EX-99.(C)(11) 4 d18178a7exv99wxcyx11y.txt APPRAISIAL OF GREENSPOINT BY C.B. RICHARD ELLIS EXHIBIT (c)(11) GREENSPOINT APARTMENTS 4202 East Cactus Road Phoenix, Maricopa County, Arizona CBRE File No. 05-271PH-0651 COMPLETE APPRAISAL [PICTURE] SELF CONTAINED REPORT PREPARED FOR: Mr. Jason Tessler ING LIFE INSURANCE AND ANNUITY COMPANY 5780 Powers Ferry Road, NW, Suite 300 Atlanta, GA 30327-4349 VALUATION & ADVISORY SERVICES CBRE CB RICHARD ELLIS CBRE CB RICHARD ELLIS 2415 East Camelback Road Phoenix, AZ 85016 T(602) 735-5649 F(602) 735-5613 www.cbre.com April 25, 2005 Mr. Jason Tessler ING LIFE INSURANCE AND ANNUITY COMPANY 5780 Powers Ferry Road, NW, Suite 300 Atlanta, GA 30327-4349 RE: Appraisal of Greenspoint Apartments 4202 East Cactus Road Phoenix, Maricopa County, Arizona CBRE File No 05-271PH-0651 Dear Mr. Tessler: At the request of Renee Heslep of Johnson Capital, CBRE has prepared a Complete Appraisal of the market value of the referenced property and presented our analysis in the following Self Contained Appraisal Report. The subject is a 336 -unit garden-style apartment property built in 1985 and situated on a 9.256-acre site in Phoenix, Maricopa County, Arizona. Currently the facility is 95.8% occupied and in average condition. 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 EXPOSURE DATE OF VALUE VALUE CONCLUSION ----------------- ------------------ -------------- -------------- ---------------- As is Fee Simple Estate 6 to 12 months April 18, 2005 $17,600,000
Compiled by CBRE 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 of the Appraisal Institute, the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), Title XI Regulations and ING Life Insurance and Annuity Company's appraisal standards. Mr.Jason Tesser April 25, 2005 Page 2 The report is for the sole use of the client; however, client may provide only complete, final copies of the appraisal report in its entirety (but not component parts) to third parties who shall review such reports in connection with loan underwriting or securitization efforts. Appraiser is not required to explain or testify as to appraisal results other than to respond to the client for routine and customary questions. Please note that our consent to allow an appraisal report prepared by CBRE or portions of such report, to become part of or be referenced in any public offering, the granting of such consent will be at our sole discretion and, if given, will be on condition that we will be provided with an Indemnification Agreement and/or Non-Reliance letter, in a form and content satisfactory to us, by a party satisfactory to us. We do consent to your submission of the reports to rating agencies, loan participants or your auditors in its entirety (but not component parts) without the need to provide us with an Indemnification Agreement and/or Non-Reliance letter. It has been a pleasure to assist you in this assignment. If you have any questions concerning the analysis, or if CBRE can be of further service, please contact us. Respectfully submitted, CBRE - VALUATION & ADVISORY SERVICES William J. Davis J. Scott Prosch, MAI Vice President Senior Managing Director Intermountain Arizona Certified General Real Estate Region Appraiser No. 30784 Arizona Certified General Real Estate Appraiser No. 30880 Phone: 602-735-5649 Fax: 602-735-5613 Phone: 602-735-5681 Email: jim.davis@cbre.com Fax: 602-735-5613 Email: scott.prosch@cbre.com GREENSPOINT 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 Arizona 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. William J. Davis has not and J. Scott Prosch, MAI has completed the requirements of the continuing education program of the Appraisal Institute. 10. William J. Davis has and J. Scott Prosch, MAI has not made a personal inspection of the property that is the subject of this report. 11. Todd Lamb provided significant real property appraisal assistance to the persons signing this report. Mr. Fournier prepared the draft appraisal. 12. William J. Davis and J. Scott Prosch, MAI have extensive experience in the appraisal/review of similar property types. 13. William J. Davis and J. Scott Prosch, MAI are currently certified in the state where the subject is located. 14. Valuation & Advisory Services operates as an independent economic entity within CBRE. Although employees of other CBRE 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. ------------------------------- ---------------------------------------------- William J. Davis J. Scott Prosch, MAI Vice President Senior Managing Director Intermountain Region Arizona Certified General Real Arizona Certified General Real Estate Estate Appraiser No. 30784 Appraiser No. 30880 i GREENSPOINT APARTMENTS SUBJECT PHOTOGRAPHS SUBJECT PHOTOGRAPHS [PICTURE] STREET VIEW OF THE SUBJECT [PICTURE] POOL VIEW OF SUBJECT ii GREENSPOINT APARTMENTS SUMMARY OF SALIENT FACTS SUMMARY OF SALIENT FACTS PROPERTY NAME Greenspoint Apartments LOCATION 4202 East Cactus Road, Phoenix, Arizona ASSESSOR'S PARCEL NUMBER 167-27-001W HIGHEST AND BEST USE As Though Vacant Multi-family residential development As Improved Continued multi-family use PROPERTY RIGHTS APPRAISED Fee Simple Estate LAND AREA 9.26 AC 403,191 SF IMPROVEMENTS Property Type Apartment Number of Buildings 14 Number of Stories 3 Gross Building Area 280,559 SF Net Rentable Area 278,064 SF Number of Units 336 Average Unit Size 828 SF Year Built 1985 Condition Average ESTIMATED EXPOSURE TIME 6 to 12 months FINANCIAL INDICATORS Current Occupancy 95.8% Stabilized Occupancy 87.0% Overall Capitalization Rate 6.25% Discount Rate 9.00% Terminal Capitalization Rate 7.00%
TOTAL PER UNIT ----------- -------- PRO FORMA OPERATING DATA Effective Gross Income $ 2,432,122 $ 7,238 Operating Expenses $ 1,334,519 $ 3,972 Expense Ratio 54.87% Net Operating Income $ 1,097,602 $ 3,267
iii GREENSPOINT APARTMENTS SUMMARY OF SALIENT FACTS
TOTAL PER UNIT ----------- -------- VALUATION Land Value $ 2,800,000 $ 8,333 Cost Approach $18,000,000 $ 53,571 Sales Comparison Approach $17,500,000 $ 52,083 Income Capitalization Approach $17,600,000 $ 52,381
CONCLUDED MARKET VALUE
APPRAISAL PREMISE INTEREST APPRAISED DATE OF VALUE VALUE ----------------- ------------------ -------------- ------------ As Is Fee Simple Estate April 18, 2005 $ 17,600,000
Compiled by CBRE SPECIAL ASSUMPTIONS None noted. iv GREENSPOINT APARTMENTS TABLE OF CONTENTS TABLE OF CONTENTS CERTIFICATION OF THE APPRAISAL.................................................. i SUBJECT PHOTOGRAPHS............................................................. ii SUMMARY OF SALIENT FACTS........................................................ iii TABLE OF CONTENTS............................................................... V INTRODUCTION.................................................................... 1 AREA ANALYSIS................................................................... 5 NEIGHBORHOOD ANALYSIS........................................................... 19 MARKET ANALYSIS................................................................. 25 SITE ANALYSIS................................................................... 40 IMPROVEMENT ANALYSIS............................................................ 44 ZONING.......................................................................... 50 TAX AND ASSESSMENT DATA......................................................... 52 HIGHEST AND BEST USE............................................................ 54 APPRAISAL METHODOLOGY........................................................... 57 SALES COMPARISON APPROACH....................................................... 67 INCOME CAPITALIZATION APPROACH.................................................. 75 RECONCILIATION OF VALUE......................................................... 103 ASSUMPTIONS AND LIMITING CONDITIONS............................................. 105
ADDENDA A Glossary of Terms B Additional Photographs C Comparable Land Sales D Improved Comparable Sales E Rent Comparables F Operating Data G Legal Description H Engagement Letter I Miscellaneous Exhibits J Qualifications v GREENSPOINT APARTMENTS INTRODUCTION INTRODUCTION PROPERTY IDENTIFICATION The subject is a 336 -unit garden-style apartment property built in 1985 and situated on a 9.256-acre site in Phoenix, Maricopa County, Arizona. Currently the facility is 95.8% occupied. Known as Greenspoint, the subject is located in north-Phoenix near Paradise Valley Mall. The unit mix includes one and two-bedroom units and there are 10 three-story apartment buildings. Common amenities include a pool, clubhouse, fitness center, men's and women's saunas, security access gate, covered parking, and open green areas. Units have patios and balconies, full size washers and dryers, and microwaves. Select units have raised ceilings and wood burning fireplaces (168 total). The subject is more fully described, legally and physically within the enclosed report. OWNERSHIP AND PROPERTY HISTORY Title to the property is currently vested in the name of Century Properties Fund XIX, who acquired title to the property in 1995. There have been no other ownership transfer of the property since then. The subject is not currently listed for sale. RELEVANT DATES The following table illustrates the various dates associated with the valuation of the subject property: RELEVANT DATES Date of Report: April 25, 2005 Date of Inspection: April 18, 2005 Date of Value As Is: April 18, 2005
Compiled by CBRE 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; 1 GREENSPOINT APARTMENTS INTRODUCTION 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 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 for mortgage underwriting decisions by the client, ING Life Insurance and Annuity Company. 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. CBRE 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; ---------- (1) Appraisal Standards Board of The Appraisal Foundation, Uniform Standards of Professional Appraisal Practice, 2003 ed. (Washington, DC: The Appraisal Foundation, 2003), 219; Appraisal Institute, The Dictionary of Real Estate Appraisal, 4th ed. (Chicago: Appraisal Institute, 2002), 177-178. This definition is also compatible with the OTS, OCC, RTC, FDIC, FRS and NCUA definitions of market value. 2 GREENSPOINT APARTMENTS INTRODUCTION 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 6. estimated a reasonable exposure time and marketing time associated with the value estimate presented. To develop the opinion of value, CBRE 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, CBRE 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/MARKETING TIME Current appraisal guidelines require an estimate of a reasonable time period in which the subject property could be brought to market and sold. This reasonable time frame can either be examined historically or prospectively. In a historic analysis, this is referred to as exposure time. Exposure time always precedes the date of value, with the underlying premise being the time a property would have been on the market prior to the date of value, such that it would sell at its appraised value as of the date of value. On a prospective basis, the term marketing time is most often used. The exposure/marketing time is a function of price, time, and use. It is not an isolated estimate of time alone. It is different for various types of real estate and under various market conditions. A discussion of an appropriate exposure/marketing time estimate for the subject property is presented in the following sections. In consideration of these factors, we have analyzed the following: - exposure periods for comparable sales used in this appraisal; - marketing time information from the CB Richard Ellis, Inc. National Investor Survey; and 3 GREENSPOINT APARTMENTS INTRODUCTION - the opinions of market participants. The following table presents the information derived from these sources. EXPOSURE TIME INFORMATION
Exposure Time (Months) Investment Type Range Average --------------- ------------- -------- Comparable Sales Data 1.0 - 6.0 3.0 Apartments Class A 1.0 - 9.0 4.1 Class B 1.0 - 6.0 3.7 Class C 3.0 - 12.0 7.2 CBRE ESTIMATE 6 to 12 MONTHS
Source: CBRE National Investor Survey In general, the improved sales indicate exposure times in the lower to middle portion of the range indicated by the investor survey. In addition to the sales and survey data, we have also reviewed the assumptions and conclusions reached in the Valuation section of this report, particularly the income estimates and rates of return. Based on these analyses, we have concluded an exposure/marketing time of 6 to 12 months would be considered reasonable for the subject property. This exposure/marketing time reflects current economic conditions, current real estate investment market conditions, the terms and availability of financing for real estate acquisitions, and property and market-specific factors. It assumes that the subject property is (or has been) actively and professionally marketed. The marketing/exposure time would apply to all valuation premises included in this report. 4 GREENSPOINT APARTMENTS AREA ANALYSIS AREA ANALYSIS [MAP] LOCATION The subject is located in Phoenix, within the Phoenix-Mesa metropolitan statistical area (MSA). The MSA, located entirely within two counties, Maricopa and Pinal, includes the state capital and the state's largest city, Phoenix. POPULATION The following table 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. 5 GREENSPOINT APARTMENTS AREA ANALYSIS POPULATION OF PHOENIX-MESA MSA BY CITY/TOWN
1990-2000 2000-2004 2004-2009 2004 1990 2000 2004 2009 Compound Compound Compound Percentage City/Town Census Census Estimate Projection Annual Growth Annual Growth Annual Growth of MSA --------- --------- --------- --------- ---------- ------------- ------------- ------------- ---------- Apache Junction ** 18,981 31,851 34,017 37,053 5.3% 1.7% 1.7% 0.9% Avondale 18,393 35,897 59,379 83,809 6.9% 13.4% 7.1% 1.6% Buckeye 4,939 6,537 6,572 6,649 2.8% 0.1% 0.2% 0.2% Carefree 1,514 2,927 3,493 4,229 6.8% 4.5% 3.9% 0.1% Cave Creek 2,060 3,728 4,056 4,498 6.1% 2.1% 2.1% 0.1% Chandler 91,281 176,502 217,693 266,771 6.8% 5.4% 4.1% 6.0% El Mirage 5,050 7,609 19,426 29,761 4.2% 26.4% 8.9% 0.5% Fountain Hills 10,016 20,235 22,862 26,365 7.3% 3.1% 2.9% 0.6% Gila Bend 1,800 1,980 1,886 1,834 1.0% -1.2% -0.6% 0.1% Gilbert 33,357 109,750 152,082 201,934 12.6% 8.5% 5.8% 4.2% Glendale 151,698 218,973 234,410 256,766 3.7% 1.7% 1.8% 6.4% Gold Camp * 2,107 6,028 8,086 10,566 11.1% 7.6% 5.5% 0.2% Goodyear 6,298 18,875 32,516 46,345 11.6% 14.6% 7.3% 0.9% Guadalupe 5,458 5,228 5,172 5,205 -0.4% -0.3% 0.1% 0.1% Litchfield Park 3,303 3,810 3,909 4,076 1.4% 0.6% 0.8% 0.1% Maricopa * 665 1,040 1,401 1,822 4.6% 7.7% 5.4% 0.0% Mesa 294,715 396,330 439,842 495,541 3.0% 2.6% 2.4% 12.0% New River 4,056 10,740 16,454 22,508 10.2% 11.3% 6.5% 0.5% Paradise Valley 11,931 13,663 14,176 15,075 1.4% 0.9% 1.2% 0.4% Peoria 51,991 108,357 131,149 159,055 7.6% 4.9% 3.9% 3.6% Phoenix 989,709 1,320,896 1,398,726 1,515,160 2.9% 1.4% 1.6% 38.3% Queen Creek ** 2,414 4,314 6,171 8,417 6.0% 9.4% 6.4% 0.2% Rio Verde 454 1,419 1,638 1,908 12.1% 3.7% 3.1% 0.0% Scottsdale 131,271 202,705 223,458 251,715 4.4% 2.5% 2.4% 6.1% Sun City 36,844 38,289 35,254 32,629 0.4% -2.0% -1.5% 1.0% Sun City West 16,519 26,343 25,137 24,197 4.8% -1.2% -0.8% 0.7% Sun Lakes 7,361 11,943 11,985 12,218 5.0% 0.1% 0.4% 0.3% Surprise 7,954 30,868 54,170 77,066 14.5% 15.1% 7.3% 1.5% Tempe 142,495 158,625 159,817 164,099 1.1% 0.2% 0.5% 4.4% Tolleson 4,437 4,974 5,122 5,400 1.1% 0.7% 1.1% 0.1% Wickenburg 4,573 5,082 5,064 5,202 1.1% -0.1% 0.5% 0.1% Youngtown 2,557 3,010 3,007 3,063 1.6% 0.0% 0.4% 0.1% Other 172,263 263,334 315,861 376,787 4.3% 4.7% 3.6% 8.6% --------- --------- --------- --------- ---- ---- ---- ----- Total MSA 2,238,464 3,251,862 3,653,991 4,157,723 3.8% 3.0% 2.6% 100.0% --------- --------- --------- --------- ---- ---- ---- -----
* Pinal County, ** partially Pinal County, otherwise Maricopa County Source: Claritas, Inc. Compiled by: CB Richard Ellis The State of Arizona is projected to gain over 690,000 new residents over the next five years, or more than 135,000 residents per year. Of this amount, 73% (500,000 total) of the forecast growth is projected to occur in the Phoenix-Mesa MSA. Water availability and employment issues are driving this growth in the Phoenix area, where approximately 65% of the state's inhabitants reside. The following list provides comparative population gain for the top 10 MSAs. Phoenix-Mesa has consistently ranked among the top 10. 6 GREENSPOINT APARTMENTS AREA ANALYSIS POPULATION GROWTH IN SELECTED METROPOLITAN AREAS
Rank Metropolitan Statistical Area 1990 Census 2000 Census Change % Gain ---- ----------------------------------- ----------- ----------- --------- ------ 1 Las Vegas-Paradise, NV 741,459 1,375,765 634,306 85.5% 2 Austin-Round Rock, TX 846,227 1,249,763 403,536 47.7% 3 Raleigh -Cary, NC 541,100 797,071 255,971 47.3% 4 Phoenix-Mesa-Scottsdale, AZ 2,238,480 3,251,876 1,013,396 45.3% 5 Atlanta-Sandy Springs-Marietta, GA 3,069,425 4,247,981 1,178,556 38.4% 6 Orlando, FL 1,224,852 1,644,561 419,709 34.3% 7 Denver-Aurora, CO 1,666,883 2,179,240 512,357 30.7% 8 Charlotte-Gastonia-Concord, NC-SC 1,024,643 1,330,448 305,805 29.8% 9 Dallas-Fort Worth-Arlington, TX 3,989,294 5,161,544 1,172,250 29.4% 10 Portland-Vancouver-Beaverton, OR-WA 1,523,741 1,927,881 404,140 26.5%
Population growth for 81 metroplitan 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 Although Phoenix-Mesa ranks below its close neighbor Las Vegas-Paradise in percentage gain, Phoenix-Mesa surpasses Las Vegas-Paradise by a large margin in net population gain. The overall percentage gain for all metropolitan markets is 14.0%, representing the addition of approximately 28.6 million people in metropolitan areas. HOUSEHOLDS The following table shows changes in demographic statistics by household based on the 2000 Census. 7 GREENSPOINT APARTMENTS AREA ANALYSIS MSA HOUSEHOLD PROFILES BY CITY/TOWN
Households Housing Income ------------------------------------ ------------------- --------------------------------- 2000 2004 2009 Owner Persons Median Average Per City/Town Census Estimate Projection Occupied per HH Household Household Capita ------------------ --------- --------- ---------- -------- ------- --------- --------- ------- Apache Junction ** 13,795 14,782 16,153 81.9% 2.28 $ 34,712 $ 41,300 $18,231 Avondale 10,642 17,569 24,430 81.6% 3.36 $ 58,191 $ 67,994 $20,214 Buckeye 2,158 2,144 2,134 64.3% 3.08 $ 39,667 $ 50,171 $16,110 Carefree 1,388 1,638 1,949 87.9% 2.11 $ 90,008 $ 147,690 $69,540 Cave Creek 1,571 1,683 1,828 84.9% 2.46 $ 85,734 $ 114,321 $46,878 Chandler 62,353 76,983 94,359 74.3% 2.81 $ 64,561 $ 76,855 $27,310 El Mirage 2,121 5,425 8,441 71.4% 3.62 $ 41,141 $ 45,703 $12,604 Fountain Hills 8,653 9,961 11,726 83.6% 2.29 $ 65,899 $ 85,041 $37,071 Gila Bend 659 623 598 61.0% 3.09 $ 28,638 $ 35,404 $11,466 Gilbert 35,416 49,021 65,018 85.4% 3.11 $ 78,610 $ 90,502 $29,114 Glendale 75,776 80,766 87,803 65.3% 2.87 $ 48,488 $ 60,238 $21,010 Gold Camp * 2,785 3,796 5,072 65.0% 2.27 $ 70,815 $ 87,152 $38,206 Goodyear 6,169 10,812 15,909 86.4% 2.69 $ 63,947 $ 78,106 $26,354 Guadalupe 1,110 1,092 1,092 69.0% 4.73 $ 32,622 $ 41,774 $ 8,868 Litchfield Park 1,508 1,566 1,650 87.2% 2.48 $ 77,108 $ 103,184 $41,440 Maricopa * 292 396 523 75.3% 3.11 $ 40,971 $ 46,675 $14,861 Mesa 146,637 162,513 182,271 67.9% 2.68 $ 46,780 $ 59,070 $22,010 New River 3,921 5,899 7,879 92.6% 2.78 $ 78,281 $ 87,517 $31,655 Paradise Valley 5,034 5,178 5,440 96.6% 2.71 $ 159,358 $ 221,212 $81,456 Peoria 39,181 47,147 56,877 85.9% 2.74 $ 60,229 $ 70,953 $25,849 Phoenix 465,762 491,643 528,687 60.8% 2.79 $ 44,429 $ 61,770 $21,991 Queen Creek ** 1,217 1,730 2,332 89.4% 3.56 $ 70,335 $ 83,605 $23,449 Rio Verde 761 860 976 96.2% 2.09 $ 83,735 $ 118,141 $56,601 Scottsdale 90,669 100,626 113,803 70.2% 2.21 $ 62,847 $ 94,952 $42,936 Sun City 23,478 21,742 20,071 87.6% 1.60 $ 33,710 $ 43,479 $26,964 Sun City West 14,996 14,534 14,183 95.3% 1.74 $ 44,980 $ 59,092 $33,735 Sun Lakes 6,688 6,836 7,106 96.1% 1.79 $ 48,417 $ 66,642 $37,123 Surprise 12,495 22,438 32,462 90.1% 2.39 $ 53,200 $ 63,063 $26,342 Tempe 63,602 64,931 67,194 50.7% 2.38 $ 45,205 $ 59,869 $24,591 Tolleson 1,432 1,494 1,597 65.7% 3.43 $ 42,687 $ 50,891 $14,838 Wickenburg 2,341 2,340 2,406 63.6% 2.22 $ 33,742 $ 45,406 $20,625 Youngtown 1,641 1,633 1,637 63.6% 1.77 $ 23,674 $ 31,222 $17,712 Other 87,994 104,407 123,894 95.5% 2.52 N/A $ 56,924 $19,570 --------- --------- --------- ---- ---- --------- --------- ------- Total MSA 1,194,245 1,334,208 1,507,500 69.2% 2.66 $ 49,478 $ 66,405 $24,499 --------- --------- --------- ---- ---- --------- --------- -------
* Pinal County, ** partially Pinal County, otherwise Maricopa County Source: Claritas, Inc. Compiled by: CB Richard Ellis ECONOMIC BASE Maricopa County's economy is built on a base of activities including manufacturing, government, regional hub activities, travel and tourism, services and construction. Each of these five components of the economic base react differently to economic cycles. Mining and agriculture are also significant economic contributors, although they no longer hold their historically dominant positions. Maricopa County is the largest producer of crops and livestock in the state and places high among all counties in the nation in terms of the cash value of its agricultural products. 8 GREENSPOINT APARTMENTS AREA ANALYSIS EMPLOYMENT The following chart represents the diversity of Phoenix-Mesa's economic base. 2004 PHOENIX-MESA NON-FARM EMPLOYMENT BY SECTOR Other Service Providing 24% Good Producing 16% Government 13% Trade, Transportation & Utilities 21% Leisure & Hospitality 10% Professional & Business Services 16%
Source: University of Arizona 2005/2006 Economic Outlook Compiled by: CB Richard Ellis Historically, employment has grown by 174% over the last 20 years in Phoenix, compared with 50% nationally. Arizona was one of the first states to recover all of the jobs that were lost during the 2001 recession. Non-farm employment grew approximately 2.0% in 2004. This is due in part to the fact that Arizona has not experienced the same slowdown in hiring in the retail, education and health and social services sectors that the country has seen as a whole. Retail employment is merely growing at a slower pace than previously, and some of the largest skill shortages in Arizona are for teachers, nurses, medical technologists, and pharmacists. However, telecommunications and manufacturing have continued to struggle. Strong productivity gains, outsourcing, off shoring, and commoditization are blamed for the manufacturing segment's fall of 20% over the last five years. The following table shows the history and projections for employment in the Phoenix-Mesa MSA, broken down by sector. 9 GREENSPOINT APARTMENTS AREA ANALYSIS PHOENIX-MESA NON-FARM EMPLOYMENT HISTORY AND PROJECTIONS
Sector 2002 2003 2004 2005 2006 2007 2008 2009 2010 ------ --------- --------- --------- --------- --------- --------- --------- --------- --------- Good Producing 270,500 270,400 271,900 289,100 300,600 302,700 300,700 304,100 310,400 Trade, Transportation & Utilities 326,700 334,300 342,900 342,900 358,000 380,300 389,700 399,800 412,000 Professional & Business Services 254,000 262,000 273,800 291,100 304,500 314,500 322,100 329,200 339,200 Leisure & Hospitality 152,400 155,700 163,300 169,700 173,700 178,100 182,800 188,300 194,300 Government 211,600 214,700 219,700 224,700 229,500 233,700 237,500 242,200 248,700 Other Service Providing 384,000 401,400 400,100 434,000 446,700 450,000 465,300 479,800 494,600 --------- --------- --------- --------- --------- --------- --------- --------- --------- Total 1,599,200 1,638,500 1,671,700 1,751,500 1,813,000 1,859,300 1,898,100 1,943,400 1,999,200 --------- --------- --------- --------- --------- --------- --------- --------- ---------
Source; University of Arizona 2005/2006 Economic Outlook Compiled by: CB Richard Ellis Note that both the manufacturing and information sectors (of which telecommunications is a part) are expected to grow in 2005. The general forecast is for much stronger growth of 79,800 jobs, or 4.8% in 2005. Professional and business services are expect to post the most new jobs, however the fastest growing major sectors are expected to be construction, professional and business services, and financial activities. All of the major employment categories are projected to post increases over the next year within the Phoenix-Mesa MSA with exception to Trade, Transportation and Utilities, which is expected to remain stagnant. However, that sector too is expected to increase from 2006 onward. There are several large projects that will contribute significantly to future job growth, which include the T-Gen project in Downtown Phoenix, and a possible expansion of Intel in Chandler. The Translational Genomics Research Institute (T-Gen) includes three major Arizona Universities as partners and has a mission of discovering genetic markers of disease and identifying new treatments. Intel Corp., the world's largest semiconductor company, is considering an expansion that could mean up to $5 billion in revenue for the city of Chandler. The company may upgrade one of two existing chip-manufacturing plants and is considering adding another. Corporate officials are eyeing the Ocotillo campus in Chandler as the site for a new manufacturing facility, which would be the third in the complex. Intel already owns more than 700 acres at the Ocotillo complex. About half of the area is still available for construction. A decision on the project could be made by the middle of 2005. If the company decides to go ahead with the expansion, it would take 18 months to two years to complete. The following chart depicts employment growth history and projections for the Phoenix-Mesa MSA and the State of Arizona through 2010: 10 GREENSPOINT APARTMENTS AREA ANALYSIS PHOENIX-MESA JOB GROWTH
2003 2004 2005 2006 2007 2008 2009 2010 ------ ------ ------ ------ ------ ------ ------ ------ [ ] Phoenix-Mesa 39,300 33,200 79,800 61,500 46,300 38,800 45,300 55,800 [ ] Arizona 51,200 41,900 114,20 75,600 52,800 48,000 56,700 70,900
Source: University of Arizona Economic Outlook 2005/2006 Compiled by: CB Richard Ellis University of Arizona forecasters are projecting average annual growth of nearly 330,000 new jobs in the Phoenix MSA during the 2004 through 2010 forecast period, or 2.6% annually. The following table summarizes trends in unemployment across the MSA, State, and Nation: ANNUAL UNEMPLOYMENT RATES
MSA State USA --- ----- --- 1995 3.8% 5.1% 5.6% 1996 3.5% 5.5% 5.4% 1997 3.0% 4.6% 5.0% 1998 2.9% 4.1% 4.5% 1999 2.7% 4.4% 4.2% 2000 2.7% 4.0% 4.0% 2001 4.0% 4.7% 4.8% 2002 5.7% 6.2% 5.8% 2003 5.0% 5.6% 6.0% 2004 4.0% 4.8% 5.5%
Source: Arizona Department of Economic Security Compiled by: CB Richard Ellis As can be seen from the last 10 years of unemployment data, Phoenix-Mesa consistently outperforms the state of Arizona and the United States in employment rates, despite its fast-paced population growth. 11 GREENSPOINT APARTMENTS AREA ANALYSIS 2005 TOP 10 PRIVATE EMPLOYERS
Company Headquarters No. of Employees ------- ------------ ---------------- Wal-Mart No 19,510 Banner Health Systems Yes 14,447 Honeywell International No 12,000 Wells Fargo & Co. No 11,000 Raytheon Missile Systems No 10,530 Basha's Inc. Yes 9,646 Albertson's-Osco No 9,500 Intel Corp. No 9,500 Safeway Stores No 9,500 JPMorganChase & Co. No 9,200
Source: The Business Journal, Book of Lists 2005 The greater Phoenix area is a $50 billion marketplace driven by technology. World-leading companies such as Intel, Avnet, Motorola, AlliedSignal, Honeywell and Boeing Company have chosen Phoenix for their corporate or regional headquarters. Industry giants such as American Express, Phelps Dodge, Sumitomo Sitix, Prudential, Charles Schwab and Mayo Clinic have major operations in Phoenix. REAL ESTATE TRENDS The following table presents 10-year trends in rental rates and vacancy within the major non-residential real estate categories across the MSA: HISTORICAL RENTAL AND VACANCY RATES
Period Office Industrial Retail Apartment (4Q) Rent/SF Vacancy Rent/SF Vacancy Rent/SF Vacancy Rent/Unit Vacancy ------ ------- ------- ------- ------- ------- ------- --------- ------- 1995 $ 14.64 11.71% $ 0.52 6.64% $ 10.27 8.70% $ 545 4% 1996 $ 15.61 9.51% $ 0.65 5.69% $ 11.18 7.94% $ 572 5% 1997 $ 18.33 9.22% $ 0.70 7.01% $ 11.64 7.53% $ 602 5% 1998 $ 19.20 9.46% $ 0.75 7.08% $ 12.65 6.28% $ 628 5% 1999 $ 20.49 9.97% $ 0.68 8.06% $ 14.01 5.52% $ 651 6% 2000 $ 18.79 9.87% $ 0.60 7.38% $ 14.98 5.25% $ 677 7% 2001 $ 19.66 16.02% $ 0.71 9.84% $ 15.81 6.59% $ 688 8% 2002 $ 19.25 18.82% $ 0.73 10.34% $ 16.55 7.30% $ 692 9% 2003 $ 18.86 18.38% $ 0.72 9.70% $ 16.86 7.38% $ 698 10% 2004 $ 19.50 16.40% $ 0.77 8.53% $ 17.64 6.05% $ 705 8%
Sources: CB Richard Ellis, Real Data, Phoenix Metropolitan Housing Study Vacancy in all categories increased beginning in the mid-1990s. The commercial real estate market in general is moving through an overbuilt phase. However, aggressive pricing on behalf of investors and favorable mortgage interest rates have had a favorable influence on overall values during this downturn. 12 GREENSPOINT APARTMENTS AREA ANALYSIS The following table presented trends in new and resale home prices across the MSA: SINGLE FAMILY MEDIAN HOME PRICES GRAPH
RESALE NEW HOME $ 90,500 $127,600 $ 97,000 $130,750 $105,000 $136,130 $113,585 $139,070 $120,000 $146,710 $128,900 $150,770 $136,000 $156,560 $144,900 $159,990 $155,000 $173,240 $174,815 $195,000
Source: Arizona Real Estate Center Average new homes have increased in price 4.3% compounded annually over the last 10 years, and resales have increased nearly 6.8% annually over the same time period. The price increases over the latter years were achieved during an economic downturn and are attributable primarily to the favorable mortgage rate environment. According to the University of Arizona 2005/2006 Economic Outlook, the ratio of average home prices to average household income is the highest it has been for nearly 30 years. New housing prices are now 3 -1/2 times household incomes. Existing housing is now priced at three times household income. Further, as a long-term average, the Arizona homebuilding industry supplies roughly 400 housing units for each 1,000-person increase in new residents. Today, 550 housing units are supplied for each 1,000-person increase in population. However, an unbelievable amount of money is flowing into Arizona real estate from out-of-state buyers who consider local prices to be cheap. Factors that could adversely affect housing price increases are disruptions in the mortgage lending environment or more than modest increases in interest rates. Population growth, on the other hand, will continue to apply upward pressure to housing prices. RETAIL SALES The following chart depicts trends in retail sales across the MSA: 13 GREENSPOINT APARTMENTS AREA ANALYSIS [PHOENIX-MESA RETAIL SALES GRAPH] 2002 $38.1 2003 $41.1 2004 $44.9 2005 $47.7 2006 $49.6 2007 $52.0 2008 $54.7 2009 $57.7 2010 $61.2
The University of Arizona's 2005/2006 Economic Outlook is predicting a 6.4% increase in retail sales in 2005 and a 4.5% average annual increase over the next 7 years. GOVERNMENTAL INFLUENCES Planning and zoning within Maricopa County is administered by the individual municipalities, and all of the incorporated areas within the county have adopted comprehensive zoning policies and long term general plans. The state legislature mandates assessment ratios and basic property tax policy, while Maricopa County determines assessed values. Local municipalities determine tax rates. Arizona has a 5% sales tax and Maricopa County has a 7.0% sales tax. Most of the municipalities within Maricopa County also have a sales tax. The State of Arizona employs a dual (Primary, Secondary) structure for real estate taxation. The assessed value derived from "full cash value" is the basis for computing taxes for budget overrides, bond and sanitary, fire and other special districts (Secondary taxes), while the assessed value derived from "limited value" is the basis for computing taxes for the maintenance and operation of school districts, community college districts, cities, county and the state (Primary taxes). 14 MASS TRANSIT The Regional Public Transportation authority coordinates mass transit throughout the metropolitan area under the title of Valley Metro. Valley Metro includes six private carriers that are contracted to the various municipalities. Additionally, voters gave initial approval to a light rail system in 2001. The starter segment will run from Spectrum Mall in northwest Phoenix, through central Phoenix to the downtown area, and then east through Tempe and into Mesa. Most recently, the construction phase was scheduled to begin in late 2004 and the rail system is planned to be operational by late 2008. This starter segment is expected to cost $1.3 million. The following presents the construction schedule for the 20-mile starter segment: 15 GREENSPOINT APARTMENTS AREA ANALYSIS PROJECT SCHEDULE [METRO LOGO] METRO 20-MILE INITIAL LINE
'01 2002 2003 2004 2005 2006 2007 2008 Right of Way Acquisition Construction Testing and Start-up Revenue Operations Date CONSTRUCTION ACTIVITIES Maintenance Facility Line Section 1 Line Section 2 Line Section 3 Line Section 4 Line Section 5 Town Lake Bridge
[MAINTENANCE FACILITY MAP] In November of 2004, residents of the Phoenix metropolitan area approved Proposition 400, which continues a half-cent sales tax for 20 years, generating an estimated $15 billion for the valley's transportation plan. Proposition 400 partially funds the starter segment and six extensions: - 2 miles south along Rural Road in Tempe, from the main line on Apache Boulevard (Phase II: 2011-2015) 16 GREENSPOINT APARTMENTS AREA ANALYSIS - 2.7 miles on Main Street in Mesa from the former Tri-City Mall to downtown (Phase II: 2011-2015) - 12 miles from central Phoenix to Paradise Valley Mall along state Route 51 (Phase IV: 2021-2026) - 5 miles from 19th Avenue in Phoenix to downtown Glendale (Phase III: 2016-2020) - 5 miles from 19th Avenue in Phoenix to Metro Center mall (Phase II: 2011-2015) - 11 miles along I-10 in the West Valley to 79th Avenue (Phase III: 2016-2020) The plan includes park and-ride lots along the line. Approximately $2.3 million of the Proposition 400 funding is allocated toward the extension routes. The light rail system relies in part on federal funding. The federal government formally committed to its portion of the Valley's light rail system on January 24th in a funding grant that will pay nearly half of the construction costs of the 20-mile starter line. The government is funding $587.2 million of the $1.3 billion cost of the project, which has started construction. Phoenix, Mesa, and Tempe pay the remainder for the line that will run through the three municipalities. The agreement will provide annual funding through 2011. There is also a separate $60 million that will be available from federal Congestion Mitigation and Air Quality funds. According to Valley Metro, there are additional possible extensions to the light rail system in Scottsdale and Glendale. Scottsdale and Tempe completed a Major Investment Study in 2002 that recommended a high capacity transit route on Scottsdale Road. In early 2003, the Scottsdale City Council officially approved Scottsdale Road as a high-capacity transit corridor. While no technology has yet been approved for this corridor, the identification of Scottsdale Road as a high-capacity transit corridor leaves the option open for light rail or other high capacity modes here. SKY HARBOR INTERNATIONAL AIRPORT The airport was established in 1929, and the first air traffic control tower and Terminal 1 were completed in 1952. Terminal 2 was added in 1962, and in 1979, Terminal 3 and the new control tower were completed at a cost of approximately $48 million. In 1990, Terminal 4 (the Barry M. Goldwater Terminal) was completed. Sky Harbor is now ranked as the fifth busiest airport in the world (just ahead of Paris and behind Los Angeles) with about 560,000 take offs and landings annually. The airport now has three terminals and runways (the original terminal was razed) with over 100 gates, and serves over 35.0 million passengers each year. The City of Phoenix recently embarked on a $1.2 billion dollar expansion of the airport that added a third runway in 2000. With the planned expansion of Terminal Four, the capacity will be raised in the next 15 years to 110 gates and 60 million passengers. A state of the art $35.0 million people mover system is planned to be operational in 2009, and this will provide an underground connection to a new, seven-story 18,000-car parking 17 GREENSPOINT APARTMENTS AREA ANALYSIS garage. Also, the new Sky Harbor Rental Car Center is under construction west of the airport. The new rental car center will consolidate all of the eight car rental agencies and their maintenance facilities into one location. The scheduled occupancy is November 2005. The project is 2.5 million square feet of space. The project can accommodate 5,600 rental cars. However, Sky Harbor already supports 40,000 rental cars in the immediate area of the airport. RAIL SERVICE Two transcontinental rail lines, the Southern Pacific and the Santa Fe Railroad, and two Amtrak lines serve Phoenix. Most major southwest cities are readily accessible by rail at very competitive rates. Proximity to rail service in the northwest and southwest regions combined with a plentiful supply of industrially zoned properties has been an important factor in growth of these two regions in the 1980s. While many industrial park developers would like rail access to provide flexibility in attracting new users, few valley manufacturers are required to locate near rail lines. Instead, they employ the numerous common carrier trucking firms to move raw materials and finished goods. Consequently, rail access has had only a small impact on the location of manufacturing in the country in recent years. CONCLUSION The Phoenix-Mesa MSA is emerging from an economic downturn that began in 2000. Claritas is projecting population growth to average 100,000 new residents per year through 2009 and the University of Arizona is projecting an average of 124,000 new residents per year, and an average employment growth of 55,000 new non-farm jobs per year through 2010, with 79,800 new non-farm jobs project for 2005. Major infrastructure projects within the freeway, rail and airport systems are underway to facilitate this growth. The near term outlook is for the local economy to continue its move back into a growth and development phase across all of the major economic sectors. Over the long term, the Phoenix MSA will strengthen is position as the dominant social and economic hub of the southwestern US. 18 GREENSPOINT APARTMENTS NEIGHBORHOOD ANALYSIS [NEIGHBORHOOD ANALYSIS MAP] LOCATION The neighborhood is located in the city of Phoenix and is considered a suburban location. The subject is located approximately 11 miles north and 4.5 miles east of the Phoenix Central Business District. BOUNDARIES The neighborhood boundaries are detailed as follows: North: Bell Road South: Shea Boulevard East: Scottsdale Road West: SR-51 (Piestewa Freeway) LAND USE The neighborhood is characterized by a mixture of residential and commercial uses plus a limited supply of undeveloped land. The area appears to be almost entirely built-out at the present time and there is virtually no residential development currently taking place. The predominant use within the neighborhood is single-family residential development, approximately 50% of which ranges in value from $100K to $200K, with another 25% in the $200-$300K range, within a 3-mile radius of the 19 GREENSPOINT APARTMENTS NEIGHBORHOOD ANALYSIS subject. However, there also 22 existing apartment complexes of at least 100 units with a total of almost 6,451 units. These projects are summarized in the table below: NEIGHBORHOOD APARTMENT PROJECTS, 100+ UNITS
NAME BUILT ADDRESS CITY UNITS ---- ----- ------- ---- ----- Paragon at Kierland, The 2000 15440 N 71st St Scottsdale 276 Tradition at Kierland 1998 6633 E Greenway Parkway Scottsdale 364 Pillar at Desert View 1996 17030 N 49th St Scottsdale 412 Legend at Kierland, The 1996 6735 E Greenway Parkway Scottsdale 360 Tuscany Villas 1995 4925 E Desert Cove Ave Scottsdale 180 Bellagio 1995 5635 E Bell Rd Scottsdale 202 San Mateo 1994 7009 E Acoma Dr Scottsdale 348 Cityplace 1993 5335 E Shea Blvd Scottsdale 240 Camden San Paloma 1993 6980 E Sahuaro Dr Scottsdale 324 Palisades, The 1990 13440 N 44th St Phoenix 536 Arabian Trails East 1988 16636 N 58th St Scottsdale 130 Ridge, The 1986 15202 N 40th St Phoenix 380 Wind Springs 1986 3515 E Bell Rd Phoenix 130 Greenspoint 1985 4202 E C Actus Rd Phoenix 336 Tatum Gardens 1985 15425 N Tatum Blvd Phoenix 128 Arabian Trails 1985 16636 N 58th St Scottsdale 384 Paradise Springs 1984 13616 N 43rd St Phoenix 200 Tatum Place 1984 16801 N 49th St Scottsdale 164 Saddleback 1984 4722 E Bell Rd Phoenix 582 Shadow Brook 1984 5122 E Shea Blvd Scottsdale 224 Scottsdale Meadows 1984 10888 N 70th St Scottsdale 168 Villa Encanto 1983 4315 E Thunderbird Rd Phoenix 383
Source: RealData, Inc. Commercial uses and residential support facilities are concentrated along major arterial streets and at section-line corners. Major concentrations of commercial development exist at Tatum and Shea boulevards, Tatum Boulevard and Cactus Road, and Shea Boulevard and Scottsdale Road. Three neighborhood scale shopping centers are located at the Tatum and Shea intersection. Paradise Village Gateway built in 1996 with over 295,000 square feet is anchored by Albertson's, Walgreens, Ross Dress For Less, Staples, PetSmart, and Bed Bath & Beyond. Paradise Village Marketplace with Whole Foods as the primary anchor was constructed in 2001 with over 100,000 square feet. Lastly, a Fry's Marketplace with roughly 107,000 square feet was originally built in 1976. Also, just north of the Paradise Village Gateway along Tatum Boulevard is the Anasazi Plaza I & II office development with roughly 205,000 square feet built in 1985 and 1999. One mile to the north is Paradise Valley Mall and several nearby neighborhood scale centers. Built in 1979, the 1.3 million square foot regional mall is anchored by Dillard's, Robinson's-May, J C Penny, Macy's and Sears. Five surrounding centers with a total of approximately 940,000 square feet were developed between 1979 and 1990. Notable anchor tenants include Michaels, Target, Comp USA, 20 GREENSPOINT APARTMENTS NEIGHBORHOOD ANALYSIS REI, Mervyn's, T J Maxx, Circuit City, Borders, Sports Authority, Toys R Us and Bookstar. There are also two significant office developments in the same area. Paradise Village Office Park was developed in 1986 with almost 270,000 square feet, while the Paradise Valley Corporate Center was built in 2002 with approximately 200,000 square feet. Three miles directly east are four shopping centers near the intersection of Scottsdale Road and Shea Boulevard. Wild Oats Plaza was built in 1980 and contains almost 70,000 square feet. Checker Village with Checker Auto Parts and Hancock Fabrics was constructed in 1978 with 88,900 square feet. Shea Scottsdale Center was built in 1980 with 158,900 square feet; it is anchored by Safeway and Osco Drug. Lastly, the unanchored Scottsdale Promenade with 90,000 square feet was constructed in 1986. ACCESS The road system within the entire metropolitan Phoenix area is generally designed in a grid pattern with major arterials at one-mile intervals. The major north/south arterials serving the neighborhood include Scottsdale Road, 64th Street, 56th Street, Tatum Boulevard, 40th Street and the Squaw Peak Freeway. The major east/west arterials include Shea Boulevard, Cactus Road, Thunderbird Road, Greenway Road, and Bell Road. These arterials and various interior collector streets provide adequate access to areas outside the neighborhood, including shopping centers, recreational facilities and other necessary support services. The neighborhood is considered to have excellent freeway access with the SR-51 (neighborhood western boundary) providing access to the Phoenix Central Business District and SR-101 Loop (2 miles north or 2 miles east of the neighborhood boundaries) providing access to the west or east valley cities. In November of 2004, residents of the Phoenix metropolitan area approved Proposition 400, which continues a half-cent sales tax for 20 years, and partially funds the starter segment and six extensions for the a light rail system. One of the six extensions involves a 12-mile line from central Phoenix to Paradise Valley Mall along state Route 51. However, this line is part of Phase IV of the light rail project, which scheduled to be constructed from 2021-2026. The starter segment and the other extension routes were previously discussed in the Area Analysis section of this report. COMMUNITY SERVICES In addition to what has been previously discussed, other residential support facilities are located within reasonable proximity to the subject. The area is a full service community including adequate police and fire protection provided by the cities of Phoenix, Scottsdale and Paradise Valley. 21 GREENSPOINT APARTMENTS NEIGHBORHOOD ANALYSIS Major recreational facilities within the area include a number of neighborhood scale parks and three golf courses, Stonecreek Golf Club, Orange Tree Golf Resort and Camelback Golf Club with the Resort Course and Club Course. The Phoenix Mountains Preserve also provides substantial recreational opportunities. Paradise Valley Hospital is located roughly four miles northwest at the southwest quadrant of Bell Road and 40th Street. Although not located within the immediate local area, there are three other hospitals within a reasonable distance of the property. Mayo Clinic Hospital is situated approximately four miles northeast at the southeast quadrant of 56th Street and Mayo Boulevard (just south of the Loop 101), Scottsdale Healthcare Hospital is located roughly 6.5 plus miles east at the southeast quadrant of Shea Boulevard and 90th Street, and John C. Lincoln Hospital is located miles southwest at Dunlap Avenue and 3rd Street. DEMOGRAPHICS Selected neighborhood demographics in a one-, three-, and five-mile radius from the subject are shown in the following table: 22 GREENSPOINT APARTMENTS NEIGHBORHOOD ANALYSIS SELECTED NEIGHBORHOOD DEMOGRAPHICS
4202 E. Cactus Rd. Radius 1.0 Radius 3.0 Radius 5.0 Phoenix, AZ Mile Mile Mile ------------------ ---------- ---------- ---------- Population 2009 Population 18,635 109,293 262,203 2004 Population 17,276 104,071 243,742 2000 Population 16,336 101,404 232,095 1990 Population 15,601 92,009 180,142 Growth 2004 - 2009 7.87% 5.02% 7.57% Growth 2000 - 2004 5.75% 2.63% 5.02% Growth 1990 - 2000 4.71% 10.21% 28.84% Households 2009 Households 8,801 42,975 105,477 2004 Households 7,926 40,160 97,201 2000 Households 7,294 38,439 91,598 1990 Households 6,542 33,515 69,146 Growth 2004 - 2009 11.04% 7.01% 8.51% Growth 2000 - 2004 8.66% 4.48% 6.12% Growth 1990 - 2000 11.49% 14.69% 32.47% Income 2004 Median Household Income $ 50,962 $ 59,858 $ 59,489 2004 Estimated Average Household Income $ 65,564 $ 84,534 $ 86,509 2004 Estimated Per Capita Income $ 30,336 $ 33,122 $ 34,712 Age 25+ COllege Graduates - 2004 3,774 23,803 59,459 Age 25+ Percent College Graduates - 2004 31.2% 34.5% 36.3%
Source: CBRE Demographics in the area show moderate growth. Outer limits of Maricopa County are growing faster than the interior areas of the county due to the abundance of developable land for large-scale residential development. CONCLUSION The subject neighborhood and surrounding areas include a varied mix of property uses with supporting commercial projects. Existing neighborhood uses provide adequate opportunities for residency, shopping, services and employment within an average commute. Future development is expected to be limited and will include moderate to high price residential, as well as supporting retail and commercial uses. Overall, the subject is positioned in a favorable location for the long term with a combination of nearby office and residential land uses. The subject is well positioned in northeast Phoenix within close proximity to the Interstate 51, the Loop 101, Scottsdale and Phoenix, and major employers in 23 GREENSPOINT APARTMENTS NEIGHBORHOOD ANALYSIS the Phoenix/Mesa MSA. These factors should provide a positive outlook for the subject over a typical holding period. 24 GREENSPOINT 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, we have addressed the overall market trends influencing the Phoenix apartment market, the trends occurring in the local submarket, the demographic influences affecting the subject property and our projections for the long-term market acceptance of the subject property. PROPERTY PRODUCTIVITY ANALYSIS The subject is a 336-unit garden apartment project known as Greenspoint Apartments. The property was developed in 1985 and is presently 95.8% leased. The subject is classified as a Class B apartment project by local market standards MULTI-FAMILY MARKET -- METRO PHOENIX ANALYSIS A snapshot of the multi-family apartment market as well as conditions within the submarket is presented as follows: APARTMENT MARKET STATISTICS
Category Phoenix Area Submarket 2N -------- ------------ ------------ Existing Supply (Units) 223,913 5,547 New Construction YTD (Units) 4,868 0 Leasing YTD (Units) 4,180 53 Average Occupancy 91.2% 91.6% Average Rent per Unit $ 705 $ 803 Average Unit Size 839 Sf 910 Sf Average Rent PSF $ 0.84 $ 0.88 Date of Survey 4Q2004 4Q2004
Source: CBRE The apartment market in Phoenix moved through a rapid development phase from 1994 through 2001. This time period was characterized by rapid introduction of new space and relatively strong absorption across the Phoenix MSA. Market conditions began to change in the second half of 2001 in conjunction with the national economic downturn as vacancy rates moved upward, concessions began to increase, and rental rates plateaued. Although certain pockets of the Phoenix area are still experiencing rapid introduction of new space, new construction activity has slowed greatly across the MSA. Currently, the market is positioned in a recovery period with non-stabilized occupancy and concessions in most markets. However, declining overall capitalization rates have had a stabilizing effect on multi-family values, and this trend is expected to continue. 25 GREENSPOINT APARTMENTS MARKET ANALYSIS SUPPLY The following table depicts the changes in inventory and building permits issued for the Phoenix metropolitan area from 1991 through the present. MULTI-FAMILY INVENTORY METROPOLITAN PHOENIX
Building Year Inventory % Change Permits % Change ---- --------- -------- -------- -------- 1991 260,501 0.6% 710 -62.4% 1992 261,095 0.2% 1,234 73.8% 1993 262,930 0.7% 1,799 45.8% 1994 264,663 0.7% 6,015 234.4% 1995 266,849 0.8% 7,719 28.3% 1996 275,919 3.4% 8,545 10.7% 1997 284,220 3.0% 7,930 -7.2% 1998 289,044 1.7% 7,877 0.7% 1999 296,761 2.7% 8,241 4.6% 2000 306,386 3.2% 8,009 -2.8% 2001 312,761 2.1% 7,201 -10.1% 2002 321,459 2.8% 5,607 -22.1% 2003 326,311 1.5% 4,836 -13.8% 2004* 330,291 1.0% 4,997 3.3%
Source: Phoenix Metropolitan Housing Study, through Fourth Quarter 2004* Roughly 36,000 apartment units were added to the Phoenix metropolitan area during the 1990's, or about 4,000 units per year on average. Permit activity remained relatively strong in 2000 and 2001, but declined 22% in 2002 and another 14% in 2003 to a decade low permit total of 4,836 in 2003. At the end of fourth, quarter 2004, 3,126 building permits were filed, which is 3.3% higher than the number of building permits filed in all of 2003. According to RealData, there are 3,631 units under construction across Phoenix MSA, and another 2,815 are in the planning stages for projects of 50 units or more. It should be noted that virtually all of the new permit activity is directed towards the luxury, or "A" quality market. The base inventory of "B" and "C" quality projects has remained fixed for several years. Furthermore, although there is market wide softness in leasing and occupancy, there is strong demand from both private capital and institutional investors for new and existing projects. The low capitalization rate environment is pushing prices upward and another development cycle is beginning in 2004. VACANCY RATES Trends in vacancy rates within the Phoenix area are presented in the following table: 26 GREENSPOINT APARTMENTS MARKET ANALYSIS APARTMENT VACANCY RATES METROPOLITAN PHOENIX
Annual Year Qtr. 1 Qtr. 2 Qtr. 3 Qtr. 4 Average ---- ------ ------ ------ ------ ------- 1990 12% 13% 11% 10% 11.5% 1991 10% 13% 11% 10% 11.0% 1992 10% 11% 9% 8% 9.5% 1993 7% 8% 6% 4% 6.3% 1994 4%7 5% 4% 4% 4.3% 1995 3% 6% 4% 4% 4.3% 1996 4% 5% 5% 5% 4.8% 1997 5% 6% 5% 5% 5.3% 1998 4% 5% 5% 5% 5.0% 1999 5% 6% 6% 6% 6.0% 2000 6% 7% 8% 7% 7.0% 2001 8% 8% 7% 8% 7.8% 2002 8% 9% 8% 9% 8.5% 2003 10% 10% 10% 10% 10.0% 2004 9% 9% 8% 8% 8.5%
Source: Phoenix Metropolitan Housing Study, through Fourth Quarter 2004 Average year-end vacancy increased from 1998 through 2003, stabilized at 10%, but fell to 8% by the third quarter of 2004. Construction slowed dramatically over the last two years, but certain submarkets are now targeted for significant levels of new inventory, most notably the 101 Freeway corridor in north-Phoenix. Interest rates remain favorable, and this trend is expected to continue into 2005. However, while low mortgage rates have been blamed for a large-scale migration of apartment residents into the single-family market, most analysts (including home builders and apartment managers) now believe that this migration is over. Apartment residents who have the means to enter the single-family market have already done so over the last five years. Limited new construction in most areas combined with an improving employment market and a decline in migration from multi-family to single family point to an improvement in physical occupancy during 2005. It should be noted that the Phoenix Metropolitan Housing Study attempts to include all apartments via statistical inference in the previous vacancy rates. RealData, Inc. figures in the next section include only projects with 100 or more units. Therefore, there is a slight difference in apartment vacancy rates between these sources. ABSORPTION The following table depicts the number of units that have been absorbed and that remained vacant since 1990. 27 GREENSPOINT APARTMENTS MARKET ANALYSIS ANNUAL ABSORPTION RATES - METRO PHOENIX
Year Absorption % Change No. Vacant % Change ---- ---------- -------- ---------- -------- 1990 10,482 53.9% 25,875 -24.9% 1991 2,734 -73.9% 24,650 -4.7% 1992 4,394 60.7% 20,850 -15.4% 1993 12,135 176.0% 10,550 -49.4% 1994 2,208 -81.8% 10,075 -4.5% 1995 211 -90.4% 12,050 19.6% 1996 7,820 36.1% 12,300 2.1% 1997 8,001 2.3% 13,600 10.6% 1998 3,674 -69.9% 14,525 6.8% 1999 5,017 36.6% 17,450 20.1% 2000 6,225 24.1% 20,850 19.5% 2001 1,525 -75.5% 25,700 8.2% 2002 4,273 180.2% 30,125 17.2% 2003 3,702 -13.4% 31,275 3.7% 2004* 9,230 249.3% 26,025 -16.8%
Source: Phoenix Metropolitan Housing Study, Fourth Quarter 2004* A total of 4,836 permits were issued in 2003 and 3,702 units were absorbed. As of Fourth Quarter 2004, 4,997 permits have been issued and 9,230 units have been absorbed. Although annual absorption has remained positive over the last 14 years, it tends to lag behind new construction. The large positive imbalance between new permits and absorption posted during the first three quarters of 2004 has caused the metropolitan vacancy level to drop from 10% at year-end 2003 to its current rate of 8%. However, new construction is still occurring in various pockets across the MSA, particularly within the Deer Valley/101 corridor. SALE PRICES The following table depicts several benchmarks in relation to recent sales activity in the subject's overall property class. Sales criteria involved all projects above 150 units that were developed between 1981 and 1989. 28 GREENSPOINT APARTMENTS MARKET ANALYSIS SALES TRENDS: MARICOPA COUNTY APARTMENTS
2001 2002 2003 2004 2005 ------------- ------------- ------------- ------------- ------------- Total Sales 19 11 26 32 11 Total $ Volume $ 264,005,015 $ 134,163,000 $ 225,570,396 $ 384,526,235 $ 136,027,500 Total Square Feet 4,194,503 2,675,293 4,548,576 6,693,740 2,069,596 Total Units 5,095 3,703 6,274 8,743 2,893 Total Acres 207.17 126.61 247.25 330.14 126.6 Average Sale Price $ 13,895,001 $ 12,196,636 $ 8,675,784 $ 12,016,445 $ 12,366,136 Average Number of SF 220,763 243,208 174,945 209,179 188,145 Average Price Per SF $ 62.94 $ 50.15 $ 49.59 $ 57.45 $ 65.73 Median Price Per SF $ 57.13 $ 42.56 $ 50.47 $ 58.72 $ 61.94 Average Price Per Unit $ 51,816 $ 36,231 $ 35,953 $ 43,981 $ 47,020 Median Price Per Unit $ 52,925 $ 29,885 $ 35,821 $ 42,026 $ 41,161 Average Number of Units 268 337 241 273 263 Average Number of Acres 11.51 11.51 9.51 10.32 11.51 Average Cap Rate 8.94 8.58 8.41 6.57 7.46 Average GRM 6.11 0 5.32 5.98 6.03
Source: CoStar The true number of sales for 2005 is suspect because Costar is approximately 75 days behind schedule in reporting current sales. However, the data indicate that 2004 was a record year in both the number of transactions and total dollar volume. While none of the samples is statistically valid, average unit prices have increased over the five-year time frame. There are generally more buyers than sellers in the current market. As overall capitalization rates continue to decline, the immediate outlook is for stable or improving values into 2005. RENTAL RATES The following table shows the trend in average unfurnished rental rates since 1992: 29 GREENSPOINT APARTMENTS MARKET ANALYSIS AVERAGE UNFURNISHED RENT AND ANNUAL PERCENTAGE INCREASE
Annual Year Qtr. 1 Qtr. 2 Qtr. 3 Qtr. 4 % Change ---- ------ ------ ------ ------ -------- 1992 $431 $433 $436 $439 1.9% 1993 $445 $449 $455 $464 4.3% 1994 $475 $483 $494 $508 6.9% 1995 $523 $530 $537 $545 4.2% 1996 $553 $559 $566 $572 3.4% 1997 $578 $586 $594 $602 4.2% 1998 $614 $616 $625 $628 2.3% 1999 $636 $640 $646 $651 2.4% 2000 $657 $662 $669 $677 3.0% 2001 $683 $686 $687 $688 0.7% 2002 $691 $691 $694 $692 0.6% 2003 $694 $694 $695 $698 0.8% 2004 $700 $700 $702 $705 1.0%
Source: Real Data, Inc. Income growth is currently neutral in the Phoenix MSA, but has ranged from 0.6% to 6.9% annually over the last 12 years. The average income growth rate over the last 12 years in Phoenix has been 4.0%. The near term projection is for neutral to improving rental growth as reflected by the performance of the apartment market during the first four quarters of 2004. However, the long-term growth rate remains in the range of 2% to 3%. CONCLUSION -- MULTI-FAMILY MACRO The apartment cycle is positioned in a recovery phase following a rapid development cycle during the 1990's. Softness in leasing and occupancy are common across the MSA and new construction is ongoing. The outlook in Phoenix for the next two years includes the following: - Flat rental rates are projected into the first half of 2005, but the long-term growth rate remains at 2% to 3%, particularly in the Class A segment. - Physical vacancy is expected to improve during 2005, but a relatively high level of concessions, including free rent, will remain in effect over the next several quarters. - After several quarters of flat property values, there appears to be upward pressure on property values due to strong investor demand and declining overall rates. The final part of this analysis is presented on a submarket basis. This analysis is presented after the submarket map on the following page. 30 GREENSPOINT APARTMENTS MARKET ANALYSIS [REALDATA, INC. STATISTICAL DISTRICTS MAP] 31 GREENSPOINT APARTMENTS MARKET ANALYSIS MULTI-FAMILY MARKET -- SUBMARKET ANALYSIS The following discussion concerns the market conditions impacting the immediate subject submarket. The subject property is located in the North Paradise Valley submarket 2N as designated by RealData, Inc. The map on the preceding page delineates the area incorporated in this submarket. SUPPLY ANALYSIS An analysis of the specific inventory comprising this area indicates the following age characteristics in complexes with 100+ units. SUBMARKET APARTMENTS WITH 100+ UNITS DISTRICT 2N
Year Built Total # of Units % of Phoenix Area ---------- ---------------- ----------------- Prior to 1972 0 0.0% 1973 to 1980 206 3.7% 1980 to 1990 2,849 51.4% 1990 to 2000 1,990 35.9% 2000 to Present 502 9.0%
Source: Realdata, Inc., 4Q2004 PROPOSED INVENTORY Within the North Paradise Valley submarket, there are currently no projects in the construction or planning stages: ABSORPTION The following table presents the historical absorption within the North Paradise Valley submarket: HISTORIC ABSORPTION 100+ UNIT COMPLEXES
Period Submarket 2N Metro Phoenix ------ ------------ ------------- 1Q2003 20 2,021 2Q2003 -98 -218 3Q2003 -21 1,213 4Q2003 -31 256 1Q2004 35 2,066 2Q2004 -32 -53 3Q2004 41 3,021 4Q2004 9 -854 -- ----- TOTAL YTD 53 4,180 == =====
Source: Realdata, Inc., 4Q2004 VACANCY The following chart depicts recent historical vacancies within 100+ unit complexes. 32 GREENSPOINT APARTMENTS MARKET ANALYSIS STABALIZED VACANCY RATES 100+ UNIT COMPLEXES
Period Submarket 2N Metro Phoenix ------ ------------ ------------- 1Q2003 7.66% 9.73% 2Q2003 9.30% 10.37% 3Q2003 9.50% 9.90% 4Q2003 9.73% 10.18% 1Q2004 8.84% 9.40% 2Q2004 9.41% 9.79% 3Q2004 8.53% 8.65% 4Q2004 8.36% 8.84% Avg. Last 4 Qtrs 8.79% 9.17%
Source: RealData, Inc., 4Q2004 It should be noted that the previous vacancy figures represent physical vacancy only. Deductions for economic vacancy, including collection losses, lagging rent and concessions are not included in the previous figures. Loss to lease and collections losses are nominal at this time, with both categories typically accounting for less than 1% of potential rental income. Concessions are more entrenched, and a wide variety of programs are in place. One major institutional owner uses a Lease Rent Optimizer program in which units are priced individually based upon location and days vacant. A minority of other apartment owners and managers have attempted to adjust concessions out of quoted rental rates with mixed result. The market has basically come to expect a minimum of one month free on a 12-month lease (8%). For markets with significant new construction still occurring, the norm is two to a maximum of three months free rent. RENTAL RATES The following chart summarizes rental rates in the submarket. AVERAGE RENT UNFURNISHED - NO UTILITIES 100+ UNITS
Type Submarket 2N Metro Phoenix ---- ------------ ------------- Studio $ 511 $ 458 1 BR/1 BA $ 702 $ 616 1 BR/1 + BA $ 680 $ 712 2 BR/1 BA $ 726 $ 646 2 BR/1 + BA $ 852 $ 783 3 BR/1 BA * $ 685 3BR /1 + BA $1,122 $1,043 4 BR/1 + BA * $ 983 ------ ------ Average $ 803 $ 705 ------ ------
---------- * No significant units of this type Source: RealData, Inc., 4Q2004 33 GREENSPOINT APARTMENTS MARKET ANALYSIS 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 POPULATION AND HOUSEHOLD PROJECTIONS
Radius 1.0 Radius 3.0 Radius 5.0 Mile Mile Mile ---------- ---------- ---------- Population 2009 Population 18,635 109,293 262,203 2004 Population 17,276 104,071 243,742 2000 Population 16,336 101,404 232,095 1990 Population 15,601 92,009 180,142 Growth 2004 - 2009 7.87% 5.02% 7.57% Growth 2000 - 2004 5.75% 2.63% 5.02% Growth 1990 - 2000 4.71% 10.21% 28.84% Households 2009 Households 8,801 42,975 105,477 2004 Households 7,926 40,160 97,201 2000 Households 7,294 38,439 91,598 1990 Households 6,542 33,515 69,146 Growth 2004 - 2009 11.04% 7.01% 8.51% Growth 2000 - 2004 8.66% 4.48% 6.12% Growth 1990 - 2000 11.49% 14.69% 32.47%
Source: CBRE Households represent a basic unit of demand in the housing market. According to the data, the subject's neighborhood is experiencing average population growth and household formation compared with the overall Phoenix MSA. 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. 34 GREENSPOINT APARTMENTS MARKET ANALYSIS HOUSEHOLD INCOME DISTRIBUTION
Radius 1.0 Radius 3.0 Radius 5.0 Mile Mile Mile ---------- ---------- ---------- Households by Income Distribution - 2004 Less than $15K 7.83% 7.70% 8.00% $15K - $25K 8.77% 7.28% 7.84% $25K - $35K 13.74% 10.60% 10.60% $35K - $50K 18.57% 15.43% 15.41% $50K - $75K 23.61% 20.82% 19.30% $75K - $100K 12.89% 13.54% 13.50% $100K - $150K 9.16% 13.03% 13.03% $150K - $250K 3.72% 7.44% 7.61% $250K - $500K 1.30% 2.79% 3.00% $500K or more 0.39% 1.38% 1.71%
Source: CBRE The following table illustrates the median and average household income levels for the subject neighborhood. HOUSEHOLD INCOME LEVELS
Radius 1.0 Radius 3.0 Radius 5.0 Mile Mile Mile ---------- ---------- ---------- Income 2004 Median Household Income $50,962 $59,858 $59,489 2004 Estimated Average Household Income $65,564 $84,534 $86,509 2004 Estimated Per Capita Income $30,336 $33,122 $34,712
Source: CBRE An analysis of the income data indicates that the submarket is generally comprised of middle- to upper middle-income economic cohort groups, which include the target 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: 35 GREENSPOINT APARTMENTS MARKET ANALYSIS EMPLOYMENT BY INDUSTRY
Radius 1.0 Radius 3.0 Radius 5.0 Mile Mile Mile ---------- ---------- ---------- Occupation Agr/Frst/Fish/Hunt/Mine 0.52% 0.31% 0.35% Construction 7.59% 8.80% 9.09% Total Manufacturing 7.95% 9.14% 9.59% Wholesale Trade 4.61% 4.02% 4.02% Retail Trade 19.12% 16.11% 15.07% Transport/Warehse/Utils 5.20% 5.14% 4.51% Information 3.24% 4.00% 3.91% Fin/Insur/RE/Rent/Lse 13.48% 13.61% 14.36% Prof/Sci/Tech/Admin 12.05% 11.60% 11.66% Mgmt of Companies 0.04% 0.10% 0.12% Admin/Spprt/Waste Mgmt 0.00% 0.00% 0.00% Educational Svcs 8.35% 8.43% 8.18% Health Care/Soc Asst 11.71% 11.70% 12.10% Entertainment & Rec Services 2.86% 2.85% 2.80% Accommdtn/Food Svcs 0.00% 0.00% 0.00% Oth Svcs, Not Pub Admin 0.00% 0.00% 0.00% Public Administration 3.29% 4.17% 4.24%
Source: CBRE The previous table illustrates the employment character of the submarket, indicating a predominantly middle- to lower-middle employment profile, with the largest percentages of the population holding retail trade, FIRE related, and professional jobs. VACANCY CONCLUSION 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: 36 GREENSPOINT APARTMENTS MARKET ANALYSIS SUMMARY OF COMPARABLE APARTMENT RENTALS
COMP. NO. NAME LOCATION OCCUPANCY ----- ---- -------- --------- 1 Paradise Springs 13616 N. 43rd Street, 96% Phoenix, AZ 2 Paradise Trails 4502 E. Paradise Village Pky South, 95% Phoenix, AZ 3 The Palisades 13440 N. 44th Street, 93% Phoenix, AZ 4 The Ridge 15202 N. 40th Street, 93% Phoenix, AZ 5 Townhomes On The Park 12844 N. Paradise Village Pwy West, 98% Phoenix, AZ 6 Villa Encanto 4315 E. Thunderbird Road, 94% Phoenix, AZ Subject Greenspoint Apartments 4202 East Cactus Road, 96% Phoenix, Arizona
Compiled by CBRE Prior to concessions, the comparables support a range of occupancy of 93% to 98%, with an average of 95%. The subject is 95.8% leased. Various measures of physical occupancy were discussed and analyzed within this section of this report. These benchmarks are summarized as follows: OCCUPANCY CONCLUSIONS Phoenix Area 91.2% Submarket 91.6% Rent Comparables 94.8% Subject's Current Occupancy 95.8% Subject's Stabilized Occupancy 87.0%
Compiled by CBRE Physical occupancy tends to peak in March and April in the Phoenix MSA, and declines in the summer months. The subject has averaged 10% to 17% physical vacancy since 2002 and management is 37 GREENSPOINT APARTMENTS MARKET ANALYSIS budgeting a 13% physical vacancy rate for 2005. Over the course of the first year of analysis, we have reconciled the physical occupancy conclusion at 87%, consistent with the management forecast. Concessions remain widespread and this trend will continue over the next several years. In addition to physical vacancy, we have estimated 3.0% collection loss, 8.00% long-term concessions, and 3.00% loss to lease, which will each be deducted as line items from the potential gross income. CONCLUSION The Phoenix apartment market is moving through a recovery phase at this time. New construction has slowed and the large-scale migration from multi-family to single family housing over the last five years appears to be over. The near term outlook is for general improvement in physical occupancy during 2005. Continued aggressive pricing on behalf of institutional buyers and the expectation of ongoing favorable mortgage rates in the private capital arena have driven investment rates downward. Although rent growth will most likely result in increasing overall rates over the next several quarters, there are more buyers than sellers in this market and the outlook is for continued price appreciation in the multi-family segment. The subject's immediate area contains a mix of newer projects, with very good access to employment, freeways, shopping, and entertainment facilities. No new competitive construction is occurring in the area, and the outlook is for continued improvement in leasing and occupancy. At 336 units, the subject is oriented to a wide mix of private capital and institutional buyers. 38 GREENSPOINT APARTMENTS SITE ANALYSIS SITE MAP [SITE MAP] 39 GREENSPOINT 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 9.26 Acres 403,191 Sq. Ft. Primary Road Frontage 42nd Street 1/4 mile Secondary Road Frontage Cactus Road 205 Feet Average Depth 350 Feet Excess Land Area None Surplus Land Area None Zoning District R-5, Phoenix Multi-Family Residence Flood Map Panel No. 04013C1680G, dated July 19, 2001 Flood Zone X (Shaded)
Source: Various sources compiled by CBRE LOCATION The subject is on the north side of Cactus Road, less than one-quarter mile east of 40th Street. The street address is 4202 East Cactus Road. ASSESSOR'S PARCEL NUMBER The Maricopa County Tax Assessor's parcel number is 167-27-001W. LAND AREA The site is considered adequate in terms of size and utility. There is no unusable, excess or surplus land area. SHAPE AND FRONTAGE The site is generally irregular in shape and has adequate frontage along two primary thoroughfares within the neighborhood. INGRESS/EGRESS Ingress and egress is available to the site via two entrance points along 42nd Street. The subject does not have access from Cactus Road, but does have premium frontage along this arterial road. 40 GREENSPOINT APARTMENTS SITE ANALYSIS Cactus Road, at the subject property, is a major east/west arterial street that is improved with three lanes of traffic in each direction plus a median. Street improvements include asphalt paving and concrete curbs, gutters and sidewalks, and street lighting. Street parking is not permitted. 42nd Street, at the subject property, is a minor north/south residential street that is improved with one lane of traffic in each direction. Additional street improvements include concrete curbs, gutters and sidewalks, and street lighting. Street parking is permitted. Please refer to the prior site/plat exhibit for the layout of the streets that provide access to the subject property TOPOGRAPHY AND DRAINAGE The site is generally level and at street grade. The topography of the site is not seen as an impediment to the development of the property. During our inspection of the site, we observed no drainage problems and assume that none 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. 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. ACCESS AGREEMENTS There are no known access agreements that may affect the subject's marketability. COVENANTS, CONDITIONS AND RESTRICTIONS There are no known covenants, conditions and restrictions impacting the site that 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 Phoenix and is provided all municipal services, including police, fire and refuse garbage collection. All utilities are available to the site in adequate quality and 41 GREENSPOINT APARTMENTS SITE ANALYSIS quantity to service the highest and best use as if vacant and as improved. Arizona Public Service provides electricity, the City of Phoenix provides water and sewer, Qwest provides telephone service, and Cox provides cable and high-speed internet access. FLOOD ZONE According to flood hazard maps published by the Federal Emergency Management Agency (FEMA), the site is within Zone X (Shaded), as indicated on the indicated Community Map Panel No. 04013C1680G, dated July 19, 2001. FEMA Zone X (Shaded): Areas of 500-year flood; areas if 100-year flood with average depths of less than 1 foot or with drainage areas less than 1 square mile; and areas protected by levees from 100-year flood. ENVIRONMENTAL ISSUES CBRE 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, CBRE has specifically assumed that any hazardous materials and/or underground storage tanks that may be present on or near the property do not affect the property. ADJACENT PROPERTIES The adjacent land uses are as follows: North: Single-family housing South: Cactus Road followed by multi-family housing and a golf course East: Anchored retail center / Medical office complex West: 42nd Street followed by single-family housing
The adjacent properties represent a mixture of retail, office and residential uses representative of a fully developed and healthy neighborhood. CONCLUSION The site has good visibility along an arterial road and is within walking distance of Paradise Valley mall. 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 that 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 GREENSPOINT APARTMENTS IMPROVEMENT ANALYSIS IMPROVEMENT LAYOUT [IMPROVEMENT LAYOUT] 43 GREENSPOINT APARTMENTS IMPROVEMENT ANALYSIS IMPROVEMENT ANALYSIS The following chart depicts the subject's building area by component. IMPROVEMENT SUMMARY Number of Buildings 14 Number of Stories 3 Gross Building Area 280,559 SF Net Rentable Area 278,064 SF Number of Units 336 Average Unit Size 828 SF Development Density 36.3 Units/Acre Parking Improvements 569 Total Spaces Open: 233 Covered: 336 Parking Ratio (spaces/unit) 1.40
PERCENT OF UNIT SIZE UNIT MIX COMMENTS NO. OF UNITS TOTAL (SF) NRA (SF) -------- -------- ------------ ---------- ---------- --------- 1 BR, 1 BA Aspen 48 14.3% 653 31,344 1 BR, 1 BA Birchwood 60 17.9% 717 43,020 1 BR, 1 BA Cypress 60 17.9% 756 45,360 2 BR, 1.3 BA Driftwood 84 25.0% 884 74,256 2 BR, 2 BA Evergreen 84 25.0% 1,001 84,084 --- ----- ----- ------- Total/Average: 336 100.0% 828 278,064 --- ----- ----- -------
Source: Various sources compiled by CBRE As shown in the previous table, the subject consists of 10 rentable buildings as well as a clubhouse, leasing center, and several maintenance structures. There are 336 rentable apartment units, for a total net rentable area of 278,064 square feet. The gross building area was derived from the Assessor's records. Units sizes were derived from management and do not include patios or balconies. 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 CBRE's physical inspection. YEAR BUILT The subject property was built in 1985 and has not been recently renovated. However, the parking lot was recently resurfaced, two roofs were recently replaced, and another two roofs were being replaced on the date of inspection. FOUNDATION The foundation consists of poured reinforced concrete/perimeter footings and column pads. 44 GREENSPOINT APARTMENTS IMPROVEMENT ANALYSIS 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: Ground Floor: Concrete slab on compacted fill Other Floors: Plywood deck with light-weight concrete cover EXTERIOR WALLS The exterior wall structure is masonry block with a painted stucco finish. The buildings have single pane aluminum frame windows. ROOF COVER All buildings exhibit flat roof surfaces with a built-up foam surface and pitched areas with a concrete tile surface. ELEVATOR/STAIR SYSTEM The subject has no elevator systems, but each building has exterior stairway access. This is common for the age and class of the subject. HVAC The individual units feature roof-mounted electric condenser/compressor units with electric strip heating within the interior of the units. The HVAC systems are assumed to be in average operating condition and adequate for the respective square footage of each individual unit. UTILITIES Each unit is individually metered for electrical usage. Management back bills for water, trash, and common gas expenses used to deliver hot water. Aggregate monthly utility reimbursements are summarized as follows: - Aspen: $23 - Birchwood: $25 - Cypress: $27 - Driftwood: $31 - Evergreen: $36
45 GREENSPOINT APARTMENTS IMPROVEMENT ANALYSIS SECURITY The improvements are encircled by a combination block/iron wall with security keyed electronic gates at all vehicle access points. Although the management office features a security alarm system, there is no alarm oriented security system for the individual units. FIRE PROTECTION The improvements are not fire sprinklered, although all units are equipped with smoke detectors. It is assumed the improvements have adequate fire alarm systems, fire exits, fire extinguishers, fire escapes and/or other fire protection measures to meet local fire marshal requirements. PROJECT AMENITIES The project amenities include one pool and spa, fitness center, leasing office, men's and women's saunaus, security access gate, and covered parking. There is also a resident clubhouse that has a small kitchen area, fireplace, and meeting area that is available for lease. UNIT AMENITIES KITCHENS Each unit features a full appliance package including an electric range/oven, vent-hood, frost-free refrigerator with icemaker, garbage disposal, dishwasher, and built-in microwave oven. Additionally, each unit features wood cabinets with Formica countertops and vinyl tile flooring in the kitchen area. According to management, the project has experienced an adequate on-going replacement program for all kitchen appliances and no appliances are known to be inoperable. BATHROOMS The bathrooms within each unit feature combination tub/showers with ceramic tile wainscot. Additionally, each bathroom features a commode, wood cabinet with Formica counter and built-in porcelain sink, wall-mounted medicine cabinet with vanity mirror and vinyl tile flooring. INTERIOR FEATURES Each unit includes a ceiling fan in the living room with all third-floor units featuring vaulted ceilings. All units have a patio or balcony, full size washer and dryer, vertical and mini-blinds, and carpet and vinyl flooring. According to management, 168 of the units have wood burning fireplaces. INTERIOR LIGHTING Each unit features incandescent lighting in appropriate interior and exterior locations with fluorescent lighting in bathrooms and kitchen areas. 46 GREENSPOINT APARTMENTS IMPROVEMENT ANALYSIS PATIOS, BALCONIES AND STORAGE All units include a private patio or balcony area with an exterior storage room. The storage rooms are not included in the gross rentable building area. SITE AMENITIES PARKING AND DRIVES The project features adequate surface parking, including reserved handicap spaces. Access to the property is controlled via electronic security gates located at the primary entry point. All parking spaces and vehicle drives are asphalt paved and considered to be in average condition. According to management, there are 569 total parking spaces, including 336 covered spaces. The parking ratio is 1.69 spaces per unit. This ratio is both functional and legally conforming. LANDSCAPING The project features combinations of grass, gravel and natural desert landscaping which is considered to be in average condition and well maintained. All planting is sprinklered or irrigated. QUALITY AND STRUCTURAL CONDITION The overall quality of the project is considered average for the neighborhood and age. CBRE did not observe any evidence of structural fatigue and the improvements appear structurally sound for occupancy. However, CBRE 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. FUNCTIONAL UTILITY All of the floor plans are considered to feature functional layouts and the layout of the overall project is considered functional in utility. Therefore, the unit mix is also functional and no conversion is warranted to the existing improvements. PROJECT DENSITY The project's development density is commensurate with other competing properties in the neighborhood. ADA COMPLIANCE All common areas of the property appear to have handicap accessibility. The client/reader's attention is directed to the specific limiting conditions regarding ADA compliance. 47 GREENSPOINT APARTMENTS IMPROVEMENT ANALYSIS FURNITURE, FIXTURES AND EQUIPMENT The apartment units are rented on an unfurnished basis. However, miscellaneous maintenance tools, pool furniture, leasing office furniture, recreational room and clubhouse furniture, and various exercise machines are examples of personal property associated with and typically included in the sale of multifamily 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 CBRE 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 any hazardous materials that would cause a loss in value do not affect the subject. DEFERRED MAINTENANCE Our inspection of the property indicated no major items of deferred maintenance. ECONOMIC AGE AND LIFE CBRE's estimate of the subject improvements effective age and remaining economic life is depicted in the following chart: ECONOMIC AGE AND LIFE Actual Age 20 Years Effective Age 17 Years MVS Expected Life 45 Years Remaining Economic Life 28 Years Accrued Physical Incurable Depreciation 37.8%
Compiled by CBRE 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, LLC, in the Marshall Valuation Service cost guide. While CBRE 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 average to good overall condition and are considered to be typical for the age and location in regard to improvement design and layout, as well as interior 48 GREENSPOINT APARTMENTS IMPROVEMENT ANALYSIS and exterior amenities. Overall, there are no known factors that could be considered to adversely impact the marketability of the improvements. 49 GREENSPOINT APARTMENTS ZONING ZONING The following map indicates the zoning districts present within the subject's immediate area: [ZONING MAP] The following chart summarizes the zoning requirements applicable to the subject: 50 GREENSPOINT APARTMENTS ZONING ZONING SUMMARY Current Zoning R-5, Phoenix Multi-Family Residence District Legally Conforming Yes Uses Permitted Provides for multi-family housing development Zoning Change Not likely
CATEGORY ZONING REQUIREMENT -------- ------------------ Minimum Lot Depth 50 Feet Minimum Lot Width 40 Feet Maximum Height 2 stories and 30 feet Minimum Setbacks Front Yard 15 Feet Street Side Yard 10 feet one-story, 15 feet two-story Interior Side Yard 13 Feet Rear Yard 15 feet one-story, 20 feet two-story Maximum Bldg. Coverage 50% Maximum Density 43.5 Units per acre Parking Requirements 504 Spaces Subject's Actual Parking 569 Spaces
Source: Planning & Zoning Dept. ANALYSIS AND CONCLUSION The improvements represent a legally conforming use and, if damaged, may be restored without special permit application. It is recommended that local planning and zoning personnel be contacted regarding more specific information that might be applicable to the subject. 51 GREENSPOINT APARTMENTS TAX AND ASSESSMENT DATA TAX AND ASSESSMENT DATA The State of Arizona employs a dual (Primary, Secondary) structure for real estate taxation. The assessed value derived from "full cash value" is the basis for computing taxes for budget overrides, bond and sanitary, fire and other special districts (Secondary taxes), while the assessed value derived from "limited value" is the basis for computing taxes for the maintenance and operation of school districts, community college districts, cities, county and the state (Primary taxes). The subject's market value, assessed value, and taxes are summarized below, and do not include any furniture, fixtures and equipment. AD VALOREM TAX INFORMATION
2004 Actual 2005 Pro Forma 2006 Pro Forma Limited Full Cash Limited Full Cash Limited Full Cash ----------- ----------- ----------- ----------- ----------- ----------- 167-27-001W $12,529,125 $12,529,125 $12,870,000 $12,870,000 $14,157,000 $15,471,300 ----------- ----------- ----------- ----------- ----------- ----------- Subtotal $12,529,125 $12,529,125 $12,870,000 $12,870,000 $14,157,000 $15,471,300 Assessment Rate 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% ----------- ----------- ----------- ----------- ----------- ----------- Assessed Values $ 1,252,913 $ 1,252,913 $ 1,287,000 $ 1,287,000 $ 1,415,700 $ 1,547,130 Taxation Type Primary Secondary Primary Secondary Primary Secondary Rates per 100 7.1941 4.2523 7.1941 4.2523 7.1941 4.2523 Assessed Values $ 1,252,913 $1,252,913 $ 1,287,000 $ 1,287,000 $ 1,415,700 $ 1,547,130 ----------- ----------- ----------- ----------- ----------- ----------- Totals $ 90,136 $ 53,278 $ 92,588 $ 54,727 $ 101,847 $ 65,789 Taxation Type Special Special Special Rates per 100 0.0000 0.0000 0.0000 Assessed Values $ 1,252,913 $ 1,287,000 $ 1,547,130 ----------- ----------- ----------- Totals $ 0 $ 0 $ 0 TOTAL TAXES $ 143,413 $ 147,315 $ 167,635 ----------- ----------- -----------
Source: Maricopa County Assessor's Office According to Maricopa County Treasurer records, there are no delinquent property taxes encumbering the subject. Our pro forma is based on actual assessed values along with 2004 tax rates. Taxes are then expected to increase at the rate of inflation. TAX COMPARABLES As a crosscheck to the subject's applicable real estate taxes, CBRE has reviewed the real estate tax information according to the Maricopa County Assessor for comparable properties in the immediate area. The following table summarizes the real estate tax comparables employed for this assignment: 52 GREENSPOINT APARTMENTS TAX AND ASSESSMENT DATA AD VALOREM TAX COMPARABLES
Comp 1 Comp 2 Comp 3 Subject Paradise Springs Paradise Trails The Ridge Greenspoint ---------------- --------------- ----------- ----------- Year Built 1984 1985 1986 1985 No. Units 200 174 380 336 Tax Year 2005 2005 2005 2005 TOTAL FULL CASH VALUE $ 9,575,700 $ 8,636,900 $12,955,600 $12,870,000 PER UNIT $ 47,879 $ 49,637 $ 34,094 $ 38,304
SOURCE: Maricopa County Assessor's Office CONCLUSION The tax comparables support an assessed value ranging from $34,094 to $49,637 per unit. The subject falls at $38,304 per unit. Therefore, the subject's 2005 pro forma taxes of $147,315 are considered reasonable. There is no basis for a tax appeal at this time. 53 GREENSPOINT 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 detail in the site analysis and zoning sections of this report. The subject site is zoned for multi-family use. This zoning category is oriented towards garden style apartment projects, but lower intensity uses such as condominiums, churches, and single family residences are possible under the subject's current zoning. With single family homes along the north property boundary there is little probability that the subject's zoning would be changed to a higher intensity commercial, office or industrial use. Multi-family uses for the subject conform with the general plan of Phoenix. No private restrictions are known to impact the subject. PHYSICAL POSSIBILITY The physical characteristics of the subject site were discussed in detail in the site analysis. The subject parcel is irregular in shape with frontage along a primary arterial road and a neighborhood collector. The net usable site area is approximately 9.25 acres, and all off-sites, including curbs, gutters, sidewalks, storm drains, and utilities are available to the subject site. Overall, the subject site is physically suited for near term development. The overall size of the subject is small for a single-family residential subdivision. Furthermore, the neighborhood is already adequately served by schools and parks. Therefore, the most probable use from a physical and legal perspective is either multi-family development, or to hold the site as an investment. FINANCIAL FEASIBILITY The financial feasibility of a specific property is market driven, and is influenced by surrounding land uses. Based upon the supply of new projects planned for the competitive area, there is strong 54 GREENSPOINT APARTMENTS HIGHEST AND BEST USE inferential evidence that market participants perceive a need for new inventory in this area. Near term multi-family development is considered to be financially feasible. MAXIMUM PROFITABILITY The use which results in the maximum profitability of the site is beyond the scope of this assignment. Although alternate land uses may be financially feasible, the maximally productive use of the subject site is near term multi-family development. CONCLUSION: HIGHEST AND BEST USE AS VACANT Based on the foregoing analysis, the highest and best use of the site as though vacant would be for near future multi-family development. AS IMPROVED LEGAL PERMISSIBILITY The subject site was approved for apartment development and the improvements appear to represent a legally conforming use of the site. No changes from a legal perspective are necessary to maximize value. 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. The improvements are in average to good physical condition. Although two of the roofs were being replaced on the date of inspection, no deferred maintenance was evident. Overall, no physical changes to the subject are recommended to maximize value. 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 put 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 apartments 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. 55 GREENSPOINT APARTMENTS HIGHEST AND BEST USE CONCLUSION: HIGHEST AND BEST USE AS IMPROVED Based on the foregoing, the highest and best use of the property as improved is to address the deferred maintenance and then continue the current use indefinitely. 56 GREENSPOINT 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 that 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 that 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, only the sales comparison and income capitalization approaches are applicable. However, at the client's request the Cost Approach is also presented. 57 GREENSPOINT APARTMENTS LAND VALUE LAND VALUE The following location map and table of sales summarizes the comparable data used in the valuation of the subject site. A detailed description of each transaction is included in the Addenda. [LOCATION MAP] SUMMARY OF COMPARABLE LAND SALES
TRANSACTION DENSITY ACTUAL SALE ADJUSTED SALE PRICE PER PRICE PER NO. PROPERTY LOCATION TYPE DATE ZONING (UPA) PRICE PRICE (1) ACRE BLDG UNIT ------- ---------------------------- ---- ------ ------------------- ------- ----------- ------------- --------- --------- 1 NEC Cave Creek and Union Sale Jul-04 R4-A, Phoenix 30.21 $ 1,750,000 $1,750,000 $ 262,984 $ 8,706 Hills, Phoenix, AZ 2 NEC Loop 101 and 7th Street, Sale Oct-04 Multi-family 23.66 $ 8,169,111 $8,169,111 $ 304,818 $12,885 Phoenix, Az 3 NE Paradiseln Ln & 83 Ave, Sale Feb-05 PAD, Peoria 22.24 $ 3,173,445 $3,173,445 $ 294,028 $13,223 Peoria, AZ Subject 4202 East Cactus Road, -- -- R-5, Phoenix Multi- 27.01 -- -- -- -- Phoenix, Arizona Family Residence District
---------- (1) Transaction Amount Adjusted for Cash Equivalency And/or Development Costs (Where Applicable) Compiled by CBRE 58 GREENSPOINT APARTMENTS LAND VALUE ANALYSIS OF LAND SALES - GROUPED ADJUSTMENTS PROPERTY RIGHTS CONVEYED Fee simple property rights were transferred in each transaction. No adjustments for property rights are necessary. FINANCING No additional adjustments for financing are necessary. Each transaction was a cash, or cash-to-seller arrangement. CONDITIONS OF SALE Each of the sales represents a normal, arms-length transaction between knowledgeable and well informed parties. No adjustments for conditions of sale are applied. MARKET CONDITIONS The comparables represent the most recent pool of multi-family land sales in the competitive area. However, due to the slowdown of multi-family development that has occurred over the last 24 months, the pool of recent sales is somewhat limited. Average land prices have increased since the time Comparable One sold; therefore, an upward adjustments for changes in market conditions is applied. ANALYSIS OF LAND SALES - INDIVIDUAL ADJUSTMENTS The multi-family land market in the Phoenix MSA is moving through a period of disequilibrium. Therefore, a deliberate attempt to minimize the level of subjective adjustments has been made in this section. LAND SALE ONE Land Sale One was acquired by Trillium to develop a 201-unit apartment project known as Trillium at Union Hills. The site wraps around the southwest corner of Union Hills Drive and Cave Creek Road. The site contains 6.654 acres and the overall density is 30.2 units per acre. The acquisition price was $8,706 per apartment unit or $6.04 per square foot. In comparison to the subject, the location is considered to be inferior. Cabarets and mobile home parks are the dominant land uses in the immediate area. Size, frontage, and density are all similar to the subject. 59 GREENSPOINT APARTMENTS LAND VALUE LAND SALE TWO This comparable is located at the northeast corner of the 101 Freeway and 7th Street. Trillium Residential will acquired the 26.8 acre site to develop a total of 634 apartment units and condominiums. The planned density is 23.7 units per acre. The price per square foot is $7.00 and the price per planned unit is $12,885. The location is reasonably similar to the subject, and no adjustments are necessary for size or frontage. However, the density is lower than the subject and a downward adjustment for density is applied. No further adjustments are necessary. LAND SALE THREE This comparable represents 10.793 acres located at the northeast corner of Paradise Lane and 83rd Avenue. The site has an irregular shape with level, at street grade topography. At the time of the sale, the property was vacant. The site is zoned PAD, Peoria, and the proposed use is to apartment. all available to site were available to the site. The property sold in February 2005 for $3,173,445, or $13,223 per proposed unit ($6.75 per square foot). A total of 240 units are proposed, for an overall density of 22.24 units per acre. In relation to the subject, no adjustments are necessary for location, size or frontage. However, the density is lower and a downward adjustment is applied for this element of comparison. SUMMARY OF ADJUSTMENTS Based on a comparative analysis, the following table summarizes the adjustments warranted when comparing each sale to the subject. 60 GREENSPOINT APARTMENTS LAND VALUE LAND SALES ADJUSTMENT GRID
Comparable Number 1 2 3 Subject Transaction Type Sale Sale Sale -- Transaction Date Jul-04 Oct-04 Feb-05 -- Zoning R4-a, Phoenix Multi-family Pad, Peoria R-5, Phoenix Multi-family Density (UPA) 30.21 23.66 22.24 27.01 Actual Sale Price $1,750,000 $8,169,111 $3,173,445 -- Adjusted Sale Price (1) $1,750,000 $8,169,111 $3,173,445 -- Size (Acres) 6.65 26.80 10.79 9.26 Size (SF) 289,864 1,167,408 470,143 403,191 Price Per Acre $ 262,984 $ 304,818 $ 294,028 -- Price Per Sf $ 6.04 $ 7.00 $ 6.75 -- Price Per Unit $ 8,706 $ 12,885 $ 13,223 -- ---------- ---------- ---------- Price ($ Per Unit) $ 8,706 $ 12,885 $ 13,223 ---------- ---------- ---------- Property Rights Conveyed 0% 0% 0% Financing Terms (1) 0% 0% 0% Conditions of Sale 0% 0% 0% Market Conditions 10% 0% 0% ---------- ---------- ---------- Subtotal $ 9,577 $ 12,885 $ 13,223 ---------- ---------- ---------- Location 10% 0% 0% Size 0% 0% 0% Frontage 0% 0% 0% Density (UPA) 0% -10% -10% ---------- ---------- ---------- Total Other Adjustments 10% -10% -10% ========== ========== ========== Value Indication for Subject $ 10,535 $ 11,597 $ 11,900 ========== ========== ==========
---------- (1) Transaction Amount Adjusted for Cash Equivalency And/or Development Costs (Where Applicable) Compiled by CBRE CONCLUSION Following the adjustments process, the comparables support an overall value range of $10,535 to $11,900 per unit. Each comparable required a similar level of gross adjustments; therefore, the range is reconciled towards the middle portion. The following table presents the valuation conclusion: 61 GREENSPOINT APARTMENTS LAND VALUE CONCLUDED LAND VALUE
$ PER UNIT SUBJECT UNITS TOTAL ---------------- ------------- ---------- $10,500 X 250 = $2,625,000 $11,500 X 250 = $2,875,000 INDICATED VALUE: $2,800,000
Compiled By CBRE The land value equates to $6.94 per square foot. The comparables support a range of $6.04 to $7.00 per square foot and indicate that the value conclusion is reasonable. 62 GREENSPOINT APARTMENTS COST APPROACH COST APPROACH In estimating the replacement cost new for the subject, the following methods/data sources have been utilized (where available): - the comparative unit method has been employed, utilizing the Marshall Valuation Service (MVS) cost guide, published by Marshall and Swift, LLC MARSHALL VALUATION SERVICE DIRECT COST Salient details regarding the direct costs are summarized in the Cost Approach Schedule that follows this section. The MVS cost estimates 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 5% to 15% of the total direct costs. 63 GREENSPOINT APARTMENTS COST APPROACH MVS CONCLUSION The concluded direct and indirect building cost estimate obtained via the MVS cost guide (Section 12, Page 14, dated August 2004) is illustrated as follows: MARSHALL VALUATION SERVICE COST SCHEDULE Primary Building Type: Apartment Effective Age: 17 YRS Quality/condition: Average Exterior Wall: Frame & Stucco Number of Units: 336 Number of Stories: 3 Height Per Story: 8' Number of Buildings: 14 Gross Building Area: 280,559 SF Net Rentable Area: 278,064 SF Average Unit Size: 828 SF Average Floor Area: 93,520 SF
Mvs Sec/page/class 12/14/D-good BUILDING COMPONENT ALL SPACE COMPONENT SQ. FT. 280,559 SF BASE SQUARE FOOT COST $ 68.00 SQUARE FOOT REFINEMENTS Appliances $ 1.50 Patios/balconies $ 1.00 Equipment $ 0.25 --------------- Subtotal $ 70.75 HEIGHT AND SIZE REFINEMENTS Number of Stories Multiplier 1.00 Height Per Story Multiplier 1.00 Floor Area Multiplier 1.00 --------------- Subtotal $ 70.75 COST MULTIPLIERS Current Cost Multiplier 1.05 Local Multiplier 0.99 --------------- FINAL SQUARE FOOT COST $ 73.54 BASE COMPONENT COST $ 20,633,606 --------------- BASE BUILDING COST (Via Marshall Valuation Service Cost Data) $ 20,633,606 ADDITIONS Site Improvements $ 500,000 Pool/spa $ 80,000 DIRECT BUILDING COST $ 21,213,606 --------------- INDIRECT COSTS 10.0%Of Direct Building Cost $ 2,121,361 --------------- DIRECT AND INDIRECT BUILDING COST $ 23,334,967 ROUNDED $ 23,335,000
Compiled by CBRE 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 5% to 15% of total direct and indirect costs for this property type, based on discussions with developers active in this market. ACCRUED DEPRECIATION There are essentially three sources of accrued depreciation: 64 GREENSPOINT APARTMENTS COST APPROACH 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 section. Curable deterioration affecting the improvements results from deferred maintenance and, if applicable, was previously discussed. With regard to incurable deterioration, the subject improvements are considered to have deteriorated due to normal wear and tear associated with natural aging. ECONOMIC AGE AND LIFE Actual Age 20 Years Effective Age 17 Years MVS Expected Life 45 Years Remaining Economic Life 28 Years Accrued Physical Incurable Depreciation 37.8%
COMPILED BY CBRE FUNCTIONAL OBSOLESCENCE Based on a review of the design and layout of the improvements, no forms of curable functional obsolescence were noted. Because replacement cost considers the construction of the subject improvements utilizing modern materials and current standards, design and layout, functional incurable obsolescence is not applicable. EXTERNAL OBSOLESCENCE Based on a review of the local market and neighborhood, no forms of external obsolescence affect the subject. COST APPROACH CONCLUSION The value estimate is calculated on the Cost Approach Schedule that follows. 65 GREENSPOINT APARTMENTS COST APPROACH COST APPROACH CONCLUSION Building Type: Apartment Effective Age: 17 Yrs Quality/condition: Average Exterior Wall: Frame & Stucco Number of Units: 336 Number of Stories: 3 Height Per Story: 8' Number of Buildings: 14 Gross Building Area: 280,559 SF Net Rentable Area: 278,064 SF Average Unit Size: 828 SF Average Floor Area: 93,520 SF
DIRECT AND INDIRECT BUILDING COST $ 23,335,000 ENTREPRENEURIAL PROFIT 5.0% OF TOTAL BUILDING COST $ 1,166,750 ------------- REPLACEMENT COST NEW $ 24,501,750 ACCRUED DEPRECIATION Incurable Physical Deterioration 37.8% of Replacement Cost New Less $ (9,256,217) Curable Physical Deterioration Functional Obsolescence $ 0 External Obsolescence $ 0 --------------- Total Accrued Depreciation 37.8% of Replacement Cost New $ (9,256,217) DEPRECIATED REPLACEMENT COST $ 15,245,533 ------------- LAND VALUE $ 2,800,000 ------------- "AS IS" VALUE INDICATION $ 18,045,533 ROUNDED $ 18,000,000 VALUE PER UNIT $ 53,571
COMPILED BY CBRE 66 GREENSPOINT APARTMENTS SALES COMPARISON APPROACH SALES COMPARISON APPROACH The following location map and table of sales summarizes the comparable data used in the valuation of the subject property. A detailed description of each transaction is included in the Addenda. [LOCATION MAP] SUMMARY OF COMPARABLE APARTMENT SALES
AVG. PRICE TRANSACTION YEAR NO. UNIT ACTUAL SALE ADJUSTED PER NOI PER NO. NAME TYPE DATE BUILT UNITS SIZE PRICE SALE PRICE(1) UNIT(1) OCC. UNIT OAR --- ---------------- ------ ------ ----- ----- ---- ------------- ------------- -------- ---- ------- ---- 1 South Creek Sale Feb-04 1986 528 894 $ 28,650,000 $ 28,900,000 $ 54,735 93% $ 3,838 7.01% Apartments, Phoenix, AZ 2 Pinnacle Grove, Sale Aug-04 1987 247 829 $ 13,200,000 $ 13,200,000 $ 53,441 95% $ 3,468 6.49% Tempe, AZ 3 Terracina, Sale Sep-04 1984 856 856 $ 42,650,000 $ 42,650,000 $ 49,825 90% $ 3,021 6.06% Phoenix, AZ 4 Reflections At Sale Feb-05 1986 256 800 $ 12,200,000 $ 12,200,000 $ 47,656 92% $ 2,655 5.57% Red Mountain, Mesa, AZ 5 Arcadia Del Sol, Escrow Mar-05 1971 260 820 $ 14,100,000 $ 14,100,000 $ 54,231 91% $ 2,254 4.16% Phoenix, AZ 6 Superstition Escrow Mar-05 1985 376 662 $ 20,400,000 $ 20,400,000 $ 54,255 86% $ 3,116 5.74% Park, Tempe, AZ Subj.Greenspoint -- -- 1985 336 828 -- -- -- 87% $ 3,267 -- Apartments, Pro Phoenix, Arizona Forma
(1) Transaction Amount Adjusted for Cash Equivalency And/or Deferred Maintenance (Where Applicable) Compiled by CBRE 67 GREENSPOINT APARTMENTS SALES COMPARISON APPROACH ANALYSIS OF IMPROVED SALES - GROUPED ADJUSTMENTS PROPERTY RIGHTS CONVEYED Fee simple property rights (subject to short term apartment leases) were transferred in each transaction. No adjustments for property rights are necessary. FINANCING No additional adjustments for financing are necessary. As noted, financing adjustments were applied prior to the derivation of an overall rate, if applicable. CONDITIONS OF SALE Each of the sales represents a normal, arms-length transaction between knowledgeable and well-informed parties. No adjustments for conditions of sale are applied. MARKET CONDITIONS Overall capitalization rates have been declining rapidly over the last 14 months. Therefore, date of sale was an important selection criteria in determining which comparables to use in this analysis. The comparables selected are all recent sales; however, based upon the trend in prices in the comparable data set, upward adjustments are necessary for Comparables One through Three. ANALYSIS OF IMPROVED SALES - INDIVIDUAL ADJUSTMENTS IMPROVED SALE ONE This comparable represents South Creek Apartments, a two-story, 472,152 square foot, 528-unit, garden apartment project that was completed in 1986, and sits on a 23.445-acre lot located at 4424 E. Baseline Road. The density is 22.52 units per acre. The exterior walls are constructed of stucco, and the project features 2 pools and spas, security gate, covered parking, sauna, fitness center. The property sold in February 2004 for $28,900,000, or $54,735 per unit. Pro Forma net operating income at the time of sale was $2,026,937, or $3,839 per unit, for an overall capitalization rate of 7.01%. Occupancy at the time of sale was 93%. In relation to the subject, the basic location is considered to be similar. No adjustments are necessary for age and condition or economic factors. However, the average unit size is larger than the subject and a downward adjustment is applied for unit size. The project is also considerably larger than the subject. There are fewer buyers in this size range and the data set supports an inverse relationship between project size and unit price. Therefore, an upward adjustment is applied for the influence of project size on unit price. Finally, the development density is considerably lower than the subject and a downward adjustment is applied for density. Overall, a downward adjustment was made. 68 GREENSPOINT APARTMENTS SALES COMPARISON APPROACH IMPROVED SALE TWO This comparable represents Pinnacle Grove, a two-story, 204,732 square foot, 247-unit, garden apartment project that was completed in 1987, and sits on a 9.79-acre lot located at 701 W Grove Parkway. The density is 25.23 units per acre. The exterior walls are constructed of frame and stucco, and the project features barbecues, cable ready, covered parking, fireplaces, two laundry facilities, pool, spa, washer/dryer hookups. The property sold in August 2004 for $13,200,000, or $53,441 per unit. Pro Forma net operating income at the time of sale was $856,705, or $3,468 per unit, for an overall capitalization rate of 6.49%. Occupancy at the time of sale was 95%. This property was encumbered by IDA bonds at the time of sale with a principal balance of $10,650,000, maturity date of April 1, 2027 and interest rate equal to the PSA Municipal Swap Index Rate + 2.25% (52-week average 0.98% at time of contract, peaked at 5.84% in May 2000). The bonds were assumable without penalty and residents pay full market rent. Both the buyer and seller attributed no gain or loss to the bonds. In relation to the subject, the majority of the elements of comparison are all similar. However, the density is significantly lower than the subject; therefore, a downward adjustment is applied for density. Overall, a downward adjustment was made. IMPROVED SALE THREE This comparable represents Terracina, a 2 and 3-story, 732,484 square foot, 856-unit, garden apartment project that was completed in 1984, and sits on a 38.5-acre lot located at 1450 E. Bell Road. The density is 22.23 units per acre. The exterior walls are constructed of frame and stucco, and the project features pools, spas, fitness center, security access gate, on-site laundry. The property sold in September 2004 for $42,650,000, or $49,825 per unit. Existing net operating income at the time of sale was $2,586,400, or $3,022 per unit, for an overall capitalization rate of 6.06%. Occupancy at the time of sale was 90%. This comparable is located at 14th Street and Bell Road in north-Phoenix. Originally developed by Spanos, the project was sold by United Dominion. Units have eight foot ceilings and patios and balconies. The three-bedroom units have washer and dryer hook-ups and the largest unit types have washers and dryers. In relation to the subject, the majority of the elements of comparison are all similar. However, the density is significantly lower than the subject; therefore, a downward adjustment is applied for density. Also, the project is considerably larger than the subject and an upward adjustment for the influence of size on unit price is necessary. Overall, an upward adjustment was made. IMPROVED SALE FOUR This comparable represents Reflections at Red Mountain, a two-story, 204,800 square foot, 256-unit, apartment project that was completed in 1986, and sits on a 11.78-acre lot located at 2601 E 69 GREENSPOINT APARTMENTS SALES COMPARISON APPROACH McKellips Rd. The density is 21.73 units per acre. The exterior walls are constructed of frame/stucco, and the project features fitness center, clubhouse, tennis court, volleyball court, playground, three swimming pools and two spas. The property sold in February 2005 for $12,200,000, or $47,656 per unit. Existing net operating income at the time of sale was $679,709, or $2,655 per unit, for an overall capitalization rate of 5.57%. Occupancy at the time of sale was 92%. The broker mentioned that the original offering price for this project was $150,000 higher, yet the purchase price was reduced to account for deferred maintenance expenses of that amount. The outlying Mesa location is further from shopping and major employment centers than the subject. The location is considered to be inferior to the subject and an upward adjustment is applied. Age and condition, average unit size, and project size are all similar. However, the density is lower than the subject and a downward adjustment is necessary for density. Overall, an upward adjustment was made. IMPROVED SALE FIVE This comparable represents Arcadia del Sol, a 2, 3 and 4-story, 213,168 square foot, 260-unit, garden apartment project that was completed in 1971, and sits on a 7.16-acre lot located at 4125 East Indian School Road. The density is 36.31 units per acre. The exterior walls are constructed of masonry/frame and stucco, and the project features washer and dryer hook-ups, patios and balconies, and fireplaces on select units. The property sold in March 2005 for $14,100,000, or $54,231 per unit. Existing net operating income at the time of sale was $586,053, or $2,254 per unit, for an overall capitalization rate of 4.16%. Occupancy at the time of sale was 91%. This property was built in three phases (1971, 1975, and 1985), and underwent an extensive ($1.03 million) exterior renovation in 2004. Phase I totals 133 units, consists of a four-story concrete block building (including demising walls) with two elevators. This comparable is generally similar to the subject in all of the major comparative categories. Overall, no net adjustment was made. IMPROVED SALE SIX This comparable represents Superstition Park, a two-story, 248,912 square foot, 376-unit, garden apartment project that was completed in 1985, and sits on a 17.95-acre lot located at 30 West Carter Drive. The density is 20.95 units per acre. The exterior walls are constructed of frame and stucco, and the project features pools, spa, covered parking, security access gate, and a central chiller/boiler system. The property sold in March 2005 for $20,400,000, or $54,255 per unit. Existing net operating income at the time of sale was $1,171,963, or $3,117 per unit, for an overall capitalization rate of 5.74%. Occupancy at the time of sale was 86%. This comparable is located in south Tempe near the Arizona State University Campus. The cap rate on actual income is 5.74%, however the cap rate using the broker's pro forma is 8.0%. 70 GREENSPOINT APARTMENTS SALES COMPARISON APPROACH The location near ASU, with a captive student base, is superior to the subject. Therefore, a downward adjustment for location is applied. Age and condition, project size, and economic factors are all similar to the subject. However, the average unit size is smaller than the subject and an upward adjustment is necessary for this element of comparison. Furthermore, the density is lower than the subject and a downward adjustment is applied for density. Overall, a downward adjustment was made. SUMMARY OF ADJUSTMENTS Based on the foregoing discussions, the following table summarizes the adjustments warranted when comparing each sale to the subject. APARTMENT SALES ADJUSTMENT GRID
Subj. Comparable Number 1 2 3 4 5 6 Pro Forma Transaction Type Sale Sale Sale Sale Escrow Escrow -- Transaction Date Feb-04 Aug-04 Sep-04 Feb-05 Mar-05 Mar-05 -- Year Built 1986 1987 1984 1986 1971 1985 1985 No. Units 528 247 856 256 260 376 336 Avg. Unit Size 894 829 856 800 820 662 828 Actual Sale Price $28,650,000 $13,200,000 $42,650,000 $12,200,000 $14,100,000 $20,400,000 -- Adjusted Sale Price (1) $28,900,000 $13,200,000 $42,650,000 $12,200,000 $14,100,000 $20,400,000 -- Price Per Unit (1) $ 54,735 $ 53,441 $ 49,825 $ 47,656 $ 54,231 $ 54,255 -- Occupancy 93% 95% 90% 92% 91% 86% 87% NOI Per Unit $ 3,838 $ 3,468 $ 3,021 $ 2,655 $ 2,254 $ 3,116 $3,267 OAR 7.01% 6.49% 6.06% 5.57% 4.16% 5.74% -- ----------- ----------- ----------- ----------- ----------- ----------- Adj. Price Per Unit $ 54,735 $ 53,441 $ 49,825 $ 47,656 $ 54,231 $ 54,255 ----------- ----------- ----------- ----------- ----------- ----------- Property Rights Conveyed 0% 0% 0% 0% 0% 0% Financing Terms (1) 0% 0% 0% 0% 0% 0% Conditions of Sale 0% 0% 0% 0% 0% 0% Market Conditions (Time) 3% 3% 3% 0% 0% 0% ----------- ----------- ----------- ----------- ----------- ----------- Subtotal $ 56,377 $ 55,045 $ 51,320 $ 47,656 $ 54,231 $ 54,255 ----------- ----------- ----------- ----------- ----------- ----------- Location 0% 0% 0% 10% 0% -5% Age and Condition 0% 0% 0% 0% 0% 0% Average Unit Size -3% 0% 0% 0% 0% 5% Project Size 3% 0% 5% 0% 0% 0% Density -5% -5% -5% -5% 0% -5% Economic Factors 0% 0% 0% 0% 0% 0% ----------- ----------- ----------- ----------- ----------- ----------- Total Other Adjustments -5% -5% 0% 5% 0% -5% =========== =========== =========== =========== =========== =========== Indicated Value Per Unit $ 53,558 $ 52,292 $ 51,320 $ 50,039 $ 54,231 $ 51,543 =========== =========== =========== =========== =========== ===========
---------- (1) Transaction amount adjusted for cash equivalency and/or deferred maintenance (where applicable) Compiled by CBRE Based on the preceding discussions of each comparable and the foregoing adjustment analysis, a price per unit indication near the midpoint of the indicated range was most appropriate for the subject. 71 GREENSPOINT APARTMENTS SALES COMPARISON APPROACH EFFECTIVE GROSS INCOME MULTIPLIER ANALYSIS The EGIM reflects the relationship between effective gross annual income and sales price. The EGIM is a unit of comparison that cannot be adjusted and, there, it is primarily utilized to indicate a point of tendency. The following illustrates the EGIM for each of the sales analyzed herein. EFFECTIVE GROSS INCOME MULTIPLIER ANALYSIS
Sale No. Occupancy OER EGIM -------- --------- ----- ---- 1 93% 46.13% 7.68 2 95% 50.67% 7.60 3 90% 51.75% 7.96 4 92% 56.86% 7.74 5 91% 63.54% 8.77 6 86% 53.52% 8.09 -- ----- ---- Subj. 84% 54.87% -- -- ----- ----
Compiled by CBRE The EGIM analysis is applied as a Sales Comparison tool to compare the income generating capabilities of the comparables without the influence of operating expenses. In this instance the range is relatively narrow and we have reconciled the subject's EGIM towards the middle part of the range. SALES COMPARISON APPROACH CONCLUSION The following table presents the estimated value for the subject as indicated by the sales comparison approach. 72 GREENSPOINT APARTMENTS SALES COMPARISON APPROACH SALES COMPARISON APPROACH
TOTAL UNITS X VALUE PER UNIT = VALUE ----------- -------------- ----- 336 X $50,000 = $16,800,000 336 X $53,000 = $17,808,000 EGI X EGIM = Value ---------- ------- ----------- $2,432,122 X 7.75 = $18,848,942 VALUE CONCLUSION ----------- VALUE INDICATION $17,500,000 ROUNDED $17,500,000 VALUE PER UNIT $ 52,083
Compiled by CBRE NET OPERATING INCOME ANALYSIS As a cross check to the foregoing analysis, the net operating income (NOI) being generated by the comparable sales as compared to the subject's pro forma NOI that was estimated in the Income Capitalization Approach has been analyzed. In general, it is a fundamental assumption that the physical characteristics of a property (e.g., location, access, design/ appeal, condition, etc.) are reflected in the net operating income being generated, and the resultant price per unit paid for a property has a direct relationship to the NOI being generated. The following NOI analysis table illustrates the sale prices (after adjustments for conditions of sale and market conditions) of the individual sales plotted in comparison their NOIs. In addition, a trend line has been plotted based on a linear regression analysis of the comparables. The subject's indicated value has been plotted along this trend line at its pro forma stabilized NOI. 73 GREENSPOINT APARTMENTS SALES COMPARISON APPROACH NET OPERATING INCOME ANALYSIS [LINE GRAPH] The concluded value presented herein provides economic support for the direct comparison of sale comparables. 74 GREENSPOINT APARTMENTS INCOME CAPITALIZATION APPROACH INCOME CAPITALIZATION APPROACH The following location map and table of rents summarizes the comparable data used in the valuation of the subject property. A detailed description of each transaction is included in the Addenda. [MAP] SUMMARY OF COMPARABLE APARTMENT RENTALS
COMP. YEAR NO. AVG. RENT NO. PROPERTY NAME LOCATION BUILT OCC. UNITS PER UNIT ----- ---------------- ----------------------------- ----- ---- ----- --------- 1 Paradise Springs 13616 N. 43rd Street, 1984 96% 200 $750 Phoenix, AZ 2 Paradise Trails 4502 E. Paradise Village Pky 1985 95% 174 $652 South, Phoenix, AZ 3 The Palisades 13440 N. 44th Street, 1990 93% 536 $789 Phoenix, AZ 4 The Ridge 15202 N. 40th Street, 1986 93% 380 $610 Phoenix, AZ 5 Townhomes On 12844 N. Paradise Village Pwy 1983 98% 120 $692 The Park West, Phoenix, AZ 6 Villa Encanto 4315 E. Thunderbird Road, 1983 94% 383 $738 Phoenix, AZ Subj. Greenspoint 4202 East Cactus Road, 1985 96% 336 --- Pro Apartments Phoenix, Arizona Forma
Compiled by CBRE 75 GREENSPOINT APARTMENTS INCOME CAPITALIZATION APPROACH The comparables are all primary competitors located around Paradise Valley Mall. ANALYSIS OF RENT COMPARABLES RENT COMPARABLE ONE This comparable is located on 43rd Street south of Thunderbird Road, or about one mile north of the subject. Paradise Springs includes 200 units situated on an 8.28 acre site. The project was developed in 1984 and is in good physical condition. Project amenities include a pool, spa, clubhouse, exercise facility, and covered parking. The unit mix includes one- and two-bedroom units. Unit amenities include eight foot ceilings, washer and dryers, and private patios or balconies. The current occupancy is 96%. Base rental rates are $660 to $795 per month. Only sewer and trash removal are included in the base rent. No concessions or premiums are currently quoted. This comparable is generally similar to the subject. RENT COMPARABLE TWO Paradise Trails is located about one-half mile east of the subject. The project includes 174 units and was developed in 1985. The net site area is 4.73 acres. The project contains three story buildings and is in average physical condition. Project amenities include a pool, spa, clubhouse, racquetball, and covered parking. Units have eight foot ceilings and full size washer and dryers. The unit mix includes one and two-bedroom units. This project is currently 95% leased. Base rent ranges from $595 to $745 per month, and there are no utilities included in the rental rates. No premium rent was reported. Concessions include one month free on a 12 month lease. Overall, therefore, this comparables supports the mid-range of market rent for the subject. RENT COMPARABLE THREE The Palisades Apartments is located along 44th Street, south of Thunderbird Road, or about one-half mile north of Paradise Valley Mall. The 536-unit project was completed in 1990. There are 750 covered parking spaces and 222 open spaces with no garages. The unit mix includes studio, one-, two- and three-bedroom units. Unit amenities include air conditioning, washer/dryer (some), dishwasher, disposal, fireplace (some), private balcony/patio, cable, satellite or direct TV (optional), security system (optional), vaulted ceilings (some), vertical blinds, storage, ceiling fans, frost-free refrigerator, walk-in closets, mini-blinds, microwave, fireplaces, and a self-cleaning oven. Complex amenities include a clubhouse/recreation room, weight/exercise room, heated swimming pool(s), spa(s), tennis court(s), volleyball court(s), laundry room(s), barbecue area(s), kitchen/wet bar, car care area, playground(s), swimming pool(s), billiards, recreation program, security patrol, security gate, computer room, and theater. Base rent is $596 to $1,108 and occupancy is 93%. No utilities are 76 GREENSPOINT APARTMENTS INCOME CAPITALIZATION APPROACH included in the base rent. Concessions were quoted as two weeks to one month of free rent and there are no premiums for view or location. This comparable is somewhat newer than the subject and therefore supports the upper portion of the range of market rent. RENT COMPARABLE FOUR The Ridge is a 380-unit apartment project that is located at the southwest corner of 40th Street and Greenway Road. The project was constructed in 1986 and the density is about 29.0 units per acre. The project is about one mile east of the subject. Amenities include a large clubhouse, two pools, two on-site laundries, covered parking, and a security access gate. Units have eight foot ceilings and patios and balconies. Also, 80 units have stacked washers and dryers (the balance do not have hook-ups). The unit mix includes studio, one and two-bedroom units. The current occupancy is 93%. Base rental rates range from $499 to $699 per month. Concessions equate to one month free on a 12 month lease. This comparable generally supports the middle range of market rent for the subject. RENT COMPARABLE FIVE This comparable is located along the outer ring of Paradise Valley Mall about one-half mile north of the subject. Townhomes on the Park includes 120 units situated on a 6.91 acre site. The project was developed in 1983 and is in good physical condition. Project amenities include a pool, spa, clubhouse, tennis court, exercise facility, and covered parking. The unit mix includes one- and two-bedroom units. Unit amenities include eight foot ceilings, stackable washer and dryers, and private patios or balconies. The current occupancy is 98%. Base rental rates are $610 to $820 per month. Water, sewer and trash removal are included in the base rent. Concessions involve on month free on a 12 month lease. Rental premiums of $10 to $20 per month are quoted for pool and courtyard views. Overall, this comparable supports the mid-range of market rent for the subject. RENT COMPARABLE SIX This comparable is located at 43rd Street and Thunderbird Road about one mile north of the subject. Villa Encanto includes 383 units situated on a 20.85 acre site. The project was developed in 1983 and is in good physical condition. Project amenities include a pool, spa, laundry, clubhouse, exercise facility, and covered parking. The unit mix includes studio through three-bedroom units. Unit amenities include eight foot ceilings, stacked washer and dryers, and private patios or balconies. The current occupancy is 98%. Base rental rates are $615 to $820 per month. No utilities are included 77 GREENSPOINT APARTMENTS INCOME CAPITALIZATION APPROACH in the base rent. Concessions are $50 to $120 off monthly rent, plus reduced move-in fees. View and fireplace premiums range from $10 to $20. This comparable is generally similar to the subject. SUBJECT RENTAL INFORMATION The following table depicts the subject's unit mix and rental rates. SUBJECT RENTAL INFORMATION
NO. OF UNIT UNIT QUOTED RENT TYPE UNITS SIZE (SF) OCC. RENTS PER SF ---- ------ -------- ---- ------ ------ 1 BR, 1 BA 48 653 SF 96% $645 $0.99 1 BR, 1 BA 60 717 SF 97% $655 $0.91 1 BR, 1 BA 60 756 SF 98% $675 $0.89 2 BR, 1.3 BA 84 884 SF 94% $739 $0.84 2 BR, 2 BA 84 1,001 SF 95% $789 $0.79 ---- -------- -- ---- ----- Total/Average: 336 828 SF 96% $712 $0.86 ---- -------- -- ---- -----
Compiled by CBRE The rental rates in the previous table are base rental rates prior to premiums and concessions. Current concessions are quoted as one month free on a 12 month lease. Five and $10 discounts are quoted for second and third floor units, and premiums of $10 are quoted for units with microwaves and pool views. A $20 premium is quoted for units with wood burning fireplaces. 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. 78 GREENSPOINT APARTMENTS INCOME CAPITALIZATION APPROACH ONE-BEDROOM UNITS SUMMARY OF COMPARABLE RENTALS ONE BEDROOM UNITS
RENTAL RATES COMPARABLE PLAN TYPE SIZE $/MO. $/SF ---------- --------- ---- ----- ---- The Ridge 1 BR, 1 BA 557 SF $549 $0.99 Villa Encanto 1 BR, 1 BA 560 SF $625 $1.12 The Palisades 1 BR, 1 BA 597 SF $596 $1.00 Villa Encanto 1 BR, 1 BA 604 SF $645 $1.07 Paradise Trails 1 BR, 1 BA 608 SF $595 $0.98 Paradise Trails 1 BR, 1 BA 624 SF $585 $0.94 Subject 1 BR, 1 BA ASPEN 653 SF $645 $0.99 Townhomes On The Park 1 BR, 1 BA 670 SF $615 $0.92 Villa Encanto 1 BR, 1 BA 682 SF $660 $0.97 Paradise Springs 1 BR, 1 BA 702 SF $660 $0.94 The Palisades 1 BR, 1 BA 711 SF $685 $0.96 SUBJECT 1 BR, 1 BA BIRCHWOOD 717 SF $655 $0.91 Villa Encanto 1 BR, 1 BA 748 SF $675 $0.90 SUBJECT 1 BR, 1 BA CYPRESS 756 SF $675 $0.89 The Palisades 1 BR, 1 BA 771 SF $751 $0.97 Paradise Trails 1 BR, 1 BA 776 SF $635 $0.82 Paradise Trails 1 BR, 1 BA 800 SF $625 $0.78 Townhomes On The Park 1 BR, 1.5 BA 809 SF $690 $0.85 Paradise Springs 1 BR, 1 BA Den 907 SF $760 $0.84
Compiled by CBRE The subject's quoted rental rates are within the range indicated by the rent comparables. The subject's rent roll indicates that a majority of the occupied one-bedroom units are leased at or below the quoted rates due to recent rental increases and specials. Considering the available data, monthly market rent for the subject units is estimated at the quoted rates. 79 GREENSPOINT APARTMENTS INCOME CAPITALIZATION APPROACH TWO-BEDROOM UNITS SUMMARY OF COMPARABLE RENTALS TWO BEDROOM UNITS
RENTAL RATES COMPARABLE PLAN TYPE SIZE $/MO. $/SF ---------- --------- ---- ----- ---- Villa Encanto 2 BR, 1 BA 818 SF $750 $0.92 Subject 2 BR, 1.3 BA DRIFTWOOD 884 SF $739 $0.84 Townhomes On The Park 2 BR, 1 BA 890 SF $700 $0.79 Paradise Springs 2 BR, 2 BA 907 SF $770 $0.85 The Palisades 2 BR, 1 BA 932 SF $781 $0.84 The Ridge 2 BR, 2 BA 962 SF $699 $0.73 Villa Encanto 2 BR, 2 BA 967 SF $789 $0.82 Villa Encanto 2 BR, 2 BA 971 SF $789 $0.81 Paradise Springs 2 BR, 2 BA 981 SF $795 $0.81 Townhomes On The Park 2 BR, 2 BA 983 SF $780 $0.79 Villa Encanto 2 BR, 2 BA 994 SF $819 $0.82 Subject 2 BR, 2 BA EVERGREEN 1,001 SF $789 $0.79 The Palisades 2 BR, 2 BA 1,024 SF $763 $0.75 Paradise Trails 2 BR, 2 BA 1,046 SF $755 $0.72 Townhomes On The Park 2 BR, 2 BA 1,062 SF $820 $0.77 Paradise Trails 2 BR, 2 BA 1,067 SF $745 $0.70 The Palisades 2 BR, 2 BA 1,075 SF $858 $0.80
Compiled by CBRE The subject's quoted rental rates are within the range indicated by the rent comparables. The subject's rent roll indicates that a majority of the occupied two-bedroom units are leased at or below the quoted rates due to recent price increases and specials. Considering the available data, monthly market rent for the subject units is reconciled at the quoted rates. MARKET RENT CONCLUSIONS Based on the foregoing analysis and discussion, the following is the estimate of potential rental income for the subject: 80 GREENSPOINT 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 ----- ------------ -------- ---------- ------ ----- -------- ------ ------ ---------- 48 1 BR, 1 BA 653 SF 31,344 SF $645 $0.99 $ 30,960 $7,740 $11.85 $ 371,520 60 1 BR, 1 BA 717 SF 43,020 SF $655 $0.91 $ 39,300 $7,860 $10.96 $ 471,600 60 1 BR, 1 BA 756 SF 45,360 SF $675 $0.89 $ 40,500 $8,100 $10.71 $ 486,000 84 2 BR, 1.3 BA 884 SF 74,256 SF $739 $0.84 $ 62,076 $8,868 $10.03 $ 744,912 84 2 BR, 2 BA 1,001 SF 84,084 SF $789 $0.79 $ 66,276 $9,468 $ 9.46 $ 795,312 336 828 SF 278,064 SF $712 $0.86 $239,112 $8,540 $10.32 $2,869,344
Compiled by CBRE 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. As noted, the rental rates for some of the subject's units vary depending upon floor height, views, and the presence of microwave ovens and/or fireplaces. However, in this analysis we have concluded at average rental rates per unit; therefore, no rent adjustments are necessary. RENT ROLL ANALYSIS The rent roll analysis serves as a crosscheck 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 ----------------- ------------ ----------- 322 Occupied Units at Contract $220,268 $2,643,216 Rates 14 Vacant Units at Market Rates $ 12,625 $ 151,500 -------- ---------- 336 Total Units @ Contract Rent $232,893 $2,794,716 336 Total Units @ Market Rent $239,112 $2,869,344 -------- ----------
Compiled by CBRE The variation between the total annual rent reflected in the rent roll analysis and the market rent conclusion owes to older leases that do not reflect recent increases in rental rates. POTENTIAL RENTAL INCOME CONCLUSION Within this analysis, potential rental income is estimated based upon the forward-looking market rental rates over the next twelve months. This method of calculating rental income is most prevalent in 81 GREENSPOINT APARTMENTS INCOME CAPITALIZATION APPROACH the local market and is consistent with the method used to derive overall capitalization rates from the comparable sales data. In estimating the subject's pro forma operating data, the actual operating history and budgets have been analyzed. The following table presents the available operating data history for the subject. OPERATING HISTORY
2005 2002 90% 2003 84% 2004 83% Budget 87% YEAR-OCCUPANCY Total $/Unit Total $/Unit Total $/Unit Total $/Unit ----- ------ ----- ------ ----- ------ ------ ------- INCOME Rental Income $2,246,514 $ 6,686 $2,076,911 $ 6,181 $1,990,369 $ 5,924 $2,110,734 $ 6,282 Other Income 215,015 640 216,688 645 204,315 608 175,899 524 RUBS Income 52,992 158 38,999 116 79,571 237 87,000 259 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Effective Gross Income $2,514,521 $ 7,484 $2,332,598 $ 6,942 $2,274,255 $ 6,769 $2,373,633 $ 7,064 EXPENSES Real Estate Taxes $ 147,091 $ 438 $ 152,161 $ 453 $ 143,739 $ 428 $ 162,109 $ 482 Property Insurance 49,600 148 54,203 161 60,009 179 61,315 182 Utilities 173,257 516 160,691 478 164,107 488 191,944 571 Repair and Maintenance 61,370 183 84,565 252 58,308 174 77,353 230 Apartment Turnover 76,223 227 84,152 250 64,137 191 79,602 237 Contract Services 73,803 220 81,718 243 83,173 248 86,720 258 Advertising and Promotion 68,996 205 98,570 293 114,571 341 49,883 148 Administrative 47,047 140 72,392 215 49,915 149 50,074 149 Payroll 226,467 674 331,475 987 378,460 1,126 395,545 1,177 Management Fee 125,521 374 114,865 342 111,016 330 104,134 310 Reserves for Replacement 67,200 200 67,200 200 67,200 200 67,200 200 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating Expenses $1,116,575 $ 3,323 $1,301,992 $ 3,875 $1,294,635 $ 3,853 $1,325,879 $ 3,946 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net Operating Income $1,397,946 $ 4,161 $1,030,606 $ 3,067 $ 979,620 $ 2,916 $1,047,754 $ 3,118
Source: Operating statements An adjustment for replacement reserves was made to the historical figures to facilitate comparison with the subject's pro forma. LOSS TO LEASE Loss-to-lease occurs because there are leases in place at the property that are below the current quoted and/or market lease rates. That is, the subject will never attain 100% of its potential market rents at any given time because there are always existing leases in place at lower rates. As well, management often allows tenants to renew for less than the full market rate, and in turn, the landlord foregoes the cost of painting and redecorating prior to re-leasing the unit. The loss to lease associated with the subject property is estimated at [OBJECT OMITTED] of gross rental income. 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. 82 GREENSPOINT APARTMENTS INCOME CAPITALIZATION APPROACH RENT CONCESSIONS Rent concessions are currently prevalent in the local market in the form of free rent, reduced move-in costs and pro rated discounts. The subject's quoted concessions are basically 8%, or one month free on a 12 month lease. Concessions according to the subject's financial statements have ranged from 2% to 6% since 2002 and there is no line item for concessions in the 2005 budget. The market range for concessions ranges from 0% (meaning quoted rates have been adjusted downward to net out concessions) to three-months free (25%). Concessions among the subject's primary competitors are currently around 8% as one month free is standard in this market. Concessions are a structural component of the market and virtually never reduce to 0% in the Phoenix MSA. However, they are at atypically high levels at this point in the market cycle. Going forward, a long term concession rate of 8.00% is estimated for the subject. VACANCY & COLLECTION LOSS The subject's is currently 95.8% occupied. Meanwhile, the rent comparables average 94.8%, the submarket averages 91.6%, and the Phoenix metropolitan area averages 91.2%. The following table summarizes the historical physical occupancy within the subject according to the financial statements: OCCUPANCY
Year % PGI ---- ----- 2002 90% 2003 84% 2004 83% 2005 Budget 87% CBRE ESTIMATE 87%
Compiled by CBRE Based upon the recent history, we have estimated the subject's stabilized physical vacancy at 13.0%. In addition, we have modeled a 3.0% collection loss in our analysis. The subject has consistently generated a 3% to 4% collection loss expense and 3% is reflected in the 2005 budget. OTHER INCOME Other income is supplemental to that derived from leasing of the improvements. This includes categories such as forfeited deposits, vending machines, late charges, etc. The subject's ancillary income is detailed as follows: 83 GREENSPOINT APARTMENTS INCOME CAPITALIZATION APPROACH OTHER INCOME
Year Total $/Unit ---- -------- ------ 2002 $215,015 $640 2003 $216,688 $645 2004 $204,315 $608 2005 Budget $175,899 $524 CBRE ESTIMATE $200,000 $595
Compiled by CBRE The subject's full-year other income amounts have been reasonably stable at $204,000 to $216,000 from 2002 to 2004. Other income will trend down somewhat as lease buyout fees, etc. are reduced over the next several years in an improving market. However, the pro forma has been reconciled with primary emphasis on the most recent full year of operations. RUBS INCOME The subject property includes a RUBS program (Ratio Utility Billing System), whereby a portion of the utility expense is shared by tenants and reimbursed to the landlord on a pro rata basis. The subject's RUBS income is detailed as follows: RUBS INCOME
Year Total $/Unit ---- ------- ------ 2002 $52,992 $158 2003 $38,999 $116 2004 $79,571 $237 2005 Budget $87,000 $259 CBRE ESTIMATE $87,000 $259
Compiled by CBRE The budget is consistent with the recent history of the subject and has therefore been emphasized in the pro forma. EFFECTIVE GROSS INCOME The subject's effective gross income is detailed as follows: 84 GREENSPOINT APARTMENTS INCOME CAPITALIZATION APPROACH EFFECTIVE GROSS INCOME
Year Total % Change ---- ---------- -------- 2002 $2,514,521 2003 $2,332,598 -7% 2004 $2,274,255 -3% 2005 Budget $2,373,633 4% CBRE Estimate $2,432,122 2%
Compiled by CBRE Our pro forma estimate is approximately 7% higher than the most recent full year due to recently implemented rental rate increases at the subject property, which are not reflected in the historical data. Further, the pro forma estimate is within 2% of the budgeted figures for the coming year and therefore appears reasonable. OPERATING EXPENSE ANALYSIS The following subsections represent the analysis for the pro forma estimate of each category of the subject's stabilized expenses. EXPENSE COMPARABLES The following table summarizes expenses obtained from recognized industry publications and/or comparable properties. 85 GREENSPOINT APARTMENTS INCOME CAPITALIZATION APPROACH EXPENSE COMPARABLES Comparable Number 1 2 3 ----------- ----------- ----------- Location Phoenix MSA Phoenix MSA Phoenix MSA Units 250 548 273 GLA (SF) 235,000 470,000 193,000 Expense Year 2004 2004 2004 Effective Gross Income $2,108,815 $ 8,435 $3,155,905 $5,759 $1,783,497 $ 6,533 Expenses Total $/Unit Total $/Unit Total $ /Unit ---------- ----------- ---------- ------ ---------- -------- Real Estate Taxes $ 161,306 $ 645 $ 229,128 $ 418 $ 126,564 $ 464 Property Insurance 44,220 177 136,302 249 28,392 104 Utilities 123,988 496 384,770 702 117,246 429 Repair and Maintenance 80,879 324 283,454 517 - - Apartment Turnover - - - - 120,054 440 Contract Services 56,879 228 105,901 193 34,851 128 Advertising and Promotion 48,975 196 103,340 189 49,791 182 Administrative 29,985 120 66,202 121 23,463 86 Payroll 228,418 914 510,328 931 266,115 975 Management Fee 83,295 333 142,015 259 71,439 262 (as a % of EGI) 3.9% 4.5% 4.0% Reserves for Replacement 62,500 250 109,600 200 58,056 213 ---------- ----------- ---------- ------ ---------- -------- Operating Expenses $ 920,445 $ 3,682 $2,071,040 $3,779 $ 895,971 $ 3,282 Operating Expense Ratio 43.6% 65.6% 50.2%
Source: Actual Operating Statements and IREM REAL ESTATE TAXES The real estate taxes for the subject were previously discussed. The subject's expense is detailed as follows: REAL ESTATE TAXES
Year Total $/Unit ---- -------- ------ 2002 $147,091 $438 2003 $152,161 $453 2004 $143,739 $428 2005 Budget $162,109 $482 Expense Comparable 1 N/A $645 Expense Comparable 2 N/A $418 Expense Comparable 3 N/A $464 CBRE ESTIMATE $147,315 $438
Compiled by CBRE The subject's recent historical and budgeted amounts are similar and reflective of the historical assessment of the subject. Our estimate is based on the current assessment and 2004 tax rate, and is consistent with other properties operating in the area that were summarized in the tax and assessment section of the report. 86 GREENSPOINT APARTMENTS INCOME CAPITALIZATION APPROACH PROPERTY INSURANCE Property insurance expenses typically include fire and extended coverage and owner's liability coverage. The subject's expense is detailed as follows: PROPERTY INSURANCE
Year Total $/Unit ---- ------- ------ 2002 $49,600 $148 2003 $54,203 $161 2004 $60,009 $179 2005 Budget $61,315 $182 Expense Comparable 1 N/A $177 Expense Comparable 2 N/A $249 Expense Comparable 3 N/A $104 CBRE ESTIMATE $60,480 $180
Compiled by CBRE The most recent full year is consistent with the mid-point of the expense comparables and we have therefore concluded the subject's pro forma estimate at the mid-point of the typical range. Our estimate is consistent with other properties operating in the area and generally supported by the available historical and budgeted financial data. UTILITIES Utility expenses include electricity, natural gas, water, trash and sewer. The subject's expense is detailed as follows: UTILITIES
Year Total $/Unit ---- -------- ------ 2002 $173,257 $516 2003 $160,691 $478 2004 $164,107 $488 2005 Budget $191,944 $571 Expense Comparable 1 N/A $496 Expense Comparable 2 N/A $702 Expense Comparable 3 N/A $429 CBRE ESTIMATE $184,800 $550
Compiled by CBRE The subject's utilities are gross expenses prior to any reimbursements. The total expense trended consistently from 2003 to 2004, but management is projecting a significant increase in 2005. The 87 GREENSPOINT APARTMENTS INCOME CAPITALIZATION APPROACH pro forma has been reconciled with emphasis on the budget and the conclusion falls towards the mid-point of the range supported by the expense comparables. REPAIRS AND MAINTENANCE Repairs and maintenance expenses typically include routine on-site maintenance and repairs, as well as replacements of non-capital items. The subject's expense is detailed as follows: REPAIR AND MAINTENANCE
Year Total $/Unit ---- ------- ------ 2002 $61,370 $183 2003 $84,565 $252 2004 $58,308 $174 2005 Budget $77,353 $230 Expense Comparable 1 N/A $324 Expense Comparable 2 N/A $517 Expense Comparable 3 N/A $ 0 CBRE ESTIMATE $84,000 $250
Compiled by CBRE The subject's repair and maintenance expenses have trended from $174 to $252 per unit and the current budget is $230 per unit. The pro forma has been reconciled between the range supported by the comparables and the subject's 2005 budget. APARTMENT TURNOVER The subject's turnover expenses are summarized as follows: APARTMENT TURNOVER
Year Total $/Unit ---- ------- ------ 2002 $76,223 $227 2003 $84,152 $250 2004 $64,137 $191 2005 Budget $79,602 $237 Expense Comparable 1 N/A $ 0 Expense Comparable 2 N/A $ 0 Expense Comparable 3 N/A $440 CBRE ESTIMATE $84,000 $250
Compiled by CBRE The most recent years of operation support a range of $191 to $250 per unit for turnover expenses. The pro forma has been reconciled towards the upper portion of this range at $250 per unit. 88 GREENSPOINT APARTMENTS INCOME CAPITALIZATION APPROACH CONTRACT SERVICES Contract services typically includes all outside landscaping and grounds maintenance service contracts and the cost of landscaping supplies, as well as security services. The subject's expense is detailed as follows: CONTRACT SERVICES
Year Total $/Unit ---- ------- ------ 2002 $73,803 $220 2003 $81,718 $243 2004 $83,173 $248 2005 Budget $86,720 $258 Expense Comparable 1 N/A $228 Expense Comparable 2 N/A $193 Expense Comparable 3 N/A $128 CBRE ESTIMATE $84,000 $250
Compiled by CBRE The most recent full years of operations have trended very closely at $243 to $258 per unit. Based upon this range, the pro forma is reconciled at $250 per unit. ADVERTISING AND PROMOTION Advertising and promotion expenses typically include all costs associated with the promotion of the subject property including advertisements in local publications, trade publications, yellow pages, et cetera. The subject's expense is detailed as follows: ADVERTISING AND PROMOTION
Year Total $/Unit ---- -------- ------- 2002 $ 68,996 $205 2003 $ 98,570 $293 2004 $114,571 $341 2005 Budget $ 49,883 $148 Expense Comparable 1 N/A $196 Expense Comparable 2 N/A $189 Expense Comparable 3 N/A $182 CBRE ESTIMATE $100,800 $300
Compiled by CBRE The pro forma has been reconciled based upon the most recent full year of operations and the current budget. Although the market is improving, the subject has struggled with below-market occupancy 89 GREENSPOINT APARTMENTS INCOME CAPITALIZATION APPROACH over the last several years. Therefore, conclusion is reconciled towards the upper portion of this range. ADMINISTRATIVE Administrative expenses typically include legal costs, accounting, telephone, supplies, furniture, temporary help and items that are not provided by off-site management. The subject's expense is detailed as follows: ADMINISTRATIVE
Year Total $/Unit ---- ------- ------ 2002 $47,047 $140 2003 $72,392 $215 2004 $49,915 $149 2005 Budget $50,074 $149 Expense Comparable 1 N/A $120 Expense Comparable 2 N/A $121 Expense Comparable 3 N/A $ 86 CBRE ESTIMATE $50,400 $150
Compiled by CBRE This expense category has trended closely in 2004 and in the 2005 budget; therefore, the pro forma is reconciled based upon the most recent actual operating figures. PAYROLL Payroll expenses typically include all payroll and payroll related items for all directly employed administrative personnel. Not included are the salaries or fees for off-site management firm personnel and services. The subject's expense is detailed as follows: PAYROLL
Year Total $/Unit ---- -------- ------ 2002 $226,467 $ 674 2003 $331,475 $ 987 2004 $378,460 $1,126 2005 Budget $395,545 $1,177 Expense Comparable 1 N/A $ 914 Expense Comparable 2 N/A $ 931 Expense Comparable 3 N/A $ 975 CBRE ESTIMATE $386,400 $1,150
Compiled by CBRE 90 GREENSPOINT APARTMENTS INCOME CAPITALIZATION APPROACH Payroll expenses within the subject increased significantly in 2004 and the budget continues this relatively high level of payroll. However, given the subject's history of below market occupancy, the relatively high payroll expenses are necessary. MANAGEMENT FEE Management expenses are typically negotiated as a percentage of collected revenues (effective gross income). The subject's expense is detailed as follows: MANAGEMENT FEE
Year Total % EGI ---- -------- ----- 2002 $125,521 5.0% 2003 $114,865 4.9% 2004 $111,016 4.9% 2005 Budget $104,134 4.4% CBRE ESTIMATE $ 85,124 3.5%
Compiled by CBRE Professional management fees in the local market range from 3.0% to 5.0% for comparable properties. Historically, the subject has incurred a 4.4% to 5.0% management fee; however, the project is managed by the owner. Given the subject's size and the competitiveness of the local market area, we believe an appropriate management expense for the subject would be towards the lower end of the range. RESERVES FOR REPLACEMENT Reserves for replacement have been estimated based on discussions with knowledgeable market participants who indicate a range from $150 to $300 per unit for comparable properties. In this analysis, reserves of $200 per unit are modeled. OPERATING EXPENSE CONCLUSION The subject's expense is detailed as follows: 91 GREENSPOINT APARTMENTS INCOME CAPITALIZATION APPROACH OPERATING EXPENSES
Year Total $/Unit ---- ---------- ------ 2002 $1,116,575 $3,323 2003 $1,301,992 $3,875 2004 $1,294,635 $3,853 2005 Budget $1,325,879 $3,946 Expense Comparable 1 N/A $3,682 Expense Comparable 2 N/A $3,779 Expense Comparable 3 N/A $3,282 CBRE ESTIMATE $1,334,519 $3,972
Compiled by CBRE The subject's per unit operating expense pro forma is somewhat higher than the total per unit operating expenses indicated by the expense comparables and published data, but the subject estimate is supported by the actual operating history trend indicated above. NET OPERATING INCOME CONCLUSION The subject's net operating income is detailed as follows: NET OPERATING INCOME
Year Total $/Unit ---- ---------- ------ 2002 $1,397,946 $4,161 2003 $1,030,606 $3,067 2004 $ 979,620 $2,916 2005 Budget $1,047,754 $3,118 CBRE ESTIMATE $1,097,602 $3,267
Compiled by CBRE Our pro forma estimate is approximately 12% higher than the most recent full year due to recently implemented rental rate increases at the subject property, which are not reflected in the historical data. Further, the pro forma estimate is within 5% of the budgeted figures for the coming year and therefore appears reasonable. 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. 92 GREENSPOINT APARTMENTS INCOME CAPITALIZATION APPROACH COMPARABLE SALES The OARs 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 Occupancy OAR ----------------- ------ ---------- --------- --------- 1 Feb-04 $54,735 93% 7.01% 2 Aug-04 $53,441 95% 6.49% 3 Sep-04 $49,825 90% 6.06% 4 Feb-05 $47,656 92% 5.57% 5 Mar-05 $54,231 91% 4.16% 6 Mar-05 $54,255 86% 5.74% --- ---- INDICATED OAR: 84% 6.25%
Compiled by: CBRE The comparables support an overall range of 4.16% to 7.01%, with a clear downward trend over time. Excluding Comparable One, which closed more than one year ago, the range is 4.16% to 6.49%. The most recent comparables reflect overall rates that were derived from income in place. The subject's pro forma NOI is about 5% higher than the current budget; therefore, the OAR derived from the comparable sales is reconciled somewhat above the mid-point of the range. PUBLISHED INVESTOR SURVEYS The results of the most recent National Investor Survey, published by CBRE, are summarized in the following table. OVERALL CAPITALIZATION RATES
Investment Type OAR Range Average --------------- ------------ ------- Apartments Class A 5.00% - 8.00% 6.07% Class B 5.00% - 8.00% 6.58% Class C 6.00% - 9.00% 7.37% ---- INDICATED OAR: 6.25%
Source: CBRE National Investor Survey The subject is considered to be a Class B property. The continued decline in interest rates in 2002 through 2005 had a significant impact on cap rates for investment grade properties due to the fact that most investors have been focusing on cash-on-cash returns. In other words, investors have been accepting a lower overall return due to the high equity return. There is a current lack of supply of product available for purchase in the real estate investment market. This lack of supply has exerted 93 GREENSPOINT APARTMENTS INCOME CAPITALIZATION APPROACH additional downward pressure on capitalization rates. In addition, the relatively poor performance of the stock market has also increased the supply of capital allocated to real estate investments. Although interest rates have increased recently, short and long-term interest rates remain low by historical standards, leading to an increase capital available from short and long-term cash equivalents into real estate investments. With regard to rates, we have heard from at least three sources independently that the various investor surveys are outdated by the time they are published. Due to these trends, the subject's OAR as derived from the most recent National Investor Survey has been reconciled somewhat below the mid-point of the range supported for Class B properties. BAND OF INVESTMENT The band of the investment technique has been utilized as a crosscheck to the foregoing techniques. The analysis is shown in the following table. BAND OF INVESTMENT Mortgage Interest Rate 5.50% Mortgage Term (Amortization Period) 30 Years Mortgage Ratio (Loan-to-Value) 75% Mortgage Constant 0.06813 Equity Dividend Rate (EDR) 6.5% Mortgage Requirement 75% x 0.06813 = 0.05110 Equity Requirement 25% x 0.06500 = 0.01625 ------- 100% 0.06735 INDICATED OAR: 6.70%
Compiled by: CBRE CAPITALIZATION RATE CONCLUSION The following table summarizes the OAR conclusions. OVERALL CAPITALIZATION RATE - CONCLUSION
Source Indicated OAR ------------------------ ------------- Comparable Sales 6.25% National Investor Survey 6.25% Band of Investment 6.70% CBRE ESTIMATE 6.25%
Compiled by: CBRE In concluding an overall capitalization rate for the subject, primary reliance has been placed upon the data obtained from the comparable sales and interviews with active market participants. This data 94 GREENSPOINT APARTMENTS INCOME CAPITALIZATION APPROACH tends to provide the most accurate depiction of both buyer's and seller's expectations within the market and the ranges indicated are relatively tight. Further secondary support for our conclusion is noted via both the CBRE National Investor Survey and the band of investment methodology. Considering the data presented, the concluded overall capitalization rate appears to be well supported in the local market. DIRECT CAPITALIZATION SUMMARY A summary of the direct capitalization of the subject at stabilized occupancy is illustrated in the following table. 95 GREENSPOINT APARTMENTS INCOME CAPITALIZATION APPROACH DIRECT CAPITALIZATION SUMMARY
$/Unit/Yr Total ------------ ------------- INCOME Potential Rental Income $ 8,540 $ 2,869,344 Less: Loss to Lease 3.00% (256) (86,080) Less: Concessions 8.00% (683) (229,548) Credit Loss 3.00% (228) (76,611) Vacancy 13.00% (988) (331,983) ------------ ------------- NET RENTAL INCOME $ 6,384 $ 2,145,122 Other Income 595 200,000 RUBS Income 259 87,000 ------------ ------------- EFFECTIVE GROSS INCOME $ 7,238 $ 2,432,122 EXPENSES Real Estate Taxes $ 438 $ 147,315 Property Insurance 180 60,480 Utilities 550 184,800 Repair and Maintenance 250 84,000 Apartment Turnover 250 84,000 Contract Services 250 84,000 Advertising and Promotion 300 100,800 Administrative 150 50,400 Payroll 1,150 386,400 Management Fee 3.50% 253 85,124 Reserves for Replacement 200 67,200 ------------ ------------- OPERATING EXPENSES $ 3,972 $ 1,334,519 ------------ ------------- OPERATING EXPENSE RATIO 54.87% NET OPERATING INCOME $ 3,267 $ 1,097,602 OAR / 6.25% ------------ ------------- VALUE INDICATION $ 17,560,000 ROUNDED $ 17,600,000 VALUE PER UNIT $ 52,262
CAP RATE VALUE -------- ------------ MATRIX ANALYSIS 6.00% $ 18,293,400 6.25% $ 17,561,600 6.50% $ 16,886,200
Compiled by CBRE 96 GREENSPOINT APARTMENTS INCOME CAPITALIZATION APPROACH DISCOUNTED CASH FLOW ANALYSIS The DCF assumptions concluded for the subject are summarized as follows: SUMMARY OF DISCOUNTED CASH FLOW ASSUMPTIONS GENERAL ASSUMPTIONS Start Date Apr-05 Terms of Analysis 10 Years Software Excel GROWTH RATE ASSUMPTIONS Income Growth 3.00% Expense Growth 3.00% Inflation (CPI) 3.00% Real Estate Tax Growth 3.00% MARKET RATES - YEAR 1 Average Rent ($/Unit/Yr.) $ 8,540 Total Operating Expenses ($/Unit/Yr.) $ 3,972 OCCUPANCY ASSUMPTIONS Current Occupancy 95.83% Stabilized Occupancy 87.00% Credit Loss 3.00% Stabilized Occupancy (w/C redit Loss) 84.00% Loss to Lease 3.0% Concessions 8.0% FINANCIAL ASSUMPTIONS Discount Rate 9.00% Terminal Capitalization Rate 7.00% OTHER ASSUMPTIONS Cost of Sale 2.00% Capital Expenses (Deferred Maintenance) $ 0
Compiled by CBRE GENERAL ASSUMPTIONS The DCF analysis utilizes a 10-year projection period with fiscal year inflation and discounting. This is consistent with current investor assumptions. The analysis is done with Excel software. GROWTH RATE ASSUMPTIONS The inflation and growth rates for the DCF analysis have been estimated by analyzing the expectations typically used by buyers and sellers in the local marketplace. Published investor surveys, an analysis of 97 GREENSPOINT APARTMENTS INCOME CAPITALIZATION APPROACH the Consumer Price Index (CPI), as well as CBRE's survey of brokers and investors active in the local market form the foundation for the selection of the appropriate growth rates. SUMMARY OF GROWTH RATES
Investment Type Rent Expenses Inflation --------------------------------------- ---- -------- --------- U.S. Bureau of Labor Statistics (CPI-U) 10-Year Snapshot Average as of Mar-05 2.47% Apartments Class A - Average 2.88% 2.96% 2.98% Class B - Average 3.02% 2.91% 2.98% Class C - Average 3.42% 2.83% 3.00% CBRE ESTIMATE 3.00% 3.00% 3.00%
Source: C BRE National & www.bls.gov Investor Survey The inflation and growth rates for the DCF analysis have been estimated by analyzing the expectations typically used by buyers and sellers active in the local marketplace. Published investor surveys, an analysis of the Consumer Price Index (CPI), as well as CBRE's survey of brokers and investors active in the local marketplace form the foundation for the selection of the appropriate growth rates. LEASING ASSUMPTIONS The previously concluded pro forma income and expenses have been utilized as the basis for Year 1 of the holding period. All subsequent years vary according to the growth rate assumptions applied to the Year 1 estimate. OCCUPANCY ASSUMPTIONS The occupancy rate over the holding period is based on the subject's estimated stabilized occupancy rate and estimated lease-up period to achieve a stabilized occupancy position. In anticipation of a reduction in concessions over the next several years, we have stepped down the effective vacancy rate over the first four years of analysis. FINANCIAL ASSUMPTIONS Discount Rate Analysis Similar to overall capitalization rates, there has been a significant reduction in discount rates over the past several months. Once again, this is due to several factors. First, interest rates on commercial loans have dropped substantially over the past year. This has allowed investors to accept lower overall property yields, but still maintain acceptable equity yield rates. Secondly, the stock market volatility and lack of value appreciation, and lower interest rates have adversely impacted the returns on "safe" investment vehicles such as money market funds, certificates of deposit, etc. have resulted in 98 GREENSPOINT APARTMENTS INCOME CAPITALIZATION APPROACH more funds being invested in real estate. In turn, this has caused discount rate to decline. The investment market appears to be reacting to this by accepting lower returns on real estate, which, in comparison to other investment vehicles, remain high. The results of the most recent National Investor Survey, published by CBRE, are summarized in the following table. DISCOUNT RATES
Investment Type Rate Range Average --------------- ------------- ------- Apartments Class A 6.50% - 10.00% 8.15% Class B 6.50% - 9.50% 8.57% Class C 7.00% - 10.00% 9.17% CBRE ESTIMATE 9.00%
Source: CBRE National Investor Survey Based on discussions with some institutional clients, including RREEF, Prudential, UBS Investors, CalPERS, Teachers, CBRE Investors, etc., it appears that the market is continuing to get even more aggressive with regard to trading real estate. Part of what is driving this is that fund sponsors (the people supplying the money to be invested) are increasing the dollars they are allocating to real estate. Whereas the fund sponsors have historically allocated 6-8% of their overall fund to real estate, two sponsors have recently raised their allocations from 6% to 10%. The effect of just these two sizeable pension funds increasing their allocations is to put several hundred million more dollars out into the market chasing real estate deals. Some of the investment advisors mentioned that they literally don't know how they are going to get all of the money invested, but that it will for sure result increasing downward pressure on investment rates. The subject is a Class B project located in a fully developed market. Rent growth has been generally stagnant over the last several years, but there is reasonable expectations for an improvement in leasing and occupancy over the next several years. Given these trends, the subject's discount rate is reconciled towards the upper portion of the range supported by the National Investor Survey. The conclusion is consistent with the going in OAR and the long term growth rate in income and value. Terminal Capitalization Rate The reversionary value of the subject is based on an assumed sale at the end of the holding period based on capitalizing the Year 11 NOI at a terminal capitalization rate. Typically, for properties similar to the subject, terminal capitalization rates are 50 to 100 basis points higher than going-in capitalization rates (OARs). This is a result of the uncertainty of future economic conditions and the natural aging of the property. 99 GREENSPOINT APARTMENTS INCOME CAPITALIZATION APPROACH TERMINAL CAPITALIZATION RATES
Investment Type Rate Range Average --------------- ------------ ------- Apartments Class A 5.50% - 8.50% 6.64% Class B 5.50% - 8.25% 6.98% Class C 6.50% - 9.00% 7.96% CBRE ESTIMATE 7.00%
Source: C BRE National Investor Survey DISCOUNTED CASH FLOW CONCLUSION The DCF schedule(s) and value conclusions are depicted on the following page(s). 100 GREENSPOINT APARTMENTS INCOME CAPITALIZATION APPROACH [CBRE LOGO] GREENSPOINT APARTMENTS DISCOUNTED CASH FLOW ANALYSIS BEGINNING 04/05
YEAR 1 2 3 4 5 6 ---------- ---------- ---------- ---------- ---------- ---------- REVENUE Potential Rental Income $2,869,344 $2,955,424 $3,044,087 $3,135,410 $3,229,472 $3,326,356 Less: Loss to Lease ($86,080) ($88,663) ($91,323) ($94,062) ($96,884) ($99,791) Less: Concessions ($229,548) ($236,434) ($243,527) ($250,833) ($258,358) ($266,108) Credit Loss (76,611) (78,910) (81,277) (83,715) (86,227) (88,814) Vacancy (331,983) (315,639) (298,016) (279,051) (287,423) (296,046) Other Income 287,000 295,610 304,478 313,612 323,020 332,711 ---------- ---------- ---------- ---------- ---------- ---------- Effective Gross Income $2,432,122 $2,531,388 $2,634,422 $2,741,360 $2,823,600 $2,908,308 EXPENSES Real Estate Taxes $147,315 $151,735 $156,287 $160,976 $165,805 $170,779 Property Insurance 60,480 62,294 64,163 66,088 68,071 70,113 Utilities 184,800 190,344 196,054 201,936 207,994 214,234 Repair and Maintenance 84,000 86,520 89,116 91,789 94,543 97,379 Apartment Turnover 84,000 86,520 89,116 91,789 94,543 97,379 Contract Services 84,000 86,520 89,116 91,789 94,543 97,379 Advertising and 100,800 103,824 106,939 110,147 113,451 116,855 Promotion Administrative 50,400 51,912 53,469 55,073 56,725 58,427 Payroll 386,400 397,992 409,932 422,230 434,897 447,944 Management Fee 85,124 88,599 92,205 95,948 98,826 101,791 Reserves for Replacement 67,200 69,216 71,292 73,431 75,634 77,903 ---------- ---------- ---------- ---------- ---------- ---------- TOTAL EXPENSES $1,334,519 $1,375,476 $1,417,689 $1,461,196 $1,505,032 $1,550,183 ---------- ---------- ---------- ---------- ---------- ---------- NET INCOME $1,097,602 $1,155,913 $1,216,733 $1,280,164 $1,318,568 $1,358,126 ========== ========== ========== ========== ========== ========= Assumptions: Income Growth N/A 3.00% 3.00% 3.00% 3.00% 3.00% Loss to Lease 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% Concessions 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% Credit Loss 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% Vacancy 13.00% 12.00% 11.00% 10.00% 10.00% 10.00% Tax Expense Growth N/A 3.00% 3.00% 3.00% 3.00% 3.00% Op. Expense Growth N/A 3.00% 3.00% 3.00% 3.00% 3.00% Management Fee 3.50% Cost of Sale 2.00% YEAR 7 8 9 10 REVERSION ---------- ---------- ---------- ---------- ---------- REVENUE Potential Rental Income $3,426,147 $3,528,931 $3,634,799 $3,743,843 $3,856,158 Less: Loss to Lease ($102,784) ($105,868) ($109,044) ($112,315) ($115,685) Less: Concessions ($274,092) ($282,314) ($290,784) ($299,507) ($308,493) Credit Loss (91,478) (94,222) (97,049) (99,961) (102,959) Vacancy (304,927) (314,075) (323,497) (333,202) (343,198) Other Income 342,692 352,973 363,562 374,469 385,703 ---------- ---------- ---------- ---------- ---------- EFFECTIVE GROSS INCOME $2,995,558 $3,085,424 $3,177,987 $3,273,327 $3,371,526 EXPENSES Real Estate Taxes $175,902 $181,179 $186,614 $192,212 $197,978 Property Insurance 72,216 74,382 76,613 78,911 81,278 Utilities 220,661 227,281 234,099 241,122 248,356 Repair and Maintenance 100,300 103,309 106,408 109,600 112,888 Apartment Turnover 100,300 103,309 106,408 109,600 112,888 Contract Services 100,300 103,309 106,408 109,600 112,888 Advertising and 120,361 123,972 127,691 131,522 135,468 Promotion Administrative 60,180 61,985 63,845 65,760 67,733 Payroll 461,382 475,223 489,480 504,164 519,289 Management Fee 104,845 107,990 111,230 114,566 118,003 Reserves for Replacement 80,240 82,647 85,126 87,680 90,310 TOTAL EXPENSES $1,596,687 $1,644,586 $1,693,922 $1,744,737 $1,797,079 ---------- ---------- ---------- ---------- ---------- NET INCOME $1,398,871 $1,440,838 $1,484,065 $1,528,589 $1,574,447 ---------- ---------- ---------- ---------- ---------- ASSUMPTIONS: Income Growth 3.00% 3.00% 3.00% 3.00% 3.00% Loss to Lease 3.00% 3.00% 3.00% 3.00% 3.00% Concessions 8.00% 8.00% 8.00% 8.00% 8.00% Credit Loss 3.00% 3.00% 3.00% 3.00% 3.00% Vacancy 10.00% 10.00% 10.00% 10.00% 10.00% Tax Expense Growth 3.00% 3.00% 3.00% 3.00% 3.00% Op. Expense Growth 3.00% 3.00% 3.00% 3.00% 3.00% Management Fee Cost of Sale
[GRAPH]
6.75% 7.00% 7.25% ----- ----- ----- IRR 8.75% 18,288,318 17,935,461 17,606,938 9.00% 17,966,180 17,621,332 17,300,267 9.25% 17,651,336 17,314,299 17,000,506
RECONCILED VALUE INDICATION (ROUNDED): $17,621,332 DEFERRED MAINTENANCE: $ 0 ----------- AS-IS VALUE INDICATION (ROUNDED): $17,600,000 $ 52,381/Unit
101 GREENSPOINT APARTMENTS INCOME CAPITALIZATION APPROACH CONCLUSION OF INCOME CAPITALIZATION APPROACH The conclusions via the valuation methods employed for this approach are as follows:
INCOME CAPITALIZATION APPROACH VALUES Direct Capitalization Method $17,600,000 Discounted Cash Flow Analysis $17,600,000 Reconciled Value $17,600,000
Compiled by CBRE Primary emphasis has been placed on Direct Capitalization. This method is considered to best reflect the actions of buyers and sellers currently active in this market. 102 GREENSPOINT 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 $18,000,000 SALES COMPARISON APPROACH $17,500,000 INCOME CAPITALIZATION APPROACH $17,600,000 RECONCILED VALUE $17,600,000
COMPILED BY CBRE 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. Neither factor applies to the subject. In terms of modeling investor behavior the Cost Approach is considered to be the least reliable method of valuation for the subject. Therefore, no emphasis is placed upon the Cost Approach. In the Sales Comparison Approach, the subject property is compared to similar properties that have been sold recently or for which listing prices or offers are known. 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 and has been given 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. This technique best reflects the actions and motivation of the most probable buyer of the subject, and this technique most closely corresponds with the current sale of the subject. Therefore, the Income Capitalization Approach is considered to be a reasonable and substantiated value indicator and has been heavily weighted 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 EXPOSURE DATE OF VALUE VALUE CONCLUSION ----------------- ------------------ -------- ------------- ---------------- As Is Fee Simple Estate 6 to 12 Months April 18, 2005 $17,600,000
Compiled by CBRE 103 GREENSPOINT APARTMENTS RECONCILIATION OF VALUE SPECIAL ASSUMPTIONS None noted. 104 GREENSPOINT 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 title that would adversely affect marketability or value. CBRE is not aware of any title defects nor has it been advised of any unless such is specifically noted in the report. CBRE, 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. CBRE professionals are not engineers and are not competent to judge matters of an engineering nature. CBRE 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 CBRE by ownership or management; CBRE inspected less than 100% of the entire interior and exterior portions of the improvements; and CBRE 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, CBRE 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. CBRE has no knowledge of the existence of such materials on or in the property. CBRE, 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 CBRE 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, CBRE 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, CBRE reserves the right to amend conclusions reported if made aware of any such error. Accordingly, the client-addressee should carefully review 105 GREENSPOINT APARTMENTS ASSUMPTIONS AND LIMITING CONDITIONS all assumptions, data, relevant calculations, and conclusions within 30 days after the date of delivery of this report and should immediately notify CBRE 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, CBRE will be available to discuss the necessity for revision resulting from changes in economic or market factors affecting the subject. 7. CBRE 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. CBRE 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. CBRE does not warrant these forecasts will occur. Projections may be affected by circumstances beyond the current realm of knowledge or control of CBRE. 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 CBRE 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 CBRE nor may this report or copies hereof be transmitted to third parties without said consent, which consent CBRE 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 CBRE which consent CBRE 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. CBRE 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. 106 GREENSPOINT APARTMENTS ASSUMPTIONS AND LIMITING CONDITIONS 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 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 CBRE 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. CBRE 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 CBRE 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. CBRE 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, CBRE 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 CBRE has no specific information relating to this issue, nor is CBRE 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. 25. The report is for the sole use of the client; however, client may provide only complete, final copies of the appraisal report in its entirety (but not component parts) to third parties who shall review such reports in connection with loan underwriting or securitization efforts. Appraiser is not required to explain or testify as to appraisal results other than to respond to the client for routine and customary questions. Please note that our consent to allow an appraisal report prepared by CBRE or portions of such report, to become part of or be referenced in any public offering, the granting of such consent will be at our sole discretion and, if given, will be on condition that we will be provided with an Indemnification Agreement and/or Non-Reliance letter, in a form and content satisfactory to us, by a party satisfactory to us. We do consent to your submission of the reports to rating agencies, loan participants or your auditors in its entirety (but not component parts) without the need to provide us with an Indemnification Agreement and/or Non-Reliance letter. 26. As part of the clients requested scope of work we have provided an estimate of Insurable value. We have followed appraisal standards to develop a reasonable calculation based upon Industry practices and Industry accepted manuals such as Marshall Cost Estimator. The method we employ is a derivation of the Cost Approach, which is primarily used 107 GREENSPOINT APARTMENTS ASSUMPTIONS AND LIMITING CONDITIONS as an academic exercise to help support our market value estimate and therefore is not reliable for Insurable Value estimates. Actual construction costs and related estimates can vary greatly from this estimate. This analysis should not be relied upon to determine proper insurance coverage, which can only be properly estimated by consultants considered experts in cost estimation and insurance underwriting. It is provided to aid our client as part of their overall decision making process and we make no representations or warranties regarding the accuracy of this estimate and strongly recommend other sources be utilized to develop any estimate of Insurable value. 108 GREENSPOINT APARTMENTS ADDENDA ADDENDA -------------------------------------------------------------------------------- GREENSPOINT APARTMENTS ADDENDUM A -------------------------------------------------------------------------------- ADDENDUM A GLOSSARY OF TERMS GREENSPOINT APARTMENTS ADDENDUM A 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. EXCESS LAND In regard to an improved site, the land not needed to serve or support the existing improvement. In regard to a vacant site or a site considered as though vacant, the land no needed to accommodate the site's primary highest and best use. Such land may be separated from the larger site and have its own highest and best use, or it may allow for future expansion of the existing or anticipated improvement. See also surplus land. ++ 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.++ GREENSPOINTS APARTMENTS ADDENDUM A 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 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 RENT The most probable rent that a property should bring in a competitive and open market reflecting all conditions and restrictions of the specified lease agreement including term, rental adjustment and revaluation, permitted uses, use restrictions, and expense obligations. ++ 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.Section 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 OCCUPANCY RATE The relationship or ratio between the income received from the rented units in a property and the income that would be received if all the units were occupied.++ 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 market rent 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.. SURPLUS LAND Land not necessary to support the highest and best use of the existing improvement but, because of physical limitations, building placement, or neighborhood norms, cannot be sold off separately. Such land may or may not contribute positively to value and may or may not accommodate future expansion of an existing or anticipated improvement. See also excess land. ++ 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 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, Twelfth Edition, Appraisal Institute, 2001. ++ The Dictionary of Real Estate Appraisal, Fourth Edition, 2002. Section 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. * 2000 BOMA Experience Exchange Report, Income/Expense Analysis for Office Buildings (Building Owners and Managers Association, 2000) ++ Statement on Appraisal Standard No. 6, Appraisal Standards Board of The Appraisal Foundation, September 19, 1992. GREENSPOINT APARTMENTS ADDENDUM B ADDENDUM B ADDITIONAL PHOTOGRAPHS GREENSPOINT APARTMENTS ADDENDUM B [PICTURE] CLUBHOUSE [PICTURE] MODEL KITCHEN GREENSPOINT APARTMENTS ADDENDUM B [PICTURE] TYPICAL FULL SIZE WASHER AND DRYER [PICTURE] MODEL LIVING ROOM GREENSPOINT APARTMENTS ADDENDUM B [PICTURE] VACANT LIVING ROOM [PICTURE] COURTYARD VIEWS GREENSPOINT APARTMENTS ADDENDUM B [PICTURE] INTERIOR STREET SCENE [PICTURE] FACING EAST ALONG CACTUS ROAD FROM THE SUBJECT GREENSPOINT APARTMENTS ADDENDUM C ADDENDUM C IMPROVED COMPARABLE SALES GREENSPOINT APARTMENTS ADDENDUM D ADDENDUM D RENT COMPARABLES GREENSPOINT APARTMENTS ADDENDUM E ADDENDUM E OPERATING DATA GREENSPOINT APARTMENTS ADDENDUM F ADDENDUM F LEGAL DESCRIPTION GREENSPOINT APARTMENTS ADDENDUM G ADDENDUM G ENGAGEMENT LETTER GREENSPOINT APARTMENTS ADDENDUM H ADDENDUM H MISCELLANEOUS EXHIBITS GREENSPOINT APARTMENTS ADDENDUM I ADDENDUM I QUALIFICATIONS