A $12,500,000 $ 74,405 $ 5,908 7.94% Smyrna, GA -------- ------ ----- ---- -------- ----------- --------- ------- ---- Subject Vinings Peak Apartments, -- -- 1980 280 982 -- -- $ 4,629 -- Atlanta, GA -------- ------ ----- ---- -------- ----------- --------- ------- ----
Source: CB Richard Ellis, Inc. ANALYSIS OF IMPROVED SALES IMPROVED SALE ONE This comparable represents the sale of a 200-unit apartment property that was built in 1980, and renovated in 1991. The property is located on Franklin Road, approximately six miles northwest of the subject property, in the northwestern portion of metropolitan Atlanta. The property offers one- and two-bedroom units, with an average unit size of 1,184 square feet. As compared to the subject, this sale requires a downward adjustment to account for its larger average unit size. Overall, a downward adjustment is warranted to the price per unit indication of this sale. IMPROVED SALE TWO This comparable represents the sale of a 272-unit apartment property that was built in 1982. The property is located on Roswell Road at Northridge Drive, approximately 14 miles northeast of the subject property, in the north central portion of metropolitan Atlanta. The property offers one- and two-bedroom units, with an average unit size of 855 square feet. 65 VININGS PEAK APARTMENTS SALES COMPARISON APPROACH As compared to the subject, this sale requires an upward adjustment to account for its smaller average unit size. In addition, this sale requires a downward adjustment to account for its superior location. Overall, no net adjustment was warranted to the price per unit indication of this sale. IMPROVED SALE THREE This comparable represents the sale of a 184-unit apartment property that was built in 1982. The property is located along the south side of Chamblee Tucker Road, south of Interstate 285, approximately 18 miles east of the subject property, in the central portion of metropolitan Atlanta. The property offers one-, two- and three-bedroom units, with an average unit size of 1,134 square feet. As compared to the subject, this sale requires downward adjustments to account for its larger average unit size and superior location. Overall, a downward adjustment was warranted to the price per unit indication of this sale. IMPROVED SALE FOUR This comparable represents the sale of a 172-unit apartment property that was built in 1990. The property is located on the north side of Wimbledon Road, just west of Piedmont Road, approximately 11 miles southeast of the subject property, inside the city limits of Atlanta, Georgia. The property offers one- and two-bedroom units, with an average unit size of 746 square feet. As compared to the subject, this sale requires an upward adjustment to account for its smaller average unit size. In addition, this sale requires downward adjustments to account for its newer age and superior location. Overall, a downward adjustment was warranted to the price per unit indication of this sale. IMPROVED SALE FIVE This comparable represents the sale of a 278-unit apartment property that was built in 1990. The property is located on the southeast quadrant of Mescalin Street and Deering Road, approximately eight-and-one-half miles southeast of the subject property, within the city limits of Atlanta, Georgia in Fulton County. The property offers one- and two-bedroom units, with an average unit size of 779 square feet. As compared to the subject, this sale requires an upward adjustment to account for its smaller average unit size. In addition, this sale requires downward adjustments to account for its newer age and superior location. Overall, a downward adjustment was warranted to the price per unit indication of this sale. 66 VININGS PEAK APARTMENTS SALES COMPARISON APPROACH IMPROVED SALE SIX This comparable represents the sale of a 168-unit apartment property that was built in 1974. The property is located along Winchester Trail, just east of Interstate 285, approximately two-and-one-half miles southwest of the subject property, in the northwestern portion of metropolitan Atlanta. As compared to the subject, this sale requires an upward adjustment to account for its older age. Overall, an upward adjustment was warranted to the price per unit indication of this sale. SUMMARY OF ADJUSTMENTS Based on the foregoing discussions, the following table presents the adjustments warranted to each sale, as compared to the subject. The following adjustment grid implies a level of accuracy, which may not exist in the current market. However, the grid has been included in order to illustrate the magnitude of the warranted adjustments. Use of an adjustment grid in making quantitative adjustments is only appropriate and reliable when the extent of adjustment for each particular factor is well supported and the dollar or percentage adjustment is derived through either paired sales analysis or other data relevant to the market. In instances where paired sales and market data is not readily available, the appraiser must use his best judgment to make a reasonable estimate for the appropriate warranted adjustment. In addition, the comparable sales utilized were all arm's length transactions. APARTMENT SALES ADJUSTMENT GRID Comparable Number 1 2 3 4 5 6 Subject Transaction Type Sale Sale Sale Sale Sale Sale -- Transaction Date Dec-02 Dec-02 Nov-02 Jun-02 Jun-02 Feb-02 -- Year Built 1980 1982 1982 1990 1990 1974 1980 No. Units 200 272 184 172 278 168 280 Avg. Unit Size 1,184 855 1,134 746 779 N/A 982 Sale Price $11,200,000 $15,100,000 $11,675,000 $11,960,000 $19,419,975 $12,500,000 -- Price Per Unit $ 56,000 $ 55,515 $ 63,451 $ 69,535 $ 69,856 $ 74,405 -- Price Per SF $ 47.28 $ 64.90 $ 55.97 $ 93.18 $ 89.70 N/A -- NOI Per Unit $ 4,480 $ 4,164 $ 5,038 $ 5,215 $ 5,239 $ 5,908 $ 4,629 OAR 8.00% 7.50% 7.94% 7.50% 7.50% 7.94% -- ----------- ----------- ----------- ----------- ----------- ----------- Adj. Price Per Unit $ 56,000 $ 55,515 $ 63,451 $ 69,535 $ 69,856 $ 74,405 ----------- ----------- ----------- ----------- ----------- ----------- Conditions of Sale 0% 0% 0% 0% 0% 0% Market Conditions (Time) 0% 0% 0% 0% 0% 0% ----------- ----------- ----------- ----------- ----------- ----------- Subtotal $ 56,000 $ 55,515 $ 63,451 $ 69,535 $ 69,856 $ 74,405 ----------- ----------- ----------- ----------- ----------- ----------- Age 0% 0% 0% -5% -5% 5% Quality/Condition 0% 0% 0% 0% 0% 0% Location 0% -5% -5% -10% -10% 0% Average Unit Size -5% 5% -5% 10% 10% 0% ----------- ----------- ----------- ----------- ----------- ----------- Total Other Adjustments -5% 0% -10% -5% -5% 5% =========== =========== =========== =========== =========== =========== INDICATED VALUE PER UNIT $ 53,200 $ 55,515 $ 57,106 $ 66,058 $ 66,363 $ 78,125 =========== =========== =========== =========== =========== =========== INDICATED VALUE PER SF $ 44.92 $ 64.90 $ 50.37 $ 88.52 $ 85.22 N/A =========== =========== =========== =========== =========== ===========
Source: CB Richard Ellis, Inc. 67 VININGS PEAK APARTMENTS SALES COMPARISON APPROACH SALES COMPARISON APPROACH CONCLUSION A price per unit indication near the middle portion of the range indicated by the comparables is considered most appropriate for the subject. The following table presents the estimated value for the subject as indicated by the Sales Comparison Approach. SALES COMPARISON APPROACH
TOTAL UNITS X VALUE PER UNIT = VALUE - ----------- --- -------------- --- ----------- 280 X $60,000 = $16,800,000
VALUE CONCLUSION INDICATED STABILIZED VALUE $16,800,000 VALUE PER UNIT $ 60,000 VALUE PER SF $ 61.09
Source: CB Richard Ellis, Inc. 68 VININGS PEAK APARTMENTS INCOME CAPITALIZATION APPROACH insert rent comp map here 69 VININGS PEAK APARTMENTS INCOME CAPITALIZATION APPROACH INCOME CAPITALIZATION APPROACH Within the Income Capitalization Approach, a value indication for the subject has been derived via the direct capitalization method. The following table summarizes the most comparable data utilized in the analysis with a comparable map presented on the previous page. A more detailed description of each comparable is included in the Addenda. SUMMARY OF COMPARABLE APARTMENT RENTALS
COMP. NO. AVG. RENT NO. NAME LOCATION YEAR BUILT UNITS PER UNIT OCC. - ----- --------------------- ---------------------- ---------- ------ --------- ---- 1 The Woods At Overlook 100 Pinehurst Drive, 1982 680 $ 887 93% Atlanta, GA 2 Post Vinings 3385 Atlanta Road, 1988 403 $ 921 WND Smyrna, GA 3 Post Village 2189 Lake Park Drive, 1982 1,738 $ 884 95% Smyrna, GA 4 Archstone Woodlands 2200 Woodlands Drive, 1982 644 $ 767 94% (fka - Woodlands) Smyrna, GA 5 Paces Station 3000 Paces Walk, 1988 400 $ 975 91% Atlanta, GA 6 The Lakes At Vinings 2800 Paces Ferry Road, 1971 464 $ 879 92% Atlanta, GA 7 Wood Lake 100 Pinhurst Drive, 1983 220 $ 913 93% Unincorporated, GA Subject Vinings Peak 100 Woodridge Drive, 1980 280 -- 93% Apartments Atlanta, GA
Source: CB Richard Ellis, Inc. ANALYSIS OF RENT COMPARABLES RENT COMPARABLE ONE This comparable represents a 680-unit apartment property, located along Mt. Wilkinson Parkway, just east of Interstate 285. The property, identified as The Woods at Overlook, was developed in 1982 and is currently 93% occupied. The property offers one-, two- and three-bedroom floor plans, with an average unit size of 1,019 square feet. Trash removal expenses are included in the quoted rental rates. Currently, as a concession, management is offering one-month of free rent on a 12-month lease. This project is considered similar to the subject, with no adjustments warranted to its rental rates. 70 VININGS PEAK APARTMENTS INCOME CAPITALIZATION APPROACH RENT COMPARABLE TWO This garden style apartment property, located on Heritage Drive along Atlanta Road, is identified as Post Vinings and was constructed in 1988. This comparable offers efficiency, one-, two-, and three-bedroom floor plans. The property manager would not disclose the current occupancy. Property management is currently offering one- to two-months of free rent on select units pro-rated over a 12-month lease. As compared to the subject, this project is considered similar to the subject in location, but superior in age, thereby requiring a downward adjustment to its rental rates. RENT COMPARABLE THREE This garden apartment property, located on Lake Park Drive, is identified as Post Village and was constructed in 1982. This comparable offers studio, one-, and two-bedroom floor plans. The property is currently 95% occupied and is currently offering two months of free rent pro-rated over a 12-month lease. The tenant is responsible for all utilities except trash removal. As compared to the subject, this project is considered similar to the subject in location, but superior in quality and condition, thereby requiring a downward adjustment to its rental rates. RENT COMPARABLE FOUR This comparable represents a 644-unit apartment property, located along the west side of Village Parkway on Woodlands Drive. The property, identified as Archstone Woodlands, was developed in 1982 and is currently 94% occupied. The property offers one- and two-bedroom floor plans, with an average unit size of 869 square feet. No expenses are included in the quoted rental rates. Currently, as a concession, the property is offering reduced rental rates on all unit types. This project is considered quite similar to the subject, with no adjustments warranted to its rental rates. RENT COMPARABLE FIVE This garden apartment property, located on Paces Walk, is identified as Paces Station and was developed in 1988. This project consists of one- and two-bedroom floor plans. Currently, the property is 91% occupied and is offering three-months free pro-rated over a 12-month lease as a concession. The tenant is responsible for all utilities except trash removal. As compared to the subject, this project is considered similar to the subject in location, but superior in age, thereby requiring a downward adjustment to its rental rates. RENT COMPARABLE SIX This comparable represents a 464-unit apartment property, located along Paces Ferry Road, just east of Interstate 285. The property, identified as The Lakes at Vinings, was developed in 1971 and renovated in 1994 and is currently 92% occupied. The property offers one-, two- and three-bedroom floor plans, with an average unit size of 955 square feet. No expenses are included in the quoted 71 VININGS PEAK APARTMENTS INCOME CAPITALIZATION APPROACH rental rates. Currently, as a concession, management is offering one-and-one-half months of free rent pro-rated over a 12-month lease. This project is considered similar to the subject, with no adjustments warranted to its rental rates. RENT COMPARABLE SEVEN This comparable represents a 220-unit apartment property, located along the north side of Mt. Wilkinson Parkway. The property, identified as Wood Lake, was developed in 1983 and is currently 93% occupied. The property offers one-, two- and three-bedroom floor plans, with an average unit size of 1,034 square feet. Trash removal and pest control expenses are included in the quoted rental rates. Currently, as a concession, management is offering one-month of free rent on a 12-month lease. This project is considered similar to the subject, with no adjustments warranted to its rental rates. SUBJECT QUOTED RENTS The following table depicts the subject's unit mix and quoted rental rates. QUOTED RENTS
No. of Unit Avg. Quoted Rent Type Units Size (SF) Rents Per SF - -------- ------- --------- ----------- ------- 1BR/1BA 50 705 SF $ 729 $ 1.03 1BR/1BA 90 879 SF $ 799 $ 0.91 2BR/2BA 90 1,111 SF $ 899 $ 0.81 2BR/2BA 50 1,213 SF $ 969 $ 0.80 ------- --------- ----------- ------- Average: 280 982 SF $ 849 $ 0.86 ------- --------- ----------- -------
Source: Property Management Rent includes trash removal and pest control expenses; all other utilities are paid directly by tenants to the respective providers. The subject's rental rates have reportedly not increased recently. Currently, as a concession, management is offering one month of free rent with a 12-month lease. ESTIMATE OF MARKET RENT In order to estimate the market rates for the various floor plans, the subject unit types have been compared with similar units in the comparable projects. The following is a discussion of each unit type. 72 VININGS PEAK APARTMENTS INCOME CAPITALIZATION APPROACH ONE-BEDROOM UNITS SUMMARY OF COMPARABLE RENTALS ONE BEDROOM UNITS
RENTAL RATES COMPARABLE SIZE $/MO. $/SF - -------------------------- ------ ------------ ----- Archstone Woodlands (fka - Woodlands) 850 SF $755 $0.89 Subject 879 SF $799 $0.91 The Woods At Overlook 874 SF $795 $0.91 Wood Lake 874 SF $809 $0.93 Archstone Woodlands (fka - Woodlands) 750 SF $705 $0.94 The Lakes At Vinings 770 SF $771 $1.00 The Lakes At Vinings 758 SF $759 $1.00 Post Village 850 SF $875 $1.03 Subject 705 SF $729 $1.03 Post Vinings 828 SF $865 $1.04 Archstone Woodlands (fka - Woodlands) 650 SF $680 $1.05 The Woods At Overlook 705 SF $750 $1.06 The Lakes At Vinings 702 SF $749 $1.07 Wood Lake 705 SF $759 $1.08 Post Village 680 SF $736 $1.08 Paces Station 880 SF $961 $1.09 Post Vinings 734 SF $814 $1.11 Paces Station 650 SF $751 $1.16 Post Vinings 628 SF $738 $1.18 Post Village 610 SF $738 $1.21
Source: CB Richard Ellis, Inc. The subject's quoted rental rates for the one-bedroom units are within and near the low end of the range on a per square foot basis. However, based on an analysis of the rent roll, the units have been signed at lower rent levels than the quoted amounts. Therefore, we have included a rental rate of $609 for the 705-square foot units and $649 for the 879-square foot units. 73 VININGS PEAK APARTMENTS INCOME CAPITALIZATION APPROACH TWO-BEDROOM UNITS SUMMARY OF COMPARABLE RENTALS TWO BEDROOM UNITS
RENTAL RATES COMPARABLE SIZE $/MO. $/SF - -------------------------- -------- ------------ ----- Archstone Woodlands (fka - Woodlands) 1,157 SF $ 900 $0.78 Subject 1,213 SF $ 969 $0.80 Post Village 1,400 SF $ 1,125 $0.80 Post Village 1,300 SF $ 1,049 $0.81 Subject 1,111 SF $ 899 $0.81 The Woods At Overlook 1,111 SF $ 899 $0.81 The Woods At Overlook 1,111 SF $ 899 $0.81 Wood Lake 1,111 SF $ 899 $0.81 Wood Lake 1,111 SF $ 899 $0.81 Post Village 1,200 SF $ 972 $0.81 Wood Lake 1,213 SF $ 985 $0.81 Archstone Woodlands (fka - Woodlands) 1,007 SF $ 825 $0.82 The Woods At Overlook 1,213 SF $ 1,000 $0.82 The Lakes At Vinings 1,121 SF $ 927 $0.83 Post Village 1,100 SF $ 913 $0.83 Paces Station 1,248 SF $ 1,044 $0.84 Post Vinings 1,231 SF $ 1,032 $0.84 Post Vinings 1,280 SF $ 1,080 $0.84 The Lakes At Vinings 1,100 SF $ 936 $0.85 Paces Station 1,033 SF $ 894 $0.87 Paces Station 1,148 SF $ 1,013 $0.88 The Lakes At Vinings 1,048 SF $ 927 $0.88 The Lakes At Vinings 1,051 SF $ 936 $0.89 Post Vinings 1,150 SF $ 1,027 $0.89 The Lakes At Vinings 1,288 SF $ 1,151 $0.89 Post Vinings 1,002 SF $ 937 $0.94 Post Vinings 946 SF $ 892 $0.94 Paces Station 1,282 SF $ 1,293 $1.01
Source: CB Richard Ellis, Inc. The subject's quoted rental rates for the two-bedroom units are within and near the low end of the range on a per square foot basis. However, based on an analysis of the rent roll, the units have been signed at lower rent levels than the quoted amounts. We have utilized a rental rate of $849 for the 1,111-square foot units and $939 for the 1,213-square foot units. 74 VININGS PEAK APARTMENTS INCOME CAPITALIZATION APPROACH MARKET RENT CONCLUSIONS Based on the foregoing analysis and discussion, the following is our estimate of potential rental income for the subject property at market rates: MARKET RENT CONCLUSIONS
No. Unit Monthly Rent Annual Rent Annual Units Unit Type Size Total SF $/Unit $/SF PRI $/Unit $/SF Total - ----- --------- -------- ---------- ------------ ----- -------- ----------- ------- ---------- 50 1BR/1BA 705 SF 35,250 SF $ 609 $0.86 $ 30,450 $ 7,308 $ 10.37 $ 365,400 90 1BR/1BA 879 SF 79,110 SF $ 649 $0.74 $ 58,410 $ 7,788 $ 8.86 $ 700,920 90 2BR/2BA 1,111 SF 99,990 SF $ 849 $0.76 $ 76,410 $ 10,188 $ 9.17 $ 916,920 50 2BR/2BA 1,213 SF 60,650 SF $ 939 $0.77 $ 46,950 $ 11,268 $ 9.29 $ 563,400 - --- -------- ---------- ---------- ----- -------- ---------- ------- ---------- 280 982 SF 275,000 SF $ 758 $0.77 $212,220 $ 9,095 $ 9.26 $2,546,640 - --- -------- ---------- ---------- ----- -------- ---------- ------- ----------
Source: CB Richard Ellis, Inc. As mentioned previously in our estimate of market rent section, we believe that the quoted rents are above market level and a downward adjustment to the quoted rents are considered necessary. RENT ADJUSTMENTS Rent adjustments are sometimes necessary to account for differences in rental rates applicable to different units within similar floor plans due to items such as location within the property, view, and level of amenities. These rental adjustments may be in the form of rent premiums or rent discounts. In the case of the subject, there are rental premiums for view and level. However, our estimated market rates are averages. RENT SUBSIDIES There are not any known rent subsidies at the subject property. RENT ROLL ANALYSIS The rent roll analysis serves as a cross check to the estimate of market rent for the subject. The collections shown on the rent roll include rent premiums and/or discounts. RENT ROLL ANALYSIS
Total Total Revenue Component Monthly Rent Annual Rent - ------------------------------- ------------ ----------- 260 Occupied Units at Contract $ 195,813 $ 2,349,756 Rates 20 Vacant Units at Quoted Rates $ 16,290 $ 195,480 ------------ ----------- 280 Total Units $ 212,103 $ 2,545,236 ------------ -----------
Source: Property Management The level of variance between our estimate of market rent and the potential gross income based on the in-place rents equates to 0.06%, which is relatively minor. Therefore, it is not necessary to include a deduction for loss-to-lease. 75 VININGS PEAK APARTMENTS INCOME CAPITALIZATION APPROACH POTENTIAL RENTAL INCOME CONCLUSION Within this analysis, potential rental income is estimated based on market rental rates over the next twelve months. This method of calculating rental income is most prevalent in the local market and is consistent with the method used to derive overall capitalization rates from the comparable sales data. VACANCY AND COLLECTION LOSS Vacancy and collection loss is a function of the interrelationship between absorption, lease expiration, renewal probability, estimated downtime between leases and a collection loss factor based on the relative stability and credit of the subject's tenant base. As shown on the Summary of Comparable Rentals, the comparable properties reported occupancy rates ranging from 91% to 95%. Furthermore, the subject is currently 92.9% occupied. Based on current conditions at comparable properties and considering data contained in the Market Analysis, a stabilized vacancy rate of 9.0% has been estimated for the subject. In addition, a 1.0% collection loss allowance has been included, for a total vacancy and collection loss of 10.0%. CONCESSION LOSS Currently, as a concession, management is offering one-month of free rent when signing a 12-month lease. Furthermore, all of the comparable properties are currently offering concessions. Some of the concessions are considered cyclical to the normal pattern of leasing activity and some level owes to the current economic conditions. Based on the foregoing, we have incorporated a concession loss of 4.0% in our analysis, as a reasonable stabilized projection. UTILITY REIMBURSEMENTS Residents at the subject property are responsible for paying their respective electric, gas, water and sewer usage. The subject's revenue history and our concluded stabilized estimate of this item are detailed as follows: UTILITY REIMBURSEMENT
Year Total $/Unit - ------------------------------- ------- ------ 2000 $ 2,764 $ 10 2001 $35,926 $128 2002 $58,633 $209 2003 Annualized $46,840 $167 CB RICHARD ELLIS, INC. ESTIMATE $42,000 $150
Source: Operating Statements & CB Richard Ellis, Inc. Utility Reimbursement Income is very property specific. At the subject property, tenants reimburse the electric, water and sewer, and natural gas expenses. The recovery of these expenses is a common 76 VININGS PEAK APARTMENTS INCOME CAPITALIZATION APPROACH practice among other properties in the market. In estimating a stabilized utility reimbursement level, we have taken into account the subject's historical reimbursements. Therefore, we have estimated the utility reimbursement income at $150 per unit, or $42,000 annually. OTHER INCOME Other income is supplemental to that derived from leasing of the improvements. This includes income from a variety of sources, including application fees, laundry income, late payment fees, vending machines, termination fees, pet fees, lock-out fees, appliance rental fees, corporate income fees, furniture rental fees and various other similar sources. We have found this source of income normally varies from approximately $15 to $25 per unit per month, which equates to $180 to $300 per unit annually. Furthermore, we have found that most properties witness Other Income levels near the middle to higher end of this range. The subject's historical and projected Other Income is detailed as follows: OTHER INCOME
Year Total $/Unit - ------------------------------- -------- ------ 2000 $106,309 $380 2001 $118,042 $422 2002 $106,306 $380 2003 Annualized $123,268 $440 CB RICHARD ELLIS, INC. ESTIMATE $ 84,000 $300
Source: Operating Statements & CB Richard Ellis, Inc. As illustrated, the historical levels are within the upper portion of the typical range. Thus, we have included this source of income in-line with comparable properties, concluded at $84,000, or $300 per unit. EFFECTIVE GROSS INCOME The subject's historical and pro forma effective gross income is detailed as follows: EFFECTIVE GROSS INCOME
Year Total % Change - ------------------------------- ---------- -------- 2000 $2,508,040 -- 2001 $2,541,292 1.3% 2002 $2,225,943 -12.4% 2003 Annualized $1,984,052 -10.9% CB RICHARD ELLIS, INC. ESTIMATE $2,316,110 16.7%
Source: Operating Statements & CB Richard Ellis, Inc. 77 VININGS PEAK APARTMENTS INCOME CAPITALIZATION APPROACH Our estimate of effective gross income is generally in-line with the demonstrated historical levels. It should be noted that the 2003 annualized level is lower than the historical data and does not provide an accurate indication of the property's actual operating performance. In addition, we have incorporated a concession loss, which has become increasingly prevalent in the market over the past year and is reflected in the year-to-date operating data. Given these considerations, we believe our estimate is reasonable. OPERATING EXPENSE ANALYSIS In estimating the operating expenses for the subject, the actual operating history has been analyzed, along with expense data from comparable apartment properties. The following table presents the available operating expense history for the subject. OPERATING HISTORY
2000 2001 2002 2003 Annualized --------------------- -------------------- ------------------- ------------------ Total $/Unit Total $/Unit Total $/Unit Total $/Unit ---------- ------ ---------- ------ ---------- ------ ---------- ------ INCOME Rental Income $2,398,967 $8,568 2,387,324 $8,526 $2,061,004 $7,361 $1,813,944 $6,478 Utility Reimbursement 2,764 10 35,926 128 58,633 209 $ 46,840 167 Other Income 106,309 380 118,042 422 106,306 380 $ 123,268 440 ---------- ------ ---------- ------ ---------- ------ ---------- ------ Effective Gross Income $2,508,040 $8,957 $2,541,292 $9,076 $2,225,943 $7,950 $1,984,052 $7,086 EXPENSES Real Estate Taxes $ 214,103 $ 765 $ 186,916 $ 668 $ 192,853 $ 689 $ 190,328 $ 680 Insurance 24,896 89 51,100 183 55,699 199 $ 58,360 208 Natural Gas 5,430 19 17,114 61 27,224 97 $ 37,296 133 Electricity 24,669 88 27,478 98 29,702 106 $ 8,696 31 Water and Sewer 55,411 198 43,713 156 57,204 204 $ 39,040 139 Cable Television - - - - - - - - Trash Removal 7,146 26 5,263 19 4,796 17 $ 4,760 17 Maintenance and Repairs 39,401 141 13,763 49 33,672 120 $ 64,344 230 Painting and Decorating 79,851 285 35,592 127 38,889 139 $ 72,624 259 Grounds 25,639 92 25,125 90 21,632 77 $ 44,152 158 Management Fee 127,894 457 133,539 477 116,996 418 $ 89,760 321 Administrative Payroll 69,271 247 108,225 387 88,043 314 $ 33,264 119 Maintenance Payroll 80,250 287 61,473 220 77,907 278 $ 95,348 341 Employee Taxes & Benefits 30,258 108 40,177 143 40,384 144 $ 51,948 186 Employee Apartments 17,632 63 17,729 63 9,144 33 - - Security - - - - - - $ 11,636 42 Advertising and Leasing 37,845 135 57,489 205 46,287 165 $ 98,744 353 General and Administrative 34,961 125 31,863 114 30,911 110 $ 48,636 174 Reserves for Replacement - - - - - - - - ---------- ------ ---------- ------ ---------- ------ ---------- ------ Operating Expenses $ 874,657 $3,124 $ 856,559 $3,059 $ 871,343 $3,112 $ 948,936 $3,389 ========== ====== ========== ====== ========== ====== ========== ====== NET OPERATING INCOME $1,633,383 $5,834 $1,684,733 $6,017 $1,354,600 $4,838 $1,035,116 $3,697
Source: Operating statements EXPENSE COMPARABLES The following table indicates the actual operating history for comparable apartment properties. 78 VININGS PEAK APARTMENTS INCOME CAPITALIZATION APPROACH EXPENSE COMPARABLES
Comparable Number 1 2 IREM ------------- ------------- ------------- Location Metro Atlanta Metro Atlanta Metro Atlanta Units 200 240 Year Built 1996 1995 GLA (SF) 217,616 282,398 Expense Year 2001 2001 2001
$/Unit* $/Unit* $/Unit* ------- ------- ------- Expenses Real Estate Taxes $ 680 $ 817 $ 506 Property Insurance 64 117 84 Natural Gas - 17 10 Electricity 242 896 113 Water and Sewer 289 248 321 Cable Television - - - Trash Removal 55 46 85 Maintenance and Repairs 233 184 182 Painting and Decorating 194 299 212 Grounds 266 209 199 Management Fee 351 552 315 Administrative Payroll 409 784 - Maintenance Payroll 322 20 - Employee Taxes & Benefits 191 108 401 Employee Apartments 50 164 - Security 52 31 42 Advertising and Leasing 125 197 - General and Administrative 180 279 705 Reserves for Replacement - - - ------- ------- ------- Operating Expenses $ 3,703 $ 4,969 $ 3,922 **
* Expenses shown in $/unit, with the exception of Management Fee which is shown as % EGI. ** The IREM median total differs from the sum of the individual amounts. Source: Actual operating statements and IREM Income and Expense Report: 2001 EXPENSE ESTIMATE The following subsections represent the analysis for the pro forma estimate of each category of the subject's stabilized expenses. REAL ESTATE TAXES The real estate taxes for the subject were previously discussed and have been included at the 2003 actual level of $202,278. This level is well supported by comparable properties in the subject's area. 79 VININGS PEAK APARTMENTS INCOME CAPITALIZATION APPROACH PROPERTY INSURANCE Property insurance expenses typically include fire and extended coverage and owner's liability coverage. The subject's expense history and pro forma estimate are detailed as follows: INSURANCE
Year Total $/Unit - ------------------------------- ------- ------ 2000 $24,896 $ 89 2001 $51,100 $183 2002 $55,699 $199 2003 Annualized $58,360 $208 CB RICHARD ELLIS, INC. ESTIMATE $56,000 $200
Source: Operating Statements & CB Richard Ellis, Inc. We have found that insurance expenses for apartment properties in the area typically range from $100 to $200 per unit, with levels near the upper portion of the range being witnessed in recent years. Thus, we have estimated this expense at the high end of a typical level, concluded at $56,000, or $200 per unit. NATURAL GAS Like other utility expenses, natural gas is typically very property specific, and comparables offer a limited indication of an appropriate level. The subject's historical and projected electricity expense is identified in the following table. NATURAL GAS
Year Total $/Unit - ------------------------------- ------- ------ 2000 $ 5,430 $ 19 2001 $17,114 $ 61 2002 $27,224 $ 97 2003 Annualized $37,296 $133 CB RICHARD ELLIS, INC. ESTIMATE $27,160 $ 97
Source: Operating Statements & CB Richard Ellis, Inc. As illustrated, the subject's historical levels have increased in recent years. We are not aware of any planned utility increases. Therefore, we have included this expense in-line with the 2002 historical level, concluded at $27,160, or $97 per unit. 80 VININGS PEAK APARTMENTS INCOME CAPITALIZATION APPROACH ELECTRICITY Like other utility expenses, electricity is typically very property specific, and comparables offer a limited indication of an appropriate level. The subject's historical and projected electricity expense is identified in the following table. ELECTRICITY
Year Total $/Unit - ------------------------------- ------- ------ 2000 $24,669 $ 88 2001 $27,478 $ 98 2002 $29,702 $106 2003 Annualized $ 8,696 $ 31 CB RICHARD ELLIS, INC. ESTIMATE $29,680 $106
Source: Operating Statements & CB Richard Ellis, Inc. As with other utility expenses, trash removal expenses are typical property specific. We are not aware of any planned utility increases. Therefore, we have included this expense in-line with the 2002 historical indication, concluded at $29,680, or $106 per unit. WATER AND SEWER As with the other utility expenses, water and sewer costs are typically very property specific. The subject's historical and projected water and sewer expense is identified in the following table. WATER AND SEWER
Year Total $/Unit - ------------------------------- ------- ------ 2000 $55,411 $198 2001 $43,713 $156 2002 $57,204 $204 2003 Annualized $39,040 $139 CB RICHARD ELLIS, INC. ESTIMATE $57,120 $204
Source: Operating Statements & CB Richard Ellis, Inc. This expense typically ranges from $150 to $500 per unit annually. The historical levels have varied and are near the low end and below the typical range. Furthermore, this level is below the low end of the range indicated by the expense comparables. We are not aware of any planned utility increases. Therefore, we have placed primarily reliance on historical levels, and estimated this expense at the 2002 historical level of $57,120 annually, or $204 per unit. 81 VININGS PEAK APARTMENTS INCOME CAPITALIZATION APPROACH CABLE TELEVISION The subject property has not historically incurred a cable television expense, nor have we included one within our analysis. TRASH REMOVAL The subject's historical and projected trash removal expense is identified in the following table. TRASH REMOVAL
Year Total $/Unit - ------------------------------- ------- ------ 2000 $ 7,146 $26 2001 $ 5,263 $19 2002 $ 4,796 $17 2003 Annualized $ 4,760 $17 CB RICHARD ELLIS, INC. ESTIMATE $ 4,760 $17
Source: Operating Statements & CB Richard Ellis, Inc. As with other utility expenses, trash removal expenses are typical property specific. The subject`s historical trash expense has been relatively consistent. Therefore, we have included this expense in-line with recent historical levels, concluded at $4,760, or $17 per unit. MAINTENANCE AND REPAIRS This expense category includes the cost of minor repairs to the apartments units. The subject's historical and projected maintenance and repairs expense is identified in the following table. MAINTENANCE AND REPAIRS
Year Total $/Unit - ------------------------------- ------- ------ 2000 $39,401 $141 2001 $13,763 $ 49 2002 $33,672 $120 2003 Annualized $64,344 $230 CB RICHARD ELLIS, INC. ESTIMATE $64,400 $230
Source: Operating Statements & CB Richard Ellis, Inc. This expense typically approximates $150 to $250 per unit. The subject's historical maintenance and repair expenses have been within and below the low end of the typical range. Thus, we have estimated this expense in-line with the annualized indication, concluded at $64,400, or $230 per unit. 82 VININGS PEAK APARTMENTS INCOME CAPITALIZATION APPROACH PAINTING AND DECORATING This expense category includes normal painting and decorating items associated with repairing the units prior to the initial move-in of a new tenant. The subject's historical and projected painting and decorating expense is identified in the following table. PAINTING AND DECORATING
Year Total $/Unit - ------------------------------- ------- ------ 2000 $79,851 $285 2001 $35,592 $127 2002 $38,889 $139 2003 Annualized $72,624 $259 CB RICHARD ELLIS, INC. ESTIMATE $56,000 $200
Source: Operating Statements & CB Richard Ellis, Inc. This expense typically approximates $150 to $250 per unit. The subject's historical painting and decorating expenses have generally been below and above the typical range. Thus, we have estimated this expense in the middle of a typical range, concluded at $56,000, or $200 per unit. GROUNDS (LANDSCAPING) This expense item covers normal landscaping and grounds maintenance of the property. The subject's historical and projected grounds expense is identified in the following table. GROUNDS
Year Total $/Unit - ------------------------------- ------- ------ 2000 $25,639 $ 92 2001 $25,125 $ 90 2002 $21,632 $ 77 2003 Annualized $44,152 $158 CB RICHARD ELLIS, INC. ESTIMATE $25,200 $ 90
Source: Operating Statements & CB Richard Ellis, Inc. This expense typically approximates $75 to $150 per unit. The subject's historical landscaping expenses have been within and slightly above the high end of the typical range. Thus, we have included this expense within the typical range and in-line with the 2001 historical indication, concluded at $25,200, or $90 per unit. MANAGEMENT FEE Management expenses for an apartment complex are typically negotiated as a percentage of collected revenues (effective gross income). This percentage typically is negotiated from 3.0% to 5.0% 83 VININGS PEAK APARTMENTS INCOME CAPITALIZATION APPROACH for similar quality apartment complexes, with levels in the lower portion of the range being more common in the last few years. Given the subject's size and the competitive management company market, we believe an appropriate management expense for the subject would be near the middle of the typical range. Therefore, we have estimated the subject's management fee at 4.0% of the effective gross income, which equates to $92,644 per year. ADMINISTRATIVE PAYROLL This expense item includes the administrative payroll for the subject property. The subject's historical and projected administrative payroll expense is demonstrated in the following table. ADMINISTRATIVE PAYROLL
Year Total $/Unit - ------------------------------- ------- ------ 2000 $ 69,271 $247 2001 $108,225 $387 2002 $ 88,043 $314 2003 Annualized $ 33,264 $119 CB RICHARD ELLIS, INC. ESTIMATE $ 87,920 $314
Source: Operating Statements & CB Richard Ellis, Inc. The administrative payroll expense typically approximates $250 to $500 per unit at most similar properties. The subject's historical levels have been within and below the typical range. With support from the 2002 historical level, we have included this expense at $87,920, or $314 per unit. MAINTENANCE PAYROLL This expense item includes the maintenance payroll for the subject property. The subject's historical and projected maintenance payroll expense is demonstrated in the following table. MAINTENANCE PAYROLL
Year Total $/Unit - ------------------------------- -------- ------ 2000 $ 80,250 $287 2001 $ 61,473 $220 2002 $ 77,907 $278 2003 Annualized $ 95,348 $341 CB RICHARD ELLIS, INC. ESTIMATE $ 77,840 $278
Source: Operating Statements & CB Richard Ellis, Inc. This expense typically approximates $250 to $400 per unit. The subject's historical levels have generally supported the typical range. Thus, we have included this expense in-line with the 2002 historical level, concluded at $77,840, or $278 per unit. 84 VININGS PEAK APARTMENTS INCOME CAPITALIZATION APPROACH EMPLOYEE TAXES AND BENEFITS This expense item includes the employee taxes and benefits for the subject property. The subject's historical and projected employee taxes and benefits are demonstrated in the following table. EMPLOYEE TAXES & BENEFITS
Year Total $/Unit - ------------------------------- -------- ------ 2000 $ 30,258 $108 2001 $ 40,177 $143 2002 $ 40,384 $144 2003 Annualized $ 51,948 $186 CB RICHARD ELLIS, INC. ESTIMATE $ 33,152 $118
Source: Operating Statements & CB Richard Ellis, Inc. This expense typically approximates 15% to 20% of the combined payroll expense. Therefore, we have estimated this expense at $33,152 annually, or $118 per unit, which is approximately 20% of the combined administrative and maintenance salaries. This level is slightly lower than the historical levels witnessed. EMPLOYEE APARTMENTS (NON-REVENUE UNITS) Apartment properties typically have units which are non-revenue producing. These include model units, units for security officers and units for leasing and management personnel. The historical and projected non-revenue units expenses are demonstrated in the following table. EMPLOYEE APARTMENTS
Year Total $/Unit - ------------------------------- -------- ------ 2000 $ 17,632 $63 2001 $ 17,729 $63 2002 $ 9,144 $33 2003 Annualized $ 0 $ 0 CB RICHARD ELLIS, INC. ESTIMATE $ 10,188 $36
Source: Operating Statements & CB Richard Ellis, Inc. As illustrated, the historical levels have varied slightly. According to property management, there is currently one unit occupied by a courtesy officer who does not pay any rent. We have found that this expense normally approximates one unit per every 100 units at a property. Therefore, we have estimated this expense based on one unit at an assumed monthly rent of $849 (weighted average rental rate) per month, which equates to $10,188 annually, or $36 per unit. 85 VININGS PEAK APARTMENTS INCOME CAPITALIZATION APPROACH SECURITY The subject property has not historically incurred a security expense, nor have we included one within our analysis. ADVERTISING AND LEASING This expense category accounts for placement of advertising, commissions, signage, brochures and newsletters. The historical and projected advertising and promotion expense for the subject property is demonstrated in the following table. ADVERTISING AND LEASING
Year Total $/Unit - ---- ----- ------ 2000 $ 37,845 $ 135 2001 $ 57,489 $ 205 2002 $ 46,287 $ 165 2003 Annualized $ 98,744 $ 353 CB RICHARD ELLIS, INC. ESTIMATE $ 49,000 $ 175
Source: Operating Statements & CB Richard Ellis, Inc. This expense typically approximates $75 to $175 per unit. The subject's historical levels have been within and above the high end of this range. Therefore, we have included this expense at the high end of a typical range, concluded at $49,000, or $175 per unit. GENERAL AND ADMINISTRATIVE Administrative expenses typically include legal costs, accounting, items which are not provided by off-site management, telephone, supplies, furniture and temporary help. The subject's expense history and pro forma estimate are detailed as follows: GENERAL AND ADMINISTRATIVE
Year Total $/Unit - ---- ----- ----- 2000 $ 34,961 $ 125 2001 $ 31,863 $ 114 2002 $ 30,911 $ 110 2003 Annualized $ 48,636 $ 174 CB RICHARD ELLIS, INC. ESTIMATE $ 48,720 $ 174
Source: Operating Statements & CB Richard Ellis, Inc. This expense typically approximates $75 to $200 per unit. The subject's historical general and administrative expenses have been within the typical range. Thus, we have included this expense in- 86 VININGS PEAK APARTMENTS INCOME CAPITALIZATION APPROACH line with the annualized indication and within the typical range, concluded at $48,720, or $174 per unit. RESERVES FOR REPLACEMENT Based on discussions with knowledgeable market participants, reserves for replacement typically range from $150 to $250 per unit for comparable properties. However, based on an engineering report provided for the subject, the property is projected to require an annual reserve, which is adjusted for inflation over a 12-year period, of $499 per unit. This is significantly above a typical level and we believe it includes reserve items which would typically not be included in the calculation of a typical reserve level, but we believe an appropriate level of reserves would be above the indicated range. Therefore, we included reserves based on $350 per unit annually. OPERATING EXPENSE CONCLUSION The subject's expense history and the pro forma estimate are detailed as follows: OPERATING EXPENSES
Year Total $/Unit - ---- ----- ------ 2000 $ 874,657 $ 3,124 2001 $ 856,559 $ 3,059 2002 $ 871,343 $ 3,112 2003 Annualized $ 948,936 $ 3,389 CB RICHARD ELLIS, INC. ESTIMATE $1,020,062 $ 3,643
Source: Operating Statements & CB Richard Ellis, Inc. Our estimate is higher than the demonstrated historical data. This is due to our high estimate of reserves for replacement. Our estimate of $3,643 per unit represents 44.04% of the effective gross income, which is typical for similar apartment properties in the metropolitan area. Therefore, we have concluded that the expense estimate is reasonable and supported, as considered on a line-by-line basis. NET OPERATING INCOME CONCLUSION The subject's net operating income history and the pro forma estimate are detailed as follows: 87 VININGS PEAK APARTMENTS INCOME CAPITALIZATION APPROACH NET OPERATING INCOME
Year Total $/Unit - ---- ----- ------ 2000 $ 1,633,383 $ 5,834 2001 $ 1,684,733 $ 6,017 2002 $ 1,354,600 $ 4,838 2003 Annualized $ 1,035,116 $ 3,697 CB RICHARD ELLIS, INC. ESTIMATE $ 1,296,048 $ 4,629
Source: Operating Statements & CB Richard Ellis, Inc. Our net operating income estimate is within the range of the historical data. Overall, we believe that our estimates are reasonable and consistent with the indication of comparable properties and the subject's historical operations. DIRECT CAPITALIZATION Direct capitalization is a method used to convert a single year's estimated stabilized net operating income into a value indication. The following subsections represent different techniques for deriving an overall capitalization rate for direct capitalization. COMPARABLE SALES The OAR's confirmed for the comparable sales analyzed in the Sales Comparison Approach are as follows: COMPARABLE CAPITALIZATION RATES
Sale Sale Price Pro Forma Sale Date $/Unit OAR - ---- ---- ---------- --------- 1 Dec-02 $ 56,000 8.00% 2 Dec-02 $ 55,514 7.50% 3 Nov-02 $ 63,451 7.94% 4 Jun-02 $ 69,534 7.50% 5 Jun-02 $ 69,856 7.50% 6 Feb-02 $ 74,404 7.94%
Source: CB Richard Ellis, Inc. Based on the subject's competitive position in the market, an OAR within the range indicated by the comparables is considered appropriate. PUBLISHED INVESTOR SURVEYS The results of the most recent National Investor Survey, published by CB Richard Ellis, Inc., are summarized in the following table. 88 VININGS PEAK APARTMENTS INCOME CAPITALIZATION APPROACH OVERALL CAPITALIZATION RATES - APARTMENT
National Investor Survey, 2003 OAR Range Average - ------------------------------ --------- ------- Class A 6.00% - 9.00% 7.44% Class B 6.00% - 10.25% 7.96% Class C 7.25% - 10.00% 8.98%
Source: CB Richard Ellis, Inc. The subject is considered to be a Class B property. Recent changes in the capital markets have been placing downward pressure on returns and an OAR within the middle of the range indicated in the preceding table is considered appropriate. MARKET PARTICIPANTS The results of recent interviews with knowledgeable real estate professionals are summarized in the following table. OVERALL CAPITALIZATION RATES - APARTMENT
Respondent Company OAR Date of Survey - ---------- ------- --- -------------- Kevin Geiger, Broker CB Richard Ellis, Inc. 7.50% to 8.00% May-03
Source: CB Richard Ellis, Inc. BAND OF INVESTMENT The band of the investment technique has been utilized as a cross check to the foregoing techniques. The analysis is shown in the following table. BAND OF INVESTMENT Mortgage Interest Rate 5.00% Mortgage Term (Amortization Period) 30 Years Mortgage Ratio (Loan-to-Value) 80% Mortgage Constant 0.06442 Equity Dividend Rate (EDR) 13.0% Mortgage Requirement 80% x 0.06442 = 0.05154 Equity Requirement 20% x 0.13000 = 0.02600 -------- ------- 100% 0.07754 INDICATED OAR: 7.80%
Source: CB Richard Ellis, Inc. CAPITALIZATION RATE CONCLUSION The following table summarizes the OAR conclusions. 89 VININGS PEAK APARTMENTS INCOME CAPITALIZATION APPROACH OVERALL CAPITALIZATION RATE - CONCLUSION
Source Indicated OAR - ------ ------------- Comparable Sales (Range) 7.50% to 8.00% National Investor Survey (Range) 6.00% to 10.25% Market Participants 7.50% to 8.00% Band of Investment 7.80% CB RICHARD ELLIS, INC. ESTIMATE 7.75%
Source: CB Richard Ellis, Inc. DIRECT CAPITALIZATION SUMMARY A summary of the direct capitalization of the subject at stabilized occupancy is illustrated in the following table. 90 VININGS PEAK APARTMENTS INCOME CAPITALIZATION APPROACH DIRECT CAPITALIZATION SUMMARY
$/Unit/Yr Total --------- ----- INCOME Market Rent $ 9,095 $ 2,546,640 Vacancy and Collection Loss 10.0% (910) (254,664) Concession Loss 4.0% (364) (101,866) ------------------------ NET RENTAL INCOME $ 7,822 $ 2,190,110 Utility Reimbursement 150 42,000 Other Income 300 84,000 ------------------------ EFFECTIVE GROSS INCOME $ 8,272 $ 2,316,110 EXPENSES Real Estate Taxes $ 722 $ 202,278 Insurance 200 56,000 Natural Gas 97 27,160 Electricity 106 29,680 Water and Sewer 204 57,120 Cable Television 0 - Trash Removal 17 4,760 Maintenance and Repairs 230 64,400 Painting and Decorating 200 56,000 Grounds 90 25,200 Management Fee 4.0% 331 92,644 Administrative Payroll 314 87,920 Maintenance Payroll 278 77,840 Employee Taxes & Benefits 118 33,152 Employee Apartments 36 10,188 Security 0 - Advertising and Leasing 175 49,000 General and Administrative 174 48,720 Reserves for Replacement 350 98,000 ------------------------ OPERATING EXPENSES $ 3,643 $ 1,020,062 ------------------------ OPERATING EXPENSE RATIO 44.04% NET OPERATING INCOME $ 4,629 $ 1,296,048 OAR 7.75% ----------- INDICATED STABILIZED VALUE $16,723,200 ROUNDED $16,700,000 VALUE PER UNIT $ 59,726 VALUE PER SF $ 60.73
CAP RATE VALUE -------- ----------- MATRIX ANALYSIS 7.50% $17,280,600 7.75% $16,723,200 8.00% $16,200,600
Source: CB Richard Ellis, Inc. 91 VININGS PEAK APARTMENTS RECONCILIATION OF VALUE RECONCILIATION OF VALUE The value indications from the approaches to value are summarized as follows: SUMMARY OF VALUE CONCLUSIONS Cost Approach $17,600,000 Sales Comparison Approach $16,800,000 Income Capitalization Approach $16,700,000 ----------- Reconciled Value $16,700,000 -----------
Source: CB Richard Ellis, Inc. The Cost Approach typically gives a reliable value indication when there is evidence for the replacement cost estimate and when there is minimal depreciation contributing to a loss in value which must be estimated. Although the subject improvements represent the highest and best use of the site, there was significant depreciation noted. As a result, the reliability of the Cost Approach is somewhat diminished. Therefore, the Cost Approach is considered less applicable to the subject and is used primarily as a test of reasonableness against the other valuation techniques. Further, similar properties are normally purchased on the basis of their investment attributes as opposed to depreciated replacement costs. In the Sales Comparison Approach, the subject property is compared to similar properties that have been sold recently. The sales used in this analysis are considered fairly comparable to the subject, and the required adjustments were based on reasonable and well supported rationale. In addition, market participants are currently analyzing purchase prices on investment properties as they relate to available substitutes in the market. Therefore, the Sales Comparison Approach is considered to provide a reliable value indication. However, this approach to value has been given secondary emphasis in the final value reconciliation. The Income Capitalization Approach is applicable to the subject property since it is an income producing property leased in the open market. Market participants are currently analyzing properties based on their income generating capability. Therefore, the Income Capitalization Approach is considered to be a reasonable and substantiated value indicator and has been given primary emphasis in the final value estimate. Based on the foregoing, the market value of the subject has been concluded as follows: MARKET VALUE CONCLUSION
APPRAISAL PREMISE INTEREST APPRAISED DATE OF VALUE VALUE CONCLUSION - ----------------- ------------------ ------------- ---------------- Market Value As Is Fee Simple May 15, 2003 $16,700,000
Source: CB Richard Ellis, Inc. 92 VININGS PEAK APARTMENTS RECONCILIATION OF VALUE SPECIAL ASSUMPTIONS It should be noted that the property currently has four down units from foundation leaks that will be repaired in the near-term. The damages are minor and have not been taken into consideration in our analysis. 93 VININGS PEAK APARTMENTS ASSUMPTIONS AND LIMITING CONDITIONS ASSUMPTIONS AND LIMITING CONDITIONS 1. Unless otherwise specifically noted in the body of the report, it is assumed that title to the property or properties appraised is clear and marketable and that there are no recorded or unrecorded matters or exceptions to total that would adversely affect marketability or value. CB Richard Ellis, Inc. is not aware of any title defects nor has it been advised of any unless such is specifically noted in the report. CB Richard Ellis, Inc., however, has not examined title and makes no representations relative to the condition thereof. Documents dealing with liens, encumbrances, easements, deed restrictions, clouds and other conditions that may affect the quality of title have not been reviewed. Insurance against financial loss resulting in claims that may arise out of defects in the subject property's title should be sought from a qualified title company that issues or insures title to real property. 2. Unless otherwise specifically noted in the body of this report, it is assumed: that the existing improvements on the property or properties being appraised are structurally sound, seismically safe and code conforming; that all building systems (mechanical/electrical, HVAC, elevator, plumbing, etc.) are in good working order with no major deferred maintenance or repair required; that the roof and exterior are in good condition and free from intrusion by the elements; that the property or properties have been engineered in such a manner that the improvements, as currently constituted, conform to all applicable local, state and federal building codes and ordinances. CB Richard Ellis, Inc. professionals are not engineers and are not competent to judge matters of an engineering nature. CB Richard Ellis, Inc. has not retained independent structural, mechanical, electrical, or civil engineers in connection with this appraisal and, therefore, makes no representations relative to the condition of improvements. Unless otherwise specifically noted in the body of the report: no problems were brought to the attention of CB Richard Ellis, Inc. by ownership or management; CB Richard Ellis, Inc. inspected less than 100% of the entire interior and exterior portions of the improvements; and CB Richard Ellis, Inc. was not furnished any engineering studies by the owners or by the party requesting this appraisal. If questions in these areas are critical to the decision process of the reader, the advice of competent engineering consultants should be obtained and relied upon. It is specifically assumed that any knowledgeable and prudent purchaser would, as a precondition to closing a sale, obtain a satisfactory engineering report relative to the structural integrity of the property and the integrity of building systems. Structural problems and/or building system problems may not be visually detectable. If engineering consultants retained should report negative factors of a material nature, or if such are later discovered, relative to the condition of improvements, such information could have a substantial negative impact on the conclusions reported in this appraisal. Accordingly, if negative findings are reported by engineering consultants, CB Richard Ellis, Inc. reserves the right to amend the appraisal conclusions reported herein. 3. Unless otherwise stated in this report, the existence of hazardous material, which may or may not be present on the property was not observed by the appraisers. CB Richard Ellis, Inc. has no knowledge of the existence of such materials on or in the property. CB Richard Ellis, Inc., however, is not qualified to detect such substances. The presence of substances such as asbestos, urea formaldehyde foam insulation, contaminated groundwater or other potentially hazardous materials may affect the value of the property. The value estimate is predicated on the assumption that there is no such material on or in the property that would cause a loss in value. No responsibility is assumed for any such conditions, or for any expertise or engineering knowledge required to discover them. The client is urged to retain an expert in this field, if desired. We have inspected, as thoroughly as possible by observation, the land; however, it was impossible to personally inspect conditions beneath the soil. Therefore, no representation is made as to these matters unless specifically considered in the appraisal. 4. All furnishings, equipment and business operations, except as specifically stated and typically considered as part of real property, have been disregarded with only real property being considered in the report unless otherwise stated. Any existing or proposed improvements, on or off-site, as well as any alterations or repairs considered, are assumed to be completed in a workmanlike manner according to standard practices based upon the information submitted to CB Richard Ellis, Inc. This report may be subject to amendment upon re-inspection of the subject property subsequent to repairs, modifications, alterations and completed new construction. Any estimate of Market Value is as of the date indicated; based upon the information, conditions and projected levels of operation. 5. It is assumed that all factual data furnished by the client, property owner, owner's representative, or persons designated by the client or owner to supply said data are accurate and correct unless otherwise specifically noted in the appraisal report. Unless otherwise specifically noted in the appraisal report, CB Richard Ellis, Inc. has no reason to believe that any of the data furnished contain any material error. Information and data referred to in this paragraph include, without being limited to, numerical street addresses, lot and block numbers, Assessor's Parcel Numbers, land dimensions, square footage area of the land, dimensions of the improvements, gross building areas, net rentable areas, usable areas, unit count, room count, rent schedules, income data, historical operating expenses, budgets and related data. Any material error in any of the above data could have a substantial impact on the conclusions reported. Thus, CB Richard Ellis, Inc. reserves the right to amend conclusions reported if made aware of any such error. Accordingly, 94 VININGS PEAK APARTMENTS ASSUMPTIONS AND LIMITING CONDITIONS the client-addressee should carefully review all assumptions, data, relevant calculations and conclusions within 30 days after the date of delivery of this report and should immediately notify CB Richard Ellis, Inc. of any questions or errors. 6. The date of value to which any of the conclusions and opinions expressed in this report apply, is set forth in the Letter of Transmittal. Further, that the dollar amount of any value opinion herein rendered is based upon the purchasing power of the American Dollar on that date. This appraisal is based on market conditions existing as of the date of this appraisal. Under the terms of the engagement, we will have no obligation to revise this report to reflect events or conditions which occur subsequent to the date of the appraisal. However, CB Richard Ellis, Inc. will be available to discuss the necessity for revision resulting from changes in economic or market factors affecting the subject. 7. CB Richard Ellis, Inc. assumes no private deed restrictions, limiting the use of the subject property in any way. 8. Unless otherwise noted in the body of the report, it is assumed that there are no mineral deposit or subsurface rights of value involved in this appraisal, whether they be gas, liquid, or solid. Nor are the rights associated with extraction or exploration of such elements considered unless otherwise stated in this appraisal report. Unless otherwise stated it is also assumed that there are no air or development rights of value that may be transferred. 9. CB Richard Ellis, Inc. is not aware of any contemplated public initiatives, governmental development controls, or rent controls that would significantly affect the value of the subject. 10. The estimate of Market Value, which may be defined within the body of this report, is subject to change with market fluctuations over time. Market value is highly related to exposure, time promotion effort, terms, motivation and conclusions surrounding the offering. The value estimate(s) consider the productivity and relative attractiveness of the property, both physically and economically, on the open market. 11. Any cash flows included in the analysis are forecasts of estimated future operating characteristics are predicated on the information and assumptions contained within the report. Any projections of income, expenses and economic conditions utilized in this report are not predictions of the future. Rather, they are estimates of current market expectations of future income and expenses. The achievement of the financial projections will be affected by fluctuating economic conditions and is dependent upon other future occurrences that cannot be assured. Actual results may vary from the projections considered herein. CB Richard Ellis, Inc. does not warrant these forecasts will occur. Projections may be affected by circumstances beyond the current realm of knowledge or control of CB Richard Ellis, Inc. 12. Unless specifically set forth in the body of the report, nothing contained herein shall be construed to represent any direct or indirect recommendation of CB Richard Ellis, Inc. to buy, sell, or hold the properties at the value stated. Such decisions involve substantial investment strategy questions and must be specifically addressed in consultation form. 13. Also, unless otherwise noted in the body of this report, it is assumed that no changes in the present zoning ordinances or regulations governing use, density, or shape are being considered. The property is appraised assuming that all required licenses, certificates of occupancy, consents, or other legislative or administrative authority from any local, state, nor national government or private entity or organization have been or can be obtained or renewed for any use on which the value estimates contained in this report is based, unless otherwise stated. 14. This study may not be duplicated in whole or in part without the specific written consent of CB Richard Ellis, Inc. nor may this report or copies hereof be transmitted to third parties without said consent, which consent CB Richard Ellis, Inc. reserves the right to deny. Exempt from this restriction is duplication for the internal use of the client-addressee and/or transmission to attorneys, accountants, or advisors of the client-addressee. Also exempt from this restriction is transmission of the report to any court, governmental authority, or regulatory agency having jurisdiction over the party/parties for whom this appraisal was prepared, provided that this report and/or its contents shall not be published, in whole or in part, in any public document without the express written consent of CB Richard Ellis, Inc. which consent CB Richard Ellis, Inc. reserves the right to deny. Finally, this report shall not be advertised to the public or otherwise used to induce a third party to purchase the property or to make a "sale" or "offer for sale" of any "security", as such terms are defined and used in the Securities Act of 1933, as amended. Any third party, not covered by the exemptions herein, who may possess this report, is advised that they should rely on their own independently secured advice for any decision in connection with this property. CB Richard Ellis, Inc. shall have no accountability or responsibility to any such third party. 15. Any value estimate provided in the report applies to the entire property, and any pro ration or division of the title into fractional interests will invalidate the value estimate, unless such pro ration or division of interests has been set forth in the report. 16. The distribution of the total valuation in this report between land and improvements applies only under the existing program of utilization. Component values for land and/or buildings are not intended to be used in conjunction with any other property or appraisal and are invalid if so used. 17. The maps, plats, sketches, graphs, photographs and exhibits included in this report are for illustration purposes only and are to be utilized only to assist in visualizing matters discussed within this report. Except as specifically stated, data 95 VININGS PEAK APARTMENTS ASSUMPTIONS AND LIMITING CONDITIONS relative to size or area of the subject and comparable properties has been obtained from sources deemed accurate and reliable. None of the exhibits are to be removed, reproduced, or used apart from this report. 18. No opinion is intended to be expressed on matters which may require legal expertise or specialized investigation or knowledge beyond that customarily employed by real estate appraisers. Values and opinions expressed presume that environmental and other governmental restrictions/conditions by applicable agencies have been met, including but not limited to seismic hazards, flight patterns, decibel levels/noise envelopes, fire hazards, hillside ordinances, density, allowable uses, building codes, permits, licenses, etc. No survey, engineering study or architectural analysis has been made known to CB Richard Ellis, Inc. unless otherwise stated within the body of this report. If the Consultant has not been supplied with a termite inspection, survey or occupancy permit, no responsibility or representation is assumed or made for any costs associated with obtaining same or for any deficiencies discovered before or after they are obtained. No representation or warranty is made concerning obtaining these items. CB Richard Ellis, Inc. assumes no responsibility for any costs or consequences arising due to the need, or the lack of need, for flood hazard insurance. An agent for the Federal Flood Insurance Program should be contacted to determine the actual need for Flood Hazard Insurance. 19. Acceptance and/or use of this report constitutes full acceptance of the Contingent and Limiting Conditions and special assumptions set forth in this report. It is the responsibility of the Client, or client's designees, to read in full, comprehend and thus become aware of the aforementioned contingencies and limiting conditions. Neither the Appraiser nor CB Richard Ellis, Inc. assumes responsibility for any situation arising out of the Client's failure to become familiar with and understand the same. The Client is advised to retain experts in areas that fall outside the scope of the real estate appraisal/consulting profession if so desired. 20. CB Richard Ellis, Inc. assumes that the subject property analyzed herein will be under prudent and competent management and ownership; neither inefficient or super-efficient. 21. It is assumed that there is full compliance with all applicable federal, state and local environmental regulations and laws unless noncompliance is stated, defined and considered in the appraisal report. 22. No survey of the boundaries of the property was undertaken. All areas and dimensions furnished are presumed to be correct. It is further assumed that no encroachments to the realty exist. 23. The Americans with Disabilities Act (ADA) became effective January 26, 1992. Notwithstanding any discussion of possible readily achievable barrier removal construction items in this report, CB Richard Ellis, Inc. has not made a specific compliance survey and analysis of this property to determine whether it is in conformance 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 ADA. If so, this fact could have a negative effect on the value estimated herein. Since CB Richard Ellis, Inc. has no specific information relating to this issue, nor is CB Richard Ellis, Inc. qualified to make such an assessment, the effect of any possible non-compliance with the requirements of the ADA was not considered in estimating the value of the subject property. 24. Client shall not indemnify Appraiser or hold Appraiser harmless unless and only to the extent that the Client misrepresents, distorts, or provides incomplete or inaccurate appraisal results to others, which acts of the Client proximately result in damage to Appraiser. The Client shall indemnify and hold Appraiser harmless from any claims, expenses, judgments or other items or costs arising as a result of the Client's failure or the failure of any of the Client's agents to provide a complete copy of the appraisal report to any third party. In the event of any litigation between the parties, the prevailing party to such litigation shall be entitled to recover from the other reasonable attorney fees and costs. 96 VININGS PEAK APARTMENTS ADDENDA ADDENDA VININGS PEAK APARTMENTS ADDENDUM A GLOSSARY OF TERMS ADDENDUM A GLOSSARY OF TERMS VININGS PEAK APARTMENTS ADDENDUM A GLOSSARY OF TERMS ASSESSED VALUE Assessed value applies in ad valorem taxation and refers to the value of a property according to the tax rolls. Assessed value may not conform to market value, but it is usually calculated in relation to a market value base. + CASH EQUIVALENCY The procedure in which the sale prices of comparable properties sold with atypical financing are adjusted to reflect typical market terms. CONTRACT, COUPON, FACE, OR NOMINAL RENT The nominal rent payment specified in the lease contract. It does not reflect any offsets for free rent, unusual tenant improvement conditions, or other factors that may modify the effective rent payment. COUPON RENT See Contract, Coupon, Face, or Nominal Rent EFFECTIVE RENT 1) The rental rate net of financial concessions such as periods of no rent during a lease term; may be calculated on a discounted basis, reflecting the time value of money, or on a simple, straight-line basis. ++ 2) The economic rent paid by the lessee when normalized to account for financial concessions, such as escalation clauses, and other factors. Contract, or normal, rents must be converted to effective rents to form a consistent basis of comparison between comparables. FACE RENT See Contract, Coupon, Face, or Nominal Rent FEE SIMPLE ESTATE 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. ++ FLOOR AREA RATIO (FAR) The relationship between the above-ground floor area of a building, as described by the building code, and the area of the plot on which it stands; in planning and zoning, often expressed as a decimal, e.g., a ratio of 2.0 indicates that the permissible floor area of a building is twice the total land area; also called building-to-land ratio. ++ FULL SERVICE LEASE A lease in which rent covers all operating expenses. Typically, full service leases are combined with an expense stop, the expense level covered by the contract lease payment. Increases in expenses above the expense stop level are passed through to the tenant and are known as expense pass-throughs. GOING CONCERN VALUE Going concern value is the value of a proven property operation. It includes the incremental value associated with the business concern, which is distinct from the value of the real estate only. Going concern value includes an intangible enhancement of the value of an operating business enterprise which is produced by the assemblage of the land, building, labor, equipment and marketing operation. This process creates an economically viable business that is expected to continue. Going concern value refers to the total value of a property, including both real property and intangible personal property attributed to the business value. + GROSS BUILDING AREA (GBA) The sum of all areas at each floor as measured to the exterior walls. INSURABLE VALUE Insurable Value is based on the replacement and/or reproduction cost of physical items that are subject to loss from hazards. Insurable value is that portion of the value of an asset or asset group that is acknowledged or recognized under the provisions of an applicable loss insurance policy. This value is often controlled by state law and varies from state to state. + INVESTMENT VALUE Investment value is the value of an investment to a particular investor based on his or her investment requirements. In contrast to market value, investment value is value to an individual, not value in the marketplace. Investment value reflects the subjective relationship between a particular investor and a given investment. When measured in dollars, investment value is the price an investor would pay for an investment in light of its perceived capacity to satisfy his or her desires, needs, or investment goals. To estimate investment value, specific investment criteria must be known. Criteria to evaluate a real estate investment are not necessarily set down by the individual investor; they may be established by an expert on real estate and its value, that is, an appraiser. + LEASED FEE See leased fee estate LEASED FEE ESTATE An ownership interest held by a landlord with the right of use and occupancy conveyed by lease to others. The rights of the lessor (the leased fee owner) and the leased fee are specified by contract terms contained within the lease.++ LEASEHOLD See leasehold estate LEASEHOLD ESTATE The interest held by the lessee (the tenant or renter) through a lease conveying the rights of use and occupancy for a stated term under certain conditions.++ LOAD FACTOR The amount added to usable area to calculate the rentable area. It is also referred to as a "rentable add-on factor" which, according to BOMA, "is computed by dividing the difference between the VININGS PEAK APARTMENTS ADDENDUM A GLOSSARY OF TERMS usable square footage and rentable square footage by the amount of the usable area. Convert the figure into a percentage by multiplying by 100. MARKET VALUE "AS IF COMPLETE" ON THE APPRAISAL DATE Market value as if complete on the appraisal date is an estimate of the market value of a property with all construction, conversion, or rehabilitation hypothetically completed, or under other specified hypothetical conditions as of the date of the appraisal. With regard to properties wherein anticipated market conditions indicate that stabilized occupancy is not likely as of the date of completion, this estimate of value should reflect the market value of the property as if complete and prepared for occupancy by tenants. MARKET VALUE "AS IS" ON THE APPRAISAL DATE Market value "as is" on the appraisal date is an estimate of the market value of a property in the condition observed upon inspection and as it physically and legally exists without hypothetical conditions, assumptions, or qualifications as of the date of appraisal. MARKET VALUE Market value is one of the central concepts of the appraisal practice. Market value is differentiated from other types of value in that it is created by the collective patterns of the market. Market value means the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: 1) A reasonable time is allowed for exposure in the open market; 2) Both parties are well informed or well advised, and acting in what they consider their own best interests; 3) Buyer and seller are typically motivated; 4) Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and 5) The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.(ss) MARKETING PERIOD The time it takes an interest in real property to sell on the market subsequent to the date of an appraisal. ++ NET LEASE Lease in which all or some of the operating expenses are paid directly by the tenant. The landlord never takes possession of the expense payment. In a Triple Net Lease all operating expenses are the responsibility of the tenant, including property taxes, insurance, interior maintenance and other miscellaneous expenses. However, management fees and exterior maintenance are often the responsibility of the lessor in a triple net lease. A modified net lease is one in which some expenses are paid separately by the tenant and some are included in the rent. NET RENTABLE AREA (NRA) 1) The area on which rent is computed. 2) The Rentable Area of a floor shall be computed by measuring to the inside finished surface of the dominant portion of the permanent outer building walls, excluding any major vertical penetrations of the floor. No deductions shall be made for columns and projections necessary to the building. Include space such as mechanical room, janitorial room, restrooms and lobby of the floor. * NOMINAL RENT See Contract, Coupon, Face, or Nominal Rent PROSPECTIVE FUTURE VALUE "UPON COMPLETION OF CONSTRUCTION" Prospective future value "upon completion of construction" is the prospective value of a property on the future date that construction is completed, based upon market conditions forecast to exist, as of that completion date. The value estimate at this stage is stated in current dollars unless otherwise indicated. PROSPECTIVE FUTURE VALUE "UPON REACHING STABILIZED OCCUPANCY" Prospective future value "upon reaching stabilized occupancy" is the prospective value of a property at a future point in time when all improvements have been physically constructed and the property has been leased to its optimum level of long-term occupancy. The value estimate at this stage is stated in current dollars unless otherwise indicated. REASONABLE EXPOSURE TIME The estimated length of time the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal; a retrospective estimate based upon an analysis of past events assuming a competitive and open market. -- RENT see full service lease net lease contract, coupon, face, or nominal rent effective rent SHELL SPACE Space which has not had any interior finishing installed, including even basic improvements such as ceilings and interior walls, as well as partitions, floor coverings, wall coverings, etc.. USABLE AREA 1) The area actually used by individual tenants. 2) The Usable Area of an office building is computed by measuring to the finished surface of the VININGS PEAK APARTMENTS ADDENDUM A GLOSSARY OF TERMS office side of corridor and other permanent walls, to the center of partitions that separate the office from adjoining usable areas, and to the inside finished surface of the dominant portion of the permanent outer building walls. Excludes areas such as mechanical rooms, janitorial room, restrooms, lobby and any major vertical penetrations of a multi-tenant floor. * USE VALUE Use value is a concept based on the productivity of an economic good. Use value is the value a specific property has for a specific use. Use value focuses on the value the real estate contributes to the enterprise of which it is a part, without regard to the property's highest and best use or the monetary amount that might be realized upon its sale. + VALUE APPRAISED During the real estate development process, a property typically progresses from a state of unimproved land to construction of improvements to stabilized occupancy. In general, the market value associated with the property increases during these stages of development. After reaching stabilized occupancy, ongoing forces affect the property during its life, including a physical wear and tear, changing market conditions, etc. These factors continually influence the property's market value at any given point in time. See also market value "as is" on the appraisal date market value "as if complete" on the appraisal date prospective future value "upon completion of construction" prospective future value "upon reaching stabilized occupancy" - ---------------------- + The Appraisal of Real Estate, Eleventh Edition, Appraisal Institute, 1996. ++ The Dictionary of Real Estate Appraisal, Third Edition, 1993. (ss) The Office of the Comptroller of the Currency, 12 CFR Part 34, Subpart C, - -34.42(f), August 24, 1990. This definition is compatible with the definition of market value contained in The Dictionary of Real Estate Appraisal, Third Edition, and the Uniform Standards of Professional Appraisal Practice adopted by the Appraisal Standards Board of The Appraisal Foundation, 1992 edition. This definition is also compatible with the OTS, RTC, FDIC, NCUA, and the Board of Governors of the Federal Reserve System definition of market value. * 1990 BOMA Experience Exchange Report, Income/Expense Analysis for Office Buildings (Building Owners and Managers Association, 1990) - -- Statement on Appraisal Standard No. 6, Appraisal Standards Board of The Appraisal Foundation, September 19, 1992. VININGS PEAK APARTMENTS ADDENDUM B ADDITIONAL SUBJECT PHOTOGRAPHS ADDENDUM B ADDITIONAL SUBJECT PHOTOGRAPHS VININGS PEAK APARTMENTS ADDENDUM C COMPARABLE LAND SALES ADDENDUM C COMPARABLE LAND SALES VININGS PEAK APARTMENTS ADDENDUM D IMPROVED COMPARABLE SALES ADDENDUM D IMPROVED COMPARABLE SALES VININGS PEAK APARTMENTS ADDENDUM E RENT COMPARABLES ADDENDUM E RENT COMPARABLES VININGS PEAK APARTMENTS ADDENDUM F DEMOGRAPHICS ADDENDUM F DEMOGRAPHICS VININGS PEAK APARTMENTS ADDENDUM G RENT ROLL ADDENDUM G RENT ROLL VININGS PEAK APARTMENTS ADDENDUM H HISTORICAL OPERATING STATEMENTS ADDENDUM H HISTORICAL OPERATING STATEMENTS VININGS PEAK APARTMENTS ADDENDUM I FREDDIE MAC FORM 439 ADDENDUM I FREDDIE MAC FORM 439 VININGS PEAK APARTMENTS ADDENDUM J QUALIFICATIONS ADDENDUM J QUALIFICATIONS VININGS PEAK APARTMENTS ADDENDUM J QUALIFICATIONS EX-99.(C)(10) 7 d18178a5exv99wxcyx10y.txt APPRAISAL OF WOOD LAKE [CB RICHARD ELLIS LOGO] COMPLETE APPRAISAL SELF-CONTAINED REPORT OF THE WOOD LAKE APARTMENTS 100 Pinhurst Drive Unincorporated Cobb County, Metropolitan Atlanta, Georgia CBREI File No. 03-341AT-9357-000 DATE OF VALUE May 15, 2003 PREPARED FOR Mr. James Ashmun KEYCORP REAL ESTATE CAPITAL MARKETS, INC. 127 Public Square, Mailcode: OH-01-27-0824 Cleveland, Ohio 44114 PREPARED BY CB RICHARD ELLIS, INC. VALUATION & ADVISORY SERVICES 3225 Cumberland Boulevard, Suite 450 Atlanta, Georgia 30339 June 12, 2003 Mr. James Ashmun KEYCORP REAL ESTATE CAPITAL MARKETS, INC. 127 Public Square, Mailcode: OH-01-27-0824 Cleveland, Ohio 44114 RE: Appraisal of the Wood Lake Apartments 100 Pinhurst Drive Unincorporated Cobb County, Metropolitan Atlanta, Georgia CBREI File No. 03-341AT-9357-000 Dear Mr. Ashmun: At your request and authorization, CB Richard Ellis, Inc. has prepared a Complete Appraisal presented in a self-contained appraisal report of the market value of the referenced real property. The subject is a 220-unit garden apartment property, built in 1981. The property is situated on a 16.97-acre site, in unincorporated Cobb County, metropolitan Atlanta, Georgia. The property has an Atlanta street address of 100 Pinhurst Drive, and is currently 92.7% occupied. It should be noted that there were several minor items of deferred maintenance noted at the subject property. However, these items will be cured in the near-term and, at the request of the client, we have not made any deductions for these items. The subject is more fully described, legally and physically, within the enclosed report. Data, information and calculations leading to the value conclusion are incorporated in the report following this letter. The report, in its entirety, including all assumptions and limiting conditions, is an integral part of and inseparable from this letter. Based on the analysis contained in the following report, the market value of the subject is concluded as follows: MARKET VALUE CONCLUSION
APPRAISAL PREMISE INTEREST APPRAISED DATE OF VALUE VALUE CONCLUSION - ----------------- ------------------ ------------- ---------------- Market Value As Is Fee Simple May 15, 2003 $14,100,000
Source: CB Richard Ellis, Inc. The following appraisal sets forth the most pertinent data gathered, the techniques employed and the reasoning leading to the opinion of value. The analyses, opinions and conclusions were developed based on, and this report has been prepared in conformance with, our interpretation of the guidelines and recommendations set forth in the Uniform Standards of Professional Appraisal Practice (USPAP), the requirements of the Code of Professional Ethics and Standards of Professional Appraisal Practice Mr. James Ashmun June 12, 2003 Page 2 of the Appraisal Institute, The Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), Title XI Regulations, and according to Freddie Mac underwriting guidelines. It has been a pleasure to assist you in this assignment. If you have any questions concerning the analysis, or if CB Richard Ellis, Inc. can be of further service, please contact us. Respectfully submitted, CB RICHARD ELLIS, INC. VALUATION & ADVISORY SERVICES _______________________________ ____________________________________ Raymond A. Higgins Ronald A. Neyhart, MAI Vice President Senior Managing Director Georgia State Certification No. CG001388 Georgia State Certification No. CG000490 Phone: 770-984-5007 Phone: 770-984-5020 Fax: 770-984-5001 Fax: 770-984-5001 Email:rhiggins@cbre.com Email: rneyhart@cbre.com RAN/RAH WOOD LAKE APARTMENTS CERTIFICATION OF THE APPRAISAL CERTIFICATION OF THE APPRAISAL We certify to the best of our knowledge and belief: 1. The statements of fact contained in this report are true and correct. 2. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions and are our personal, impartial and unbiased professional analyses, opinions, and conclusions. 3. We have no present or prospective interest in or bias with respect to the property that is the subject of this report and have no personal interest in or bias with respect to the parties involved with this assignment. 4. Our engagement in this assignment was not contingent upon developing or reporting predetermined results. 5. Our compensation for completing this assignment is not contingent upon the development or reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal. 6. This appraisal assignment was not based upon a requested minimum valuation, a specific valuation, or the approval of a loan. 7. Our analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice of The Appraisal Foundation and the requirements of the Code of Professional Ethics and the Standards of Professional Appraisal Practice of the Appraisal Institute, as well as the requirements of the State of Georgia relating to review by its duly authorized representatives. This report also conforms to the requirements of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA). 8. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. 9. Ronald A. Neyhart, MAI has completed the requirements of the continuing education program of the Appraisal Institute. 10. Raymond A. Higgins has made a personal inspection of the property that is the subject of this report. Ronald A. Neyhart, MAI has not made a personal inspection of the subject property. 11. No one provided significant real property appraisal assistance to the persons signing this report. 12. Raymond A. Higgins and Ronald A. Neyhart, MAI have extensive experience in the appraisal/review of similar property types. 13. Raymond A. Higgins and Ronald A. Neyhart, MAI are currently certified in the state where the subject is located. 14. Valuation & Advisory Services operates as an independent economic entity within CB Richard Ellis, Inc. Although employees of other CB Richard Ellis, Inc. divisions may be contacted as a part of our routine market research investigations, absolute client confidentiality and privacy are maintained at all times with regard to this assignment without conflict of interest. ________________________________________ ____________________________________ Raymond A. Higgins Ronald A. Neyhart, MAI Vice President Senior Managing Director Georgia State Certification No. CG001388 Georgia State Certification No. CG000490 i WOOD LAKE APARTMENTS SUBJECT PHOTOGRAPHS SUBJECT PHOTOGRAPHS Insert digital photo pages here ii WOOD LAKE APARTMENTS SUMMARY OF SALIENT FACTS iii WOOD LAKE APARTMENTS SUMMARY OF SALIENT FACTS SUMMARY OF SALIENT FACTS PROPERTY NAME Wood Lake Apartments LOCATION 100 Pinhurst Drive, Atlanta, GA ASSESSOR'S PARCEL NUMBER 17-0950-061 HIGHEST AND BEST USE As Though Vacant Apartment As Improved Apartment PROPERTY RIGHTS APPRAISED Fee Simple DATE OF INSPECTION May 15, 2003 LAND AREA 16.97 AC IMPROVEMENTS Number of Buildings 11 Number of Stories 2 & 3 Gross Building Area 229,774 SF Net Rentable Area 227,474 SF Number of Units 220 Average Unit Size 1,034 SF Year Built 1981 Condition Good ESTIMATED EXPOSURE TIME 9 Months FINANCIAL INDICATORS Current Overall Occupancy 92.7% Stabilized Overall Occupancy 90.0% Overall Capitalization Rate 7.75%
TOTAL PER UNIT ----------- -------- STABILIZED OPERATING DATA ON MAY 15, 2003 Effective Gross Income $ 1,925,379 $ 8,752 Operating Expenses $ 835,591 $ 3,798 Expense Ratio 43.40% Net Operating Income $ 1,089,788 $ 4,954 VALUATION MARKET VALUE AS IS ON MAY 15, 2003 Land Value $ 2,750,000 $12,500 Cost Approach $14,400,000 $65,455 Sales Comparison Approach $14,100,000 $64,091 Income Capitalization Approach $14,100,000 $64,091
CONCLUDED MARKET VALUE
APPRAISAL PREMISE INTEREST APPRAISED DATE OF VALUE VALUE - ------------------ ------------------ ------------- ----------- Market Value As Is Fee Simple May 15, 2003 $14,100,000
Source: CB Richard Ellis, Inc. iv WOOD LAKE APARTMENTS SUMMARY OF SALIENT FACTS SPECIAL ASSUMPTIONS It should be noted that the property currently has two down units from foundation leaks that will be repaired in the near-term. The damages are minor and have not been taken into consideration in our analysis. v WOOD LAKE APARTMENTS TABLE OF CONTENTS TABLE OF CONTENTS CERTIFICATION OF THE APPRAISAL................................................................................... i SUBJECT PHOTOGRAPHS.............................................................................................. ii SUMMARY OF SALIENT FACTS......................................................................................... iv TABLE OF CONTENTS................................................................................................ vi INTRODUCTION..................................................................................................... 1 AREA ANALYSIS.................................................................................................... 6 NEIGHBORHOOD ANALYSIS............................................................................................ 17 MARKET ANALYSIS.................................................................................................. 21 SITE ANALYSIS.................................................................................................... 41 IMPROVEMENT ANALYSIS............................................................................................. 44 ZONING........................................................................................................... 50 TAX AND ASSESSMENT DATA.......................................................................................... 51 HIGHEST AND BEST USE............................................................................................. 53 APPRAISAL METHODOLOGY............................................................................................ 55 LAND VALUE....................................................................................................... 57 COST APPROACH.................................................................................................... 61 SALES COMPARISON APPROACH........................................................................................ 65 INCOME CAPITALIZATION APPROACH................................................................................... 70 RECONCILIATION OF VALUE.......................................................................................... 93 ASSUMPTIONS AND LIMITING CONDITIONS.............................................................................. 95 ADDENDA A Glossary of Terms B Additional Subject Photographs C Comparable Land Sales D Improved Comparable Sales E Rent Comparables F Demographics G Rent Roll H Historical Operating Statements I Freddie Mac Form 439 J Qualifications
vi WOOD LAKE APARTMENTS INTRODUCTION INTRODUCTION PROPERTY IDENTIFICATION The subject is a 220-unit garden apartment property, built in 1981. The property is situated on a 16.97-acre site, in unincorporated Cobb County, metropolitan Atlanta, Georgia. The subject has a street address of 100 Pinhurst Drive and is identified as parcel 17-0950-061 by the Cobb County Tax Assessor's office. OWNERSHIP AND PROPERTY HISTORY According to Cobb County records, title to the property is currently vested in the name of Century Properties Fund XIX. CB Richard Ellis is not aware of any ownership transfers of the property in the last three years. Furthermore, the property is not reportedly under contract or being marketed for sale at the time of this appraisal. DATE OF INSPECTION The subject was inspected on May 15, 2003. DATE OF VALUE The date of appraisal for the "as is" value is May 15, 2003. DATE OF REPORT The date of report is the date indicated on the letter of transmittal. PURPOSE OF THE APPRAISAL The purpose of this appraisal is to estimate the market value of the subject property. The current economic definition agreed upon by agencies that regulate federal financial institutions in the U.S. (and used herein) is as follows: The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: 1. buyer and seller are typically motivated; 2. both parties are well informed or well advised, and acting in what they consider their own best interests; 3. a reasonable time is allowed for exposure in the open market; 4. payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and, 1 WOOD LAKE APARTMENTS INTRODUCTION 5. the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. (1) PREMISE OF THE APPRAISAL The premise of this appraisal valuation is "as is" on the date of value. TERMS AND DEFINITIONS The Glossary of Terms in the Addenda provides definitions for terms that are, and may be used, in this appraisal. INTENDED USE AND USER OF REPORT This appraisal is to be used in the underwriting of the property for a mortgage loan. PROPERTY RIGHTS APPRAISED The interest appraised represents the fee simple estate. SCOPE OF WORK The scope of the assignment relates to the extent and manner in which research is conducted, data is gathered and analysis is applied, all based upon the purpose of the appraisal and its intended use, as previously outlined. CB Richard Ellis, Inc. completed the following steps for this assignment: 1. physically identified and inspected both the interior and exterior of the subject property, as well as its surrounding environs; identified and considered those characteristics that may have a legal, economic or physical impact on the subject; 2. physically inspected the micro and/or macro market environments with respect to physical and economic factors relevant to the valuation process; expanded this knowledge through interviews with regional and/or local market participants, available published data and other various resources; 3. conducted regional and/or local research with respect to applicable tax data, zoning requirements, flood zone status, demographics, income and expense data, and comparable listing, sale and rental information; 4. analyzed the data gathered through the use of appropriate and accepted appraisal methodology to arrive at a probable value indication via each applicable approach to value; 5. correlated and reconciled the results into a reasonable and defensible value conclusion, as defined herein; and, - ---------- (1) Appraisal Standards Board of The Appraisal Foundation, Uniform Standards of Professional Appraisal Practice, 2002 ed. (Washington, DC: The Appraisal Foundation, 2002), 219; Appraisal Institute, The Dictionary of Real Estate Appraisal, 3rd ed. (Chicago: Appraisal Institute, 1993), 222-223. This definition is also compatible with the OTS, OCC, RTC, FDIC, FRS and NCUA definitions of market value. 2 WOOD LAKE APARTMENTS INTRODUCTION 6. estimated a reasonable exposure time and marketing time associated with the value estimate presented. To develop the opinion of value, CB Richard Ellis, Inc. performed a Complete Appraisal as defined by the Uniform Standards of Professional Appraisal Practice (USPAP). This means that no departures from Standard 1 were invoked. In this Complete Appraisal, CB Richard Ellis, Inc. used all appropriate approaches to value. Furthermore, the value conclusion reflects all known information about the subject, market conditions, and available data. This appraisal of the subject has been presented in the form of a Self-Contained Appraisal Report, which is intended to comply with the reporting requirements set forth under Standards Rule 2-2(a) of the USPAP. That is, this report incorporates, to the fullest extent possible, practical explanation of the data, reasoning and analysis that were used to develop the opinion of value. This report also includes thorough descriptions of the subject and the market for the property type. SPECIAL APPRAISAL INSTRUCTIONS There have been no special appraisal instructions for this assignment. EXPOSURE TIME An estimate of exposure time is not intended to be a prediction of a date of sale or a simple one-line statement. Instead, it is an integral part of the appraisal analysis and is based on one or more of the following: - statistical information about days on the market - information gathered through sales verification - interviews of market participants. The reasonable exposure period is a function of price, time, and use. It is not an isolated estimate of time alone. Exposure time is different for various types of real estate and under various market conditions. Exposure time is the estimated length of time the property would have been offered prior to a hypothetical market value sale on the effective date of appraisal. It is a retrospective estimate based on an analysis of recent past events, assuming a competitive and open market. It assumes not only adequate, sufficient, and reasonable time but also adequate, sufficient, and reasonable marketing effort. Exposure time is therefore interrelated with appraisal conclusion of value. In consideration of these factors, we have analyzed the following: - exposure periods of comparable sales revealed during the course of this appraisal; - the CB Richard Ellis, Inc. National Investor Survey; and, - knowledgeable real estate professionals. 3 WOOD LAKE APARTMENTS INTRODUCTION The following table presents the information derived from these sources: EXPOSURE TIME INFORMATION - APARTMENT PROPERTIES
Exposure Time (Months) ------------------------- Data Source Range Average - ----------- ---------- ------- National Investor Survey, 2003 Class A 2.0 - 36.0 6.64 Class B 3.0 - 24.0 6.68 Class C 3.0 - 24.0 6.89
Source: CB Richard Ellis, Inc. National Investor Survey Based on the foregoing analysis, an exposure time of nine months is reasonable, defensible, and appropriate. CB Richard Ellis, Inc. assumes the subject would have been competitively priced and aggressively promoted regionally. MARKETING TIME Marketing time is the period a prospective investor would forecast to sell the subject property immediately after the date of value, at the value estimated. The marketing time is an estimate of the number of months it will require to sell the subject from the date of value, into the future. The anticipated marketing time is essentially a measure of the perceived level of risk associated with the marketability, or liquidity, of the subject property. The marketing time estimate is based on the data used in estimating the reasonable exposure time, in addition to an analysis of the anticipated changes in market conditions following the date of appraisal. The future price for the subject (at the end of the marketing time) may or may not equal the appraisal estimate. The future price depends on unpredictable changes in the physical real estate, demographic and economic trends, real estate markets in general, supply/demand characteristics for the property type, and many other factors. 4 WOOD LAKE APARTMENTS AREA ANALYSIS AREA MAP (NOT A FACING PAGE) Replace this page with the indicated exhibit. 5 WOOD LAKE APARTMENTS AREA ANALYSIS AREA ANALYSIS LOCATION The subject property is located in the Atlanta metropolitan statistical area (MSA). The 20-county MSA includes the state capital and the state's largest city, Atlanta. POPULATION The following table of population statistics shows changes in population from the 1990 and 2000 censuses, estimates for the current year, and forward projections for the MSA. As these data demonstrate, there has been a significant increase in the area population during the last two decades and that growth is projected to continue into the foreseeable future. POPULATION OF MSA BY COUNTY
1990 2000 1990-2000 Percentage 2002 2007 2002-2007 County Census Census Ann. Growth of MSA Estimate Projection Ann. Growth - ------ --------- --------- ----------- ---------- --------- ---------- ----------- Barrow 29,721 46,144 4.6% 1% 49,513 57,868 3.4% Bartow 55,897 76,019 3.0% 2% 80,163 90,410 2.6% Carroll 71,422 87,268 1.8% 2% 90,666 98,986 1.8% Cherokee 90,204 141,903 4.8% 4% 153,097 180,614 3.6% Clayton 182,052 236,517 2.5% 6% 246,304 271,171 2.0% Cobb 447,745 607,751 3.0% 15% 635,495 706,631 2.2% Coweta 53,853 89,215 5.5% 2% 95,939 112,898 3.5% Dekalb 545,837 665,865 1.8% 16% 687,557 742,650 1.6% Douglas 71,120 92,174 2.5% 2% 95,966 105,658 2.0% Fayette 62,415 91,263 3.9% 2% 96,516 109,878 2.8% Forsyth 44,083 98,407 10.3% 3% 110,512 140,083 5.4% Fulton 648,951 816,006 2.1% 19% 842,615 911,700 1.6% Gwinnett 352,910 588,448 5.6% 15% 632,751 744,477 3.5% Henry 58,741 119,341 8.6% 3% 132,112 163,684 4.8% Newton 41,808 62,001 4.0% 2% 66,335 76,985 3.2% Paulding 41,611 81,678 8.0% 2% 89,818 110,082 4.5% Pickens 14,432 22,983 4.9% 1% 24,957 29,751 3.8% Rockdale 54,091 70,111 2.5% 2% 72,322 78,309 1.7% Spalding 54,457 58,417 0.6% 1% 59,047 60,703 0.6% Walton 38,586 60,687 4.8% 2% 65,752 78,059 3.7% --------- --------- ---- --------- --------- --- Total MSA 2,959,936 4,112,198 3.2% 4,327,437 4,870,597 2.5% --------- --------- ---- --------- --------- ---
Source: Claritas, Inc. The following list provides comparative metropolitan population gain for the top 10 MSA's plus other selected metropolitan areas in the southeast across the previous decade. Atlanta has consistently ranked among the top 10. 6 WOOD LAKE APARTMENTS AREA ANALYSIS POPULATION GROWTH IN SELECTED METROPOLITAN AREAS
Rank Metropolitan Statistical Area %Gain Rank Metropolitan Statistical Area %Gain - ---- ----------------------------- ------ ---- ----------------------------- ----- 1 Las Vegas, NV 83.3% 12 Charlotte-Gastonia, NC 29.0% 2 Mcallen-Edinburg-Mission, TX 48.5% 16 Nashville, TN 25.0% 3 Austin-San Marcos, TX 47.7% 27 Greensboro-Winston-Salem, NC 19.2% 4 Phoenix-Mesa, AZ 45.3% 28 Columbia, SC 18.4% 5 Atlanta, GA 38.9% 29 Knoxville, TN 17.3% 6 Raleigh-Durham-Chapel Hill, NC 38.9% 34 Greenville-Spartanburg, SC 15.9% 7 Orlando, FL 34.3% 45 Memphis, Tennessee 12.7% 8 W Palm Beach-Boca Raton, FL 31.0% 54 Birmingham, AL 9.6% 9 Denver-Boulder-Greeley, CO 30.4% 58 Charleston-North Charleston, SC 8.3% 10 Colorado Springs, CO 30.2% 59 Louisville, KY 8.1%
Population growth for 82 metropolitan areas with total population exceeding 500,000, ranked by percent change, based on total population estimates for 1990 to 2000. Source: US Census Bureau; Compiled by CB Richard Ellis The overall percentage gain for all metropolitan markets is 13.8%, representing the addition of approximately 27.8 million people in metropolitan areas. HOUSEHOLDS The following table shows changes in demographic statistics by household based on the 2000 Census. 7 WOOD LAKE APARTMENTS AREA ANALYSIS MSA HOUSEHOLD PROFILES BY COUNTY
Households Housing Median Income ---------------------------------------- ----------------------- -------------------- 2000 2002 2007 Owner Persons Per Per Per County Census Estimate Projection Occupied HH Household Capita - ------ --------- --------- ---------- -------- ----------- --------- -------- Barrow 16,354 17,530 20,429 76% 2.79 $ 41,235 $ 17,674 Bartow 27,176 28,671 32,365 75% 2.76 $ 45,976 $ 20,846 Carroll 31,568 32,929 36,298 71% 2.66 $ 39,089 $ 18,705 Cherokee 49,495 53,453 63,201 84% 2.85 $ 63,091 $ 26,204 Clayton 82,243 85,324 93,049 61% 2.84 $ 49,738 $ 20,653 Cobb 227,487 237,409 262,668 68% 2.64 $ 70,401 $ 33,539 Coweta 31,442 33,846 39,917 78% 2.81 $ 48,087 $ 22,476 Dekalb 249,339 256,889 275,903 58% 2.62 $ 60,211 $ 29,226 Douglas 32,822 34,397 38,500 75% 2.78 $ 56,998 $ 24,368 Fayette 31,524 33,487 38,546 86% 2.88 $ 77,551 $ 32,664 Forsyth 34,565 38,687 48,605 88% 2.83 $ 68,123 $ 30,342 Fulton 321,242 332,031 360,034 52% 2.44 $ 56,956 $ 35,544 Gwinnett 202,317 216,464 251,462 72% 2.88 $ 75,504 $ 31,156 Henry 41,373 45,923 57,255 85% 2.87 $ 50,486 $ 21,083 Newton 21,997 23,663 27,825 78% 2.77 $ 40,927 $ 18,743 Paulding 28,089 30,894 37,866 87% 2.89 $ 42,686 $ 17,191 Pickens 8,960 9,797 11,880 82% 2.54 $ 42,074 $ 22,149 Rockdale 24,052 24,888 27,160 75% 2.87 $ 57,698 $ 25,081 Spalding 21,519 21,859 22,755 63% 2.67 $ 40,925 $ 19,618 Walton 21,307 23,129 27,579 77% 2.82 $ 38,321 $ 17,425 --------- --------- --------- -- ---- -------- -------- Total MSA 1,504,871 1,581,270 1,773,297 66% 2.68 $ 59,964 $ 29,037 --------- --------- --------- -- ---- -------- --------
Source: Claritas, Inc. EMPLOYMENT Atlanta continues to lead the southeast region of the United States in commercial, industrial, and financial sectors. The following chart presents the diversity of Atlanta's economic base. Compared with employment distribution for the US, Atlanta is less dependent on services but more dependent on retail trade, with resources being evenly distributed to other sectors. 8 WOOD LAKE APARTMENTS AREA ANALYSIS EMPLOYMENT BY SECTORS [PIE CHART] Agriculture, Mining, Construction, Other 8% Manufacturing 11% Transport,/Utility 7% Wholesale Trade 7% Government 5% Retail Trade 21% Finance, Insurance, Real Estate 8% Services 33%
Source: Bureau of Economic Analysis Entering the second half of 2002, job growth appeared to be negligible at the national level. Georgia and metro Atlanta seem to be consistent in reflecting this trend. The top 25 public companies in Georgia have announced layoffs or scaled back operations, having suffered setbacks in market valuation. However, owing to its diverse economy, Atlanta has undergone growth in defense, health services, and retail (discount stores) employment. During 1993, 1994, 1996, and 1999, Atlanta led the nation in job growth - ranking among the top 10 cities in the nation for job growth in the previous decade. Following these years of expansion, the recession that began in 2001 hit Atlanta hard. Job growth was reduced to negligible levels in 2001 and losses accumulated through 2002. On a seasonally adjusted basis, nonagricultural employment in metro Atlanta stands at just over 2.1 million. The current national economic climate, aggravated by geopolitical tensions around the world, continues to have a detrimental effect on the regional economy. Prospects for resumption of positive levels of job creation are just beginning to be apparent, and near-term prospects reflect the beginning of slow recovery through 2003. The following table summarizes job creation trends, according to the quarterly economic forecast published by Georgia State University's (GSU) Economic Forecasting Center. 9 WOOD LAKE APARTMENTS AREA ANALYSIS METRO ATLANTA JOB GROWTH [BAR CHART]
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- Georgia 156.8 137.2 125.2 87.0 124.5 143.3 66.5 8.1 (86.7) (5.0) 63.6 84.4 Atlanta 97.5 84.0 86.0 56.0 83.6 87.4 52.2 9.1 (54.3) 2.8 45.9 56.0
Source: Georgia State University Economic Forecasting Center (February 2003) According to GSU's Economic Forecasting Center, job losses for 2002 in Atlanta totaled 54,300. The growth sectors that had continued strength through the 1990's - tourism, transportation, and telecommunications - were all negatively impacted by the recession, the attacks on September 11, 2001, or both. Passenger traffic at major airlines remains below peak. Convention business is slow, and hotel room rates have not begun to grow following competitive reductions. Telecom remains saturated with excess capacity. Thus, according to Rajeev Dhawan, Director of the Economic Forecasting Center, while the regional economy grew faster than the national average over the past decade, Atlanta may lag behind the nation in near-term recovery. Dhawan projects that the US economy will begin to grow by early Fourth Quarter 2003, assuming a quick victory in engaging Iraq. A quick victory in Iraq is generally perceived to be in the near-term. With perceptions evolving to a diminished threat of terrorism, corporate decision makers are anticipated to begin reengaging and expand hiring. As job growth picks up, fundamental reasons for increases in consumption and income growth will replace the current patchwork of credit and home equity cash-outs, according to the forecast. We note from our own observations that the Atlanta economy has continued to outperform expectations year after year. While the prospects for near-term expansion continue to be modest, in long-term projections, the Atlanta metropolitan area is forecast to remain a national leader in job creation. 10 WOOD LAKE APARTMENTS AREA ANALYSIS The following table shows the historic strength of the local employment market, comparing the unemployment rate for the metropolitan area to that of the state and country. ANNUAL UNEMPLOYMENT RATE
MSA State US ---- ----- ---- 1995 4.3% 4.9% 5.6% 1996 3.8% 4.6% 5.4% 1997 3.7% 4.5% 4.9% 1998 3.3% 4.2% 4.5% 1999 3.1% 4.0% 4.2% 2000 3.0% 3.7% 4.0% 2001 3.5% 4.0% 4.8% 2002 4.8% 4.6% 5.8%
Source: US Bureau of Labor Statistics Preliminary data reported for indicate that the annual average unemployment rate for Atlanta was 5.8% in 2002, which represents a noticeable increase over the prior year. The metropolitan area is home to operations for over 700 of the Fortune 1,000 - 24 of the Fortune 1,000 companies are headquartered in the metro area. The largest corporate employers are listed in the following table. LARGEST CORPORATE EMPLOYERS
COMPANY INDUSTRY SCOPE OF OPERATIONS EMPLOYEES - ------- -------- ------------------- --------- 1. Delta Air Lines Transportation Headquarters 26,200 2. Bellsouth Telecommunication Headquarters 22,000 3. Wal-Mart Stores Retail Merchandiser Regional 15,100 4. At&T Corporation Telecommunication Regional 10,000 5. The Home Depot Retail Merchandiser Headquarters 9,700 6. Ibm Corporation Technology Regional 8,400 7. United Parcel Service Transportation Headquarters 8,100 8. Suntrust Finance Headquarters 6,700 9. Cox Enterprises Media Headquarters 6,200 10. Wachovia Finance Regional 6,000
Source: Atlanta Business Chronicle, March 2002 COMMERCIAL PROPERTY PRICE AND RENT TRENDS With growth in the population and employment, there have been corresponding steady rises in prices for real estate. The following tables provide information for various property types, comparing metro Atlanta with national averages. 11 WOOD LAKE APARTMENTS AREA ANALYSIS AVERAGE SALES PRICE COMPARISON
Period CBD Office Suburban Office Industrial Retail Apartment (Year/Qtr) Atlanta US Atlanta US Atlanta US Atlanta US Atlanta US - ---------- ------- --- ------- --- ------- -- ------- --- ------- --- 1995 / 4 133 143 112 110 30 34 105 100 60 67 1996 / 4 137 148 125 123 33 36 116 105 67 74 1997 / 4 141 166 145 142 33 39 108 113 72 81 1998 / 4 138 190 142 152 36 42 112 117 77 89 1999 / 4 144 194 153 163 35 43 121 120 86 95 2000 / 4 159 216 170 180 38 45 122 122 85 104 2001 / 4 146 204 156 174 34 44 115 118 81 104 2002 / 4 139 210 151 179 36 44 115 123 81 106
Note: Prices are given in dollars per square foot, rounded, for Class A property sectors. Source: CB Richard Ellis/National Real Estate Index Market Monitor, 415 733 5300 AVERAGE RENTAL RATE COMPARISON
Period CBD Office Suburban Office Industrial Retail Apartment (Year/Qtr) Atlanta US Atlanta US Atlanta US Atlanta US Atlanta US - ---------- ------- ----- ------- ----- ------- ---- ------- ----- ------- ----- 1995 / 4 23.57 22.49 19.27 19.30 3.80 4.69 14.99 14.72 9.94 11.10 1996 / 4 23.42 23.97 22.36 21.06 4.01 4.95 15.17 15.42 10.06 11.71 1997 / 4 24.58 27.12 23.75 23.19 4.09 5.14 15.50 16.33 10.24 12.21 1998 / 4 25.46 29.72 23.23 24.28 4.07 5.33 16.11 16.91 10.47 13.02 1999 / 4 25.90 31.50 22.75 24.89 4.28 5.57 17.00 17.31 10.62 13.58 2000 / 4 27.00 35.51 23.12 28.17 4.42 5.80 17.07 17.80 11.33 14.43 2001 / 4 25.80 32.63 21.36 25.47 4.26 5.61 16.60 17.49 10.94 14.54 2002 / 4 24.15 30.04 19.61 23.46 3.93 5.37 16.55 17.47 10.13 14.12
Note: Rents are presented in dollars per square foot for Class A properties. Office, industrial, and apartment properties are given on an effective gross basis; retail properties, on a triple net basis. Source: CB Richard Ellis/National Real Estate Index Market Monitor, 415 733 5300 CAPITALIZATION RATE COMPARISON
Period CBD Office Suburban Office Industrial Retail Apartment (Year/Qtr) Atlanta US Atlanta US Atlanta US Atlanta US Atlanta US - ---------- ------- ---- ------- ---- ------- ---- ------- ---- ------- ---- 1995 / 4 8.3% 9.0% 9.3% 9.6% 9.1% 9.3% 8.6% 9.4% 8.3% 9.1% 1996 / 4 8.7% 9.0% 9.2% 9.2% 8.8% 9.2% 8.3% 9.3% 7.8% 8.9% 1997 / 4 8.9% 8.9% 9.2% 9.1% 9.1% 9.0% 9.4% 9.2% 8.5% 8.9% 1998 / 4 9.5% 8.6% 9.7% 9.0% 8.9% 8.9% 9.1% 9.1% 8.4% 8.8% 1999 / 4 9.2% 8.9% 8.9% 8.7% 9.3% 9.1% 8.7% 9.0% 8.1% 8.7% 2000 / 4 9.0% 8.7% 8.1% 8.6% 8.5% 9.0% 9.1% 9.1% 7.6% 8.4% 2001 / 4 9.6% 8.9% 8.5% 8.6% 9.5% 9.1% 9.4% 9.3% 8.3% 8.5% 2002 / 4 9.8% 7.6% 8.0% 7.4% 8.6% 8.7% 9.5% 8.9% 7.6% 7.9%
Note: Cap rates are determined from actual net operating income either from actual sales or from representative prototypes for Class A property sectors. Source: CB Richard Ellis/National Real Estate Index Market Monitor, 415 733 5300 RESIDENTIAL HOME COSTS The following chart compares the median home price for Atlanta and the nation. 12 WOOD LAKE APARTMENTS AREA ANALYSIS SINGLE FAMILY MEDIAN HOME PRICE [BAR CHART]
1997 1998 1999 2000 2001 2002 -------- -------- -------- -------- -------- -------- Atlanta $108,400 $115,400 $123,700 $131,200 $138,800 $146,500 US $121,800 $128,400 $133,300 $139,100 $147,500 $158,300
Source: National Association of Realtors COST OF LIVING The Cost of Living Index, published by the American Chamber of Commerce Researchers Association, measures relative price levels for consumer goods and services in participating areas. The average of all participating municipalities equals 100, and the Atlanta index is read as a percentage against that national measure, shown along with other Southeastern metropolitan areas in the table below. COST OF LIVING
Location Total Grocery Housing Utilities Trans Health Misc. - -------- ----- ------- ------- --------- ----- ------ ----- Memphis 87.1 90.9 78.3 78.5 94.1 90.2 92.3 Knoxville 89.1 95.4 78.3 91.8 86.1 88.1 95.7 Augusta-Aiken 91.0 104.4 71.9 91.2 99.8 94.3 97.5 Winston-Salem 91.7 94.7 85.9 91.9 92.3 85.6 95.7 Nashville-Franklin 91.7 99.1 81.7 80.4 93.3 82.9 100.3 Greenville 94.7 96.7 78.3 103.7 100.8 91.9 104.0 Columbia 95.1 99.2 85.4 114.7 88.8 89.7 99.2 Charlotte 95.7 94.9 88.5 91.3 102.7 95.5 101.2 Birmingham 97.6 107.1 84.4 102.8 97.4 87.1 104.7 Atlanta 98.1 101.9 94.5 92.1 101.8 106.3 98.3 Charleston-N Charleston 100.7 98.9 100.9 96.8 99.3 97.7 103.3 Raleigh 101.0 108.0 96.8 99.5 97.4 102.0 102.4
Source: ACCRA Cost of Living Index 13 WOOD LAKE APARTMENTS AREA ANALYSIS RETAIL SALES Atlanta has shown consistent, strong growth in retail sales, ranking in the top 10 national markets for retail sales over the past five years. Annual sales volumes for the metropolitan area, prepared by Claritas are depicted in the following chart. Note that data reported prior to 1999 are not comparable with data in 2000 and following; the adoption of NAFTA required replacement of SIC codes with NAICS codes. RETAIL SALES GROWTH [BAR CHART]
1995 1996 1997 1998 2000 2001 2002 - ----- ----- ----- ----- ----- ----- ----- $34.9 $37.6 $40.2 $43.7 $59.6 $64.6 $64.7
Numbers shown are $billion. Source: Sales & Marketing Management (to 1998) and Claritas, Inc. (2000 and following) Based on population, current spending trends and total sales, and other demographic factors, Claritas projects that total retail sales for the metro area will reach $88.8 billion by the year 2007, a growth rate of 7.5% per annum. TRANSPORTATION Atlanta began in the nineteenth century as a railway and manufacturing center and continues to maintain and improve its transportation systems, enhancing a primary reason for the area's economic growth and development. Air transportation continues to recover at Hartsfield-Atlanta International Airport, which remains the world's busiest passenger airport. Surpassing Chicago O'Hare (66.56 million passengers) and Los Angeles International (56.22 million passengers), Atlanta Hartsfield has maintained its top ranking in measures of passenger traffic and aircraft movement since 1998. More than 80% of the US population is reachable by air within two hours of Atlanta. 14 WOOD LAKE APARTMENTS AREA ANALYSIS ATLANTA HARTSFIELD INTERNATIONAL AIRPORT
ACTIVITY 1997 1998 1999 2000 2001 2002 - -------- ------- ------- ------- ------- ------- ------- PASSENGERS (MILLION) 68.21 73.47 78.09 80.16 75.86 76.88 CARGO (METRIC TONS) 864,474 907,208 882,994 894,471 735,796 734,083 MOVEMENTS (LANDING/TAKEOFF) 794,447 846,881 909,911 915,454 890,494 889,966
SOURCE: AIRPORTS COUNCIL INTERNATIONAL The airport has begun a 10-year facility expansion that will add a fifth runway by 2005. The new runway, which will measure either 6,000 or 9,000 feet in length, is projected to decrease the present average delay of 9:00 minutes per flight to 6:12 per flight. Additional enhancements will include a new rental car facility, international terminal, control tower, and possibly third major terminal. The economic impact of Hartsfield International Airport has been estimated at $16 billion annually for the metro Atlanta economy. Seven interstates serve metro Atlanta, including Interstates 75, 85, and 20, which run through the city, varying in width from four to fourteen lanes. In addition, a number of US and state highways, including Georgia Highway 400 (a primary north-south corridor, extending from the central business district northward), provide excellent regional access. Georgia has a historically strong commitment to maintaining its regional roads, and major interstate highway construction continues to meet projected growth and future needs. The Metropolitan Atlanta Rapid Transit Authority (MARTA) provides a 37-mile rapid rail transit system and extensive connector bus routes. Other available sources of commercially available ground transportation include Amtrak and Greyhound. CONCLUSION The Atlanta metropolitan region has played a major role in the growth of Georgia and the southeastern United States. A strong economic base has been shown in steady increases in population, in the diversity of the work force, and in job growth. Atlanta continues to gain new jobs faster and to maintain unemployment levels lower than most areas of the US. These demographic and employment trends indicate the primary drive for housing demand, retail sales, and commercial construction, and Atlanta continues to experience an exceptionally high level of economic prosperity. Atlanta has experienced tremendous growth in recent decades and taken its place as an international city. Despite modest slowing indicated by certain economic indicators, Atlanta's fundamentals remain strong and a pattern of stable growth should continue well into the foreseeable future. 15 WOOD LAKE APARTMENTS NEIGHBORHOOD ANALYSIS NEIGHBORHOOD MAP (NOT A FACING PAGE) 16 WOOD LAKE APARTMENTS NEIGHBORHOOD ANALYSIS NEIGHBORHOOD ANALYSIS The subject property is located along the north side of Mt. Wilkinson Parkway on Woodridge Drive, approximately one-mile south of Cumberland Mall. This location is approximately 10 miles northwest of the Atlanta Central Business District (CBD). The subject's neighborhood is generally defined by the following boundaries: North: Windy Hill Road South: Atlanta Road East: Interstate 75 West: South Cobb Drive The defined area generally encompasses a two- to three-mile radius from the subject property. LAND USE The neighborhood is an older, established area of northwest metropolitan Atlanta. The subject and its neighborhood are located in the southeastern portion of Cobb County, just south of the Interstate 75/Interstate 285 interchange. There are two major influences effecting the area: the development around Cumberland Mall/Galleria and Dobbins Air Reserve Base. The most intense development in the area is located in the northern portion of the defined neighborhood, in the area surrounding the intersection of Interstate 75 and Interstate 285. The development in this area has a heavy concentration of office and retail uses. The retail uses are anchored by Cumberland Mall and the Atlanta Galleria Specialty Mall. Cumberland Mall, a 1,200,000-square foot super regional facility, opened in 1973 and was the original catalyst of the significant level of real estate development in the area. This facility is located within the southwest quadrant of Interstate 285 and Cobb Parkway (U.S. Highway 41), just west of Interstate 75. This property was renovated in 1983, and is anchored by Rich's-Macy's, JC Penney and Sears. The other major retail development, the Galleria Specialty Mall, is located within the southeast quadrant of Interstate 285 and Cobb Parkway. Developed in 1983, the mall also includes an adjacent attached hotel, the Waverly. After lackluster retail performance, the upscale mall's owner renovated the center in 1994 in conjunction with the addition of approximately 300,000 square feet of convention and exhibit space. The new convention portion was named Cobb Galleria Centre. This project was the result of the combined efforts of the mall owners and the Cobb-Marietta Coliseum and Exhibit Hall Authority. The project was funded through a $48 million revenue bond issue. 17 WOOD LAKE APARTMENTS NEIGHBORHOOD ANALYSIS Another major development in the area is located several miles north of the subject. Dobbins Air Reserve Base, located on approximately 3,500 acres, is utilized by the U.S. Air Force, U.S. Navy and the Georgia Air National Guard. In addition, at the northwest portion of this facility is a Lockheed-Martin factory, which manufactures military aircraft, including the F-22, C-130 and previously the C5-A&B transport planes. This plant is one of the major employers of the area, with approximately 10,000 employees. Significant office developments in or near the neighborhood include: Atlanta Galleria, Wildwood Office Park, Interstate North, Circle 75 Office Park, Cumberland Office Park, Parkwood Office Park, Galleria 75 Office Park and Powers Ferry Landing Office Park. This submarket is the second largest office submarket in the metropolitan area. The remaining commercial development in the neighborhood consists of numerous community and neighborhood shopping centers, franchise restaurants, banking facilities, single-tenant retail facilities, automobile sales and service facilities, convenience stores and numerous similar uses. These developments are almost exclusively located along the primary local traffic arteries. The industrial development in the neighborhood consists almost exclusively of business parks and business service facilities. These developments are typically located along secondary roadways, but are positioned for convenient access to the interstate highways. The majority of these developments were constructed in the mid-1970's and mid-1980's. The residential development of the neighborhood consists of multi- and single-family uses. The area just inside Interstate 285 along Paces Ferry Road, identified as Vinings, has experienced considerable growth for a small, highly developed area. However, in-fill development has occurred throughout the neighborhood, wherever developable land is available. This in-fill trend has occurred due to the desire of many people to be close to their places of employment and avoid lock commutes. In the current economic cycle, developers have built patio homes ranging in price from $250,000 to $1,000,000. The multi-family uses in the area are generally apartment complexes, but there are also various condominium uses in the area. There has been recent construction of apartments in the immediate area, consisting primarily of excellent quality Class A properties with a significant amount of amenities. The other area apartment complexes consist primarily of two product types. The properties developed in the mid- to late-1980's are typically class "A-" and "B", whereas the properties which were developed in the 1960's and 1970's are generally categorized as "B" and "C" grade developments. Neighborhood apartment development is located along primary and secondary roadways. 18 WOOD LAKE APARTMENTS NEIGHBORHOOD ANALYSIS The neighborhood also has a good level of supportive developments, including schools, parks and Houses of Worship. A discussion of the demographic nature of the neighborhood is included in the following Market Analysis. ACCESS The accessibility to the area in general, and the subject property in particular, is excellent. Interstate 75 extends through the neighborhood in a general northwest to southeast direction, providing direct access into the Atlanta Central Business District (CBD). Interstate 285 extends through the neighborhood from the northeast to the southwest, and forms Atlanta's circumferential bypass highway. Interstate 285 provides access throughout the metropolitan area. Access to Interstate 75 is provided at Cumberland Boulevard and Northside Drive, while access to Interstate 285 is provided at Paces Ferry Road and Cobb Parkway (U.S. Highway 41). Major secondary roadways in the neighborhood include Cobb Parkway (U.S. Highway 41), Paces Ferry Road, Atlanta Road, Cumberland Parkway, South Cobb Drive, Spring Road, Windy Hill Road, Akers Mill Road and Powers Ferry Road. These roadways extend in all directions and further enhance accessibility within the neighborhood. In addition to the primary thoroughfares, the neighborhood is served by the Cobb Community Transit bus service, which connects with the Atlanta MARTA bus and rail system. Bus service is available along most major roads in the immediate area. DEMOGRAPHICS Population growth and new household formations have been on an upward trend within the subject neighborhood. Selected neighborhood demographics in a one-, three-, and five-mile radius from the subject are shown in the following table: 19 WOOD LAKE APARTMENTS NEIGHBORHOOD ANALYSIS SELECTED NEIGHBORHOOD DEMOGRAPHICS
100 PINHURST DR Radius 1.0 Radius 3.0 Radius 5.0 ATLANTA, GA 30339-3641 Mile Miles Miles - ---------------------- ---------- ---------- ---------- Population 2007 Projection 10,561 69,609 188,940 2002 Estimate 9,525 64,101 174,262 2000 Census 9,122 61,996 168,651 2002 - 2007 % Change 10.9% 8.6% 8.4% Households 2007 Projection 5,944 35,185 83,948 2002 Estimate 5,398 32,439 77,840 2000 Census 5,170 31,357 75,542 2002 - 2007 % Change 10.1% 8.5% 7.8% 2002 Average Household Income $ 92,858 $102,867 $107,358 2002 Median Household Income $ 63,780 $ 62,040 $ 65,114 2002 Per Capita Income $ 53,155 $ 53,040 $ 47,790 2002 Median Owner Occ. Prop. Value $263,846 $180,827 $183,000 % College Graduates 67.0% 55.0% 49.1%
Source: Claritas, Inc. The neighborhood currently has an above average income demographic profile. The outlook for the neighborhood is for stable performance with continued improvement over the next several years. As a result, the demand for existing and proposed developments is expected to be good. 20 WOOD LAKE APARTMENTS MARKET ANALYSIS MARKET ANALYSIS Marketability refers to the posture of the subject property within its marketplace and its ability to be leased, sold or marketed relative to its competition and current conditions. Within this section, the overall market trends influencing the Atlanta apartment market are analyzed, along with trends occurring in the local submarket, investment trends for multi-family properties, and demographic influences affecting the subject property. The primary data sources utilized for this analysis are the Atlanta Apartment Market Tracker Year-End 2002 and the Atlanta Apartment Pipeline Report Year-End 2002, published by Dale Henson Associates, Inc. The Atlanta Apartment Market Tracker focuses on apartment trends occurring within the nine of the 20 counties comprising the Atlanta metropolitan statistical area (MSA). These counties - Fulton, DeKalb, Cobb, Gwinnett, Clayton, Cherokee, Henry, Douglas, and Rockdale - - are subdivided into 17 apartment submarkets. The Atlanta Apartment Pipeline Report focuses on apartment projects that are recently completed, under construction or planned for development, as well as the lease-up and absorption levels witnessed at these properties. The Atlanta Apartment Pipeline Report covers all 20 counties within the MSA. The subject is located within the Cobb County submarket, as defined by the Dale Henson reports. A demographic study prepared by Claritas, Inc. has also been used to project probable future market demand for the subject property. The demographic study is included as an exhibit in the Addenda. METROPOLITAN ATLANTA APARTMENT MARKET OVERVIEW HISTORICAL TRENDS Metropolitan Atlanta has witnessed tremendous expansion in the past few decades, becoming the center of economic growth in the southeastern United States. Recognizing the area's growth potential, apartment developers from around the nation focused on Atlanta during the mid-1980's. The strong national economic conditions of the times provided ample demand, which increased rental rates and occupancy rates to record levels. However, the deep national recession of the early 1990's resulted in low occupancy and rent levels, and an extreme over-supply. The Atlanta market began its recovery in early 1992 and generally maintained stable occupancy levels, even as steady expansion continued through 2000. However, with the economic downturn that began in early 2001, the apartment market began slowing. The following table illustrates overall metro Atlanta apartment occupancy levels over the past several years. 21 WOOD LAKE APARTMENTS MARKET ANALYSIS ATLANTA APARTMENT MARKET - HISTORICAL OCCUPANCY [BAR CHART]
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 - ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----- ----- ----- ----- ----- ----- 94% 94% 94% 90% 88% 88% 87% 91% 94% 96% 96% 93.5% 94.2% 95.3% 95.4% 95.7% 91.1% 89.4%
Source: The Atlanta Apartment Tracker, Dale Henson Associates, Inc. Occupancy levels have decreased from the levels witnessed over the end of the 1990's, declining as regional job growth turned negative. The largest drop was recorded in the year-end change from 2000 to 2001. Also, it is significant to note that occupancy levels remain somewhat stronger than the low points set in 1989 to 1991. The change reported for year-end 2001 to 2002 was relatively minor, and outperformed the generally grim expectations of many observers. Whether occupancy levels have indeed "bottomed out" remains unclear, as significant levels of job creation have not yet exceeded job reductions. Downward pressure on occupancy has placed competitive pressure on rental rates and upward pressure on the level of concessions offered. The following table illustrates the apartment market trends within the Atlanta metropolitan area over the past several years. METROPOLITAN ATLANTA APARTMENT MARKET - HISTORICAL TRENDS
Reported Street Rent Street Rent Effective Rent Reported Units Units Units Year Occupancy ($/Sf) ($/Unit/Mo.) ($/Unit/Mo.) Concessions Started Delivered Absorbed - ---- --------- ----------- ------------ -------------- ----------- ------- --------- -------- 1995 96.0% $ 0.64 $ 646 $ 621 $ 2 13,775 7,580 7,500 1996 93.5% $ 0.67 $ 678 $ 617 $ 17 11,073 11,800 10,050 1997 94.2% $ 0.69 $ 701 $ 639 $ 21 12,572 10,040 9,880 1998 95.3% $ 0.71 $ 725 $ 680 $ 12 12,569 11,930 12,090 1999 95.4% $ 0.74 $ 759 $ 707 $ 17 14,828 12,000 11,350 2000 95.7% $ 0.78 $ 792 $ 743 $ 14 11,288 12,820 12,800 2001 91.1% $ 0.79 $ 814 $ 679 $ 63 10,770 12,235 10,240 2002 89.4% $ 0.79 $ 814 $ 631 $ 98 7,750 12,641 4,961
Notes: Including properties with 50 units or more within the nine-county core area. Source: The Atlanta Apartment Tracker, Dale Henson Associates, Inc. 22 WOOD LAKE APARTMENTS MARKET ANALYSIS As illustrated, the overall occupancy level declined sharply from year-end 2000 to year-end 2001, from 95.7% to 91.1%. This deterioration is attributed to the general economic downturn, reflected in declining job growth in the Atlanta area. Since year-end 2001, the overall occupancy level witnessed an additional but more moderate decrease to 89.4% at year-end 2002. This slowing rate of decline is positive for the market, but recovery remains dependent on the return of economic expansion and positive levels of job creation. The previous table illustrates that metro Atlanta average street rental rates have remained nearly unchanged, despite the slowing economy. However, substantial change has been occurring in effective rents, which have deteriorated over the past two years. Changes have occurred primarily in the level of concessions and occupancy, which have reduced effective rental rates. Average effective rental rates decreased $64 from year-end 2000 to 2001, and $48 from year-end 2001 to 2002. These declines returned effective rents to 1997 levels. The market is perceived to be in a stronger position to return to growth in rents and occupancy when general economic expansion resumes, as the level of apartment starts is well below recent levels. Developers have delayed their construction schedules due to the slowing economy, which will prevent extreme overbuilding from occurring. Considering consensus economic projections that indicate positive job growth will resume by mid- to late-2003 and the absence of strong levels of new construction, projected occupancy is likely to return to 90%+ levels by late-2003 or mid-2004. In addition, Atlanta is generally well positioned to emerge successfully from the current recession, due to its high level of diversity, strong in-migration, and low business costs. The Atlanta metropolitan area witnessed tremendous job growth over the past decade and is expected to continue as the regional growth area over the long-term. SUPPLY COMPONENT The following table summarizes the metropolitan apartment supply by submarket, as of year-end. 23 WOOD LAKE APARTMENTS MARKET ANALYSIS METROPOLITAN ATLANTA APARTMENT MARKET
Total Percent of Reported Units Units Units Street Rent Street Rent Effective Rent Reported Submarket Units * Market Occupancy Delivered Absorbed Started (PSF) (Unit/Mo.) (Unit/Mo.) Concession - --------- -------- ---------- --------- --------- -------- ------- ----------- ----------- -------------- ---------- Buckhead/Brookhaven 19,770 5.7% 91.7% 520 217 586 $ 1.06 $ 1,137 $ 876 $ 167 Cherokee County 5,649 1.6% 90.7% 484 981 0 $ 0.75 $ 817 $ 637 $ 104 Clayton County 26,871 7.8% 90.5% 814 34 672 $ 0.68 $ 688 $ 581 $ 42 Cobb County 62,687 18.1% 89.1% 1,195 41 543 $ 0.79 $ 810 $ 621 $ 101 Decatur 10,826 3.1% 88.4% 355 (230) 255 $ 0.88 $ 873 $ 681 $ 91 Douglas County 6,325 1.8% 91.1% 364 117 932 $ 0.77 $ 781 $ 655 $ 56 East Dekalb County 10,658 3.1% 88.5% 483 122 0 $ 0.68 $ 724 $ 560 $ 81 Gwinnett County 48,642 14.0% 88.8% 2,977 1,938 992 $ 0.79 $ 810 $ 599 $ 121 Henry County 4,790 1.4% 90.0% 409 302 338 $ 0.71 $ 771 $ 639 $ 56 Midtown/Brookwood 15,000 4.3% 90.2% 1,228 1,217 1,088 $ 1.03 $ 937 $ 758 $ 87 North Dekalb County 31,311 9.0% 90.8% 614 (263) 0 $ 0.82 $ 833 $ 655 $ 101 North Fulton County 19,651 5.7% 90.2% 706 654 0 $ 0.81 $ 894 $ 681 $ 126 Rockdale County 2,827 0.8% 89.9% 176 22 0 $ 0.73 $ 741 $ 608 $ 57 Sandy Springs/Dunwoody 27,215 7.9% 91.2% 818 489 398 $ 0.88 $ 930 $ 713 $ 135 Southeast Dekalb County 10,284 3.0% 87.7% 730 239 964 $ 0.69 $ 762 $ 594 $ 74 Southwest Dekalb County 14,951 4.3% 88.0% 154 (396) 0 $ 0.65 $ 633 $ 526 $ 30 South Atlanta/South Fulton 28,761 8.3% 85.2% 614 (523) 982 $ 0.64 $ 618 $ 489 $ 38 ------- ----- ------ ----- ----- -------- ------- ------- ------- Totals/Average** 346,218 89.4% 12,641 4,961 7,750 $ 0.79 $ 814 $ 631 $ 98 ------- ----- ------ ----- ----- -------- ------- ------- -------
- ---------- Notes: * Including properties with 50 units or more. **Averages are weighted based on percent of overall market. Source: The Atlanta Apartment Tracker, Dale Henson Associates, Inc. As illustrated, there is a current overall supply of approximately 346,200 apartment units in the nine-county core of metropolitan Atlanta, taking into account only properties with 50 units or more. Cobb and Gwinnett Counties make-up the largest submarkets, with approximately 18% and 14% of the overall supply, respectively. However, Fulton and DeKalb Counties would account for the largest apartment inventories, if they were not divided into multiple submarkets. Submarkets located primarily in Fulton County combine for a total of approximately 110,400 units, or 32% of the metropolitan market. Submarkets located primarily in DeKalb County contain approximately 78,000 units, or 23% of the metropolitan market. All of the metropolitan Atlanta submarkets are currently witnessing average occupancy levels between 88% and 92%. Buckhead/Brookhaven, Sandy Springs/Dunwoody, and Douglas County reported the highest occupancy levels among all submarkets, with reported occupancy over 91% at year-end. The highest effective rental rates on a per square foot are being achieved in the Buckhead/Brookhaven and Midtown/Brookwood submarkets, which were both over $1.00 at year-end. The market average was $0.79 per square foot as of year-end. The Gwinnett County submarket witnessed the most apartment deliveries during 2002, with 2,977 units completed. The Midtown/Brookwood and Cobb County submarkets also saw significant deliveries during the year, with 1,228 and 1,195 new units added, respectively. Net absorption during 2002 was negative in only four of the 17 submarkets, as compared to nine submarkets with negative net absorption during 2001. This indicates that the market is in a better position to recover. The Gwinnett and Midtown/Brookwood submarkets had the highest levels of net absorption, with 1,938 and 1,217 units absorbed, respectively. 24 WOOD LAKE APARTMENTS MARKET ANALYSIS Construction starts were moderate compared to prior years. The Midtown/Brookwood submarket led with 1,088 units begun during 2002. Douglas County, Gwinnett County, Southeast DeKalb County, and South Atlanta/South Fulton also had relatively strong levels of starts, with over 900 units begun in each. (Note that Gwinnett County, which had 992 units started, was moderate compared with prior years, when 2,500 to 3,000 units were started.) Six of the 17 submarkets had no starts. With regard to future increases to apartment supply in metro Atlanta, the most important factor is the availability of suitable sites. Currently, developers are facing challenges in obtaining appropriately zoned apartment sites in areas with rent levels that can support new construction. The availability of apartment sites is being restricted, primarily by area governing authorities, which are resistant to new construction. Contributing to the governing authority's restrictive tendencies is the perception that apartments will eventually end-up oriented to lower-income groups within 20 or so years. Apartments are also perceived as contributing to overcrowding of area schools and a drain on the overall infrastructure (i.e. utilities, roads, etc.). As a result, several zoning authorities have instituted moratoriums on the rezoning of land for apartments, particularly in the northern portion of the metropolitan area. The decreasing supply of available apartment sites, along with the unwillingness of governmental bodies to approve re-zonings, has had a visible impact on developers, shown in the decreased level of starts. Another consideration in the supply picture is that the majority of new apartment construction is concentrated in several high-growth areas. Conversely, a large portion of the metro area is experiencing minimal or no new construction. The majority of the new apartment development, as with most other types of commercial development, has been in the area extending north of Atlanta's central business district, between Interstates 75 and 85. In the slower growth areas, rent levels are generally lower than in the northern portions of metropolitan Atlanta, making apartment development less attractive. These trends are expected to continue. DEMAND Demand for multi-family communities is primarily correlated to population and employment shifts. More recently, changes in capital markets, particularly the home mortgage market, have had an additional impact on demand. The primary indicator of apartment demand is changes in job growth, as the addition of new jobs ultimately provides the catalyst for new apartment construction. In the Atlanta area, the overall demand for apartments, as with all types of real estate, declined significantly during the early 1990s, a direct result of the decline in job growth. During 1993, 1994, 1996, and 1999, Atlanta led the nation in job growth - ranking among the top 10 cities in the nation for job growth in the previous decade. Following these years of expansion, the 25 WOOD LAKE APARTMENTS MARKET ANALYSIS recession that began in 2001 hit Atlanta hard. Job growth was reduced to negligible levels in 2001 and losses accumulated through 2002. On a seasonally adjusted basis, nonagricultural employment in metro Atlanta stands at just over 2.1 million. The current national economic climate, aggravated by geopolitical tensions around the world, continues to have a detrimental effect on the regional economy. Prospects for resumption of positive levels of job creation are just beginning to be apparent, and near-term prospects reflect the beginning of slow recovery through 2003. The following table summarizes job creation trends, according to the quarterly economic forecast published by Georgia State University's (GSU) Economic Forecasting Center. METRO ATLANTA JOB GROWTH [BAR CHART]
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Georgia 156.4 137.2 125.2 87.0 124.5 143.3 66.5 8.1 (86.7) (5.0) 63.6 84.4 Atlanta 97.5 84.0 86.0 56.0 83.6 87.2 52.2 9.1 (54.3) 2.8 45.9 56.0
Source: Georgia State University Economic Forecasting Center (February 2003) According to GSU's Economic Forecasting Center, job losses for 2002 in Atlanta totaled 54,300. The growth sectors that had continued strength through the 1990's - tourism, transportation, and telecommunications - were all negatively impacted by the recession, the attacks on September 11, 2001, or both. Passenger traffic at major airlines remains below peak. Convention business is slow, and hotel room rates have not begun to grow following competitive reductions. Telecom remains saturated with excess capacity. Thus, according to Rajeev Dhawan, Director of the Economic Forecasting Center, while the regional economy grew faster than the national average over the past decade, Atlanta may lag behind the nation in near-term recovery. Dhawan projects that the US economy will begin to grow by early Fourth Quarter 2003, assuming a quick victory in engaging Iraq. With perceptions evolving to a diminished threat of terrorism, corporate decision makers are anticipated to begin reengaging and expand hiring. As job growth 26 WOOD LAKE APARTMENTS MARKET ANALYSIS picks up, fundamental reasons for increases in consumption and income growth will replace the current patchwork of credit and home equity cash-outs, according to the forecast. We note from our own observations that the Atlanta economy has continued to outperform expectations year after year. While the prospects for near-term expansion continue to be modest, in long-term projections, the Atlanta metropolitan area is forecast to remain a national leader in job creation. First time home ownership has been increasingly competing with the multi-family rental market, and property occupancy has suffered directly as a result of the record low interest rate environment. The decline in interest rates that continued through 2002 made home ownership more attainable for an increasingly larger pool of prospects, allowing renters to buy homes and removing them from the rental market. In a rating action released in early 2003, Moody's Investor Service cited the economy and credit trends as having negatively impacted the multi-family market over the past year. With a shrinking pool of renters, revenue has declined through reduced occupancy levels. Typically, Class A resident pools can qualify for mortgage loans, both in terms of credit profile and income. In order to compete for the remaining renters, Class A properties have increased concessions and rent discounts. In some cases this makes the product affordable to the typical B and C class tenants, attracting them away from affordable properties. Even among the Class B and C resident pools, with various private and public programs, renters are finding themselves in a position to purchase a home. In Atlanta, with lower-cost starter homes readily available, a noticeable impact on multi-family occupancy has been attributed to changes in mortgage rates and terms. Interest rates are generally anticipated to be increased with the return of economic expansion, generally projected for mid- to late-2003. Residential mortgage rates will most likely increase in corresponding fashion. 27 WOOD LAKE APARTMENTS MARKET ANALYSIS PERFORMANCE MEASURES METROPOLITAN ATLANTA APARTMENT MARKET
YE % YE % YE % YE % YE CLASS "A" PROPERTIES 1998 Change 1999 Change 2000 Change 2001 Change 2002 - ---------------------- ------ ------ ------ ------ ------ ------ ------ ------ ------ Effective Rent $ 796 4.8% $ 834 6.4% $ 887 -11.4% $ 786 -5.5% $ 743 Street Rent (per Unit) $ 860 5.2% $ 905 4.2% $ 943 1.8% $ 960 -0.1% $ 959 Street Rent (per SF) $ 0.79 5.1% $ 0.83 3.6% $ 0.86 1.2% $ 0.87 -1.1% $ 0.86 Reported Occupancy 95.0% 0.1% 95.1% 0.8% 95.9% -5.0% 91.1% -0.1% 91.0% Reported Concessions $ 21 -- $ 26 -- $ 18 -- $ 89 -- $ 130
YE % YE % YE % YE % YE CLASS "B" PROPERTIES 1998 Change 1999 Change 2000 Change 2001 Change 2002 - ---------------------- ------ ------ ------ ------ ------ ------ ------ ------ ------ Effective Rent $ 693 2.7% $ 712 5.2% $ 749 -8.0% $ 689 -7.8% $ 635 Street Rent (per Unit) $ 742 3.1% $ 765 4.8% $ 802 3.2% $ 828 0.0% $ 828 Street Rent (per SF) $ 0.72 2.8% $ 0.74 4.1% $ 0.77 3.9% $ 0.80 0.0% $ 0.80 Reported Occupancy 95.2% 0.0% 95.2% 0.2% 95.4% -4.8% 90.8% -1.5% 89.4% Reported Concessions $ 13 -- $ 17 -- $ 16 -- $ 64 -- $ 106
YE % YE % YE % YE % YE CLASS "C" PROPERTIES 1998 Change 1999 Change 2000 Change 2001 Change 2002 - ---------------------- ------ ------ ------ ------ ------ ------ ------ ------ ------ Effective Rent $ 629 3.7% $ 652 4.1% $ 679 -8.2% $ 623 -7.4% $ 577 Street Rent (per Unit) $ 665 4.2% $ 693 4.6% $ 725 1.8% $ 738 -0.1% $ 737 Street Rent (per SF) $ 0.68 4.4% $ 0.71 4.2% $ 0.74 1.4% $ 0.75 0.0% $ 0.75 Reported Occupancy 96.0% -0.1% 95.9% -0.6% 95.3% -3.9% 91.6% -2.6% 89.2% Reported Concessions $ 9 -- $ 12 -- $ 12 -- $ 52 -- $ 81
YE % YE % YE % YE % YE OVERALL MARKET 1998 Change 1999 Change 2000 Change 2001 Change 2002 - ---------------------- ------ ------ ------ ------ ------ ------ ------ ------ ------ Effective Rent $ 678 4.3% $ 707 5.1% $ 743 -8.6% $ 679 -7.1% $ 631 Street Rent (per Unit) $ 725 4.7% $ 759 4.3% $ 792 2.8% $ 814 0.0% $ 814 Street Rent (per SF) $ 0.71 4.2% $ 0.74 5.4% $ 0.78 1.3% $ 0.79 0.0% $ 0.79 Reported Occupancy 95.3% 0.1% 95.4% 0.1% 95.5% -4.6% 91.1% -1.9% 89.4% Reported Concessions $ 13 -- $ 17 -- $ 14 -- $ 63 -- $ 98
Note: The survey is based on properties with 50 units or more, and covers a nine-county core area. Source: The Atlanta Apartment Tracker, Dale Henson Associates, Inc. As illustrated, all classes of apartments witnessed an occupancy decrease from year-end 2001 to year-end 2002. Class B and C properties saw the largest decreases. Class C properties declined from reported occupancy of 91.6% at year-end 2001 to 89.2% at year-end 2002. Class B properties were down from reported occupancy of 90.8% to 89.4%. Class A apartments witnessed a negligible occupancy decline, from 91.1% to 91.0% at year-end 2002. Effective rental rates decreased in all sectors as well, while reported concessions increased. Again, the largest declines came among Class B and C properties, which recorded decreases of over 7.8% and 7.4%, respectively, while Class A effective rents declined approximately 5.5%. OUTLOOK FOR THE OVERALL ATLANTA APARTMENT MARKET During the late 1990's, the Atlanta apartment market showed resilient strength and tremendous growth. However, the current national recession has produced decreasing employment growth in 28 WOOD LAKE APARTMENTS MARKET ANALYSIS metro Atlanta, resulting in lower apartment occupancy levels, increased concessions and declines in effective rental rates. While the data considered indicate that the Atlanta market continued a moderate decline through 2002, the rate of decline has slowed significantly compared to the prior year. Consideration of the various data suggest some submarkets are stabilizing, while others may erode slightly further. In addition, the Atlanta area is projected to begin recovery over the coming year, with positive levels of job growth returning by year-end. Moreover, due to the lack of suitable apartment sites and discouragement of apartment development by local municipalities, the Atlanta area should avoid reaching an extreme oversupply of units. The result should be improving occupancy levels and moderate rental rate growth over the long-term. COBB COUNTY SUBMARKET ANALYSIS The subject is located within the Cobb County submarket. A summary of the recent operating characteristics of this submarket is presented in the following table in the Cobb County submarket. 29 WOOD LAKE APARTMENTS MARKET ANALYSIS COBB COUNTY APARTMENT SUBMARKET
Annual Annual Annual YE % YE % YE % YE % Mid- % YE CLASS "A" PROPERTIES 1998 Change 1999 Change 2000 Change 2001 Change 2002 Change 2002 - ---------------------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Effective Rent $ 843 1.4% $ 855 7.1% $ 916 -10.6% $ 819 -3.1% $ 794 -5.7% $ 749 Street Rent (per Unit) $ 899 3.2% $ 928 4.8% $ 973 0.9% $ 982 0.2% $ 984 0.8% $ 992 Street Rent (per SF) $ 0.81 3.7% $ 0.84 3.6% $ 0.87 1.1% $ 0.88 1.1% $ 0.89 0.0% $ 0.89 Reported Occupancy 95.5% -0.2% 95.3% 0.8% 96.1% -4.4% 91.9% -0.5% 91.4% -0.4% 91.0% Reported Concessions $ 16 -- $ 29 -- $ 19 -- $ 83 -- $ 105 -- $ 154
Annual Annual Annual YE % YE % YE % YE % Mid- % YE CLASS "B" PROPERTIES 1998 Change 1999 Change 2000 Change 2001 Change 2002 Change 2002 - ---------------------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Effective Rent $ 737 1.9% $ 751 3.1% $ 774 -9.2% $ 703 -5.1% $ 667 -2.8% $ 648 Street Rent (per Unit) $ 780 3.2% $ 805 3.5% $ 833 0.7% $ 839 -1.4% $ 827 1.5% $ 839 Street Rent (per SF) $ 0.74 4.1% $ 0.77 5.2% $ 0.81 0.0% $ 0.81 -1.2% $ 0.80 1.3% $ 0.81 Reported Occupancy 95.5% -0.1% 95.4% -0.1% 95.3% -4.4% 91.1% -2.0% 89.3% 0.2% 89.5% Reported Concessions $ 8 -- $ 18 -- $ 21 -- $ 61 -- $ 72 -- $ 103
Annual Annual Annual YE % YE % YE % YE % Mid- % YE CLASS "C" PROPERTIES 1998 Change 1999 Change 2000 Change 2001 Change 2002 Change 2002 - ---------------------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Effective Rent $ 648 2.8% $ 666 3.3% $ 688 -12.2% $ 604 -3.3% $ 584 -0.3% $ 582 Street Rent (per Unit) $ 682 5.1% $ 717 3.8% $ 744 -0.3% $ 742 0.3% $ 744 0.3% $ 746 Street Rent (per SF) $0.68 4.4% $ 0.71 2.8% $ 0.73 1.4% $ 0.74 0.0% $ 0.74 0.0% $ 0.74 Reported Occupancy 95.9% -0.5% 95.4% -0.1% 95.3% -4.5% 91.0% -1.8% 89.4% 0.1% 89.5% Reported Concessions $ 6 -- $ 18 -- $ 21 -- $ 71 -- $ 81 -- $ 86
Annual Annual Annual YE % YE % YE % YE % Mid- % YE OVERALL SUBMARKET 1998 Change 1999 Change 2000 Change 2001 Change 2002 Change 2002 - ---------------------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Effective Rent $ 700 1.4% $ 710 4.8% $ 744 -9.9% $ 670 -3.0% $ 650 -4.5% $ 621 Street Rent (per Unit) $ 741 3.1% $ 764 4.8% $ 801 0.9% $ 808 -0.6% $ 803 0.9% $ 810 Street Rent (per SF) $ 0.72 2.8% $ 0.74 5.4% $ 0.78 0.0% $ 0.78 0.0% $ 0.78 1.3% $ 0.79 Reported Occupancy 95.6% -0.3% 95.3% 0.0% 95.3% -4.7% 90.8% -0.9% 90.0% -1.0% 89.1% Reported Concessions $ 9 -- $ 18 -- $ 19 -- $ 64 -- $ 73 -- $ 101
Source: Atlanta Apartment Tracker, Dale Henson Associates, Inc. As the previous table identifies, the average occupancy in the Cobb County submarket is currently 89.1% for all apartments, which represents a minimal decrease over the previous mid-year level of 90.0%. Prior to year-end 2001, the Cobb County submarket average occupancy level remained relatively consistent in the mid 90% range. In the subject submarket, there were minimal decreases in all apartment classes. The average effective rental rate within the Cobb County submarket decreased 4.5% between mid-year 2002 and year-end 2002. Effective rent decreased in all classes. Furthermore, all sectors reported an increase in their level of concessions being offered. The general perception among property owners is that rent and occupancy levels will begin to rebound during 2003, as the national economy improves and job growth returns. 30 WOOD LAKE APARTMENTS MARKET ANALYSIS ABSORPTION Apartment activity during 2002 shows that the Cobb County submarket recorded net absorption of 41 units and new deliveries of 1,195 units. The following table illustrates absorption rates at recently completed apartment properties within the submarket: COBB COUNTY APARTMENT SUBMARKET RECENT ABSORPTION
Begin # Construction Leasing Property Developer Units Start Date Date - -------------------------------------------------- ----------------------------- ----- ------------ ------- Caswyck Parkside, 1615 Cobb Parkway Cannon Company 234 Apr-01 Jun-02 AMLI at Barrett Walk, 2055 Barrett Lakes Boulevard AMLI Residential Properties 310 Dec-01 Aug-02 Trees at Kennesaw, Old U.S. 41/Stanley Rd. Wilwat Properties 166 Mar-01 Feb-02 Estates at Ridenour, U.S. 41/Barrett Pkwy. Estates, Inc. 300 Feb-00 Sep-00 Stanton Place, Baker Grove, Acworth Andrews Properties 240 Feb-00 Jan-01 Caswyck Town Center, Williams Drive Cannon Company 358 Jun-00 May-01 Walden Ridge, Highway 41, Acworth United Residential Properties 210 Dec-00 Jul-01 Shiloh Valley Overlook, Greer Chapel Rd./I-75 Hayes Development Corporation 300 Mar-00 May-01 Summit Shiloh Phase II, 4044 Busbee Parkway Summit Properties 50 May-01 Jan-02 Alta Green, Shiloh Rd./Wade Green Rd./1-75 Wood Partners 498 Dec-00 Oct-01
Source: Atlanta Apartment Pipeline Report, Year-End 2002, Dale Henson & Associates, Inc. The data illustrates absorption ranging from 7.4 to 24.4 units per month, with the median being 13.6 units per month. This is considered a good level of absorption. NEW DEVELOPMENT The number of apartment units under construction as of year-end 2002 totaled 836 units in 4 properties within the Cobb County submarket. This is considered a relatively small amount of activity, given the geographic area that the submarket encompasses. These properties are summarized in the following table. COBB COUNTY APARTMENT SUBMARKET APARTMENTS UNDER CONSTRUCTION
Comp. Const. First Units Expected Property Developer # Units Start Date Avail. Date - ------------------------------------------------ --------------------------- ------- ---------- ----------- -------- Galleria No apartments under construction in this subarea South Cobb No apartments under construction in this subarea Town Center Caswyck Parkside, 1615 Cobb Pkwy. Cannon Company 234 Apr-01 Jul-02 Oct-02 Cobblestone Landing, U.S. 41 PRS Construction 172 Jun-02 Jan-03 Jun-03 AMLI at Barrett Walk, 2055 Barrett Lakes Blvd. AMLI Residential Properties 310 Dec-01 Aug-02 Jul-03 Highland Court, Goerge Busbee Parkway/Wade Green Norsouth 120 Nov-02 Jul-03 --- East Marietta No apartments under construction in this subarea West Cobb No apartments under construction in this subarea --- Total 836 ---
Source: Atlanta Apartment Pipeline Report, Year-End 2002, Dale Henson & Associates, Inc. 31 WOOD LAKE APARTMENTS MARKET ANALYSIS There are no proposed apartment properties in the subject's immediate area. However, there are multiple properties which are currently under construction in the Town Center area. However, these properties will not provide competition for the subject, as they will be Class "A" properties and will appeal to a different type of tenant. In addition, the identified properties are located over a very large geographical area, which decreases the potential negative impact of the new product being added to the apartment housing stock. Furthermore, there is little, if any, remaining developable land for apartments. In addition to projects currently under construction, there is one known project in various stages of planning. This number of proposed projects is also considered a relatively moderate level of activity, given the large geographic area that the submarket encompasses. The properties proposed for development in the near-term are summarized in the following table. COBB COUNTY APARTMENT SUBMARKET PROPOSED APARTMENTS
# Property Developer Units # Acres Remarks - -------------------------------------- --------------------- ----- ------- ------------------------ Galleria No apartments planned for this subarea South Cobb No apartments planned for this subarea Town Center Hillside Vista, 2155 Cobb Parkway Vista Realty Partners 212 --- Construction start 01/03 East Marietta No apartments planned for this subarea West Cobb No apartments planned for this subarea --- Total 212 ---
Source: Atlanta Apartment Pipeline Report, Year-End 2002, Dale Henson & Associates, Inc. After publication of the Dale Henson report, commencement of construction was delayed for the property listed above. Based on our discussions with the developer of this site, we believe that this property will be constructed. As mentioned previously, new construction in the submarket will not compete with the subject, therefore there is sufficient demand for this product. Furthermore, there are no proposed apartment properties in the subject's immediate area. CUMBERLAND/GALLERIA PRIMARY MARKET AREA Although Cobb County is identified as only one submarket by the Atlanta Apartment Market Tracker, it subdivides the county into five primary market areas. These areas are identified as Cumberland/Galleria, South Cobb, Town Center, East Marietta and West Cobb. The subject is located within the Cumberland/Galleria primary market area, as defined by the report. The following table illustrates changes in rental rates, occupancy levels and concessions with the Cumberland/Galleria primary market area over the past three years. 32 WOOD LAKE APARTMENTS MARKET ANALYSIS CUMBERLAND/GALLERIA PRIMARY MARKET AREA
YE % Mid- % YE % Mid- % 3d Qtr % YE % Mid- % YE CLASS "A" PROPERTIES 1999 Change 2000 Change 2000 Change 2001 Change 2001 Change 2001 Change 2002 Change 2002 - -------------------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Effective Rent $ 941 4.7% $ 985 3.2% $1,017 -6.2% $ 954 -2.7% $ 928 -1.8% $ 911 -4.4% $ 871 -3.9% $ 837 Street Rent (per Unit) $ 991 3.1% $1,022 2.7% $1,050 1.0% $1,061 -1.3% $1,047 -0.3% $1,044 1.5% $1,060 0.8% $1,068 Street Rent (per SF) $0.90 3.3% $ 0.93 2.2% $ 0.95 1.1% $ 0.96 -3.1% $ 0.93 0.0% $ 0.93 1.1% $ 0.94 1.1% $ 0.95 Reported Occupancy 95.6% 2.0% 97.5% -0.2% 97.3% -4.1% 93.3% 1.1% 94.3% -1.0% 93.4% -0.3% 93.1% -0.9% 92.3% Reported Concessions $ 6 -- $ 11 -- $ 5 -- $ 36 -- $ 59 -- $ 64 -- $ 116 -- $ 169
YE % Mid- % YE % Mid- % 3d Qtr % YE % Mid- % YE CLASS "B" PROPERTIES 1999 Change 2000 Change 2000 Change 2001 Change 2001 Change 2001 Change 2002 Change 2002 - -------------------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Effective Rent $ 782 5.4% $ 824 1.0% $ 832 -2.3% $ 813 -5.3% $ 770 1.0% $ 778 -9.1% $ 707 0.8% $ 713 Street Rent (per Unit) $ 837 3.1% $ 863 2.4% $ 884 1.9% $ 901 -0.6% $ 896 1.3% $ 908 -0.4% $ 904 -1.3% $ 892 Street Rent (per SF) $0.81 4.9% $0.85 2.4% $ 0.87 1.1% $ 0.88 0.0% $0.88 1.1% $ 0.89 0.0% $ 0.89 -1.1% $ 0.88 Reported Occupancy 95.6% 0.6% 96.2% -0.1% 96.1% -2.6% 93.6% 0.0% 93.6% -1.2% 92.5% -1.9% 90.7% 0.0% 90.7% Reported Concessions $ 18 -- $ 6 -- $ 18 -- $ 30 -- $ 69 -- $ 62 -- $ 113 -- $ 119
YE % Mid- % YE % Mid- % 3d Qtr % YE % Mid- % YE CLASS "C" PROPERTIES 1999 Change 2000 Change 2000 Change 2001 Change 2001 Change 2001 Change 2002 Change 2002 - -------------------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Effective Rent $ 697 2.9% $ 717 2.9% $ 738 -2.2% $ 722 -9.0% $ 657 -2.7% $ 639 -1.9% $ 627 3.8% $ 651 Street Rent (per Unit) $ 740 1.4% $ 750 2.8% $ 771 2.3% $ 789 0.1% $ 790 -0.4% $ 787 -3.9% $ 756 6.5% $ 805 Street Rent (per SF) $0.75 -2.7% $0.73 8.2% $0.79 1.3% $0.80 0.0% $0.80 -1.3% $0.79 -3.8% $0.76 5.3% $0.80 Reported Occupancy 96.4% 1.0% 97.4% -0.1% 97.3% -2.7% 94.7% -1.8% 93.0% -1.0% 92.1% -2.9% 89.4% 0.9% 90.2% Reported Concessions $ 16 -- $ 14 -- $ 12 -- $ 25 -- $ 78 -- $ 86 -- $ 49 -- $ 85
YE % Mid- % YE % Mid- % 3d Qtr % YE % Mid- % YE OVERALL SUBMARKET 1999 Change 2000 Change 2000 Change 2001 Change 2001 Change 2001 Change 2002 Change 2002 - -------------------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Effective Rent $ 754 4.5% $ 788 1.6% $ 801 -2.1% $ 784 -5.5% $ 741 -1.9% $ 727 -5.6% $ 686 0.0% $ 686 Street Rent (per Unit) $ 803 2.7% $ 825 2.3% $ 844 2.0% $ 861 -0.1% $ 860 0.3% $ 862 -0.9% $ 854 1.2% $ 864 Street Rent (per SF) $0.79 2.5% $ 0.81 2.5% $ 0.83 2.4% $ 0.85 -1.2% $ 0.84 1.2% $ 0.85 -1.2% $ 0.84 1.2% $0.85 Reported Occupancy 95.7% 0.9% 96.6% -0.1% 96.5% -2.5% 94.1% -0.7% 93.4% -1.3% 92.2% -1.7% 90.6% -0.7% 90.0% Reported Concessions $ 14 -- $ 9 -- $ 13 -- $ 26 -- $ 62 -- $ 68 -- $ 89 -- $ 111
Source: The Atlanta Apartment Tracker, Dale Henson Associates, Inc. As illustrated, the Cumberland/Galleria primary market area has performed better than the overall Cobb County submarket, with a reported year-end occupancy level of 90.0%. It appears that Class "A" properties are fairing better than Class "B" and "C" properties, with reported occupancy levels of 90.7% and 90.2%, respectively. However, overall properties showed a decrease of 90.0% in occupancy from mid-year 2002 figures. We expect conditions to improve rather quickly within this area, however, as there is no new construction occurring or planned, and there is little, if any, remaining developable land for apartments. CONCLUSIONS FOR THE COBB COUNTY APARTMENT SUBMARKET Based on our analysis, we have found the Cobb County and Cumberland/Galleria apartment market is experiencing operating characteristics which are similar to those found in the overall metro Atlanta market. In addition, the area is expected to continue receiving a good level of job creations, following the current recession. Therefore, we believe the Cobb County submarket provides a very viable location for a well located apartment complex, such as the subject property. INVESTMENT TRENDS Generally, there remains a divide between sellers' pricing and buyers' offers. Given softened occupancies and reductions in rental rates, the attractiveness of multi-family acquisitions has been temporarily diminished somewhat. This trend may continue through 2003, which holds subdued prospects for rent increases until sustained job growth resumes. 33 WOOD LAKE APARTMENTS MARKET ANALYSIS Over the longer-term, apartments are anticipated to recover strongly and continue to be commodity investments. For 5- and 10-year periods, apartments are anticipated to outperform other property sectors. Regionally, reflecting the softer apartment operating environment, the volume of multi-family sales in metropolitan Atlanta slowed over the past year. Total volume for the year 2002 was reported at $700 million, down 41% from 2001 and 51% from 2002 levels. Although the number of sales fell, overall values did not appear to be significantly negatively impacted, as lower rates and yields have offset property performance issues. The following charts present the average selling price per apartment unit over the recent past. Among Class A properties, there continues to be appreciation for properties built in infill locations, while suburban properties have fluctuated downward over the past four years. Among Class B properties, prices have declined for properties in infill locations, while suburban properties have generally shown a net increase over the recent past. CLASS A - AVERAGE SELLING PRICE PER UNIT [BAR GRAPH]
INFILL $ 109,00 $ 103,368 $106,232 $ 118,721 SUBURBAN $ 79,964 $ 75,005 $ 78,620 $ 74,568 1999 2000 2001 2002
Source: CB Richard Ellis, Inc. 34 WOOD LAKE APARTMENTS MARKET ANALYSIS CLASS B - AVERAGE SELLING PRICE PER UNIT [BAR GRAPH]
INFILL $78,254 $ 65,413 $ 70,473 $ 66,870 SUBURBAN $49,997 $ 57,980 $ 57,070 $ 54,645 1999 2000 2001 2002
Source: CB Richard Ellis, Inc. DEMOGRAPHIC ANALYSIS Demand for additional residential property is a direct function of population change. Multi-family communities are products of a clearly definable demand relating directly to population shifts. HOUSING, POPULATION AND HOUSEHOLD FORMATION The following table illustrates the population and household changes for the subject neighborhood. POPULATION AND HOUSEHOLD PROJECTIONS
100 PINHURST DR Radius 1.0 Radius 3.0 Radius 5.0 ATLANTA, GA 30339-3641 Mile Miles Miles - ------------------------ ---------- ---------- ---------- Population 2007 Projection 10,561 69,609 188,940 2002 Estimate 9,525 64,101 174,262 2000 Census 9,122 61,996 168,651 2002 - 2007 % Change 10.9% 8.6% 8.4% Households 2007 Projection 5,944 35,185 83,948 2002 Estimate 5,398 32,439 77,840 2000 Census 5,170 31,357 75,542 2002 - 2007 % Change 10.1% 8.5% 7.8%
Source: Claritas, Inc. Households represent a basic unit of demand in the housing market. According to the data, the subject's neighborhood is experiencing strong positive increases in both population and households. 35 WOOD LAKE APARTMENTS MARKET ANALYSIS INCOME DISTRIBUTIONS Household income available for expenditure on housing and other consumer items is a primary factor in determining the price/rent level of housing demand in a market area. In the case of this study, projections of household income, particularly for renters, identifies in gross terms the market from which the subject submarket draws. The following table illustrates estimated household income distribution for the subject neighborhood. HOUSEHOLD INCOME DISTRIBUTION
100 PINHURST DR Radius 1.0 Radius 3.0 Radius 5.0 ATLANTA, GA 30339-3641 Mile Miles Miles - ---------------------------------------- ---------- ---------- ---------- 2002 Est. Households by Household Income $ 150,000 - or more 36.47% 27.32% 15.17% $ 100,000 - $ 149,999 12.09% 10.61% 11.59% $ 75,000 - $ 99,999 15.94% 14.26% 13.95% $ 50,000 - $ 74,999 28.58% 25.04% 23.48% $ 35,000 - $ 49,999 20.13% 19.57% 15.87% $ 25,000 - $ 34,999 6.25% 8.49% 8.17% $ 15,000 - $ 24,999 4.20% 5.59% 6.06% Under $15,000 3.65% 4.30% 5.70%
Source: Claritas, Inc. The following table illustrates the median and average household income levels for the subject neighborhood. HOUSEHOLD INCOME LEVELS
100 PINHURST DR Radius 1.0 Radius 3.0 Radius 5.0 ATLANTA, GA 30339-3641 Mile Miles Miles - ----------------------------- ---------- ---------- ---------- 2002 Average Household Income $ 92,858 $ 102,867 $ 107,358 2002 Median Household Income $ 63,780 $ 62,040 $ 65,114 2002 Per Capita Income $ 53,155 $ 53,040 $ 47,790
Source: Claritas, Inc. An analysis of the income data indicates that the submarket is generally comprised of upper-middle and high-income economic cohort groups. EMPLOYMENT An employment breakdown typically indicates the working class characteristics for a given market area. The specific employment population within the indicated radii of the subject is as follows: 36 WOOD LAKE APARTMENTS MARKET ANALYSIS POPULATION BY OCCUPATION
100 PINHURST DR Radius 1.0 Radius 3.0 Radius 5.0 ATLANTA, GA 30339-3641 Mile Miles Miles - --------------------------------------------- ---------- ---------- ---------- Occupation Managerial and Professional Specialty 46.98% 38.34% 37.63% Technical, Sales and Administrative Support 39.54% 40.60% 39.01% Service 6.51% 9.63% 9.68% Farming, Forestry and Fishing 0.36% 0.73% 0.70% Precision, Production, Craft and Repair 3.79% 4.98% 6.52% Operators, Fabricators and Laborers 2.83% 5.72% 6.45%
Source: Claritas, Inc. The previous table illustrates the employment character of the submarket, indicating a predominantly middle- to upper-income employment profile, with the majority of the population holding executive & managerial or professional specialty related jobs. MARKET ACCEPTANCE OF THE SUBJECT The subject property is located ten miles northwest of the CBD and situated southeast of Dobbins Air Reserve Base, the area is conveniently located near many of the Atlanta area's primary employment centers. The area is an established residential community within northwest Atlanta, estimated to be approximately 90% developed. The subject is well located for an apartment complex, with good accessibility, and conveniently located relative to employment centers. Further, the area is continuing to experience a good level of growth relative to new development, which is viewed as very positive for the long-term market acceptance of the subject property. Given these factors, as well as the other considerations of the area, the subject appears to possess very good locational characteristics for an apartment complex. OCCUPANCY COMPARABLE PROPERTIES Comparable properties have been surveyed in order to identify the occupancy trends within the immediate submarket. The comparable data is summarized in the following table: 37 WOOD LAKE APARTMENTS MARKET ANALYSIS SUMMARY OF COMPARABLE APARTMENT RENTALS
COMP. NO. NAME LOCATION OCC ----- ------------------------------------- ---------------------- --- 1 The Woods At Overlook 100 Pinehurst Drive, 93% Atlanta, GA 2 Post Vinings 3385 Atlanta Road, WND Smyrna, GA 3 Post Village 2189 Lake Park Drive, 95% Smyrna, GA 4 Archstone Woodlands (fka - Woodlands) 2200 Woodlands Drive, 94% Smyrna, GA 5 Paces Station 3000 Paces Walk, 91% Atlanta, GA 6 The Lakes At Vinings 2800 Paces Ferry Road, 92% Atlanta, GA 7 Vinings Peak(formerly Wood Ridge) Mt. Wilkinson Parkway, 93% Unincorporated, GA - ------- ------------------------------------- ---------------------- -- Subject Wood Lake Apartments 100 Pinhurst Drive, 93% Atlanta, GA
Compiled by: CB Richard Ellis, Inc. The comparable properties surveyed reported occupancy rates ranging from 91% to 95%. The subject property is currently 92.7% occupied. Currently, management reports rent concessions of one-month free on any 12-month lease, and all of the comparables are using concessions. Accordingly, our estimate for vacancy and collection loss for the subject is illustrated in the following table. CONCLUSION Based on the foregoing analysis, CB Richard Ellis, Inc.'s conclusion of stabilized occupancy for the subject is illustrated in the following table. 38 WOOD LAKE APARTMENTS MARKET ANALYSIS OCCUPANCY CONCLUSIONS Atlanta Area 89.4% Cobb County Submarket 89.1% Cumberland/Galleria Primary Market Area 90.0% Rent Comparables (Average) 93.0% Subject's Current Occupancy 92.7% ---- Subject's Stabilized Occupancy 90.0% ----
Source: CB Richard Ellis, Inc. CONCLUSION We believe the subject property is well located for an apartment complex. The site provides convenient access to Interstate 75 and major employment centers in metropolitan Atlanta. It is located in an area which is experiencing growth similar to that of metropolitan Atlanta. Considering the recent trends in absorption and the prospects for new construction, the local market area should maintain a stabilized occupancy position, with increasing rental rates over the foreseeable future, and the long-term projection is for moderate to strong growth. Given these considerations, we believe the subject will enjoy a very good operating level. 39 WOOD LAKE APARTMENTS SITE ANALYSIS Insert site plan here 40 WOOD LAKE APARTMENTS SITE ANALYSIS SITE ANALYSIS The following chart provides a summary of the salient features relating to the subject site. SITE SUMMARY PHYSICAL DESCRIPTION Net Site Area 16.97 Acres 739,213 Sq. Ft. Primary Road Frontage Mt. Wilkinson Parkway Excess Land Area None Zoning District RM-12, Multi-Family Residential Flood Map Panel No. 13067C 0075F Flood Zone X
Source: Various sources compiled by CB Richard Ellis, Inc. LOCATION The subject property is located along the north side of Mt. Wilkinson Parkway, just east of Interstate 285, in unincorporated Cobb County, metropolitan Atlanta, Georgia, with an Atlanta street address of 100 Pinhurst Drive. Ingress and egress is available to the site via one curb cut along Mt. Wilkinson Parkway. The site has a good level of visibility from Mt. Wilkinson Parkway. ASSESSORS PARCEL NUMBER The subject is identified by the Cobb County Tax Assessor's office as parcel 17-0950-061. LAND AREA The site consists of 16.97 gross acres. There is no unusable or excess land area. SHAPE AND FRONTAGE The site is irregular in shape and has a good level of frontage along the north side of Mt. Wilkinson Parkway. TOPOGRAPHY AND DRAINAGE The site has a sloping topography. During the inspection of the property, no drainage problems were observed and none are assumed to exist. 41 WOOD LAKE APARTMENTS SITE ANALYSIS SOILS A soil analysis for the site has not been provided for the preparation of this appraisal. In the absence of a soil report, it is a specific assumption that the site has adequate soils to support the highest and best use. EASEMENTS AND ENCROACHMENTS A title policy for the property has not been provided for the preparation of this appraisal. Based on our visual inspection and review of the site plan, the property does not appear to be adversely affected by any easements or encroachments. It is recommended that the client/reader obtain a current title policy outlining all easements and encroachments on the property, if any, prior to making a business decision. COVENANTS, CONDITIONS AND RESTRICTIONS There are no known covenants, conditions and restrictions impacting the site which are considered to affect the marketability or highest and best use, other than zoning restrictions. UTILITIES AND SERVICES The site is within the jurisdiction of Cobb County and is provided all services, including police, fire and refuse garbage collection. All utilities are available to the site in adequate quality and quantity to service the highest and best use as if vacant and as improved. FLOOD ZONE According to flood hazard maps published by the Federal Emergency Management Agency (FEMA), the site appears to be located within Zone X (outside the 500-year flood hazard area). This information is indicated on Community Map Panel 13067C 0075F, dated August 18, 1992. This zone is defined as follows. FEMA Zone X: Areas determined to be outside the 500-year flood plain. ENVIRONMENTAL ISSUES CB Richard Ellis, Inc. has not observed, yet is not qualified to detect, the existence of potentially hazardous material or underground storage tanks which may be present on or near the site. The existence of hazardous materials or underground storage tanks may have an affect on the value of the property. For this appraisal, CB Richard Ellis, Inc. has specifically assumed that the property is not affected by any hazardous materials and/or underground storage tanks which may be present on or near the property. 42 WOOD LAKE APARTMENTS SITE ANALYSIS CONCLUSION The site is well located and afforded good access, but limited visibility, from roadway frontage. The size of the site is typical for the area and use, and there are no known detrimental uses in the immediate vicinity. Overall, there are no known factors which are considered to prevent the site from development to its highest and best use, as if vacant, or adverse to the existing use of the site. 43 WOOD LAKE APARTMENTS IMPROVEMENT ANALYSIS IMPROVEMENT ANALYSIS The following chart depicts the subject's unit mix and building area. IMPROVEMENT SUMMARY Number of Buildings 11 Number of Stories 2 & 3 Gross Building Area 229,774 SF Net Rentable Area 227,474 SF Number of Units 220 Average Unit Size 1,034 SF
PERCENT OF UNIT SIZE UNIT MIX NO. OF UNITS TOTAL (SF) NRA (SF) - -------------- ------------ ---------- --------- -------- 1BR/1BA 50 22.7% 705 35,250 1BR/1BA 58 26.4% 874 50,692 2BR/1BA 14 6.4% 1,111 15,554 2BR/2BA 18 8.2% 1,111 19,998 2BR/2BA 50 22.7% 1,213 60,650 3BR/2BA 30 13.6% 1,511 45,330 --- ----- ----- ------- Total/Average: 220 100.0% 1,034 227,474 --- ----- ----- -------
Source: Property Manager Building plans and specifications were not provided for the preparation of this appraisal. The following is a description of the subject improvements and basic construction features derived from CB Richard Ellis, Inc.'s physical inspection and discussions with property management. YEAR BUILT The subject property was built in 1981. FOUNDATION The foundation consists of poured reinforced concrete/perimeter footings and column pads. CONSTRUCTION COMPONENTS The construction components include a wood frame with wood truss and joist floor structure and plywood floor deck. FLOOR STRUCTURE The floor structure is summarized as follows: 44 WOOD LAKE APARTMENTS IMPROVEMENT ANALYSIS GROUND FLOOR: Concrete slab on compacted fill OTHER FLOORS: Plywood decking with light-weight concrete cover EXTERIOR WALLS The exterior wall structure consists of wood trim and brick veneer over wood frame. The units have single-pane windows in aluminum frames. ROOF COVER Roofs consist of a wood truss support system covered with plywood decking, felt paper and composition shingles. PARKING AND DRIVES The subject has 409 normal parking spaces and one handicap space, which equates to 1.86 parking spaces per unit. This is considered a minimal amount of parking as compared to comparable properties in the market. All of the parking areas and driveways are asphalt paved and currently in average condition. LANDSCAPING The project features a combination of grass, planted beds and forested landscaping which is considered to be in average condition. PROJECT AMENITIES The project amenities include a swimming pool, two lighted tennis courts, exercise facility, and laundry facility. UNIT AMENITIES Each unit has washer/dryer connections, walk-in closets and ceiling fans. In addition, select units have fireplaces. FIRE PROTECTION The improvements are not fire sprinklered. However, all units are equipped with smoke detectors and are assumed to have adequate fire alarm systems, fire exits, fire extinguishers, fire escapes and/or other fire protection measures to meet local Fire Marshal requirements. 45 WOOD LAKE APARTMENTS IMPROVEMENT ANALYSIS HVAC The units feature individual "central" HVAC units with exterior mounted compressors. The systems are assumed to be in good operating condition and adequate for the respective square footage of each individual unit. UTILITIES The units have electric heat and hot water heaters, along with all appliances being electric. The cost of trash removal and pest control is included in the rental rates. Thus, current operations indicate the landlord is responsible for common area utilities, as well as the cost of trash removal and pest control to the individual units. Each resident is responsible for their respective electrical, natural gas, telephone and cable television expenses. All utilities are publicly provided. INTERIOR LIGHTING Each unit features a combination of incandescent and fluorescent lighting in appropriate interior and exterior locations. KITCHENS Each unit features a range/oven, frost-free refrigerator with icemaker, garbage disposal, and dishwasher. Furthermore, each unit features wood cabinets with Formica countertops and vinyl flooring in the kitchen area. BATHROOMS The bathrooms within each unit feature combination garden tub/showers with fiberglass surrounds. Additionally, each bathroom features a commode, wood cabinet with Formica counter and built-in sink, wall-mounted vanity mirror and vinyl tile flooring. QUALITY AND STRUCTURAL CONDITION The overall quality of the project is considered to be good for the neighborhood and age. CB Richard Ellis, Inc. did not observe any evidence of structural fatigue and the improvements appear structurally sound for occupancy. However, CB Richard Ellis, Inc. is not qualified to determine structural integrity and it is recommended that the client/reader retain the services of a qualified, independent engineer or contractor to determine the structural integrity of the improvements prior to making a business decision. There were several minor items of deferred maintenance noted at the subject property, which is discussed below. 46 WOOD LAKE APARTMENTS IMPROVEMENT ANALYSIS FUNCTIONAL UTILITY All of the floor plans are considered to feature functional layouts and the overall layout of the project is considered functional in utility. According to property management, each unit within the project receives adequate demand and the project does not have excess demand for any particular floor plan or location. Therefore, the unit mix is also functional and no conversion is warranted. PROJECT DENSITY The project is developed to a density of 12.96 units per acre, which is commensurate with other properties in the neighborhood. ADA COMPLIANCE All common areas of the project are assumed to have handicap accessibility and several of the project's units are assumed to have been designed for handicap occupancy. The client/reader's attention is directed to the specific limiting conditions regarding ADA compliance. FURNITURE, FIXTURES AND EQUIPMENT The apartment units are rented on an unfurnished basis. However, miscellaneous maintenance tools, pool furniture, leasing office furniture, clubhouse furniture and exercise machines are examples of personal property associated with and typically included in the sale of multi-family apartment complexes. The personal property items contained in the project are not considered to contribute significantly to the overall value of the real estate. ENVIRONMENTAL ISSUES CB Richard Ellis, Inc. has not observed, yet is not qualified to detect, the existence of any potentially hazardous materials such as lead paint, asbestos, urea formaldehyde foam insulation, or other potentially hazardous construction materials on or in the improvements. The existence of such substances may have an affect on the value of the property. For the purpose of this assignment, we have specifically assumed that the subject is not affected by any hazardous materials which would cause a loss in value. DEFERRED MAINTENANCE The engineering reports indicated several minor items of deferred maintenance at the subject property. The following chart depicts the deferred maintenance items identified and their respective estimated costs to cure. 47 WOOD LAKE APARTMENTS IMPROVEMENT ANALYSIS ANALYSIS OF DEFERRED MAINTENANCE Renovate "Down" Units 117 and 1117 $ 15,000 Renovate "Down" Unit 131 $ 1,500 Drainage System Installation $ 5,000 Dwelling Unit Storage Room Doors $ 14,250 Gutter/Downspout Repair and Cleaning $ 2,250 Tree Trimming and Removal $ 10,000 Railing Installation $ 1,250 Elevated Walkway Repair $ 5,000 Retaining Wall Repair $ 10,000 Common Stairway Repair $ 11,000 Siding and Trim Repair $ 44,000 Stucco Repair $ 8,250 Exterior Painting $ 77,000 Roof Replacement $ 31,000 ---------- Total Deferred Maintenance: $ 235,500 ----------
Source: Engineering Reports The items of deferred maintenance will be cured in the near-term. Therefore, at the request of the client, we have not made any deductions. ECONOMIC AGE AND LIFE CB Richard Ellis, Inc.'s estimate of the subject improvements effective age and remaining economic life is depicted in the following chart: ECONOMIC AGE AND LIFE Actual Age 22 Years Effective Age 15 Years MVS Expected Life 50 Years Remaining Economic Life 35 Years Accrued Physical Incurable Depreciation 30.0%
Source: CB Richard Ellis, Inc. The overall life expectancy is based upon our on-site observations and a comparative analysis of typical life expectancies reported for buildings of similar construction as published by Marshall and Swift, Inc., in the Marshall Valuation Service cost guide. While CB Richard Ellis, Inc. did not observe anything to suggest a different economic life, a capital improvement program could extend the life expectancy. 48 WOOD LAKE APARTMENTS IMPROVEMENT ANALYSIS CONCLUSION The improvements are considered to be in good overall condition and are considered to be above average for the age and location with regard to improvement design and layout, as well as amenities. Overall, there are no known factors which could be considered to adversely impact the marketability of any of the subject units or the overall project from a rental standpoint. 49 WOOD LAKE APARTMENTS ZONING ZONING The following chart summarizes the zoning requirements applicable to the subject: ZONING SUMMARY Current zoning RM-12, Multi-Family Residential Legally conforming No Uses permitted Multi-Family Residential Zoning change Not likely
Source: Cobb County Planning & Zoning Department ANALYSIS AND CONCLUSION The subject has a current density of 12.96, which is greater than the current zoning requirement would allow. Thus, the subject is considered a legally non-conforming use. It should be noted that this will not impact the value of the subject property. In addition, improvements can be restored if damaged or destroyed based on the zoning status. Because the subject property consists of 11 separate buildings, the risk associated with losing more than one structure to a typical loss, such as fire, seems highly unlikely. Further, we are not aware of any code violations. It is recommended that the Cobb County Planning and Zoning personnel be contacted regarding more specific information which might be applicable to the subject. 50 WOOD LAKE APARTMENTS TAX AND ASSESSMENT DATA TAX AND ASSESSMENT DATA The subject property is liable for real estate taxes in Cobb County. Property in Cobb County is assessed at 40% of the assessor's estimated market value. The tax rate for 2002 was $29.87 per $1,000 of assessment. The 2003 millage rate has not yet been determined, but minimal change is expected. The following table identifies the subject's 2003 tax value. These figures do not include any furniture, fixtures and equipment. AD VALOREM TAX INFORMATION
Assessor's Market Value 2003 - ----------------------- ------------ 17-0950-061 $ 15,085,051 Assessed Value @ 40% $ 6,034,020 Tax Rate (per $1,000 A.V.) 29.87 TOTAL TAXES $ 180,236
Source: Cobb County Tax Assessor's Office TAX COMPARABLES As a crosscheck to the subject's applicable real estate taxes, CB Richard Ellis, Inc. has reviewed the real estate tax information for comparable properties in the immediate area. The following table summarizes the real estate tax comparables employed for this assignment: AD VALOREM TAX COMPARABLES
Comp 1 Comp 2 Comp 3 Subject - --------------- --------------- -------------- ------------ -------------------- Property AMLI at Vinings Worthing Crest Vinings Peak Wood Lake Apartments Parcel Number 17-0743-028 17-0773-006 17-0910-006 17-0950-061 Year Built 1986 1988 1980 1981 No. Units 360 378 280 220 Tax Year 2003 2003 2003 2003 TOTAL TAX VALUE $ 19,591,824 $ 27,635,647 $ 16,141,065 $ 15,085,051 PER UNIT $ 54,422 $ 73,110 $ 57,647 $ 68,568
Source: Cobb County Tax Assessor's Office CONCLUSION The tax comparables range in value from $54,422 to $73,110 per unit, with the subject's tax value being within the indicated range. Therefore, we believe the subject's current tax value is appropriate and we have utilized the current tax liability within our analysis. 51 WOOD LAKE APARTMENTS TAX AND ASSESSMENT DATA Another factor we have considered is that the subject's tax value is less than our estimate of market value. However, we have found this to be common of the Tax Assessor's Office, in that tax values typically lag behind market values. 52 WOOD LAKE APARTMENTS HIGHEST AND BEST USE HIGHEST AND BEST USE In appraisal practice, the concept of highest and best use represents the premise upon which value is based. The four criteria the highest and best use must meet are: - legal permissibility; - physical possibility; - financial feasibility; and, - maximum profitability. Highest and best use analysis involves assessing the subject both as if vacant and as improved. AS VACANT LEGAL PERMISSIBILITY The legally permissible uses were discussed in the zoning section of this report. Basically, the site is limited to multi-family residential uses. PHYSICAL POSSIBILITY The physical characteristics of the subject site were discussed in detail in the site analysis. Overall, a wide range of legally permissible uses would be physically possible. FINANCIAL FEASIBILITY The financial feasibility of a specific property is market driven, and is influenced by surrounding land uses. Based on the subject's specific location and physical characteristics, development of the site with a multi-family residential use, which is complimentary to the surrounding land uses would represent the most likely financially feasible option. MAXIMUM PROFITABILITY Based on our analysis of current rents and building costs, it is our opinion that an apartment development would represent the most profitable use. CONCLUSION: HIGHEST AND BEST USE AS VACANT Based on the foregoing, the highest and best use of the site as though vacant would be for apartment development. 53 WOOD LAKE APARTMENTS HIGHEST AND BEST USE AS IMPROVED LEGAL PERMISSIBILITY The subject site was approved for apartment development and the improvements are a legally conforming use. PHYSICAL POSSIBILITY The subject improvements were discussed in detail in the Improvement Analysis. The layout and positioning of the improvements are functional for apartment use based on comparison to neighborhood properties. FINANCIAL FEASIBILITY The financial feasibility for an apartment property is based on the amount of rent which can be generated, less operating expenses required to generate that income; if a residual amount exists then the land is being to a productive use. As will be indicated in the Income Capitalization Approach, the subject is capable of producing a positive net cash flow and continued utilization of the improvements for apartment is considered financially feasible. MAXIMUM PROFITABILITY It appears there are no alternative uses of the existing improvements which would produce a higher net income and/or value over time than the current use, as a rental apartment complex. CONCLUSION: HIGHEST AND BEST USE AS IMPROVED Based on the foregoing, the highest and best use of the property as improved is for continued operation as a rental apartment complex. 54 WOOD LAKE APARTMENTS APPRAISAL METHODOLOGY APPRAISAL METHODOLOGY In appraisal practice, an approach to value is included or omitted based on its applicability to the property type being valued and the quality and quantity of information available. COST APPROACH The Cost Approach is based upon the proposition the informed purchaser would pay no more for the subject than the cost to produce a substitute property with equivalent utility. This approach is particularly applicable when the property being appraised involves relatively new improvements which represent the highest and best use of the land or when relatively unique or specialized improvements are located on the site and for which there exist few sales or leases of comparable properties. SALES COMPARISON APPROACH The Sales Comparison Approach utilizes sales of comparable properties, adjusted for differences, to indicate a value for the subject. Valuation is typically accomplished using physical units of comparison such as price per square foot, price per unit, price per floor, etc., or economic units of comparison such as gross rent multiplier. Adjustments are applied to the physical units of comparison derived from the comparable sale. The unit of comparison chosen for the subject is then used to yield a total value. Economic units of comparison are not adjusted, but rather analyzed as to relevant differences, with the final estimate derived based on the general comparisons. INCOME CAPITALIZATION APPROACH The Income Capitalization Approach reflects the subject's income-producing capabilities. This approach is based on the assumption that value is created by the expectation of benefits to be derived in the future. Specifically estimated is the amount an investor would be willing to pay to receive an income stream plus reversion value from a property over a period of time. The two common valuation techniques associated with the Income Capitalization Approach are direct capitalization and the discounted cash flow (DCF) analysis. METHODOLOGY APPLICABLE TO THE SUBJECT In valuing the subject, all three approaches are applicable and have been utilized. 55 WOOD LAKE APARTMENTS LAND VALUE insert land sale map here 56 WOOD LAKE APARTMENTS LAND VALUE LAND VALUE The following table summarizes the comparable data used in the valuation of the subject site with a comparable map presented on the previous page. A more detailed description of each transaction is included in the Addenda. SUMMARY OF COMPARABLE LAND SALES
TRANSACTION ADJUSTED SALE SIZE PRICE PER PRICE PER NO. PROPERTY LOCATION TYPE DATE PROPOSED USE PRICE (ACRES) ACRE BLDG UNIT - --- ----------------- ---- ---- ------------ ----- ------- ---- --------- 1 7850 Lee Road, Sale Aug-01 Apartments $1,757,500 36.27 $ 48,456 $ 7,641 Lithia Springs, GA 2 NWQ U.S. Hwy 41 & White Circle Sale Feb-01 Apartments $2,381,472 19.85 $119,973 $10,177 Road, Kennesaw, GA 3 NE/S of Shiloh Road, S of Sale Nov-00 Apartments $7,043,400 40.56 $173,654 $14,143 Royal North Pkwy., Kennesaw, GA 4 1999 Cliff Valley Way, Sale Jun-00 Apartments $4,190,000 13.49 $310,600 $15,519 Atlanta, GA 5 NS of Williams Drive, E of Sale Jan-00 Apartments $3,500,000 39.78 $ 87,984 $ 9,777 Bells Ferry Road, Marietta, GA Subject 100 Pinhurst Drive, --- --- Apartments --- 16.97 --- --- Atlanta, GA
Source: CB Richard Ellis, Inc. ANALYSIS OF LAND SALES It should be noted that there has been a lack of recent comparable land sales due to the slowing market. We have, therefore, utilized land sales which occurred most recently and that are considered most comparable to the subject. Additionally, we have made an adjustment for any change in market conditions since the date of the comparable land sales. LAND SALE ONE This comparable represents the sale of a 36.27-acre vacant site, purchased for the development of a 230-unit apartment complex. The site is located on the west side of Lee Road (Georgia Highway 5), approximately one-quarter mile south of Interstate 20, in the western portion of metropolitan Atlanta. This sale warrants an upward adjustment to account for improving market conditions (time) since its date of sale, as compared to the subject's date of appraisal. In addition, this sale warrants an upward adjustment to account for its inferior location. An overall upward adjustment is warranted to the price per unit indication of this sale. 57 WOOD LAKE APARTMENTS LAND VALUE LAND SALE TWO This comparable represents the sale of a 19.85-acre vacant site, purchased for the development of a 234-unit apartment complex to be known as Caswyck Battlefield Apartments. The site is located within the northwest quadrant of U.S. Highway 41 and White Circle Road, in the northwestern portion of metropolitan Atlanta. This sale warrants an upward adjustment to account for improving market conditions (time) since its date of sale, as compared to the subject's date of appraisal. In addition, this sale warrants an upward adjustment to account for its inferior location. An overall upward adjustment is warranted to the price per unit indication of this sale. LAND SALE THREE This comparable represents the sale of a 40.56-acre vacant site, purchased for the development of a 498-unit apartment complex to be known as Alta Green. The site is located along the northeast side of Shiloh Road, south of Royal North Parkway, in the northwestern portion of metropolitan Atlanta. This sale warrants an upward adjustment to account for improving market conditions (time) since its date of sale, as compared to the subject's date of appraisal. No additional adjustments are required. LAND SALE FOUR This comparable represents the sale of a 13.49-acre site, purchased for the development of a 270-unit apartment complex to be developed by Archstone. The site was improved as Parkwood Hospital and a $465,000 cost-to-raze adjustment was incorporated in the selling price. The site is located on Cliff Valley way, approximately one-quarter mile north of Briarcliff Road and one-quarter mile south of Interstate 85, in the central portion of metropolitan Atlanta. This sale warrants an upward adjustment to account for improving market conditions (time) since its date of sale, as compared to the subject's date of appraisal. In addition, this sale warrants a downward adjustment to account for its superior location. Overall, a downward adjustment is warranted to the price per unit indication. LAND SALE FIVE This comparable represents the sale of a 39.78-acre vacant site, purchased for the development of a 358-unit apartment complex to be known as Caswyck at Town Center. The site is located along the north side of Williams Drive, east of Bells Ferry Road, in the northwestern portion of metropolitan Atlanta. 58 WOOD LAKE APARTMENTS LAND VALUE This sale warrants an upward adjustment to account for improving market conditions (time) since its date of sale, as compared to the subject's date of appraisal. In addition, this sale warrants a downward adjustment to account for its superior location. Overall, a downward adjustment is warranted to the price per unit indication. SUMMARY OF ADJUSTMENTS Based on the foregoing discussions, the following table presents the adjustments warranted to each sale, as compared to the subject. The following adjustment grid implies a level of accuracy, which may not exist in the current market. However, the grid has been included in order to illustrate the magnitude of the warranted adjustments. Use of an adjustment grid in making quantitative adjustments is only appropriate and reliable when the extent of adjustment for each particular factor is well supported and the dollar or percentage adjustment is derived through either paired sales analysis or other data relevant to the market. In instances where paired sales and market data is not readily available, the appraiser must use his best judgment to make a reasonable estimate for the appropriate warranted adjustment. LAND SALES ADJUSTMENT GRID Comparable Number 1 2 3 4 5 Subject Transaction Type Sale Sale Sale Sale Sale --- Transaction Date Aug-01 Feb-01 Nov-00 Jun-00 Jan-00 --- Proposed Use Apartments Apartments Apartments Apartments Apartments Apartments Adjusted Sale Price $1,757,500 $2,381,472 $7,043,400 $4,190,000 $3,500,000 --- Size (Acres) 36.27 19.85 40.56 13.49 39.78 16.50 Price Per SF $ 1.11 $ 2.75 $ 3.99 $ 7.13 $ 2.02 --- ---------- ---------- ---------- ---------- ---------- Price ($ Per Unit) $ 7,641 $ 10,177 $ 14,143 $ 15,519 $ 9,777 ---------- ---------- ---------- ---------- ---------- Conditions of Sale 0% 0% 0% 0% 0% Market Conditions 2% 2% 3% 4% 5% ---------- ---------- ---------- ---------- ---------- Subtotal $ 7,794 $ 10,381 $ 14,568 $ 16,139 $ 10,265 ---------- ---------- ---------- ---------- ---------- Size 0% 0% 0% 0% 0% Topography 0% 0% 0% 0% 0% Location 20% 10% 0% -15% -5% ---------- ---------- ---------- ---------- ---------- Total Other Adjustments 20% 10% 0% -15% -5% ========== ========== ========== ========== ========== Value Indication For Subject $ 9,353 $ 11,419 $ 14,568 $ 13,718 $ 9,752 ========== ========== ========== ========== ==========
Source: CB Richard Ellis, Inc. CONCLUSION Based on the preceding discussions of each comparable and the foregoing adjustment analysis, a price per unit indication near the middle of the range indicated by these comparables is the most appropriate for the subject. The following table presents the valuation conclusion: 59 WOOD LAKE APARTMENTS LAND VALUE CONCLUDED LAND VALUE
$ Per Unit Subject Units Total $ 12,500 X 220 = $2,750,000
Source: CB Richard Ellis, Inc. 60 WOOD LAKE APARTMENTS COST APPROACH COST APPROACH The Cost Approach is based upon the proposition the informed purchaser would pay no more for the subject than the cost to produce a substitute property with equivalent utility. This approach is particularly applicable when the property being appraised involves relatively new improvements which represent the highest and best use of the land, or when relatively unique or specialized improvements are located on the site for which there exist few sales or leases of comparable properties. DIRECT COST The Marshall Valuation Service (MVS) cost guide, published by Marshall and Swift, Inc., has been used to estimate the direct costs for the subject. Salient details regarding the direct costs are summarized in the Cost Approach Schedule which follows this section. The MVS cost estimate include the following: 1. average architect's and engineer's fees for plans, plan check, building permits and survey(s) to establish building line; 2. normal interest in building funds during the period of construction plus a processing fee or service charge; 3. materials, sales taxes on materials and labor costs;. 4. normal site preparation including finish grading and excavation for foundation and backfill; 5. utilities from structure to lot line figured for typical setback; 6. contractor's overhead and profit, including job supervision, workmen's compensation, fire and liability insurance, unemployment insurance, equipment, temporary facilities, security, etc.; 7. site improvements (included as lump sum additions); and, 8. initial tenant improvement costs are included in MVS cost estimate. However, additional lease-up costs such as advertising, marketing and leasing commissions are not included. Base building costs (direct costs), indicated by the MVS cost guide, are adjusted to reflect the physical characteristics of the subject. Making these adjustments, including the appropriate local and current cost multipliers, the Direct Building Cost is indicated. ADDITIONS Items not included in the direct building cost estimate include parking and walks, signage, landscaping and miscellaneous site improvements. The cost for these items is estimated separately using the segregated cost sections of the MVS cost guide. INDIRECT COST Several indirect cost items are not included in the direct building cost figures derived through the MVS cost guide. These items include developer overhead (general and administrative costs), property taxes, legal and insurance costs, local development fees and contingencies, lease-up and marketing costs and miscellaneous costs. Research into these costs leads to the conclusion that an average property requires an allowance for additional indirect costs of about 10% to 15% of the total direct costs. 61 WOOD LAKE APARTMENTS COST APPROACH ENTREPRENEURIAL PROFIT Entrepreneurial profit represents the return to the developer, and is separate from contractor's overhead and profit. This line item, which is a subjective figure, tends to range from 10% to 15% of total direct and indirect costs for this property type, based on discussions with developers active in this market. Based on the subject's location, we believe a rate of entrepreneurial profit near the high end of the range is appropriate. REPLACEMENT COST NEW Based on the quantity and quality of the available cost data, the subject's estimated replacement cost new is based primarily on MVS. ACCRUED DEPRECIATION There are essentially three sources of accrued depreciation: 1. physical deterioration, both curable and incurable; 2. functional obsolescence, both curable and incurable; and, 3. external obsolescence. PHYSICAL DETERIORATION The subject's physical condition was detailed in the Improvement Analysis. With regard to incurable deterioration, the subject improvements are considered to have deteriorated due to normal wear and tear associated with natural aging. Our estimate of the subject improvements effective age and remaining economic life is depicted in the following chart: ECONOMIC AGE AND LIFE Actual Age 22 Years Effective Age 15 Years MVS Expected Life 50 Years Remaining Economic Life 35 Years Accrued Physical Incurable Depreciation 30.0%
Source: CB Richard Ellis, Inc. FUNCTIONAL OBSOLESCENCE Based on a review of the design and layout of the improvements, no forms of curable functional obsolescence were noted. Due to the fact that replacement cost considers the construction of the subject improvements utilizing modern materials and current standards, design and layout, functional incurable obsolescence is not applicable. 62 WOOD LAKE APARTMENTS COST APPROACH EXTERNAL OBSOLESCENCE We have concluded that there is no significant external obsolescence affecting the subject improvements. COST APPROACH CONCLUSION The value estimate is calculated on the Cost Approach Schedule which follows. COST APPROACH SCHEDULE Building Type: Apartment (1-4 Story) Height Per Story: 10' Age: 15 YRS Number of Buildings: 11 Quality/Condition: Good Gross Building Area: 229,774 SF Exterior Wall: Wood Siding And Brick Net Rentable Area: 227,474 SF Number Of Unts: 220 Average Unit Size: 1,034 SF Number Of Stories: 2 & 3 FINAL SQUARE FOOT COST $ 52.69 ------------ BASE BUILDING COST (via Marshall Valuation Service Cost Data) $12,107,879 ADDITIONS Signage, Landscaping & Misc. Site Improvements $ 325,000 Parking & Driveways $ 350,000 Appliances $ 385,000 ------------ DIRECT BUILDING COST $13,167,879 INDIRECT COSTS 10.0% of Direct Building Cost $ 1,316,788 ------------ DIRECT AND INDIRECT BUILDING COST $14,484,667 ENTREPRENEURIAL PROFIT 15.0% of Total Building Cost $ 2,172,700 ------------ REPLACEMENT COST NEW $16,657,367 ------------ ACCRUED DEPRECIATION Curable Physical Deterioration $ 0 Unfinished Shell Space $ 0 Incurable Physical 30.0% of Replacement Cost New Less Deterioration Curable Physical Deterioration ($4,997,210) Functional Obsolescence $ 0 External Obsolescence $ 0 ----------- Total Accrued Depreciation 30.0% of Replacement Cost New ($ 4,997,210) DEPRECIATED REPLACEMENT COST $11,660,157 ------------ LAND VALUE $ 2,750,000 ------------ STABILIZED VALUE INDICATION $14,410,157 ROUNDED $14,400,000 VALUE PER SF $ 63.30 VALUE PER UNIT $ 65,455
Source: CB Richard Ellis, Inc. 63 WOOD LAKE APARTMENTS SALES COMPARISON APPROACH insert sale comp map here 64 WOOD LAKE APARTMENTS SALES COMPARISON APPROACH SALES COMPARISON APPROACH The following table summarizes the most comparable data utilized in the analysis with a comparable map presented on the previous page. A more detailed description of each transaction is included in the Addenda. SUMMARY OF COMPARABLE APARTMENT SALES
TRANSACTION YEAR NO. AVG. UNIT ADJ. SALE PRICE PER NOI PER NO. NAME TYPE DATE BUILT UNITS SIZE PRICE UNIT UNIT OAR - --- ---- ---- ------ ----- ----- --------- ---------- --------- ------- ----- 1 Cinnamon Ridge, Sale Dec-02 1980 200 1,184 $11,200,000 $56,000 $4,480 8.00% Marietta, GA 2 Windridge Apartments, Sale Dec-02 1982 272 855 $15,100,000 $55,515 $4,164 7.50% Atlanta, GA 3 Oakwood Village, Sale Nov-02 1982 184 1,134 $11,675,000 $63,451 $5,038 7.94% Chamblee, GA 4 Hawthorne Court Sale Jun-02 1990 172 746 $11,960,000 $69,535 $5,215 7.50% Apartments, Atlanta, GA 5 Hawthorne Town View Sale Jun-02 1990 278 779 $19,419,975 $69,856 $5,239 7.50% Apartments, Atlanta, GA 6 Oak Park Of Vinings, Sale Feb-02 1974 168 N/A $12,500,000 $74,405 $5,908 7.94% Smyrna, GA Subject Wood Lake Apartments, --- --- 1981 220 1,034 --- --- $4,954 --- Atlanta, GA
Source:CB Richard Ellis, Inc. ANALYSIS OF IMPROVED SALES IMPROVED SALE ONE This comparable represents the sale of a 200-unit apartment property that was built in 1980, and renovated in 1991. The property is located on Franklin Road, approximately six miles northwest of the subject property, in the northwestern portion of metropolitan Atlanta. The property offers one- and two-bedroom units, with an average unit size of 1,184 square feet. As compared to the subject, this sale requires a downward adjustment to account for its larger average unit size. In addition, this sale requires an upward adjustment to account for its older age. Overall, no net adjustment is warranted to the price per unit indication of this sale. IMPROVED SALE TWO This comparable represents the sale of a 272-unit apartment property that was built in 1982. The property is located on Roswell Road at Northridge Drive, approximately 14 miles northeast of the subject property, in the north central portion of metropolitan Atlanta. The property offers one- and two-bedroom units, with an average unit size of 855 square feet. 65 WOOD LAKE APARTMENTS SALES COMPARISON APPROACH As compared to the subject, this sale requires an upward adjustment to account for its smaller average unit size. In addition, this sale requires a downward adjustment to account for its superior location. Overall, an upward adjustment was warranted to the price per unit indication of this sale. IMPROVED SALE THREE This comparable represents the sale of a 184-unit apartment property that was built in 1982. The property is located along the south side of Chamblee Tucker Road, south of Interstate 285, approximately 18 miles east of the subject property, in the central portion of metropolitan Atlanta. The property offers one-, two- and three-bedroom units, with an average unit size of 1,134 square feet. As compared to the subject, this sale requires downward adjustments to account for its larger average unit size and superior location. Overall, a downward adjustment was warranted to the price per unit indication of this sale. IMPROVED SALE FOUR This comparable represents the sale of a 172-unit apartment property that was built in 1990. The property is located on the north side of Wimbledon Road, just west of Piedmont Road, approximately 11 miles southeast of the subject property, inside the city limits of Atlanta, Georgia. The property offers one- and two-bedroom units, with an average unit size of 746 square feet. As compared to the subject, this sale requires an upward adjustment to account for its smaller average unit size. In addition, this sale requires downward adjustments to account for its newer age and superior location. Overall, no net adjustment was warranted to the price per unit indication of this sale. IMPROVED SALE FIVE This comparable represents the sale of a 278-unit apartment property that was built in 1990. The property is located on the southeast quadrant of Mescalin Street and Deering Road, approximately eight-and-one-half miles southeast of the subject property, within the city limits of Atlanta, Georgia in Fulton County. The property offers one- and two-bedroom units, with an average unit size of 779 square feet. As compared to the subject, this sale requires an upward adjustment to account for its smaller average unit size. In addition, this sale requires downward adjustments to account for its newer age and superior location. Overall, no net adjustment was warranted to the price per unit indication of this sale. 66 WOOD LAKE APARTMENTS SALES COMPARISON APPROACH IMPROVED SALE SIX This comparable represents the sale of a 168-unit apartment property that was built in 1974. The property is located along Winchester Trail, just east of Interstate 285, approximately two-and-one-half miles southwest of the subject property, in the northwestern portion of metropolitan Atlanta. As compared to the subject, this sale requires an upward adjustment to account for its older age. Overall, an upward adjustment was warranted to the price per unit indication of this sale. SUMMARY OF ADJUSTMENTS Based on the foregoing discussions, the following table presents the adjustments warranted to each sale, as compared to the subject. The following adjustment grid implies a level of accuracy, which may not exist in the current market. However, the grid has been included in order to illustrate the magnitude of the warranted adjustments. Use of an adjustment grid in making quantitative adjustments is only appropriate and reliable when the extent of adjustment for each particular factor is well supported and the dollar or percentage adjustment is derived through either paired sales analysis or other data relevant to the market. In instances where paired sales and market data is not readily available, the appraiser must use his best judgment to make a reasonable estimate for the appropriate warranted adjustment. In addition, the comparable sales utilized were all arm's length transactions. APARTMENT SALES ADJUSTMENT GRID Comparable Number 1 2 3 4 5 6 Subject Transaction Type Sale Sale Sale Sale Sale Sale --- Transaction Date Dec-02 Dec-02 Nov-02 Jun-02 Jun-02 Feb-02 --- Year Built 1980 1982 1982 1990 1990 1974 1981 No. Units 200 272 184 172 278 168 220 Avg. Unit Size 1,184 855 1,134 746 779 N/A 1,034 Sale Price $11,200,000 $15,100,000 $11,675,000 $11,960,000 $19,419,975 $12,500,000 --- Price Per Unit $ 56,000 $ 55,515 $ 63,451 $69,535 $ 69,856 $ 74,405 --- Price Per SF $ 47.28 $ 64.90 $ 55.97 $93.18 $ 89.70 N/A --- NOI Per Unit $ 4,480 $ 4,164 $ 5,038 $5,215 $ 5,239 $ 5,908 $4,954 OAR 8.00% 7.50% 7.94% 7.50% 7.50% 7.94% --- ----------- ----------- ----------- ----------- ----------- ----------- Adj. Price Per Unit $ 56,000 $ 55,515 $ 63,451 $69,535 $ 69,856 $ 74,405 ----------- ----------- ----------- ----------- ----------- ----------- Conditions of Sale 0% 0% 0% 0% 0% 0% Market Conditions (Time) 0% 0% 0% 0% 0% 0% ----------- ----------- ----------- ----------- ----------- ----------- Subtotal $ 56,000 $ 55,515 $ 63,451 $69,535 $ 69,856 $ 74,405 ----------- ----------- ----------- ----------- ----------- ----------- Age 5% 0% 0% -5% -5% 5% Quality/Condition 0% 0% 0% 0% 0% 0% Location 0% -5% -5% -10% -10% 0% Average Unit Size -5% 10% -5% 15% 15% 0% ----------- ----------- ----------- ----------- ----------- ----------- Total Other Adjustments 0% 5% -10% 0% 0% 5% ----------- ----------- ----------- ----------- ----------- ----------- INDICATED VALUE PER UNIT $ 56,000 $ 58,290 $ 57,106 $ 69,535 $ 69,856 $ 78,125 =========== =========== =========== =========== =========== =========== INDICATED VALUE PER SF $ 47.28 $ 68.15 $ 50.37 $ 93.18 $ 89.70 N/A =========== =========== =========== =========== =========== ===========
Source: CB Richard Ellis, Inc. 67 WOOD LAKE APARTMENTS SALES COMPARISON APPROACH SALES COMPARISON APPROACH CONCLUSION A price per unit indication near the middle of the range indicated by the comparables is considered most appropriate for the subject. The following table presents the estimated value for the subject as indicated by the Sales Comparison Approach. SALES COMPARISON APPROACH
TOTAL UNITS X VALUE PER UNIT = VALUE 220 X $ 64,000 = $14,080,000 VALUE CONCLUSION INDICATED STABILIZED VALUE $14,080,000 ROUNDED $14,100,000 VALUE PER UNIT $ 64,091 VALUE PER SF $ 61.99
Source: CB Richard Ellis, Inc. 68 WOOD LAKE APARTMENTS INCOME CAPITALIZATION APPROACH insert rent comp map here 69 WOOD LAKE APARTMENTS INCOME CAPITALIZATION APPROACH INCOME CAPITALIZATION APPROACH Within the Income Capitalization Approach, a value indication for the subject has been derived via the direct capitalization method. The following table summarizes the most comparable data utilized in the analysis with a comparable map presented on the previous page. A more detailed description of each comparable is included in the Addenda. SUMMARY OF COMPARABLE APARTMENT RENTALS
COMP. NO. AVG. RENT NO. NAME LOCATION YEAR BUILT UNITS PER UNIT OCC. --- ---- -------- ---------- ----- -------- ---- 1 The Woods At Overlook 100 Pinehurst Drive, 1982 680 $887 93% Atlanta, GA 2 Post Vinings 3385 Atlanta Road, 1988 403 $921 Wnd Smyrna, GA 3 Post Village 2189 Lake Park Drive, 1982 1,738 $884 95% Smyrna, GA 4 Archstone Woodlands (Fka - 2200 Woodlands Drive, 1982 644 $767 94% Woodlands) Smyrna, GA 5 Paces Station 3000 Paces Walk, 1988 400 $975 91% Atlanta, GA 6 The Lakes At Vinings 2800 Paces Ferry Road, 1971 464 $879 92% Atlanta, GA 7 Vinings Peak(Formerly Wood Mt. Wilkinson Parkway, 1980 280 $849 93% Ridge) Unincorporated, GA SUBJECT Wood Lake Apartments 100 Pinhurst Drive, 1981 220 --- 93% Atlanta, GA
Source: CB Richard Ellis, Inc. ANALYSIS OF RENT COMPARABLES RENT COMPARABLE ONE This comparable represents a 680-unit apartment property, located along Mt. Wilkinson Parkway, just east of Interstate 285. The property, identified as The Woods at Overlook, was developed in 1982 and is currently 93% occupied. The property offers one-, two- and three-bedroom floor plans, with an average unit size of 1,019 square feet. Trash removal expenses are included in the quoted rental rates. Currently, as a concession, management is offering one-month of free rent on a 12-month lease. This project is considered similar to the subject, with no adjustments warranted to its rental rates. 70 WOOD LAKE APARTMENTS INCOME CAPITALIZATION APPROACH RENT COMPARABLE TWO This garden style apartment property, located on Heritage Drive along Atlanta Road, is identified as Post Vinings and was constructed in 1988. This comparable offers efficiency, one-, two-, and three-bedroom floor plans. The property manager would not disclose the current occupancy. Property management is currently offering one- to two-months of free rent on select units pro-rated over a 12-month lease. As compared to the subject, this project is considered similar to the subject in location, but superior in age, thereby requiring a downward adjustment to its rental rates. RENT COMPARABLE THREE This garden apartment property, located on Lake Park Drive, is identified as Post Village and was constructed in 1982. This comparable offers studio, one-, and two-bedroom floor plans. The property is currently 95% occupied and is currently offering two months of free rent pro-rated over a 12-month lease. The tenant is responsible for all utilities except trash removal. As compared to the subject, this project is considered similar to the subject in location, but superior in quality and condition, thereby requiring a downward adjustment to its rental rates. RENT COMPARABLE FOUR This comparable represents a 644-unit apartment property, located along the west side of Village Parkway on Woodlands Drive. The property, identified as Archstone Woodlands, was developed in 1982 and is currently 94% occupied. The property offers one- and two-bedroom floor plans, with an average unit size of 869 square feet. No expenses are included in the quoted rental rates. Currently, as a concession, the property is offering reduced rental rates on all unit types. This project is considered quite similar to the subject, with no adjustments warranted to its rental rates. RENT COMPARABLE FIVE This garden apartment property, located on Paces Walk, is identified as Paces Station and was developed in 1988. This project consists of one- and two-bedroom floor plans. Currently, the property is 91% occupied and is offering three-months free pro-rated over a 12-month lease as a concession. The tenant is responsible for all utilities except trash removal. As compared to the subject, this project is considered similar to the subject in location, but superior in age, thereby requiring a downward adjustment to its rental rates. RENT COMPARABLE SIX This comparable represents a 464-unit apartment property, located along Paces Ferry Road, just east of Interstate 285. The property, identified as The Lakes at Vinings, was developed in 1971 and renovated in 1994 and is currently 92% occupied. The property offers one-, two- and three-bedroom floor plans, with an average unit size of 955 square feet. No expenses are included in the quoted 71 WOOD LAKE APARTMENTS INCOME CAPITALIZATION APPROACH rental rates. Currently, as a concession, management is offering one-and-one-half months of free rent pro-rated over a 12-month lease. This project is considered similar to the subject, with no adjustments warranted to its rental rates. RENT COMPARABLE SEVEN This comparable represents a 280-unit apartment property, located along the north side of Mt. Wilkinson Parkway. The property, identified as Vinings Peak, was developed in 1980 and is currently 93% occupied. The property offers one- and two-bedroom floor plans, with an average unit size of 982 square feet. Trash removal and pest control expenses are included in the quoted rental rates. Currently, as a concession, management is offering one-month of free rent on a 12-month lease. This project is considered similar to the subject, with no adjustments warranted to its rental rates. SUBJECT QUOTED RENTS The following table depicts the subject's unit mix and quoted rental rates. QUOTED RENTS
No. of Unit Quoted Rent Type Units Size (SF) Rents Per SF - -------- ------ --------- ------ ------ 1BR/1BA 50 705 SF $ 759 $ 1.08 1BR/1BA 58 874 SF $ 809 $ 0.93 2BR/1BA 14 1,111 SF $ 899 $ 0.81 2BR/2BA 18 1,111 SF $ 899 $ 0.81 2BR/2BA 50 1,213 SF $ 985 $ 0.81 3BR/2BA 30 1,511 SF $1,269 $ 0.84 ------ --------- ------ ------ Average: 220 1,034 SF $ 913 $ 0.88 ------ --------- ------ ------
Source: Property Management Rent includes trash removal and pest control expenses; all other utilities are paid directly by tenants to the respective providers. The subject's rental rates have reportedly not increased recently. Currently, as a concession, management is offering one month of free rent with a 12-month lease. ESTIMATE OF MARKET RENT In order to estimate the market rates for the various floor plans, the subject unit types have been compared with similar units in the comparable projects. The following is a discussion of each unit type. 72 WOOD LAKE APARTMENTS INCOME CAPITALIZATION APPROACH ONE-BEDROOM UNITS SUMMARY OF COMPARABLE RENTALS ONE BEDROOM UNITS
RENTAL RATES COMPARABLE SIZE $/MO. $/SF - ---------- ------ ----- ----- Archstone Woodlands (fka - Woodlands) 850 SF $ 755 $0.89 Vinings Peak(formerly Wood Ridge) 879 SF $ 799 $0.91 The Woods At Overlook 874 SF $ 795 $0.91 Subject 874 SF $ 809 $0.93 Archstone Woodlands (fka - Woodlands) 750 SF $ 705 $0.94 The Lakes At Vinings 770 SF $ 771 $1.00 The Lakes At Vinings 758 SF $ 759 $1.00 Post Village 850 SF $ 875 $1.03 Vinings Peak(formerly Wood Ridge) 705 SF $ 729 $1.03 Post Vinings 828 SF $ 865 $1.04 Archstone Woodlands (fka - Woodlands) 650 SF $ 680 $1.05 The Woods At Overlook 705 SF $ 750 $1.06 The Lakes At Vinings 702 SF $ 749 $1.07 Subject 705 SF $ 759 $1.08 Post Village 680 SF $ 736 $1.08 Paces Station 880 SF $ 961 $1.09 Post Vinings 734 SF $ 814 $1.11 Paces Station 650 SF $ 751 $1.16 Post Vinings 628 SF $ 738 $1.18 Post Village 610 SF $ 738 $1.21
Source: CB Richard Ellis, Inc. The subject's quoted rental rates for the one-bedroom units are within the range on a per square foot basis. However, based on an analysis of the rent roll, the units have been signed at lower rent levels than the quoted amounts. Therefore, we have included a rental rate of $599 for the 705-square foot units and $659 for the 874-square foot units. 73 WOOD LAKE APARTMENTS INCOME CAPITALIZATION APPROACH TWO-BEDROOM UNITS SUMMARY OF COMPARABLE RENTALS TWO BEDROOM UNITS
RENTAL RATES COMPARABLE SIZE $/MO. $/SF - ------------------------------------- -------- ------ ----- Archstone Woodlands (fka - Woodlands) 1,157 SF $ 900 $0.78 Vinings Peak(formerly Wood Ridge) 1,213 SF $ 969 $0.80 Post Village 1,400 SF $1,125 $0.80 Post Village 1,300 SF $1,049 $0.81 Subject 1,111 SF $ 899 $0.81 Subject 1,111 SF $ 899 $0.81 The Woods At Overlook 1,111 SF $ 899 $0.81 The Woods At Overlook 1,111 SF $ 899 $0.81 Vinings Peak(formerly Wood Ridge) 1,111 SF $ 899 $0.81 Post Village 1,200 SF $ 972 $0.81 Subject 1,213 SF $ 985 $0.81 Archstone Woodlands (fka - Woodlands) 1,007 SF $ 825 $0.82 The Woods At Overlook 1,213 SF $1,000 $0.82 The Lakes At Vinings 1,121 SF $ 927 $0.83 Post Village 1,100 SF $ 913 $0.83 Paces Station 1,248 SF $1,044 $0.84 Post Vinings 1,231 SF $1,032 $0.84 Post Vinings 1,280 SF $1,080 $0.84 The Lakes At Vinings 1,100 SF $ 936 $0.85 Paces Station 1,033 SF $ 894 $0.87 Paces Station 1,148 SF $1,013 $0.88 The Lakes At Vinings 1,048 SF $ 927 $0.88 The Lakes At Vinings 1,051 SF $ 936 $0.89 Post Vinings 1,150 SF $1,027 $0.89 The Lakes At Vinings 1,288 SF $1,151 $0.89 Post Vinings 1,002 SF $ 937 $0.94 Post Vinings 946 SF $ 892 $0.94 Paces Station 1,282 SF $1,293 $1.01
Source: CB Richard Ellis, Inc. The subject's quoted rental rates for the two-bedroom units are within the range on a per square foot basis. However, based on an analysis of the rent roll, the units have been signed at lower rent levels than the quoted amounts. Therefore, we have utilized a rental rate of $749 for the 1,111-square foot units and $949 for the 1,213-square foot units. 74 WOOD LAKE APARTMENTS INCOME CAPITALIZATION APPROACH THREE-BEDROOM UNITS SUMMARY OF COMPARABLE RENTALS THREE BEDROOM UNITS
RENTAL RATES COMPARABLE SIZE $/MO. $/SF - ---------- -------- ------ ----- Post Vinings 1,596 SF $1,316 $0.82 Subject 1,511 SF $1,269 $0.84 The Woods At Overlook 1,511 SF $1,300 $0.86 The Lakes At Vinings 1,366 SF $1,232 $0.90
Source: CB Richard Ellis, Inc. The subject's quoted rental rates for the three-bedroom units are within the range on a per square foot basis. However, based on an analysis of the rent roll, the units have been signed at lower rent levels than the quoted amounts. Therefore, we have utilized a rental rate of $1,249 for the 1,511-square foot units. MARKET RENT CONCLUSIONS Based on the foregoing analysis and discussion, the following is our estimate of potential rental income for the subject property at market rates: MARKET RENT CONCLUSIONS
No. Unit Monthly Rent Annual Rent Annual Units Unit Type Size Total SF $/Unit $/SF PRI $/Unit $/SF Total - ----- --------- -------- ---------- ------------ ----- -------- ----------- ------ ---------- 50 1BR/1BA 705 SF 35,250 SF $ 599 $0.85 $ 29,950 $ 7,188 $10.20 $ 359,400 58 1BR/1BA 874 SF 50,692 SF $ 659 $0.75 $ 38,222 $ 7,908 $ 9.05 $ 458,664 14 2BR/1BA 1,111 SF 15,554 SF $ 749 $0.67 $ 10,486 $ 8,988 $ 8.09 $ 125,832 18 2BR/2BA 1,111 SF 19,998 SF $ 749 $0.67 $ 13,482 $ 8,988 $ 8.09 $ 161,784 50 2BR/2BA 1,213 SF 60,650 SF $ 949 $0.78 $ 47,450 $ 11,388 $ 9.39 $ 569,400 30 3BR/2BA 1,511 SF 45,330 SF $ 1,249 $0.83 $ 37,470 $ 14,988 $ 9.92 $ 449,640 - ----- -------- -------- ---------- ------------ ----- -------- ----------- ------ ---------- 220 1,034 SF 227,474 SF $ 805 $0.78 $177,060 $ 9,658 $ 9.34 $2,124,720 - ----- -------- -------- ---------- ------------ ----- -------- ----------- ------ ----------
Source: CB Richard Ellis, Inc. As mentioned previously in our estimate of market rent section, we believe that the quoted rents are above market level and a downward adjustment to the quoted rents are considered necessary. RENT ADJUSTMENTS Rent adjustments are sometimes necessary to account for differences in rental rates applicable to different units within similar floor plans due to items such as location within the property, view, and level of amenities. These rental adjustments may be in the form of rent premiums or rent discounts. In the case of the subject, there are rental premiums for view and level. However, our estimated market rates are averages. 75 WOOD LAKE APARTMENTS INCOME CAPITALIZATION APPROACH RENT SUBSIDIES There are not any known rent subsidies at the subject property. RENT ROLL ANALYSIS The rent roll analysis serves as a cross check to the estimate of market rent for the subject. The collections shown on the rent roll include rent premiums and/or discounts. RENT ROLL ANALYSIS
Total Total Revenue Component Monthly Rent Annual Rent - ----------------- ------------ ----------- 204 Occupied Units at Contract Rates $ 156,497 $ 1,877,964 16 Vacant Units at Quoted Rates $ 17,234 $ 206,808 ------------ ----------- 220 Total Units $ 173,731 $ 2,084,772 ------------ -----------
Source: Property Management The level of variance between our estimate of market rent and the potential gross income based on the in-place rents equates to 1.88%, which is relatively minor. Therefore, it is not necessary to include a deduction for loss-to-lease. POTENTIAL RENTAL INCOME CONCLUSION Within this analysis, potential rental income is estimated based on market rental rates over the next twelve months. This method of calculating rental income is most prevalent in the local market and is consistent with the method used to derive overall capitalization rates from the comparable sales data. VACANCY AND COLLECTION LOSS Vacancy and collection loss is a function of the interrelationship between absorption, lease expiration, renewal probability, estimated downtime between leases and a collection loss factor based on the relative stability and credit of the subject's tenant base. As shown on the Summary of Comparable Rentals, the comparable properties reported occupancy rates ranging from 91% to 95%. Furthermore, the subject is currently [OBJECT OMITTED] occupied. Based on current conditions at comparable properties and considering data contained in the Market Analysis, a stabilized vacancy rate of 9.0% has been estimated for the subject. In addition, a 1.0% collection loss allowance has been included, for a total vacancy and collection loss of 10.0%. CONCESSION LOSS Currently, as a concession, management is offering one-month of free rent when signing a 12-month lease. Furthermore, all of the comparable properties are currently offering concessions. Some of the concessions are considered cyclical to the normal pattern of leasing activity and some level owes to 76 WOOD LAKE APARTMENTS INCOME CAPITALIZATION APPROACH the current economic conditions. Based on the foregoing, we have incorporated a concession loss of 4.0% in our analysis, as a reasonable stabilized projection. UTILITY REIMBURSEMENTS Residents at the subject property are responsible for paying their respective electric, gas, water and sewer usage. The subject's revenue history and our concluded stabilized estimate of this item are detailed as follows: UTILITY REIMBURSEMENT
Year Total $/Unit - ---- ------- ------ 2000 $ 1,682 $ 8 2001 $27,308 $ 124 2002 $46,308 $ 210 2003 Annualized $32,196 $ 146 CB RICHARD ELLIS, INC. ESTIMATE $32,120 $ 146
Source: Operating Statements & CB Richard Ellis, Inc. Utility Reimbursement Income is very property specific. At the subject property, tenants reimburse the electric, water and sewer, and natural gas expenses. The recovery of these expenses is a common practice among other properties in the market. In estimating a stabilized utility reimbursement level, we have taken into account the subject's historical reimbursements. Therefore, we have estimated the utility reimbursement income at $146 per unit, or $32,120 annually. OTHER INCOME Other income is supplemental to that derived from leasing of the improvements. This includes income from a variety of sources, including application fees, laundry income, late payment fees, vending machines, termination fees, pet fees, lock-out fees, appliance rental fees, corporate income fees, furniture rental fees and various other similar sources. We have found this source of income normally varies from approximately $15 to $25 per unit per month, which equates to $180 to $300 per unit annually. Furthermore, we have found that most properties witness Other Income levels near the middle to higher end of this range. The subject's historical and projected Other Income is detailed as follows: 77 WOOD LAKE APARTMENTS INCOME CAPITALIZATION APPROACH OTHER INCOME
Year Total $/Unit - ---- ------- ------ 2000 $70,535 $ 321 2001 $96,872 $ 440 2002 $70,036 $ 318 2003 Annualized $99,468 $ 452 CB RICHARD ELLIS, INC. ESTIMATE $66,000 $ 300
Source: Operating Statements & CB Richard Ellis, Inc. As illustrated, the historical levels are within the upper portion of the typical range. Thus, we have included this source of income in-line with comparable properties, concluded at $66,000, or $300 per unit. EFFECTIVE GROSS INCOME The subject's historical and pro forma effective gross income is detailed as follows: EFFECTIVE GROSS INCOME
Year Total % Change - ---- ---------- -------- 2000 $2,096,958 -- 2001 $2,064,304 -1.6% 2002 $1,900,372 -7.9% 2003 Annualized $1,739,848 -8.4% CB RICHARD ELLIS, INC. ESTIMATE $1,925,379 10.7%
Source: Operating Statements & CB Richard Ellis, Inc. Our estimate of effective gross income is generally in-line with the demonstrated historical levels. It should be noted that the 2003 annualized level is lower than the historical data and does not provide an accurate indication of the property's actual operating performance. In addition, we have incorporated a concession loss, which has become increasingly prevalent in the market over the past year and is reflected in the year-to-date operating data. Given these considerations, we believe our estimate is reasonable. OPERATING EXPENSE ANALYSIS In estimating the operating expenses for the subject, the actual operating history has been analyzed, along with expense data from comparable apartment properties. The following table presents the available operating expense history for the subject. 78 WOOD LAKE APARTMENTS INCOME CAPITALIZATION APPROACH OPERATING HISTORY
2000 2001 2002 2003 Annualized ----------------------- ----------------------- ----------------------- ---------------------- Total $/Unit Total $/Unit Total $/Unit Total $/Unit ---------- ---------- ---------- ---------- ---------- ---------- ---------- --------- INCOME Rental Income $2,024,741 $ 9,203 1,940,124 $ 8,819 1,784,028 $ 8,109 $1,608,184 $ 7,310 Utility Reimbursement 1,682 8 27,308 124 46,308 210 $ 32,196 146 Other Income 70,535 321 96,872 440 70,036 318 $ 99,468 452 ---------- ---------- ---------- ---------- ---------- ---------- ---------- --------- Effective Gross Income $2,096,958 $ 9,532 $2,064,304 $ 9,383 $1,900,372 $ 8,638 $1,739,848 $ 7,908 EXPENSES Real Estate Taxes $ 166,830 $ 758 $ 150,100 $ 682 $ 157,187 $ 714 $ 163,308 $ 742 Insurance 19,849 90 40,198 183 44,586 203 $ 46,088 209 Natural Gas 1,270 6 1,327 6 245 1 $ 3,320 15 Electricity 23,255 106 30,501 139 24,702 112 $ 27,372 124 Water and Sewer 32,698 149 35,913 163 49,968 227 $ 59,780 272 Cable Television - - - - - - $ 0 - Trash Removal 8,374 38 8,201 37 10,476 48 $ 11,612 53 Maintenance and Repairs 35,837 163 24,441 111 29,495 134 $ 73,248 333 Painting and Decorating 57,900 263 32,940 150 55,247 251 $ 55,604 253 Grounds 21,581 98 21,000 95 26,627 121 $ 29,200 133 Management Fee 106,294 483 112,340 511 98,154 446 $ 82,112 373 Administrative Payroll 75,678 344 75,635 344 52,647 239 $ 85,164 387 Maintenance Payroll 61,474 279 62,087 282 34,633 157 $ 37,680 171 Employee Taxes & Benefits 28,375 129 31,666 144 19,701 90 $ 27,756 126 Employee Apartments 33,362 152 15,817 72 11,226 51 $ 14,572 66 Security - - - - - - $ 0 - Advertising and Leasing 37,469 170 49,716 226 47,187 214 $ 96,820 440 General and Administrative 32,394 147 42,682 194 34,025 155 $ 49,596 225 Reserves for Replacement - - - - - - $ 0 - ---------- ---------- ---------- ---------- ---------- ---------- ---------- --------- Operating Expenses $ 742,640 $ 3,376 $ 734,564 $ 3,339 $ 696,106 $ 3,164 $ 863,232 $ 3,924 ========== ========== ========== ========== ========== ========== ========== ========= NET OPERATING INCOME $1,354,318 $ 6,156 $1,329,740 $ 6,044 $1,204,266 $ 5,474 $ 876,616 $ 3,985
Source: Operating statements EXPENSE COMPARABLES The following table indicates the actual operating history for comparable apartment properties. 79 WOOD LAKE APARTMENTS INCOME CAPITALIZATION APPROACH EXPENSE COMPARABLES
Comparable Number 1 2 IREM ------------- ------------- ------------- Location Metro Atlanta Metro Atlanta Metro Atlanta Units 200 240 Year Built 1996 1995 Gla (SF) 217,616 282,398 Expense Year 2001 2001 2001
Expenses $/Unit* $/Unit* $/Unit* ------- ------- ------- Real Estate Taxes $ 680 $ 817 $ 506 Property Insurance 64 117 84 Natural Gas - 17 10 Electricity 242 896 113 Water and Sewer 289 248 321 Cable Television - - - Trash Removal 55 46 85 Maintenance and Repairs 233 184 182 Painting and Decorating 194 299 212 Grounds 266 209 199 Management Fee 351 552 315 Administrative Payroll 409 784 - Maintenance Payroll 322 20 - Employee Taxes & Benefits 191 108 401 Employee Apartments 50 164 - Security 52 31 42 Advertising and Leasing 125 197 - General and Administrative 180 279 705 Reserves for Replacement - - - ------ ------ ------ Operating Expenses $3,703 $4,969 $3,922**
* Expenses Shown in $/unit, with the exception of Management Fee which Is shown as % EGI. ** The IREM Median total differs from the sum of the individual amounts. Source: Actual Operating Statements And Irem Income And Expense Report: 2001 EXPENSE ESTIMATE The following subsections represent the analysis for the pro forma estimate of each category of the subject's stabilized expenses. REAL ESTATE TAXES The real estate taxes for the subject were previously discussed and have been included at the 2003 actual level of $180,236. This level is well supported by comparable properties in the subject's area. 80 WOOD LAKE APARTMENTS INCOME CAPITALIZATION APPROACH PROPERTY INSURANCE Property insurance expenses typically include fire and extended coverage and owner's liability coverage. The subject's expense history and pro forma estimate are detailed as follows: INSURANCE
Year Total $/Unit - ---- -------- ------- 2000 $19,849 $ 90 2001 $40,198 $183 2002 $44,586 $203 2003 Annualized $46,088 $209 CB RICHARD ELLIS, INC. ESTIMATE $44,000 $200
Source: Operating Statements & CB Richard Ellis, Inc. We have found that insurance expenses for apartment properties in the area typically range from $100 to $200 per unit, with levels near the upper portion of the range being witnessed in recent years. Thus, we have estimated this expense at the high end of a typical level, concluded at $44,000, or $200 per unit. NATURAL GAS Like other utility expenses, natural gas is typically very property specific, and comparables offer a limited indication of an appropriate level. The subject's historical and projected electricity expense is identified in the following table. NATURAL GAS
Year Total $/Unit - ---- ------ ------ 2000 $1,270 $ 6 2001 $1,327 $ 6 2002 $ 245 $ 1 2003 Annualized $3,320 $15 CB RICHARD ELLIS, INC. ESTIMATE $3,300 $15
Source: Operating Statements & CB Richard Ellis, Inc. As illustrated, the subject's historical levels are varied. We are not aware of any planned utility increases. Therefore, we have included this expense in-line with the 2003 annualized level, concluded at $3,300, or $15 per unit. 81 WOOD LAKE APARTMENTS INCOME CAPITALIZATION APPROACH ELECTRICITY Like other utility expenses, electricity is typically very property specific, and comparables offer a limited indication of an appropriate level. The subject's historical and projected electricity expense is identified in the following table. ELECTRICITY
Year Total $/Unit - ---- -------- ------- 2000 $23,255 $106 2001 $30,501 $139 2002 $24,702 $112 2003 Annualized $27,372 $124 CB RICHARD ELLIS, INC. ESTIMATE $24,640 $112
Source: Operating Statements & CB Richard Ellis, Inc. As illustrated, the subject's historical levels have been relatively consistent. We are not aware of any planned utility increases. Therefore, we have included this expense in-line with the 2002 historical level, concluded at $24,640, or $112 per unit. WATER AND SEWER As with the other utility expenses, water and sewer costs are typically very property specific. The subject's historical and projected water and sewer expense is identified in the following table. WATER AND SEWER
Year Total $/Unit - ---- -------- ------- 2000 $32,698 $149 2001 $35,913 $163 2002 $49,968 $227 2003 Annualized $59,780 $272 CB RICHARD ELLIS, INC. ESTIMATE $49,940 $227
Source: Operating Statements & CB Richard Ellis, Inc. This expense typically ranges from $150 to $500 per unit annually. The historical levels have varied and are near the low end and slightly below the typical range. We are not aware of any planned utility increases. Therefore, we have placed primarily reliance on historical levels, and estimated this expense at the 2002 historical level of $49,940 annually, or $227 per unit. CABLE TELEVISION The subject property has not historically incurred a cable television expense, nor have we included one within our analysis. 82 WOOD LAKE APARTMENTS INCOME CAPITALIZATION APPROACH TRASH REMOVAL The subject's historical and projected trash removal expense is identified in the following table. TRASH REMOVAL
Year Total $/Unit - ---- -------- ------- 2000 $ 8,374 $38 2001 $ 8,201 $37 2002 $10,476 $48 2003 Annualized $11,612 $53 CB RICHARD ELLIS, INC. ESTIMATE $10,560 $48
Source: Operating Statements & CB Richard Ellis, Inc. As with other utility expenses, trash removal expenses are typical property specific. The subject's trash expense has been relatively consistent. Therefore, we have included this expense in-line with recent historical levels, concluded at $10,560, or $48 per unit. MAINTENANCE AND REPAIRS This expense category includes the cost of minor repairs to the apartments units. The subject's historical and projected maintenance and repairs expense is identified in the following table. MAINTENANCE AND REPAIRS
Year Total $/Unit - ---- -------- ------- 2000 $35,837 $163 2001 $24,441 $111 2002 $29,495 $134 2003 Annualized $73,248 $333 CB RICHARD ELLIS, INC. ESTIMATE $44,000 $200
Source: Operating Statements & CB Richard Ellis, Inc. This expense typically approximates $150 to $250 per unit. The subject's historical maintenance and repair expenses have varied, and have been below and within the typical range, with the annualized level being above the range. Thus, we have estimated this expense near the middle of the typical range, concluded at $44,000, or $200 per unit. PAINTING AND DECORATING This expense category includes normal painting and decorating items associated with repairing the units prior to the initial move-in of a new tenant. The subject's historical and projected painting and decorating expense is identified in the following table. 83 WOOD LAKE APARTMENTS INCOME CAPITALIZATION APPROACH PAINTING AND DECORATING
Year Total $/Unit - ---- -------- ------- 2000 $57,900 $263 2001 $32,940 $150 2002 $55,247 $251 2003 Annualized $55,604 $253 CB RICHARD ELLIS, INC. ESTIMATE $55,000 $250
Source: Operating Statements & CB Richard Ellis, Inc. This expense typically approximates $150 to $250 per unit. The subject's historical painting and decorating expenses have generally been within and above the typical range. Thus, we have estimated this expense in-line with recent historical levels and at the high end of a typical range, concluded at $55,000, or $250 per unit. GROUNDS (LANDSCAPING) This expense item covers normal landscaping and grounds maintenance of the property. The subject's historical and projected grounds expense is identified in the following table. GROUNDS
Year Total $/Unit - ---- -------- ------- 2000 $21,581 $ 98 2001 $21,000 $ 95 2002 $26,627 $121 2003 Annualized $29,200 $133 CB RICHARD ELLIS, INC. ESTIMATE $26,620 $121
Source: Operating Statements & CB Richard Ellis, Inc. This expense typically approximates $75 to $150 per unit. The subject's historical landscaping expenses have been relatively consistent and within the typical range. Thus, we have included this expense within the typical range and at the 2002 historical level, concluded at $26,620, or $121 per unit. MANAGEMENT FEE Management expenses for an apartment complex are typically negotiated as a percentage of collected revenues (effective gross income). This percentage typically is negotiated from 3.0% to 5.0% for similar quality apartment complexes, with levels in the lower portion of the range being more common in the last few years. Given the subject's size and the competitive management company market, we believe an appropriate management expense for the subject would be near the middle of 84 WOOD LAKE APARTMENTS INCOME CAPITALIZATION APPROACH the typical range. Therefore, we have estimated the subject's management fee at 4.0% of the effective gross income, which equates to $77,015 per year. ADMINISTRATIVE PAYROLL This expense item includes the administrative payroll for the subject property. The subject's historical and projected administrative payroll expense is demonstrated in the following table. ADMINISTRATIVE PAYROLL
Year Total $/Unit - ---- ------- ------ 2000 $75,678 $344 2001 $75,635 $344 2002 $52,647 $239 2003 Annualized $85,164 $387 CB RICHARD ELLIS, INC. ESTIMATE $66,000 $300
Source: Operating Statements & CB Richard Ellis, Inc. The administrative payroll expense typically approximates $250 to $500 per unit at most similar properties. The subject's historical levels have varied somewhat, but are within the typical range. With support from the historical levels, we have included this expense within a typical range at $66,000, or $300 per unit. MAINTENANCE PAYROLL This expense item includes the maintenance payroll for the subject property. The subject's historical and projected maintenance payroll expense is demonstrated in the following table. MAINTENANCE PAYROLL
Year Total $/Unit - ---- -------- ------- 2000 $61,474 $279 2001 $62,087 $282 2002 $34,633 $157 2003 Annualized $37,680 $171 CB RICHARD ELLIS, INC. ESTIMATE $55,000 $250
Source: Operating Statements & CB Richard Ellis, Inc. This expense typically approximates $250 to $400 per unit. The subject's historical levels have varied significantly and are below and within the typical range. Thus, we have included this expense in-line with historical levels and at the low end of a typical range, concluded at $55,000, or $250 per unit. 85 WOOD LAKE APARTMENTS INCOME CAPITALIZATION APPROACH EMPLOYEE TAXES AND BENEFITS This expense item includes the employee taxes and benefits for the subject property. The subject's historical and projected employee taxes and benefits are demonstrated in the following table. EMPLOYEE TAXES & BENEFITS
Year Total $/Unit - ---- ------- ------- 2000 $28,375 $ 129 2001 $31,666 $ 144 2002 $19,701 $ 90 2003 Annualized $27,756 $ 126 CB RICHARD ELLIS, INC. ESTIMATE $21,780 $ 99
Source: Operating Statements & CB Richard Ellis, Inc. This expense typically approximates 15% to 20% of the combined payroll expense. Therefore, we have estimated this expense at $21,780 annually, or $99 per unit, which is approximately 18% of the combined administrative and maintenance salaries. This level is within the range of the historical levels witnessed. EMPLOYEE APARTMENTS (NON-REVENUE UNITS) Apartment properties typically have units which are non-revenue producing. These include model units, units for security officers and units for leasing and management personnel. The historical and projected non-revenue units expenses are demonstrated in the following table. EMPLOYEE APARTMENTS
Year Total $/Unit - ---- ------- ------- 2000 $33,362 $ 152 2001 $15,817 $ 72 2002 $11,226 $ 51 2003 Annualized $14,572 $ 66 CB RICHARD ELLIS, INC. ESTIMATE $19,320 $ 88
Source: Operating Statements & CB Richard Ellis, Inc. As illustrated, the historical levels have varied slightly. According to property management, there is currently one unit occupied by a courtesy officer who does not pay any rent. We have found that this expense normally approximates one unit per every 100 units at a property. Therefore, we have estimated this expense based on two units at an assumed monthly rent of $805 (weighted average rental rate) per month, which equates to $19,320 annually, or $88 per unit. 86 WOOD LAKE APARTMENTS INCOME CAPITALIZATION APPROACH SECURITY The subject property has not historically incurred a security expense, nor have we included one within our analysis. ADVERTISING AND LEASING This expense category accounts for placement of advertising, commissions, signage, brochures and newsletters. The historical and projected advertising and promotion expense for the subject property is demonstrated in the following table. ADVERTISING AND LEASING
Year Total $/Unit - ---- ------- ------ 2000 $37,469 $ 170 2001 $49,716 $ 226 2002 $47,187 $ 214 2003 Annualized $96,820 $ 440 CB RICHARD ELLIS, INC. ESTIMATE $47,080 $ 214
Source: Operating Statements & CB Richard Ellis, Inc. This expense typically approximates $75 to $175 per unit. The subject's historical levels have been within and above the high end of this range. The comparable properties generally support these levels. Therefore, we have included this expense in -line with the 2002 historical level, concluded at $47,080, or $214 per unit. GENERAL AND ADMINISTRATIVE Administrative expenses typically include legal costs, accounting, items which are not provided by off-site management, telephone, supplies, furniture and temporary help. The subject's expense history and pro forma estimate are detailed as follows: GENERAL AND ADMINISTRATIVE
Year Total $/Unit - ---- ------- ------ 2000 $32,394 $ 147 2001 $42,682 $ 194 2002 $34,025 $ 155 2003 Annualized $49,596 $ 225 CB RICHARD ELLIS, INC. ESTIMATE $34,100 $ 155
Source: Operating Statements & CB Richard ellis, inc. This expense typically approximates $75 to $200 per unit. The subject's historical general and administrative expenses have been within and above the typical range. Thus, we have included this 87 WOOD LAKE APARTMENTS INCOME CAPITALIZATION APPROACH expense within the typical range and in-line with the 2002 historical indication, concluded at $34,100, or $155 per unit. RESERVES FOR REPLACEMENT Based on discussions with knowledgeable market participants, reserves for replacement typically range from $150 to $250 per unit for comparable properties. However, based on an engineering report provided for the subject, the property is projected to require an annual reserve, which is adjusted for inflation over a 12-year period, of $501 per unit. This is significantly above a typical level and we believe it includes reserve items which would typically not be included in the calculation of a typical reserve level, but we believe an appropriate level of reserves would be above the indicated range. Therefore, we included reserves based on $350 per unit annually. OPERATING EXPENSE CONCLUSION The subject's expense history and the pro forma estimate are detailed as follows: OPERATING EXPENSES
Year Total $/Unit - ---- ---------- ------- 2000 $ 742,640 $ 3,376 2001 $ 734,564 $ 3,339 2002 $ 696,106 $ 3,164 2003 Annualized $ 863,232 $ 3,924 CB RICHARD ELLIS, INC. ESTIMATE $ 835,591 $ 3,798
Source: Operating Statements & CB Richard Ellis, Inc. Our estimate is generally in-line with the demonstrated historical data. Our estimate of $3,798 per unit represents 43.40% of the effective gross income, which is typical for similar apartment properties in the metropolitan area. Additionally, it should be noted that the historical data did not include reserves. Therefore, we have concluded that the expense estimate is reasonable and supported, as considered on a line-by-line basis. NET OPERATING INCOME CONCLUSION The subject's net operating income history and the pro forma estimate are detailed as follows: 88 WOOD LAKE APARTMENTS INCOME CAPITALIZATION APPROACH NET OPERATING INCOME
Year Total $/Unit - ---- ------------- -------- 2000 $ 1,354,318 $ 6,156 2001 $ 1,329,740 $ 6,044 2002 $ 1,204,266 $ 5,474 2003 Annualized $ 876,616 $ 3,985 CB RICHARD ELLIS, INC. ESTIMATE $ 1,089,788 $ 4,954
Source: Operating Statements & CB Richard Ellis, Inc. Our net operating income estimate is within the range of the historical data. Overall, we believe that our estimates are reasonable and consistent with the indication of comparable properties and the subject's historical operations. DIRECT CAPITALIZATION Direct capitalization is a method used to convert a single year's estimated stabilized net operating income into a value indication. The following subsections represent different techniques for deriving an overall capitalization rate for direct capitalization. COMPARABLE SALES The OAR's confirmed for the comparable sales analyzed in the Sales Comparison Approach are as follows: COMPARABLE CAPITALIZATION RATES
Sale Sale Price Pro Forma Sale Date $/Unit OAR - ---- ------ ---------- --------- 1 Dec-02 $ 56,000 8.00% 2 Dec-02 $ 55,514 7.50% 3 Nov-02 $ 63,451 7.94% 4 Jun-02 $ 69,534 7.50% 5 Jun-02 $ 69,856 7.50% 6 Feb-02 $ 74,404 7.94%
Source: CB Richard Ellis, Inc. Based on the subject's competitive position in the market, an OAR within the range indicated by the comparables is considered appropriate. PUBLISHED INVESTOR SURVEYS The results of the most recent National Investor Survey, published by CB Richard Ellis, Inc., are summarized in the following table. 89 WOOD LAKE APARTMENTS INCOME CAPITALIZATION APPROACH OVERALL CAPITALIZATION RATES - APARTMENT
National Investor Survey, 2003 OAR Range Average - ------------------------------ ------------- ------- Class A 6.00% - 9.00% 7.44% Class B 6.00% - 10.25% 7.96% Class C 7.25% - 10.00% 8.98%
Source: CB Richard Ellis, Inc. The subject is considered to be a Class B property. Recent changes in the capital markets have been placing downward pressure on returns and an OAR within the middle of the range indicated in the preceding table is considered appropriate. MARKET PARTICIPANTS The results of recent interviews with knowledgeable real estate professionals are summarized in the following table. OVERALL CAPITALIZATION RATES - APARTMENT
Respondent Company OAR Date of Survey ---------- --------------------- ------------- -------------- Kevin Geiger, Broker CB Richard Ellis, Inc. 7.50% to 8.00% May-03
Source: CB Richard Ellis, Inc. BAND OF INVESTMENT The band of the investment technique has been utilized as a cross check to the foregoing techniques. The analysis is shown in the following table. BAND OF INVESTMENT Mortgage Interest Rate 5.00% Mortgage Term (Amortization Period) 30 Years Mortgage Ratio (Loan-to-value) 80% Mortgage Constant 0.06442 Equity Dividend Rate (EDR) 13.0% Mortgage Requirement 80% x 0.06442 = 0.05154 Equity Requirement 20% x 0.13000 = 0.02600 ------- ------- 100% 0.07754 INDICATED OAR: 7.80%
Source: CB Richard Ellis, Inc. CAPITALIZATION RATE CONCLUSION The following table summarizes the OAR conclusions. 90 WOOD LAKE APARTMENTS INCOME CAPITALIZATION APPROACH OVERALL CAPITALIZATION RATE - CONCLUSION Source Indicated OAR ------ ------------- Comparable Sales (Range) 7.50% to 8.00% National Investor Survey (Range) 6.00% to 10.25% Market Participants 7.50% to 8.00% Band of Investment 7.80% CB RICHARD ELLIS, INC. ESTIMATE 7.75%
Source: CB Richard Ellis, Inc. DIRECT CAPITALIZATION SUMMARY A summary of the direct capitalization of the subject at stabilized occupancy is illustrated in the following table. 91 WOOD LAKE APARTMENTS INCOME CAPITALIZATION APPROACH DIRECT CAPITALIZATION SUMMARY
$/Unit/yr Total --------- ----- INCOME Market Rent $ 9,658 $ 2,124,720 Vacancy and Collection Loss 10.0% (966) (212,472) Concession Loss 4.0% (386) (84,989) -------- ------------- NET RENTAL INCOME $ 8,306 $ 1,827,259 Utility Reimbursement 146 32,120 Other Income 300 66,000 -------- ------------- EFFECTIVE GROSS INCOME $ 8,752 $ 1,925,379 EXPENSES Real Estate Taxes $ 819 $ 180,236 Insurance 200 44,000 Natural Gas 15 3,300 Electricity 112 24,640 Water and Sewer 227 49,940 Cable Television 0 - Trash Removal 48 10,560 Maintenance and Repairs 200 44,000 Painting and Decorating 250 55,000 Grounds 121 26,620 Management Fee 4.0% 350 77,015 Administrative Payroll 300 66,000 Maintenance Payroll 250 55,000 Employee Taxes & Benefits 99 21,780 Employee Apartments 88 19,320 Security 0 - Advertising and Leasing 214 47,080 General and Administrative 155 34,100 Reserves for Replacement 350 77,000 -------- ------------- OPERATING EXPENSES $ 3,798 $ 835,591 -------- ------------- OPERATING EXPENSE RATIO 43.40% NET OPERATING INCOME $ 4,954 $ 1,089,788 OAR 7.75% ------------- INDICATED STABILIZED VALUE $ 14,061,779 ROUNDED $ 14,100,000 VALUE PER UNIT $ 63,917 VALUE PER SF $ 61.99
MATRIX ANALYSIS CAP RATE VALUE -------- ----------- 7.50% $14,530,500 7.75% $14,061,800 8.00% $13,622,300
Source: CB Richard Ellis, Inc. 92 WOOD LAKE APARTMENTS RECONCILIATION OF VALUE RECONCILIATION OF VALUE The value indications from the approaches to value are summarized as follows: SUMMARY OF VALUE CONCLUSIONS Cost Approach $ 14,400,000 Sales Comparison Approach $ 14,100,000 Income Capitalization Approach $ 14,100,000 ------------ Reconciled Value $ 14,100,000 ------------
Source: CB Richard Ellis, Inc. The Cost Approach typically gives a reliable value indication when there is evidence for the replacement cost estimate and when there is minimal depreciation contributing to a loss in value which must be estimated. Although the subject improvements represent the highest and best use of the site, there was significant depreciation noted. As a result, the reliability of the Cost Approach is somewhat diminished. Therefore, the Cost Approach is considered less applicable to the subject and is used primarily as a test of reasonableness against the other valuation techniques. Further, similar properties are normally purchased on the basis of their investment attributes as opposed to depreciated replacement costs. In the Sales Comparison Approach, the subject property is compared to similar properties that have been sold recently. The sales used in this analysis are considered fairly comparable to the subject, and the required adjustments were based on reasonable and well supported rationale. In addition, market participants are currently analyzing purchase prices on investment properties as they relate to available substitutes in the market. Therefore, the Sales Comparison Approach is considered to provide a reliable value indication. However, this approach to value has been given secondary emphasis in the final value reconciliation. The Income Capitalization Approach is applicable to the subject property since it is an income producing property leased in the open market. Market participants are currently analyzing properties based on their income generating capability. Therefore, the Income Capitalization Approach is considered to be a reasonable and substantiated value indicator and has been given primary emphasis in the final value estimate. Based on the foregoing, the market value of the subject has been concluded as follows: MARKET VALUE CONCLUSION
APPRAISAL PREMISE INTEREST APPRAISED DATE OF VALUE VALUE CONCLUSION - ----------------- ------------------ ------------- ---------------- Market Value As Is Fee Simple May 15, 2003 $ 14,100,000
Source: CB Richard Ellis, Inc. 93 WOOD LAKE APARTMENTS RECONCILIATION OF VALUE SPECIAL ASSUMPTIONS It should be noted that the property currently has two down units from foundation leaks that will be repaired in the near-term. The damages are minor and have not been taken into consideration in our analysis. 94 WOOD LAKE APARTMENTS ASSUMPTIONS AND LIMITING CONDITIONS ASSUMPTIONS AND LIMITING CONDITIONS 1. Unless otherwise specifically noted in the body of the report, it is assumed that title to the property or properties appraised is clear and marketable and that there are no recorded or unrecorded matters or exceptions to total that would adversely affect marketability or value. CB Richard Ellis, Inc. is not aware of any title defects nor has it been advised of any unless such is specifically noted in the report. CB Richard Ellis, Inc., however, has not examined title and makes no representations relative to the condition thereof. Documents dealing with liens, encumbrances, easements, deed restrictions, clouds and other conditions that may affect the quality of title have not been reviewed. Insurance against financial loss resulting in claims that may arise out of defects in the subject property's title should be sought from a qualified title company that issues or insures title to real property. 2. Unless otherwise specifically noted in the body of this report, it is assumed: that the existing improvements on the property or properties being appraised are structurally sound, seismically safe and code conforming; that all building systems (mechanical/electrical, HVAC, elevator, plumbing, etc.) are in good working order with no major deferred maintenance or repair required; that the roof and exterior are in good condition and free from intrusion by the elements; that the property or properties have been engineered in such a manner that the improvements, as currently constituted, conform to all applicable local, state and federal building codes and ordinances. CB Richard Ellis, Inc. professionals are not engineers and are not competent to judge matters of an engineering nature. CB Richard Ellis, Inc. has not retained independent structural, mechanical, electrical, or civil engineers in connection with this appraisal and, therefore, makes no representations relative to the condition of improvements. Unless otherwise specifically noted in the body of the report: no problems were brought to the attention of CB Richard Ellis, Inc. by ownership or management; CB Richard Ellis, Inc. inspected less than 100% of the entire interior and exterior portions of the improvements; and CB Richard Ellis, Inc. was not furnished any engineering studies by the owners or by the party requesting this appraisal. If questions in these areas are critical to the decision process of the reader, the advice of competent engineering consultants should be obtained and relied upon. It is specifically assumed that any knowledgeable and prudent purchaser would, as a precondition to closing a sale, obtain a satisfactory engineering report relative to the structural integrity of the property and the integrity of building systems. Structural problems and/or building system problems may not be visually detectable. If engineering consultants retained should report negative factors of a material nature, or if such are later discovered, relative to the condition of improvements, such information could have a substantial negative impact on the conclusions reported in this appraisal. Accordingly, if negative findings are reported by engineering consultants, CB Richard Ellis, Inc. reserves the right to amend the appraisal conclusions reported herein. 3. Unless otherwise stated in this report, the existence of hazardous material, which may or may not be present on the property was not observed by the appraisers. CB Richard Ellis, Inc. has no knowledge of the existence of such materials on or in the property. CB Richard Ellis, Inc., however, is not qualified to detect such substances. The presence of substances such as asbestos, urea formaldehyde foam insulation, contaminated groundwater or other potentially hazardous materials may affect the value of the property. The value estimate is predicated on the assumption that there is no such material on or in the property that would cause a loss in value. No responsibility is assumed for any such conditions, or for any expertise or engineering knowledge required to discover them. The client is urged to retain an expert in this field, if desired. We have inspected, as thoroughly as possible by observation, the land; however, it was impossible to personally inspect conditions beneath the soil. Therefore, no representation is made as to these matters unless specifically considered in the appraisal. 4. All furnishings, equipment and business operations, except as specifically stated and typically considered as part of real property, have been disregarded with only real property being considered in the report unless otherwise stated. Any existing or proposed improvements, on or off-site, as well as any alterations or repairs considered, are assumed to be completed in a workmanlike manner according to standard practices based upon the information submitted to CB Richard Ellis, Inc. This report may be subject to amendment upon re-inspection of the subject property subsequent to repairs, modifications, alterations and completed new construction. Any estimate of Market Value is as of the date indicated; based upon the information, conditions and projected levels of operation. 5. It is assumed that all factual data furnished by the client, property owner, owner's representative, or persons designated by the client or owner to supply said data are accurate and correct unless otherwise specifically noted in the appraisal report. Unless otherwise specifically noted in the appraisal report, CB Richard Ellis, Inc. has no reason to believe that any of the data furnished contain any material error. Information and data referred to in this paragraph include, without being limited to, numerical street addresses, lot and block numbers, Assessor's Parcel Numbers, land dimensions, square footage area of the land, dimensions of the improvements, gross building areas, net rentable areas, usable areas, unit count, room count, rent schedules, income data, historical operating expenses, budgets and related data. Any material error in any of the above data could have a substantial impact on the conclusions reported. Thus, CB Richard Ellis, Inc. reserves the right to amend conclusions reported if made aware of any such error. Accordingly, 95 WOOD LAKE APARTMENTS ASSUMPTIONS AND LIMITING CONDITIONS the client-addressee should carefully review all assumptions, data, relevant calculations and conclusions within 30 days after the date of delivery of this report and should immediately notify CB Richard Ellis, Inc. of any questions or errors. 6. The date of value to which any of the conclusions and opinions expressed in this report apply, is set forth in the Letter of Transmittal. Further, that the dollar amount of any value opinion herein rendered is based upon the purchasing power of the American Dollar on that date. This appraisal is based on market conditions existing as of the date of this appraisal. Under the terms of the engagement, we will have no obligation to revise this report to reflect events or conditions which occur subsequent to the date of the appraisal. However, CB Richard Ellis, Inc. will be available to discuss the necessity for revision resulting from changes in economic or market factors affecting the subject. 7. CB Richard Ellis, Inc. assumes no private deed restrictions, limiting the use of the subject property in any way. 8. Unless otherwise noted in the body of the report, it is assumed that there are no mineral deposit or subsurface rights of value involved in this appraisal, whether they be gas, liquid, or solid. Nor are the rights associated with extraction or exploration of such elements considered unless otherwise stated in this appraisal report. Unless otherwise stated it is also assumed that there are no air or development rights of value that may be transferred. 9. CB Richard Ellis, Inc. is not aware of any contemplated public initiatives, governmental development controls, or rent controls that would significantly affect the value of the subject. 10. The estimate of Market Value, which may be defined within the body of this report, is subject to change with market fluctuations over time. Market value is highly related to exposure, time promotion effort, terms, motivation and conclusions surrounding the offering. The value estimate(s) consider the productivity and relative attractiveness of the property, both physically and economically, on the open market. 11. Any cash flows included in the analysis are forecasts of estimated future operating characteristics are predicated on the information and assumptions contained within the report. Any projections of income, expenses and economic conditions utilized in this report are not predictions of the future. Rather, they are estimates of current market expectations of future income and expenses. The achievement of the financial projections will be affected by fluctuating economic conditions and is dependent upon other future occurrences that cannot be assured. Actual results may vary from the projections considered herein. CB Richard Ellis, Inc. does not warrant these forecasts will occur. Projections may be affected by circumstances beyond the current realm of knowledge or control of CB Richard Ellis, Inc. 12. Unless specifically set forth in the body of the report, nothing contained herein shall be construed to represent any direct or indirect recommendation of CB Richard Ellis, Inc. to buy, sell, or hold the properties at the value stated. Such decisions involve substantial investment strategy questions and must be specifically addressed in consultation form. 13. Also, unless otherwise noted in the body of this report, it is assumed that no changes in the present zoning ordinances or regulations governing use, density, or shape are being considered. The property is appraised assuming that all required licenses, certificates of occupancy, consents, or other legislative or administrative authority from any local, state, nor national government or private entity or organization have been or can be obtained or renewed for any use on which the value estimates contained in this report is based, unless otherwise stated. 14. This study may not be duplicated in whole or in part without the specific written consent of CB Richard Ellis, Inc. nor may this report or copies hereof be transmitted to third parties without said consent, which consent CB Richard Ellis, Inc. reserves the right to deny. Exempt from this restriction is duplication for the internal use of the client-addressee and/or transmission to attorneys, accountants, or advisors of the client-addressee. Also exempt from this restriction is transmission of the report to any court, governmental authority, or regulatory agency having jurisdiction over the party/parties for whom this appraisal was prepared, provided that this report and/or its contents shall not be published, in whole or in part, in any public document without the express written consent of CB Richard Ellis, Inc. which consent CB Richard Ellis, Inc. reserves the right to deny. Finally, this report shall not be advertised to the public or otherwise used to induce a third party to purchase the property or to make a "sale" or "offer for sale" of any "security", as such terms are defined and used in the Securities Act of 1933, as amended. Any third party, not covered by the exemptions herein, who may possess this report, is advised that they should rely on their own independently secured advice for any decision in connection with this property. CB Richard Ellis, Inc. shall have no accountability or responsibility to any such third party. 15. Any value estimate provided in the report applies to the entire property, and any pro ration or division of the title into fractional interests will invalidate the value estimate, unless such pro ration or division of interests has been set forth in the report. 16. The distribution of the total valuation in this report between land and improvements applies only under the existing program of utilization. Component values for land and/or buildings are not intended to be used in conjunction with any other property or appraisal and are invalid if so used. 17. The maps, plats, sketches, graphs, photographs and exhibits included in this report are for illustration purposes only and are to be utilized only to assist in visualizing matters discussed within this report. Except as specifically stated, data 96 WOOD LAKE APARTMENTS ASSUMPTIONS AND LIMITING CONDITIONS relative to size or area of the subject and comparable properties has been obtained from sources deemed accurate and reliable. None of the exhibits are to be removed, reproduced, or used apart from this report. 18. No opinion is intended to be expressed on matters which may require legal expertise or specialized investigation or knowledge beyond that customarily employed by real estate appraisers. Values and opinions expressed presume that environmental and other governmental restrictions/conditions by applicable agencies have been met, including but not limited to seismic hazards, flight patterns, decibel levels/noise envelopes, fire hazards, hillside ordinances, density, allowable uses, building codes, permits, licenses, etc. No survey, engineering study or architectural analysis has been made known to CB Richard Ellis, Inc. unless otherwise stated within the body of this report. If the Consultant has not been supplied with a termite inspection, survey or occupancy permit, no responsibility or representation is assumed or made for any costs associated with obtaining same or for any deficiencies discovered before or after they are obtained. No representation or warranty is made concerning obtaining these items. CB Richard Ellis, Inc. assumes no responsibility for any costs or consequences arising due to the need, or the lack of need, for flood hazard insurance. An agent for the Federal Flood Insurance Program should be contacted to determine the actual need for Flood Hazard Insurance. 19. Acceptance and/or use of this report constitutes full acceptance of the Contingent and Limiting Conditions and special assumptions set forth in this report. It is the responsibility of the Client, or client's designees, to read in full, comprehend and thus become aware of the aforementioned contingencies and limiting conditions. Neither the Appraiser nor CB Richard Ellis, Inc. assumes responsibility for any situation arising out of the Client's failure to become familiar with and understand the same. The Client is advised to retain experts in areas that fall outside the scope of the real estate appraisal/consulting profession if so desired. 20. CB Richard Ellis, Inc. assumes that the subject property analyzed herein will be under prudent and competent management and ownership; neither inefficient or super-efficient. 21. It is assumed that there is full compliance with all applicable federal, state and local environmental regulations and laws unless noncompliance is stated, defined and considered in the appraisal report. 22. No survey of the boundaries of the property was undertaken. All areas and dimensions furnished are presumed to be correct. It is further assumed that no encroachments to the realty exist. 23. The Americans with Disabilities Act (ADA) became effective January 26, 1992. Notwithstanding any discussion of possible readily achievable barrier removal construction items in this report, CB Richard Ellis, Inc. has not made a specific compliance survey and analysis of this property to determine whether it is in conformance 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 ADA. If so, this fact could have a negative effect on the value estimated herein. Since CB Richard Ellis, Inc. has no specific information relating to this issue, nor is CB Richard Ellis, Inc. qualified to make such an assessment, the effect of any possible non-compliance with the requirements of the ADA was not considered in estimating the value of the subject property. 24. Client shall not indemnify Appraiser or hold Appraiser harmless unless and only to the extent that the Client misrepresents, distorts, or provides incomplete or inaccurate appraisal results to others, which acts of the Client proximately result in damage to Appraiser. The Client shall indemnify and hold Appraiser harmless from any claims, expenses, judgments or other items or costs arising as a result of the Client's failure or the failure of any of the Client's agents to provide a complete copy of the appraisal report to any third party. In the event of any litigation between the parties, the prevailing party to such litigation shall be entitled to recover from the other reasonable attorney fees and costs. 97 WOOD LAKE APARTMENTS ADDENDA ADDENDA WOOD LAKE APARTMENTS ADDENDUM A GLOSSARY OF TERMS ADDENDUM A GLOSSARY OF TERMS WOOD LAKE APARTMENTS ADDENDUM A GLOSSARY OF TERMS ASSESSED VALUE Assessed value applies in ad valorem taxation and refers to the value of a property according to the tax rolls. Assessed value may not conform to market value, but it is usually calculated in relation to a market value base. + CASH EQUIVALENCY The procedure in which the sale prices of comparable properties sold with a typical financing are adjusted to reflect typical market terms. CONTRACT, COUPON, FACE, OR NOMINAL RENT The nominal rent payment specified in the lease contract. It does not reflect any offsets for free rent, unusual tenant improvement conditions, or other factors that may modify the effective rent payment. COUPON RENT See Contract, Coupon, Face, or Nominal Rent EFFECTIVE RENT 1) The rental rate net of financial concessions such as periods of no rent during a lease term; may be calculated on a discounted basis, reflecting the time value of money, or on a simple, straight-line basis. ++ 2) The economic rent paid by the lessee when normalized to account for financial concessions, such as escalation clauses, and other factors. Contract, or normal, rents must be converted to effective rents to form a consistent basis of comparison between comparables. FACE RENT See Contract, Coupon, Face, or Nominal Rent FEE SIMPLE ESTATE 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. ++ FLOOR AREA RATIO (FAR) The relationship between the above-ground floor area of a building, as described by the building code, and the area of the plot on which it stands; in planning and zoning, often expressed as a decimal, e.g., a ratio of 2.0 indicates that the permissible floor area of a building is twice the total land area; also called building-to-land ratio. ++ FULL SERVICE LEASE A lease in which rent covers all operating expenses. Typically, full service leases are combined with an expense stop, the expense level covered by the contract lease payment. Increases in expenses above the expense stop level are passed through to the tenant and are known as expense pass-throughs. GOING CONCERN VALUE Going concern value is the value of a proven property operation. It includes the incremental value associated with the business concern, which is distinct from the value of the real estate only. Going concern value includes an intangible enhancement of the value of an operating business enterprise which is produced by the assemblage of the land, building, labor, equipment and marketing operation. This process creates an economically viable business that is expected to continue. Going concern value refers to the total value of a property, including both real property and intangible personal property attributed to the business value. + GROSS BUILDING AREA (GBA) The sum of all areas at each floor as measured to the exterior walls. INSURABLE VALUE Insurable Value is based on the replacement and/or reproduction cost of physical items that are subject to loss from hazards. Insurable value is that portion of the value of an asset or asset group that is acknowledged or recognized under the provisions of an applicable loss insurance policy. This value is often controlled by state law and varies from state to state. + INVESTMENT VALUE Investment value is the value of an investment to a particular investor based on his or her investment requirements. In contrast to market value, investment value is value to an individual, not value in the marketplace. Investment value reflects the subjective relationship between a particular investor and a given investment. When measured in dollars, investment value is the price an investor would pay for an investment in light of its perceived capacity to satisfy his or her desires, needs, or investment goals. To estimate investment value, specific investment criteria must be known. Criteria to evaluate a real estate investment are not necessarily set down by the individual investor; they may be established by an expert on real estate and its value, that is, an appraiser. + LEASED FEE See leased fee estate LEASED FEE ESTATE An ownership interest held by a landlord with the right of use and occupancy conveyed by lease to others. The rights of the lessor (the leased fee owner) and the leased fee are specified by contract terms contained within the lease.++ LEASEHOLD See leasehold estate LEASEHOLD ESTATE The interest held by the lessee (the tenant or renter) through a lease conveying the rights of use and occupancy for a stated term under certain conditions.++ LOAD FACTOR The amount added to usable area to calculate the rentable area. It is also referred to as a "rentable add-on factor" which, according to BOMA, "is computed by dividing the difference between the WOOD LAKE APARTMENTS ADDENDUM A GLOSSARY OF TERMS usable square footage and rentable square footage by the amount of the usable area. Convert the figure into a percentage by multiplying by 100. MARKET VALUE "AS IF COMPLETE" ON THE APPRAISAL DATE Market value as if complete on the appraisal date is an estimate of the market value of a property with all construction, conversion, or rehabilitation hypothetically completed, or under other specified hypothetical conditions as of the date of the appraisal. With regard to properties wherein anticipated market conditions indicate that stabilized occupancy is not likely as of the date of completion, this estimate of value should reflect the market value of the property as if complete and prepared for occupancy by tenants. MARKET VALUE "AS IS" ON THE APPRAISAL DATE Market value "as is" on the appraisal date is an estimate of the market value of a property in the condition observed upon inspection and as it physically and legally exists without hypothetical conditions, assumptions, or qualifications as of the date of appraisal. MARKET VALUE Market value is one of the central concepts of the appraisal practice. Market value is differentiated from other types of value in that it is created by the collective patterns of the market. Market value means the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: 1) A reasonable time is allowed for exposure in the open market; 2) Both parties are well informed or well advised, and acting in what they consider their own best interests; 3) Buyer and seller are typically motivated; 4) Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and 5) The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. (ss) MARKETING PERIOD The time it takes an interest in real property to sell on the market subsequent to the date of an appraisal. ++ NET LEASE Lease in which all or some of the operating expenses are paid directly by the tenant. The landlord never takes possession of the expense payment. In a Triple Net Lease all operating expenses are the responsibility of the tenant, including property taxes, insurance, interior maintenance and other miscellaneous expenses. However, management fees and exterior maintenance are often the responsibility of the lessor in a triple net lease. A modified net lease is one in which some expenses are paid separately by the tenant and some are included in the rent. NET RENTABLE AREA (NRA) 1) The area on which rent is computed. 2) The Rentable Area of a floor shall be computed by measuring to the inside finished surface of the dominant portion of the permanent outer building walls, excluding any major vertical penetrations of the floor. No deductions shall be made for columns and projections necessary to the building. Include space such as mechanical room, janitorial room, restrooms and lobby of the floor. * NOMINAL RENT See Contract, Coupon, Face, or Nominal Rent PROSPECTIVE FUTURE VALUE "UPON COMPLETION OF CONSTRUCTION" Prospective future value "upon completion of construction" is the prospective value of a property on the future date that construction is completed, based upon market conditions forecast to exist, as of that completion date. The value estimate at this stage is stated in current dollars unless otherwise indicated. PROSPECTIVE FUTURE VALUE "UPON REACHING STABILIZED OCCUPANCY" Prospective future value "upon reaching stabilized occupancy" is the prospective value of a property at a future point in time when all improvements have been physically constructed and the property has been leased to its optimum level of long-term occupancy. The value estimate at this stage is stated in current dollars unless otherwise indicated. REASONABLE EXPOSURE TIME The estimated length of time the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal; a retrospective estimate based upon an analysis of past events assuming a competitive and open market. -- RENT see full service lease net lease contract, coupon, face, or nominal rent effective rent SHELL SPACE Space which has not had any interior finishing installed, including even basic improvements such as ceilings and interior walls, as well as partitions, floor coverings, wall coverings, etc.. USABLE AREA 1) The area actually used by individual tenants. 2) The Usable Area of an office building is computed by measuring to the finished surface of the WOOD LAKE APARTMENTS ADDENDUM A GLOSSARY OF TERMS office side of corridor and other permanent walls, to the center of partitions that separate the office from adjoining usable areas, and to the inside finished surface of the dominant portion of the permanent outer building walls. Excludes areas such as mechanical rooms, janitorial room, restrooms, lobby and any major vertical penetrations of a multi-tenant floor. * USE VALUE Use value is a concept based on the productivity of an economic good. Use value is the value a specific property has for a specific use. Use value focuses on the value the real estate contributes to the enterprise of which it is a part, without regard to the property's highest and best use or the monetary amount that might be realized upon its sale. + VALUE APPRAISED During the real estate development process, a property typically progresses from a state of unimproved land to construction of improvements to stabilized occupancy. In general, the market value associated with the property increases during these stages of development. After reaching stabilized occupancy, ongoing forces affect the property during its life, including a physical wear and tear, changing market conditions, etc. These factors continually influence the property's market value at any given point in time. See also market value "as is" on the appraisal date market value "as if complete" on the appraisal date prospective future value "upon completion of construction" prospective future value "upon reaching stabilized occupancy" - --------------- + The Appraisal of Real Estate, Eleventh Edition, Appraisal Institute, 1996. ++ The Dictionary of Real Estate Appraisal, Third Edition, 1993. (ss) The Office of the Comptroller of the Currency, 12 CFR Part 34, Subpart C, - 34.42(f), August 24, 1990. This definition is compatible with the definition of market value contained in The Dictionary of Real Estate Appraisal, Third Edition, and the Uniform Standards of Professional Appraisal Practice adopted by the Appraisal Standards Board of The Appraisal Foundation, 1992 edition. This definition is also compatible with the OTS, RTC, FDIC, NCUA, and the Board of Governors of the Federal Reserve System definition of market value. * 1990 BOMA Experience Exchange Report, Income/Expense Analysis for Office Buildings (Building Owners and Managers Association, 1990) - -- Statement on Appraisal Standard No. 6, Appraisal Standards Board of The Appraisal Foundation, September 19, 1992. WOOD LAKE APARTMENTS ADDENDUM B ADDITIONAL SUBJECT PHOTOGRAPHS ADDENDUM B ADDITIONAL SUBJECT PHOTOGRAPHS WOOD LAKE APARTMENTS ADDENDUM C COMPARABLE LAND SALES ADDENDUM C COMPARABLE LAND SALES WOOD LAKE APARTMENTS ADDENDUM D IMPROVED COMPARABLE SALES ADDENDUM D IMPROVED COMPARABLE SALES WOOD LAKE APARTMENTS ADDENDUM E RENT COMPARABLES ADDENDUM E RENT COMPARABLES WOOD LAKE APARTMENTS ADDENDUM F DEMOGRAPHICS ADDENDUM F DEMOGRAPHICS WOOD LAKE APARTMENTS ADDENDUM G RENT ROLL ADDENDUM G RENT ROLL WOOD LAKE APARTMENTS ADDENDUM H HISTORICAL OPERATING STATEMENTS ADDENDUM H HISTORICAL OPERATING STATEMENTS WOOD LAKE APARTMENTS ADDENDUM I FREDDIE MAC FORM 439 ADDENDUM I FREDDIE MAC FORM 439 WOOD LAKE APARTMENTS ADDENDUM J QUALIFICATIONS ADDENDUM J QUALIFICATIONS WOOD LAKE APARTMENTS ADDENDUM J QUALIFICATIONS -----END PRIVACY-ENHANCED MESSAGE-----