Exhibit (B)(1)
- --------------------------------------------------------------------------------
COMPLETE APPRAISAL
OF REAL PROPERTY
PARK PLACE TOWER APARTMENT COMPLEX
655 West Irving Park Road
Chicago, Cook County, Illinois
- --------------------------------------------------------------------------------
IN A SELF-CONTAINED REPORT
As of August 2, 1999
PREPARED FOR:
KRUPP REALTY LIMITED PARTNERSHIP - V
One Beacon Street, Suite 1550
Boston, Massachusetts 02108
PREPARED BY:
CUSHMAN & WAKEFIELD OF ILLINOIS, INC.
Valuation Advisory Services
455 North Cityfront Plaza Drive, Suite 2800
Chicago, Illinois 60611-5555
August 16, 1999
Mr. James Hynes
Vice-President
KRUPP REALTY LIMITED PARTNERSHIP - V
One Beacon Street, Suite 1550
Boston, Massachusetts 02108
RE: COMPLETE APPRAISAL OF REAL PROPERTY
Park Place Tower Apartment Complex
655 West Irving Park Road
Chicago, Cook County, Illinois
Dear Mr. Hynes:
In fulfillment of our agreement as outlined in the Letter of Engagement,
Cushman & Wakefield of Illinois, Inc. is pleased to transmit our self-contained
appraisal report estimating the as is market value of the leased fee estate,
disregarding existing financing secured by the above referenced property and any
associated prepayment penalty required to satisfy the prepayment of existing
mortgages in place.
The value opinion reported below is qualified by certain assumptions,
limiting conditions, certifications, and definitions, which are set forth in the
report.
This report was prepared for the Client, KRUPP REALTY LIMITED
PARTNERSHIP - V and its partners, and it is intended only for the specified use
of the Client. Unless otherwise stated, the report may not be distributed to or
relied upon by other persons or entities without written permission of the
Appraiser.
This appraisal report has been prepared in accordance with the Uniform
Standards of Professional Practice adopted by the Appraisal Standards Board of
the Appraisal Foundation and the Code of Ethics and Standards of Professional
Practice (USPAP), as well as Title XI of the Financial Institution Reform,
Recovery and Enforcement Act of 1989 (FIRREA).
The property was inspected by and the report was prepared by Craig A.
Schumacher, under the supervision of Michael J. Schaeffer and Stephen B. Kay,
MAI.
Mr. Hynes
August 16, 1999
Page 2
Based on our complete appraisal as defined by the Uniform Standards of
Professional Appraisal Practice, we have formed an opinion that the AS IS market
value of the leased fee estate in the referenced property, disregarding existing
financing and subject to the assumptions, limiting conditions, certifications,
and definitions, as of August 2, 1999, is:
FORTY-EIGHT MILLION TWO HUNDRED FIFTY THOUSAND DOLLARS
$48,250,000
This letter is invalid as an opinion of value if detached from the
report, which contains the text, exhibits, and an ADDENDA.
Respectfully submitted,
CUSHMAN & WAKEFIELD OF ILLINOIS, INC.
Craig A. Schumacher
Senior Appraiser
Stephen B. Kay, MAI
Senior Appraiser
Illinois Certified Appraiser License No. 153-001054
Michael J. Schaeffer
Director, Manager
Illinois Certified Appraiser License No. 153-000885
CAS:sjb
File No. 99-347
SUMMARY OF SALIENT FACTS AND CONCLUSIONS
- --------------------------------------------------------------------------------
Property Name: The Park Place Tower High-Rise Apartment Complex
Location: 655 West Irving Park Road
Chicago, Cook County, Illinois
General Overview: The subject property is a 56-story, high-rise
apartment building constructed in 1973.
Located approximately five miles north of
downtown Chicago, this property offers
quality views of Chicago's lakefront and
skyline. The building contains a total of 901
apartment units, with 190 studio/convertible
unit styles; 552 one-bedroom/one-bath unit
styles and 159 two-bedroom/two-bath unit
styles. In addition to the residential units,
the property includes 11,175 square feet of
rentable commercial space currently leased to
approximately 16 tenants. Included in the
commercial space are a grocery store, a video
rental store and a dry cleaners. Common area
amenities include: garage parking; an
outdoor swimming pool; two tennis courts; a
volleyball court; a fitness center; a common
laundry facility; a community room; a bike
storage room; and individual storage lockers.
Assessor's Parcel Numbers: 14-21-101-031 and 14-21-101-032
Interest Appraised: Leased Fee Estate
Date of Value: August 2, 1999
Date of Inspection: August 2, 1999
Ownership: According to public record, the subject property
is currently owned by the Krupp Realty Limited
Partnership Fund - V.
Land Area: 2.84247 acres, or 123,818 square feet
Current Assessment: $9,277,640
Current Property Taxes (1998): $1,763,005
Zoning: R-7, General Residence District
Highest and Best Use
If Vacant: Multi-family residential development
As Improved: Multi-family high-rise with supporting retail,
as currently improved.
Improvements
Type: A 56-story residential high-rise apartment
building with 11,175 net leasable square feet
of retail space and a two- and three-story,
593-space parking garage.
Year Built: 1973
Type of Construction: Concrete and Steel
Unit Mix: The subject's unit mix, current occupancy status
and average actual rental collections for
each unit type are presented in the following
chart:
============================================================================================================================
UNIT MIX/CURRENT OCCUPANCY/AVERAGE ACTUAL RENTAL RATES
NET NO. AVERAGE
NO. SIZE RENTABLE UNITS ACTUAL RENT
UNIT TYPE UNITS (SF) AREA (SF) LEASED OCCUPANCY RENT PER SF
=========================================================================================================================
Studio-A5 53 533 28,249 51 96% $ 793 $1.49
Studio-A9 53 533 28,249 48 91% $ 799 $1.50
Studio-A11 31 533 16,523 31 100% $ 754 $1.41
Convertible-A7 53 600 31,800 51 96% $ 858 $1.43
1BD/1BA-B3 53 762 40,386 52 98% $ 987 $1.30
1BD/1BA-B11 22 762 16,764 21 95% $ 926 $1.22
1BD/1BA-B13 53 762 40,386 52 98% $ 981 $1.29
1BD/1BA-B15 53 762 40,386 52 98% $ 995 $1.31
1BD/1BA-B16 53 834 44,202 53 100% $ 1,001 $1.20
1BD/1BA-B4 53 835 44,255 53 100% $ 1,006 $1.20
1BD/1BA-B6 53 835 44,255 51 96% $ 984 $1.18
1BD/1BA-B8 53 835 44,255 51 96% $ 956 $1.14
1BD/1BA-B12 53 835 44,255 50 94% $ 1,001 $1.20
1BD/1BA-B14 53 835 44,255 52 98% $ 990 $1.19
1BD/1BA-B17 53 841 44,573 51 96% $ 1,005 $1.20
2BD/2BA-F1 53 1,150 60,950 51 96% $ 1,508 $1.31
2BD/2BA-F2 53 1,150 60,950 50 94% $ 1,456 $1.27
2BD/2BA-F10 53 1,150 60,950 52 98% $ 1,456 $1.27
============================================================================================================================
TOTAL/WEIGHTED AV. 901 816 735,643 872 97% $ 1,025 $1.26
============================================================================================================================
Occupancy Data
Total Units: 901
Total Units Neither Leased or Occupied: 29
Physical Vacancy: 96.78%
VALUE INDICATORS
Cost Approach: Not Applicable
Sales Comparison Approach: $48,650,000
Implied Value Per Unit: $53,996
Implied Value Per Square Foot: $66.13
Income Approach-Direct Capitalization
Current Occupancy: 96.78%
Stabilized Vacancy & Collection Loss: 5.0 %
Forecast Date of
Stabilized Occupancy: Current
Potential Gross Income: $12,139,488
Effective Gross Income: $11,312,927
Net Operating Income(1): $4,461,524
Overall Capitalization Rate: 9.25 %
Indicated Value: $48,250,000
(1) After Replacement Reserves
Overall Value Conclusion: $48,250,000
SPECIAL ASSUMPTIONS: 1. We were not provided with building
plans for the subject improvements.
Therefore, the building sizes
relating to gross and net rentable
area have been compiled from
documentation furnished by property
ownership. Any significant deviations
that may result in a different unit
count or overall size could influence
the value estimates contained herein.
2. Please refer to the complete list
of assumptions and limiting
conditions included at the conclusion
of this report.
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
PAGE
PHOTOGRAPHS OF SUBJECT PROPERTY..............................................1
INTRODUCTION................................................................19
REGIONAL ANALYSIS...........................................................25
NEIGHBORHOOD ANALYSIS.......................................................35
APARTMENT MARKET ANALYSIS...................................................40
PROPERTY DESCRIPTION........................................................67
REAL PROPERTY TAXES AND ASSESSMENTS.........................................77
ZONING......................................................................79
HIGHEST AND BEST USE........................................................80
VALUATION PROCESS...........................................................82
COST APPROACH...............................................................84
SALES COMPARISON APPROACH...................................................85
INCOME APPROACH.............................................................99
RECONCILIATION AND FINAL VALUE ESTIMATE....................................119
ASSUMPTIONS AND LIMITING CONDITIONS........................................121
CERTIFICATION OF APPRAISAL.................................................123
ADDENDA....................................................................124
Letter of Engagement
Legal Description
Rent Roll
Floor Plans
Investor Surveys
Qualifications of Appraisers
PHOTOGRAPHS OF SUBJECT PROPERTY
- --------------------------------------------------------------------------------
View of Southern Elevation
1
PHOTOGRAPHS OF SUBJECT PROPERTY
- --------------------------------------------------------------------------------
View of Eastern Elevation
2
PHOTOGRAPHS OF SUBJECT PROPERTY
- --------------------------------------------------------------------------------
View of Northern and Eastern Elevations
3
PHOTOGRAPHS OF SUBJECT PROPERTY
- --------------------------------------------------------------------------------
View of Northern and Western Elevations
Looking West on Irving Park Road
4
PHOTOGRAPHS OF SUBJECT PROPERTY
- --------------------------------------------------------------------------------
Looking East on Irving Park Road
Main Entrance
5
PHOTOGRAPHS OF SUBJECT PROPERTY
- --------------------------------------------------------------------------------
Entrance Along North Pine Grove Road
Garage Entrance Along Sheridan Road
6
PHOTOGRAPHS OF SUBJECT PROPERTY
- --------------------------------------------------------------------------------
Garage Entrance Along Frontier Street
Shipping And Receiving
7
PHOTOGRAPHS OF SUBJECT PROPERTY
- --------------------------------------------------------------------------------
Lobby
8
PHOTOGRAPHS OF SUBJECT PROPERTY
- --------------------------------------------------------------------------------
Elevator Bank
9
PHOTOGRAPHS OF SUBJECT PROPERTY
- --------------------------------------------------------------------------------
Retail Space
Community/Conference Room
10
PHOTOGRAPHS OF SUBJECT PROPERTY
- --------------------------------------------------------------------------------
Sun Deck and Swimming Pool
Fitness Center
11
PHOTOGRAPHS OF SUBJECT PROPERTY
- --------------------------------------------------------------------------------
Aerial View of Swimming Pool, Sun Deck and Tennis Courts
12
PHOTOGRAPHS OF SUBJECT PROPERTY
- --------------------------------------------------------------------------------
Laundry Facility
Parking Garage
13
PHOTOGRAPHS OF SUBJECT PROPERTY
- --------------------------------------------------------------------------------
Common Area Hallway
Living Area
14
PHOTOGRAPHS OF SUBJECT PROPERTY
- --------------------------------------------------------------------------------
Typical Bedroom
15
PHOTOGRAPHS OF SUBJECT PROPERTY
- --------------------------------------------------------------------------------
Typical Kitchen
16
PHOTOGRAPHS OF SUBJECT PROPERTY
- --------------------------------------------------------------------------------
Typical Kitchen
17
PHOTOGRAPHS OF SUBJECT PROPERTY
- --------------------------------------------------------------------------------
Typical Bathroom
18
INTRODUCTION
- --------------------------------------------------------------------------------
IDENTIFICATION OF PROPERTY
Park Place Tower represents a 56-story residential high-rise building
with 11,175 net rentable square feet of supporting retail space and a 593-space,
two- and three-story parking garage. The residential tower consists of studio,
convertible, one- and two-bedroom apartments (901 total units) from the third
floor to the 55th floor. Floor 56 represents a mechanical floor, while the first
floor contains the lobby, the property leasing office, three retail units and an
elevator bank. The second floor houses the property management office along with
a number of small professional office units. Additionally, the subject facility
is situated over a basement, where some mechanical equipment, a common area
laundry and tenant storage facilities are found. The subject's street address is
655 West Irving Park Road, Chicago, Cook County, Illinois. The subject's
improvements are situated on a 2.84247 acre, or 123,818 square foot, parcel.
This parcel is found at the southeastern corner of North Pine Grove Avenue and
West Irving Park Road.
PROPERTY OWNERSHIP AND RECENT HISTORY
According to public record, the Krupp Realty Limited Partnership Fund V
currently owns the subject property under appraisal. The subject has not
transferred ownership in the past three years; it is not encumbered with any
purchase options; it is not under any current agreement of sale; and is not
currently listed for sale. Berkshire Property Management currently manages the
property.
PURPOSE AND INTENDED USE OF THE APPRAISAL
The purpose of this appraisal is to estimate the as is market value of
the leased fee estate in the subject property, disregarding existing financing.
This report was prepared for the KRUPP REALTY LIMITED PARTNERSHIP FUND V and its
partners and is intended for their use only. We are advised that the appraisal
will be used for internal evaluation purposes and may be incorporated in filings
made by the Krupp Realty Limited Partnership Fund V and its affiliates under
current Securities Laws.
EXTENT OF THE APPRAISAL PROCESS
In the process of preparing this appraisal, we:
-- Inspected the exterior of all buildings and site improvements and
a representative sample of units with Berkshire Property
Management (the property management company).
-- Interviewed Berkshire representatives, concerning operational
characteristics of the subject property.
19
INTRODUCTION
- --------------------------------------------------------------------------------
-- Reviewed leasing policy, concessions, and history of recent
occupancy with Berkshire Property Management.
-- Reviewed a detailed history of income and expense and a budget
forecast for 1999 including an engineering report regarding
planned capital expenditures.
-- Conducted market research of occupancies, asking rents,
concessions and operating expenses at competing complexes which
involved interviews with on-site managers and a review of our own
data base from previous appraisal files.
-- Prepared an estimate of stabilized income and expenses (for
capitalization purposes).
-- Conducted market inquiries into recent sales of similar complexes
to ascertain sales price per unit, effective gross income
multipliers and capitalization rates. This process involved
telephone interviews with sellers, buyers and/or participating
brokers.
-- Prepared the Sales Comparison and Income Approaches to value.
DATE OF VALUE AND PROPERTY INSPECTION
The date of value is August 2, 1999, which is also the date of our last
inspection.
PROPERTY RIGHTS APPRAISED
We have appraised the leased fee estate of the subject property.
DEFINITIONS OF VALUE, INTEREST APPRAISED, AND OTHER PERTINENT TERMS
The definition of market value taken from the UNIFORM STANDARDS OF
PROFESSIONAL APPRAISAL PRACTICE of the Appraisal Foundation, is as follows:
The most probable price which a property should bring in a competitive
and open market under all conditions requisite to a fair sale, the buyer
and seller, each acting prudently and knowledgeably, and assuming the
price is not affected by undue stimulus. Implicit in this definition is
the consummation of a sale as of a specified date and the passing of
title from seller to buyer under conditions whereby:
1. Buyer and seller are typically motivated;
2. Both parties are well informed or well advised, and acting in
what they consider their own best interests;
3. A reasonable time is allowed for exposure in the open market;
20
INTRODUCTION
- --------------------------------------------------------------------------------
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.
All of the above conditions are assumed in the valuation analysis.
EXPOSURE TIME
Under Paragraph 3 of the Definition of Market Value, the value estimate
presumes that "A reasonable time is allowed for exposure in the open
market". Exposure time is defined as 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 the market value on
the effective date of the appraisal. Exposure time is presumed to
precede the effective date of the appraisal.
Based on our interviews with apartment investors and our investigation
of recently closed sale transactions, we concluded that marketing time
would have been 9 months before the effective date of valuation.
The following definitions of pertinent terms are taken from the
DICTIONARY OF REAL ESTATE APPRAISAL, THIRD EDITION (1993), published by the
APPRAISAL INSTITUTE.
LEASED FEE ESTATE
An ownership interest held by a landlord with the rights 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.
MARKET RENT
The rental income that a property would most probably command on the
open market, indicated by the current rents paid and asked for at
comparable space as of the date of appraisal.
CASH EQUIVALENT
A price expressed in terms of cash, as distinguished from a price
expressed totally or partly in terms of the face amounts of notes or
other securities that cannot be sold at their face amounts.
MARKET VALUE AS IS ON APPRAISAL DATE
The value of specific ownership rights to an identified parcel of real
estate as of the effective date of the appraisal; related to what
physically exists and is legally
21
INTRODUCTION
- --------------------------------------------------------------------------------
permissible and excludes all assumptions concerning hypothetical market
conditions or possible rezoning.
22
INTRODUCTION
- --------------------------------------------------------------------------------
LEGAL DESCRIPTION
A complete legal description of the subject property is provided in the
ADDENDA section of this analysis. The subject property is identified by the Cook
County Assessor's Office as parcel numbers : 14-21-101-031 and 14-21-101-032.
This legal description appears to be current and most likely reflects the owned
inventory of the subject property in its "as is" condition. It is noted that we
have NOT verified said legal description with legal counsel and suggest that
such verification be obtained prior to utilizing said legal description in any
legal document of conveyance. Cushman & Wakefield assumes no responsibility for
the accuracy or legality of said legal description.
23
INTRODUCTION
- --------------------------------------------------------------------------------
Insert Regional Map
24
REGIONAL ANALYSIS
- --------------------------------------------------------------------------------
CHICAGO METROPOLITAN AREA
This section evaluates general demographic and economic trends in the
property's regional location to determine the outlook for the overall market
based upon comparison of projected population, employment and other trends with
actual historical data. The Chicago Consolidated Metropolitan Statistical Area
(CMSA), located at the southwestern tip of Lake Michigan, is the Midwest's
financial, commercial, transportation, and industrial center. As defined by the
United States Census Bureau, the Chicago CMSA includes a total of thirteen
counties: ten in Illinois, two in Indiana, and one in Wisconsin. As a whole, the
Chicago CMSA covers a territory of 5,660 square miles.
POPULATION
The population of the Chicago Metropolitan Area is the third largest in
the nation, behind New York and greater Los Angeles. The historical and
projected population growth trends for the thirteen county Chicago CMSA are
summarized in the table below.
===========================================================================================================
CHICAGO CONSOLIDATED METROPOLITAN STATISTICAL AREA
POPULATION CHARACTERISTICS 1980-2002
-----------------------------------------------------------------------------------------------------------
ANNUAL % ANNUAL % ANNUAL %
COUNTY 1980 1990 CHANGE 1997 CHANGE 2002 CHANGE
1980-1990 1990-1997 1997-2002
-----------------------------------------------------------------------------------------------------------
ILLINOIS
-----------------------------------------------------------------------------------------------------------
Cook 5,253,685 5,105,067 -0.29% 5,135,667 0.09% 5,147,000 0.04%
-----------------------------------------------------------------------------------------------------------
Chicago 3,003,961 2,783,726 -0.76% 2,709,148 -0.39% 2,677,000 -0.24%
-----------------------------------------------------------------------------------------------------------
DeKalb 74,624 77,932 0.44% 84,996 1.25% 88,000 0.70%
-----------------------------------------------------------------------------------------------------------
DUPAGE 658,835 781,666 1.72% 870,407 1.55% 903,000 0.74%
-----------------------------------------------------------------------------------------------------------
Grundy 30,582 32,337 0.56% 35,724 1.44% 37,000 0.71%
-----------------------------------------------------------------------------------------------------------
KANE 278,405 317,471 1.32% 372,670 2.32% 397,000 1.27%
-----------------------------------------------------------------------------------------------------------
Kankakee 102,926 96,255 -0.67% 103,229 1.01% 106,000 0.53%
-----------------------------------------------------------------------------------------------------------
Kendall 37,202 39,413 0.58% 47,534 2.71% 51,000 1.42%
-----------------------------------------------------------------------------------------------------------
Lake 440,372 516,418 1.61% 587,226 1.85% 617,000 0.99%
-----------------------------------------------------------------------------------------------------------
McHenry 147,897 183,241 2.17% 236,033 3.68% 257,000 1.72%
-----------------------------------------------------------------------------------------------------------
Will 324,460 357,313 0.97% 432,538 2.77% 466,000 1.50%
-----------------------------------------------------------------------------------------------------------
INDIANA
-----------------------------------------------------------------------------------------------------------
Lake 522,965 475,594 -0.94% 481,139 0.17% 481,000 -0.01%
-----------------------------------------------------------------------------------------------------------
Porter 119,816 128,932 0.74% 143,048 1.50% 148,000 0.68%
-----------------------------------------------------------------------------------------------------------
WISCONSIN
-----------------------------------------------------------------------------------------------------------
Kenosha 123,137 128,181 0.40% 141,346 1.41% 147,000 0.79%
-----------------------------------------------------------------------------------------------------------
TOTAL 8,114,906 8,239,820 0.15% 8,671,557 0.73% 8,845,000 0.40%
-----------------------------------------------------------------------------------------------------------
Source: Equifax National Decision Systems
===========================================================================================================
As indicated in the previous table, the total estimated population of the
Chicago CMSA in 1997 was 8,671,557. The population of the Chicago CMSA increased
0.15 percent annually between 1980 and 1990, and increased 0.73 percent annually
between 1990 and 1997. The Chicago CMSA population is expected to increase 0.40
percent annually between 1997 and 2002.
25
REGIONAL ANALYSIS
- --------------------------------------------------------------------------------
While the Chicago CMSA population has increased since 1980, the
population in the City of Chicago has consistently decreased. The Chicago
suburban population has grown significantly at the expense of population
decreases in the City of Chicago. Between 1980 and 1990, the City of Chicago
population decreased 0.76 percent annually. The Chicago population decreased
0.39 percent annually between 1990 and 1997, and is expected to decrease 0.24
percent annually between 1997 and 2002. The population shift from the city to
suburban areas is common among most major cities located throughout the Great
Lakes and Northeastern regions, and is expected to continue in the foreseeable
future.
TRANSPORTATION
AIR TRANSPORTATION
Chicago is one of the primary transportation hubs in the United States.
O'Hare International Airport is one of the busiest in the world, handling
approximately 70.4 million total passenger arrival and departures in 1997,
according to the Chicago Department of Aviation. Increased traffic at O'Hare
International Airport can be attributed to several factors: the deregulation of
the airline industry in the past decade, the development of "regional" hubs' by
major airlines, and the continued economic expansion of local and national
companies into global markets. O'Hare International Airport serves as a hub for
United Airlines. United Airlines is the busiest airline in the city, according
to the Chicago Department of Aviation, serving approximately 30 million
passengers in 1996.
According to CRAIN'S CHICAGO BUSINESS, the City of Chicago launched a
$1-billion dollar, five-year upgrade of O'Hare International Airport's aging
infrastructure in 1998. Terminals 2 and 3 at the airport will be modernized, and
renovations include the expansion of ticketing areas and the addition of
elevators and escalators. In order to relieve rush-hour traffic congestion by
the airport there are plans to widen exits and the roadway leading to O'Hare,
and add more exits to remote parking lots and Mannheim Road. Upgrade plans also
include replacing an aged heating and cooling system, improving access to
skyrail transportation, and creating a new bus transportation center.
Midway Airport, located in the southwest portion of the city, serves as
a secondary airport in the Chicago metropolitan area and has become an
increasingly popular alternative to O'Hare International Airport. Major
commercial airlines serving Midway Airport include America West, American Trans
Air, Continental, Northwest, and Southwest. Southwest Airlines serves the
largest number of passengers at Midway Airport. According to the Chicago
Department of Aviation, Southwest Airlines served 5.1 million passengers at
Midway Airport in 1997.
26
REGIONAL ANALYSIS
- --------------------------------------------------------------------------------
Plans are under way to expand Midway Airport, which include adding a
terminal with 38 gates. Expansion plans will reportedly cost $722.0 million and
will be completed in 2003. The CHICAGO SUN TIMES in February 1998, reported
American Trans Air (ATA), the second largest carrier at Midway Airport, plans to
expand its business at Midway Airport. American Trans Air Airlines plans to add
500 people to its Chicago area workforce, and will occupy 12 of the 38 gates in
the new terminal to be completed in 2003. Three hundred of the new ATA employees
will be in reservations or customer service jobs. Two hundred of the new
employees will be hired for pilot or flight attendant jobs. Also in 1998,
American Trans Air added a number of non-stop service flights to ten additional
markets.
GROUND TRANSPORTATION
Several major expressways and interstate highways pass through the
Chicago area. Interstate 88 and 290 are the main routes to the cities along the
East-West Corridor. Interstate 55 provides access to the southwestern cities.
Cities to the north and northwest are accessed via Interstates 90 and 94; and
finally, north-south travel between the western suburbs is facilitated by
Interstates 294 and 355. In total, the Chicago area has over 630 miles of
expressways. Within the metropolitan area, rail lines, rapid transit systems,
bus lines and expressway systems facilitate commuter transportation.
EMPLOYMENT AND INCOME
The Chicago economy, like most major metropolitan areas, began as a
manufacturing center. Today, Chicago economic growth is no longer primarily
based in the manufacturing sector, but is distributed among the retail, FIRE
(finance, insurance, and real estate), and service industries. The table on the
following page summarizes the diversity of employment for the thirteen-county
Consolidated Metropolitan Statistical Area.
===============================================================================================================
CHICAGO METROPOLITAN AREA (13-COUNTY CMSA)
NON-FARM EMPLOYMENT STATISTICS 1997-2010
---------------------------------------------------------------------------------------------------------------
INDUSTRY 1980 PERCENT OF 1997 PERCENT OF 2010 PERCENT OF
GROUP EMPLOYMENT TOTAL EMPLOYMENT TOTAL EMPLOYMENT TOTAL
(000'S) (000'S) (000'S)
---------------------------------------------------------------------------------------------------------------
Construction 169.4 4.1% 234.8 4.7% 260.5 4.7%
---------------------------------------------------------------------------------------------------------------
Manufacturing 952.1 23.2% 719.3 14.3% 666.5 12.0%
---------------------------------------------------------------------------------------------------------------
TCPU(1) 224.7 5.5% 291.8 5.8% 319.3 5.7%
---------------------------------------------------------------------------------------------------------------
Wholesale Trade 281.3 6.9% 310.0 6.2% 325.5 5.8%
---------------------------------------------------------------------------------------------------------------
Retail Trade 648.0 15.8% 814.7 16.2% 873.8 15.7%
---------------------------------------------------------------------------------------------------------------
FIRE(2) 357.7 8.7% 476.8 9.5% 590.5 10.6%
---------------------------------------------------------------------------------------------------------------
Services 931.1 22.7% 1,616.8 32.2% 1,938.6 34.8%
---------------------------------------------------------------------------------------------------------------
Government 540.2 13.2% 557.7 11.1% 595.8 10.7%
---------------------------------------------------------------------------------------------------------------
TOTAL NON-FARM 4,104.5 100.0% 5,021.9 100.0% 5,570.5 100.0%
EMPLOYMENT
---------------------------------------------------------------------------------------------------------------
(1) Transportation and Utilities
(2) Finance, Insurance and Real Estate
===============================================================================================================
Source: Woods and Poole
===============================================================================================================
27
REGIONAL ANALYSIS
- --------------------------------------------------------------------------------
In 1980, the majority of the labor force of the Chicago CMSA was employed
within the manufacturing and service industries. The manufacturing and service
industries accounted for 23.2 and 22.7 percent of total employment in 1980,
respectively. However, in 1997, manufacturing employment was only 14.3 percent
of total employment in the Chicago CMSA. The portion of the labor force in
manufacturing employment is expected to continue to decrease, and is expected to
be approximately 12 percent of the total employment in the year 2010. The
services industry, however, was 22.7 percent of the labor force in 1980, but
increased to 32.2 percent of the labor force in 1997. Employment in the service
industry is expected to increase to 34.8 percent by the year 2010.
The majority of the labor force in the Chicago CMSA in 1997 was employed
within Cook County, followed by DuPage County. Approximately 62.4 percent of the
labor force was employed in Cook County, while 12.8 percent of the labor force
was employed in DuPage County. In the year 2010, the percentage of the labor
force employed in Cook County is expected to decrease slightly to 58.6 percent.
The table on the following page presents total non-farm employment per
thousand in each of the thirteen counties of the Chicago CMSA. The estimated
total non-farm employment in 1997 was 5,021,900 and the 2010 total estimated
non-farm employment is projected at 5,570,500.
28
REGIONAL ANALYSIS
- --------------------------------------------------------------------------------
============================================================================================
CHICAGO CONSOLIDATED METROPOLITAN STATISTICAL AREA
DISTRIBUTION OF TOTAL NON-FARM EMPLOYMENT
1997 AND 2010
- --------------------------------------------------------------------------------------------
COUNTY 1997 PERCENT OF 2010 PERCENT OF
(000'S) TOTAL (000'S) TOTAL
- --------------------------------------------------------------------------------------------
ILLINOIS
- --------------------------------------------------------------------------------------------
Cook 3,131.3 62.4% 3,265.9 58.6%
- --------------------------------------------------------------------------------------------
DeKalb 41.8 0.8% 47.3 0.8%
- --------------------------------------------------------------------------------------------
DuPage 643.9 12.8% 785.2 14.1%
- --------------------------------------------------------------------------------------------
Grundy 17.3 0.3% 20.4 0.4%
- --------------------------------------------------------------------------------------------
Kane 188.9 3.8% 212.6 3.8%
- --------------------------------------------------------------------------------------------
Kankakee 51.0 1.0% 59.2 1.1%
- --------------------------------------------------------------------------------------------
Kendall 16.2 0.3% 18.1 0.3%
- --------------------------------------------------------------------------------------------
Lake 311.4 6.2% 422.0 7.6%
- --------------------------------------------------------------------------------------------
McHenry 100.9 2.0% 127.8 2.3%
- --------------------------------------------------------------------------------------------
Will 153.4 3.1% 194.4 3.5%
- --------------------------------------------------------------------------------------------
INDIANA
- --------------------------------------------------------------------------------------------
Lake 237.5 4.7% 266.3 4.8%
- --------------------------------------------------------------------------------------------
Porter 69.1 1.4% 85.6 1.5%
- --------------------------------------------------------------------------------------------
WISCONSIN
- --------------------------------------------------------------------------------------------
Kenosha 59.2 1.2% 65.7 1.2%
- --------------------------------------------------------------------------------------------
TOTAL EMPLOYMENT 5,021.9 100.0% 5,570.5 100.0%
- --------------------------------------------------------------------------------------------
Source: Woods and Poole
============================================================================================
As indicated in the table above, the 2010 employment distribution in
counties outside of Illinois, is expected to be similar to the 1997 employment
distribution.
Chicago is a leading corporate headquarters location. A number of Fortune
500 firms are headquartered in the Chicago area. Many other firms also have
regional headquarters in the Chicago area. Sears, Roebuck and Company, Amoco,
Motorola, and Allstate Corporation are among the largest publicly held companies
in the Chicago area. The presence of a large number of corporate headquarters in
the area is indicative of the strength of the local support network and general
business climate. The tables on the following facing page present the largest
public and private companies in Chicago ranked by revenues.
29
REGIONAL ANALYSIS
- --------------------------------------------------------------------------------
=============================================================================================================
METROPOLITAN CHICAGO'S LARGEST PUBLIC COMPANIES
RANKED BY 1998 REVENUES
- ------------ --------------------- ---------------------------- -------------------------- ------------------
RANK NAME CITY 1998 NET REVENUES (IN NUMBER OF
MILLIONS) EMPLOYEES
- ------------ --------------------- ---------------------------- -------------------------- ------------------
1 Sears, Roebuck & Co. Hoffman Estates $41,300.0 300,000
- ------------ --------------------- ---------------------------- -------------------------- ------------------
2 Amoco Corp. Chicago $36,287.0 43,451
- ------------ --------------------- ---------------------------- -------------------------- ------------------
3 Motorola, Inc. Schaumburg $29,800.0 150,000
- ------------ --------------------- ---------------------------- -------------------------- ------------------
4 Allstate Corp. Northbrook $25,500.0 51,400
- ------------ --------------------- ---------------------------- -------------------------- ------------------
5(1) Sara Lee Corp. Chicago $18,624.0 135,300
- ------------ --------------------- ---------------------------- -------------------------- ------------------
6(1) CAN Financial Corp. Chicago $16,987.8 24,300
- ------------ --------------------- ---------------------------- -------------------------- ------------------
7(1) Caterpillar Inc. Peoria $16,522.0 57,026
- ------------ --------------------- ---------------------------- -------------------------- ------------------
8 UAL Corp. Elk Grove Township $16,362.0 87,628
- ------------ --------------------- ---------------------------- -------------------------- ------------------
9 Ameritech Corp. Chicago $16,000.0 72,000
- ------------ --------------------- ---------------------------- -------------------------- ------------------
10(1) Archer Daniels Decatur $13,314.0 14,811
Midland Co.
=============================================================================================================
Source: CRAIN'S CHICAGO BUSINESS, Top Business Lists 1998 Edition
(1) Represents 1997 figures
=============================================================================================================
=============================================================================================================
METROPOLITAN CHICAGO'S LARGEST PRIVATE COMPANIES
RANKED BY 1997 REVENUES
- ------------ ---------------------------- ---------------------- ---------------------- ---------------------
RANK NAME CITY 1997 NET REVENUES NUMBER OF EMPLOYEES
(IN MILLIONS)
- ------------ ---------------------------- ---------------------- ---------------------- ---------------------
1 Montgomery Ward & Co. Chicago $6,618.0 62,579
- ------------ ---------------------------- ---------------------- ---------------------- ---------------------
2 Marmon Group Chicago $6,000.0 30,000
- ------------ ---------------------------- ---------------------- ---------------------- ---------------------
3 Alliant Foodservice Inc. Deerfield $4,500.0 9,400
- ------------ ---------------------------- ---------------------- ---------------------- ---------------------
4 Kemper Insurance Cos. Long Grove $3,913.0 10,068
- ------------ ---------------------------- ---------------------- ---------------------- ---------------------
5 Topco Associates Skokie $3,900.0 375
- ------------ ---------------------------- ---------------------- ---------------------- ---------------------
6 Hyatt Hotels Corp. Chicago $2,875.0 40,000
- ------------ ---------------------------- ---------------------- ---------------------- ---------------------
7 Ace Hardware Corp. Oak Brook $2,742.0 4,397
- ------------ ---------------------------- ---------------------- ---------------------- ---------------------
8 Cotter & Co. Chicago $2,441.7 3,470
- ------------ ---------------------------- ---------------------- ---------------------- ---------------------
9 Budget Rent A Car Corp. Lisle $2,400.0 24,000
- ------------ ---------------------------- ---------------------- ---------------------- ---------------------
10 Specialty Foods Corp. Rosemont $2,020.0 14,000
=============================================================================================================
Source: CRAIN'S CHICAGO BUSINESS, Top Business Lists 1997 Edition
=============================================================================================================
30
REGIONAL ANALYSIS
- --------------------------------------------------------------------------------
The average annual unemployment rates for the nation, state, and Chicago
Primary Metropolitan Statistical Area (PMSA), since 1994 are presented in the
table below.
=============================================================================================================
ANNUAL AVERAGE UNEMPLOYMENT RATES (NOT SEASONALLY ADJUSTED)
=============================================================================================================
AREA 1994 1995 1996 1997 1998(1)
- ------------------- ----------------- ----------------- ----------------- ----------------- -----------------
Illinois 5.7% 5.2% 5.3% 4.6% 4.1%
- ------------------- ----------------- ----------------- ----------------- ----------------- -----------------
U.S. 6.1% 5.6% 5.4% 4.7% 4.4%
- ------------------- ----------------- ----------------- ----------------- ----------------- -----------------
CHICAGO PMSA 5.6% 5.1% 5.0% 4.5% 4.0%
- ------------------- ----------------- ----------------- ----------------- ----------------- -----------------
=============================================================================================================
NINE-COUNTY CHICAGO PMSA DETAIL
=============================================================================================================
Cook,IL 6.1% 5.5% 5.5% 5.0% 4.5%
- ------------------- ----------------- ----------------- ----------------- ----------------- -----------------
DeKalb, IL 4.2% 3.8% 4.3% 3.6% 3.5%
- ------------------- ----------------- ----------------- ----------------- ----------------- -----------------
DuPage, IL 3.9% 3.4% 3.4% 2.9% 2.5%
- ------------------- ----------------- ----------------- ----------------- ----------------- -----------------
Grundy, IL 7.9% 7.6% 6.7% 6.7% 6.4%
- ------------------- ----------------- ----------------- ----------------- ----------------- -----------------
Kane, IL 5.6% 5.0% 4.9% 4.2% 3.5%
- ------------------- ----------------- ----------------- ----------------- ----------------- -----------------
Kendall, IL 4.5% 4.0% 4.1% 3.2% 2.5%
- ------------------- ----------------- ----------------- ----------------- ----------------- -----------------
Lake, IL 4.9% 4.0% 4.0% 3.2% 3.1%
- ------------------- ----------------- ----------------- ----------------- ----------------- -----------------
McHenry, IL 4.6% 4.1% 4.0% 3.0% 3.0%
- ------------------- ----------------- ----------------- ----------------- ----------------- -----------------
Will, IL 5.7% 5.3% 5.2% 3.7% 4.0%
- ------------------- ----------------- ----------------- ----------------- ----------------- -----------------
=============================================================================================================
Source: Northeastern Illinois Planning Commission; Illinois Department of Employment Security
(1) As of November, 1998
=============================================================================================================
According to Woods and Poole, the 1997 average per capita income in the
Chicago CMSA was $23,038. The 1997 mean household income was $64,392. The 1997
per capita income in the 13-county Chicago CMSA ranged $18,650 to $32,747 and
the 1997 means household income ranged from $49,239 to $90,867. DuPage and Lake
County lead the Chicago CMSA in per capita income and mean household income. The
1997 per capita income in DuPage was $32,747, while the Lake County per capita
income was $30,260. Mean household income in DuPage and Lake Counties were
$90,867 and $87,092, respectively. Per capita and mean household income
statistics for the 13-county Chicago CMSA, are presented in the table on the
following page.
31
REGIONAL ANALYSIS
- --------------------------------------------------------------------------------
============================================================================================
1997 CHICAGO CMSA PER CAPITA INCOME STATISTICS
- --------------------------------------------------------------------------------------------
COUNTY PER CAPITA INCOME MEAN HOUSEHOLD INCOME
- --------------------------------------------------------------------------------------------
ILLINOIS
- --------------------------------------------------------------------------------------------
Cook $25,287 $67,588
- --------------------------------------------------------------------------------------------
DeKalb $18,650 $49,239
- --------------------------------------------------------------------------------------------
DuPage $32,747 $90,867
- --------------------------------------------------------------------------------------------
Grundy $22,463 $60,236
- --------------------------------------------------------------------------------------------
Kane $22,920 $67,054
- --------------------------------------------------------------------------------------------
Kankakee $18,912 $50,991
- --------------------------------------------------------------------------------------------
Kendall $22,141 $65,234
- --------------------------------------------------------------------------------------------
Lake $30,260 $87,092
- --------------------------------------------------------------------------------------------
McHenry $23,913 $69,634
- --------------------------------------------------------------------------------------------
Will $21,105 $63,333
- --------------------------------------------------------------------------------------------
INDIANA
- --------------------------------------------------------------------------------------------
Lake $19,492 $53,010
- --------------------------------------------------------------------------------------------
Porter $22,024 $60,504
- --------------------------------------------------------------------------------------------
WISCONSIN
- --------------------------------------------------------------------------------------------
Kenosha $19,584 $52,310
- --------------------------------------------------------------------------------------------
AVERAGE $23,038 $64,392
============================================================================================
METROPOLITAN CHICAGO ECONOMY
As the home of four major financial exchanges, Chicago is the Midwest's
financial center. The financial exchanges located in the city include the
Chicago Board of Trade, Chicago Board Options Exchange, Chicago Mercantile
Exchange, and Midwest Stock Exchange. Eighty percent of the world's commodities
are traded through three of Chicago's exchanges.
According to data compiled by the Regional Economics Applications
Laboratory (REAL) at the University of Illinois at Urbana-Champaign for CRAIN'S
CHICAGO BUSINESS, the economic growth rate in 1997 was approximately 3.7
percent. Although the 1998 economic growth rate was somewhat lower at
approximately 2.8 percent, every sector of the local economy performed well.
The economic growth witnessed in 1998 was hampered by concerns of local
firms of domestic fallout from the troubled Asian economies and markets and
concerns about costs to retool computers for the year 2000, which are already
draining revenues of mid-sized companies. There were also theories that low
unemployment levels acted to curtail growth. The continuing tight labor market
is acting to maintain inflation fears as companies hike wages to attract new
employees. Despite the above concerns, economists observe that
32
REGIONAL ANALYSIS
- --------------------------------------------------------------------------------
consumer confidence in the economy remains relatively positive while the Federal
Reserve continues to closely monitor various economic indicators tied to
inflation.
SUMMARY
In summary, Chicago's status as a world class city is due to a variety of
inherent strengths, including: its excellent transportation system, central
geographic location, well educated work force, commodities and futures
exchanges, and its numerous cultural, educational, and recreational amenities.
In addition, the municipality of the City of Chicago is generally healthy
financially, and the administration under Mayor Richard M. Daley, Jr. is
considered helpful toward business and development. Because of these factors,
the area ranked 11th among all metropolitan areas in terms of business climate,
according to a recent survey of chief executives across the nation.
Although the Chicago area will continue to be subject to national
economic trends and conditions, the diversity of the local economy will insulate
the area from volatile economic swings. Overall, the Chicago area is expected to
continue its trend of economic growth. The continuation of Chicago's healthy
business climate, as well as its economic stability, should ensure a favorable
environment for real estate development and investment over the long-term. The
continuation of the Chicago Metropolitan Area economic growth should ensure a
favorable environment for real estate development and investment over the
long-term.
33
REGIONAL ANALYSIS
- --------------------------------------------------------------------------------
Neighborhood map
34
NEIGHBORHOOD ANALYSIS
- -------------------------------------------------------------------------------
LOCATION
- - The subject property is located in the northeast portion of Chicago, Cook
County, Illinois. More specifically, the subject property is situated
along the south side of Irving Park Road, approximately two blocks west of
Lake Shore Drive. Downtown Chicago is situated approximately five miles
south of the subject property.
- - The subject's neighborhood is generally bounded by Montrose Avenue to the
north, Addison Street to the south, Lake Shore Drive (U.S. Highway 41) to
the east, and Halsted Street to the west.
TRANSPORTATION/ACCESS
- - Transportation to and from the subject's neighborhood is good. Lake Shore
Drive (U.S. Highway 41) provides primary north-south directed access from
areas to the north and south. Secondary north-south access is provided by
Halsted Street. Lake Shore Drive is an eight-lane asphalt-paved expressway
that has a full interchange at Irving Park Road. This roadway is further
improved with concrete curbs and gutters, as well as overhead street
lights. Montrose Avenue, Irving Park Road, and Addison Street are the
primary arteries providing roadway access to the subject's neighborhood
from the west. All of the major street arteries in the subject's
neighborhood, including Halsted Street, are two-lane asphalt-paved
roadways that are wide enough to allow parallel parking. There are no
major arterial improvements planned for the subject's neighborhood in the
immediate future.
- - While Lake Shore Drive provides convenient expressway access to downtown
Chicago, as well as all lakeshore neighborhoods, the nearest Interstate
highway access is approximately four miles southwest and west of the
subject. Public commuter rail access is available approximately
four-blocks west of the subject, while Chicago Transportation Authority
(CTA) bus access is available at the subject property, along Irving Park
Road.
NEIGHBORHOOD CHARACTERISTICS
- - The subject's neighborhood is generally divided into two sections; the
east portion and the west portion.
- - The east portion, which runs the length of the neighborhood in a
north-south direction, extends west from Lake Shore Drive approximately
one- to two-blocks, and is generally comprised of high-rise apartment and
condominium buildings. The western portion of
35
NEIGHBORHOOD ANALYSIS
- -------------------------------------------------------------------------------
the subject's neighborhood extends west to Halsted Street, and is
generally comprised of low-to mid-rise apartment and condominium
structures, although single-family residences are also present.
- - The subject's neighborhood is 100 percent improved with either building
structures or recreational areas. The building improvements were generally
constructed between 1930 and 1975, although a few newer buildings are also
present in the neighborhood.
- - Commercial development in the subject's neighborhood is limited to
storefronts and strip-shopping centers along the Broadway and Halsted
Streets, although additional commercial spaces are also located on the
first floors of many high-rise residential structures, along major street
arteries. Other development in the subject's neighborhood includes
medical, educational, governmental and recreational facilities. There are
no known industrial facilities in the neighborhood. Nor was there any
evidence of new construction in the subject's neighborhood at the time of
inspection.
- - Major influences in the subject's neighborhood include its relatively
close proximity and ease of access to the employment, cultural, and retail
centers provided by downtown Chicago, as well as nearby proximity to the
recreational opportunities provided by the public parkland east of Lake
Shore Drive.
- - As the subject's neighborhood is 100 percent improved, and most buildings
appear to be well occupied and well maintained, we believe the subject's
neighborhood is in the stable stage of its life cycle.
NEARBY AND ADJACENT LAND USES
- - Land uses adjacent to the subject property include high-rise condominium
developments to the east and west, a variety of single-family and low-rise
multi-family structures to the south, and the American Islamic College to
the north.
POPULATION CHARACTERISTICS AND TRENDS
- - The population within one-mile of the subject property has declined
modestly in recent years, from 95,477 persons in 1980 to 86,139 persons in
1999.
- - The population within one mile of the subject property is anticipated to
decrease further between 1999 and 2004 to approximately 83,637 residents.
36
NEIGHBORHOOD ANALYSIS
- -------------------------------------------------------------------------------
- - The population within one mile of the subject property is relatively
young, with over 50 percent of the residents between the ages of 25 and
49.
- - Approximately 40 percent of the residents older than 16 years of age are
employed in executive, professional, or managerial occupations.
HOUSEHOLD CHARACTERISTICS
- - Along with the population, the number of housing units in the neighborhood
also witnessed a slight decrease from 43,788 units in 1980 to 43,070 units
in 1999.
- - The number of households is anticipated to decrease even further between
1999 and 2004, from 43,070 units to 41,849 units.
- - The estimated number of people per household has remained relatively
stable since 1980, from 1.91 persons in 1980 to 1.95 persons in 1999.
- - Approximately 77 percent of the households within one mile of the subject
are renter-occupied, while the percentage of owner-occupied units
currently stands at approximately 23 percent.
- - There are reportedly 34,148 rental units within one mile of the subject,
and the median rent is estimated at $452 per month.
- - Approximately 20.5 percent of the housing units within one mile of the
subject were constructed prior between 1960 and 1980; 19.5 percent were
constructed between 1940 and 1960, and 55.7 percent were constructed prior
to 1940. Significantly, only 4.3 percent of the housing units within one
mile of the subject have been constructed since 1980.
SPECIAL HAZARDS
- - No special hazards or adverse influences were noted in the subject's
neighborhood at the time of inspection.
NEIGHBORHOOD COMPETITION
- - As indicated previously, the majority of housing units within one mile of
the subject property are renter-occupied. Competition for the subject
property includes: The New York, Pensacola Place, Park Sheridan and
Hawthorne House. The subject property
37
NEIGHBORHOOD ANALYSIS
- -------------------------------------------------------------------------------
competes favorably with its competition. Please see the APARTMENT MARKET
ANALYSIS section of this report for a discussion of the subject's
competition.
38
NEIGHBORHOOD ANALYSIS
- -------------------------------------------------------------------------------
CONCLUSION
- - The presence of a relatively strong and stable economy in Chicago, as
discussed in the previous REGIONAL DESCRIPTION section of this report, is
likely to provide a steady demand for housing units within the City.
- - Contributing factors leading to a positive forecast for the subject's
neighborhood is it's relatively close proximity to downtown Chicago, which
is the employment, cultural, and retail center of the region, as well as
its relatively close proximity to the recreational opportunities available
along the lakeshore.
- - Due to the relatively high occupancy levels that are currently being
achieved in the area, we do not believe there is any external obsolescence
affecting the subject property.
39
APARTMENT MARKET ANALYSIS
- -------------------------------------------------------------------------------
NATIONAL APARTMENT MARKET OVERVIEW
After a period of two to three years, in which real estate investment
trusts (REITs) steadily pushed up apartment values and decreased overall
capitalization rates with aggressive acquisition programs, signs during 1998
indicated that activity within the apartment market had begun to stabilize. The
slowdown in apartment acquisition during 1998 was directly tied to the REIT's
poor performance in the stock market. With stock prices deflated, REIT's were
unable to issue shares, their primary source of acquisition capital. Adding to
the problem was a slight rise in interest rates during 1998, limiting the
ability of most REIT's to borrow from traditional capital sources. With REIT's
no longer driving the market, many analysts believed that a surge in new
development coupled with artificially high prices were leading to a downswing in
the cycle. Early indications in 1999, however, point to an apartment market
which "just keeps on going" according to KORPACZ'S FIRST QUARTER 1999 REAL
ESTATE INVESTOR SURVEY. These indications include strong absorption levels and
the reintroduction of traditional investors to the apartment market who had been
displaced by aggressive pricing by the REIT's. Overall, analysts look to an
apartment market in equilibrium throughout 1999.
Ownership of large apartment properties (50 or more units) by
institutions has increased considerably since 1991. Both real estate
corporations and REITs have increased their share of the market while ownership
by limited partnerships has declined significantly. It must be noted that
individuals and partnerships still account for over half of all large apartment
properties, with individual owners picking up a substantial share of the market
between 1991 and 1998.
According to our most recent HEITMAN RESEARCH'S MARKET COMMENT,
apartment investments offering attractive risk-adjusted returns are available,
but harder to find. KORPACZ'S FIRST QUARTER 1999 REAL ESTATE INVESTOR SURVEY
states that while most analysts in 1998 agreed that the apartment market had
it's run as the hot property type, current thinking reflects a more optimistic
attitude toward this asset class. New construction fears have been eased by
stronger than expected absorption during the first six months of 1999, while
overall rental rates have remained stable, or in many cases have moved upward.
Additionally, overall occupancy rates, as reported by the U.S. Census Bureau and
several national research firms, continue to hover in the mid-90's.
According to KORPACZ'S FIRST QUARTER 1999 REAL ESTATE INVESTOR SURVEY,
the purchasing power of potential apartment investors made the market extremely
competitive in the past several years. REITs, pension funds, and other
institutional investors continue to
40
APARTMENT MARKET ANALYSIS
- -------------------------------------------------------------------------------
dominate the transaction market. Of the three, REITs emerged in 1996 and 1997 as
the most influential participant within the national apartment market. Their
aggressive approach towards multi-property purchases placed a significant
premium on portfolios, if and when available. Competition between REITs and
pension funds created a two-tiered apartment market. First, there are a number
of buyers seeking 1980s vintage product, due to lower per-unit costs when
compared to high-end, 1990s product. The availability, however, of 200-unit plus
complexes within this segment is limited within attractive markets because a
high percentage of ownership associated with this product type is pursuing a
long-hold investment strategy. The second tier is represented by high-end
product possessing a unique locational or physical characteristic. These
properties are trading at substantially lower capitalization rates when compared
to other 1990s product. Included in this group are luxury styled, high-rise
apartment buildings with urban locations. According to KORPACZ'S FIRST QUARTER
1999 REAL ESTATE INVESTOR SURVEY, " investors are particularly interested in
acquiring urban apartments; they believe they offer outstanding investment
potential". Nationwide, there has been a surge in residential population within
downtown areas. Young urban professionals, coupled with baby boomers entering
their retirement, have driven the demand for residential dwellings with an urban
location.
Further enhancing the apartment market are its positive fundamental
characteristics. Most importantly, the demand for apartment units is anticipated
to remain strong into the next millennium. Although the rate of new household
formation has been low in recent years, the percent of those that are renters is
consistently around 36.0 percent. According to KORPACZ'S FIRST QUARTER'S 1999
REAL ESTATE INVESTOR SURVEY, most apartment markets are stabilized and occupancy
levels are expected to increase in markets where economic expansion, new job
growth is occurring, and strong in-migration patterns are emerging.
Acting as a constraint to the development of new apartment units is the
increasing equity requirements on the part of commercial banks, which continue
to provide the majority of construction financing for new apartment projects.
Such a constraint on the part of lenders is anticipated to decrease the risk of
over overbuilding.
While institutional investors still seek alternative real estate
investment opportunities, the multi-family segment continues to be a preferred
property type among institutional investors. According to CB COMMERCIAL, the
most active cities for apartment investment are San Francisco, Chicago, Orange
County CA, San Diego, and Minneapolis. Apartments have had continued success in
the investment market due to the underlying strength of the real estate as well
as marginal performances in other property types. The apartment market
41
APARTMENT MARKET ANALYSIS
- -------------------------------------------------------------------------------
was the first to experience recovery and is still viewed in a positive light by
the investment community, even as some major markets approach equilibrium.
According to KORPACZ'S SECOND QUARTER 1999 REAL ESTATE INVESTOR SURVEY,
this quarter's investor cash flow assumptions reflected a stable apartment
market nationwide. The Second Quarter 1999 average free and clear equity IRR
increased by three basis points over the average IRR in First Quarter 1999 to
11.51 percent. The average free and clear equity cap rate of 8.86 percent in the
Second Quarter of 1999 represents a slight increase of three basis points over
the average cap rate in First Quarter 1999.
As stated previously, investors in the investment-grade apartment market
today include pension funds, insurance companies, real estate investment trusts
(REITs), and private partnerships, among others. Such investors typically
purchase stabilized apartment properties on a direct capitalization basis, while
the discounted cash flow analysis is utilized when a property is not stabilized.
The price per unit is the most common unit of comparison; however, this unit of
comparison is generally given secondary emphasis, due to the significant
physical differences between various apartment complexes.
In conclusion, apartment investors have a direct influence over their
own futures. By giving market fundamentals (supply/demand) their due respect,
investors can avoid serious damage during the current apartment cycle. Apartment
investors can also benefit from the informational advantages the apartment
sector holds over other property types. With accurate, timely and consistent
supply data available in most major markets and a high percentage of annual
turnover, whereby rental rate trends can be monitored, much of the guesswork
involved in pricing an apartment investment is eliminated. In the coming year,
trends to watch for are limited buying opportunities in weakening markets,
overbuilding of high-end product and consolidation within the REIT sector.
CHICAGO METROPOLITAN APARTMENT MARKET OVERVIEW
The Chicago metropolitan apartment market is surveyed by the Grubb &
Ellis Company. As of July 1, 1998, the most recent study available, Grubb &
Ellis tracked more than 107,835 apartment units in the Chicago metropolitan
area. Grubb & Ellis defines and analyzes four separate apartment markets in the
Chicagoland area, including: the City of Chicago, Northwest Cook County, DuPage
County, and Lake County. The subject property is located in the City of Chicago
submarket.
As of July 1998, apartment occupancy rates throughout the Chicago area
were relatively high, ranging from an average occupancy rate of 96.50 percent in
Lake County to
42
APARTMENT MARKET ANALYSIS
- -------------------------------------------------------------------------------
97.4 percent in Northwest Cook. The City of Chicago submarket placed a close
second reporting an average occupancy rate of 97.4 percent. All of the
submarkets experienced slight increase in their overall occupancy rates from
January 1998 to July 1998. The Lake County apartment submarket displayed the
largest increase in its overall occupancy level, increasing 1.6 percent to 96.5
percent. Occupancy levels in the City of Chicago increased by ten basis points
during the same time period.
Accompanying the stable high occupancy levels during this period
throughout the Chicago metropolitan area, have been correspondingly high
increases in monthly rental rates, ranging from an average of 1.73 percent in
the DuPage County submarket to an average of 3.54 percent in the City of Chicago
apartment submarket. According to Grubb & Ellis, Class A apartment buildings are
defined as properties generally less than eight years old, which offer full
amenities. While the subject property's age would normally place the property in
a lower property classification, as defined by Grubb & Ellis, two
characteristics applicable to the subject allow for the subject's classification
as a Class A property. First, the subject's status as a high-rise complex with
an excellent location near Lake Shore Drive allows for extensive views of Lake
Michigan and Chicago's skyline. Second, the subject property offers a full
amenity package to residents including an on-site dry-cleaners, a grocery store,
an up-scale lobby with 24-hour doorman, valet parking and many other project
amenities typically associated with Class A properties. For these reasons, we
believe the subject property effectively competes within the Class A apartment
asset strata. As such, a discussion regarding Class A apartment real estate
fundamentals is warranted.
The average monthly rental rate for the Chicago Class A apartment market
increased by 4.83 percent, or from $1,221 to $1,280 per month, between January
1998 and July 1998. The average monthly rental rates by unit type for the City
of Chicago are displayed in the tables on the following facing page.
43
APARTMENT MARKET ANALYSIS
- -------------------------------------------------------------------------------
===============================================================================
AVERAGE MONTHLY RENT PER UNIT TYPE
CLASS A
CHICAGO, ILLINOIS
- --------------------------------- --------------------- -------------------- ---------------------------------
UNIT TYPE JANUARY 1998 JULY 1998 PERCENT INCREASE
- --------------------------------- --------------------- -------------------- ---------------------------------
STUDIO, 1 BA $ 845.00 $ 873.00 3.31%
ONE-BEDROOM, 1 BA $1,186.00 $1,230.00 3.71%
TWO-BEDROOM, 1 BA $1,743.00 $1,631.00 -6.43%
TWO-BEDROOM, 2 BA $1,743.00 $1,788.00 2.58%
THREE-BEDROOM, 2 BA $2,171.00 $2,818.00 29.8%
- --------------------------------- --------------------- -------------------- ---------------------------------
AVERAGE $1,221.00 $1,280.00 4.83%
- --------------------------------- --------------------- -------------------- ---------------------------------
================================================================================
SOURCE: GRUBB & ELLIS CHICAGO/METRO APARTMENT STUDY, JULY 1998.
================================================================================
================================================================================
AVERAGE MONTHLY RENT PER UNIT TYPE
CLASS A, B, C
CHICAGO, ILLINOIS
- --------------------------------- --------------------- -------------------- ---------------------------------
UNIT TYPE JANUARY 1998 JULY 1998 PERCENT INCREASE
- --------------------------------- --------------------- -------------------- ---------------------------------
STUDIO, 1 BA $ 755.00 $ 773.00 2.38%
ONE-BEDROOM, 1 BA $1,122.00 $1,153.00 2.76%
TWO-BEDROOM, 1 BA $1,363.00 $1,257.00 -7.78%
TWO-BEDROOM, 2 BA $1,694.00 $1,742.00 2.83%
THREE-BEDROOM, 2 BA $2,066.00 $2,542.00 23.04%
- --------------------------------- --------------------- -------------------- ---------------------------------
OVERALL AVERAGE $1,101.00 $1,140.00 3.54%
- --------------------------------- --------------------- -------------------- ---------------------------------
================================================================================
SOURCE: GRUBB & ELLIS CHICAGO/METRO APARTMENT STUDY, JULY 1998.
================================================================================
44
APARTMENT MARKET ANALYSIS
- -------------------------------------------------------------------------------
A breakdown of the current average market rents per square foot for the
four submarkets in the Chicago MSA, as prepared by Grubb & Ellis, is presented
in the following table.
================================================================================
AVERAGE APARTMENT RENT PER SQUARE FOOT
CLASS A, B, C
CHICAGO METROPOLITAN AREA, JANUARY 1998 VS. JULY 1998
- ------------------------------------ ----------------------- ------------------------ -------------------------
SUBMARKET JANUARY 1998 JULY 1998 PERCENT CHANGE
- ------------------------------------ ----------------------- ------------------------ -------------------------
CITY OF CHICAGO $1.46 $1.54 +5.48%
Northwest Cook County $0.96 $0.98 +2.08%
DuPage County $0.96 $0.97 +1.04%
Lake County $0.87 $0.86 -1.15%
- ------------------------------------ ----------------------- ------------------------ -------------------------
================================================================================
Source: Grubb & Ellis Chicago/Metro Apartment Study; July 1998.
================================================================================
As shown in the table above, three of the four apartment submarkets
experienced an increase in the average rent per square foot from January 1998 to
July 1998. The rent per square foot increases ranged from a low of 1.04 percent
in the DuPage County apartment submarket to a high of 5.48 percent in the City
of Chicago submarket. The Lake County submarket was the only sector to witness a
decline in the average rent per square foot during this time period.
According to Grubb & Ellis, the average occupancy rate in the Chicago
Class A apartment submarket, as of July 1998, increased from the January 1998
figure to 97.40 percent. The average Class A occupancy rate is identical to the
overall average occupancy rate for the City of Chicago, which was also reported
to be 97.40 percent, as of July 1998.
CITY OF CHICAGO APARTMENT MARKET OVERVIEW
The subject property is located in the city of Chicago, Cook County,
Illinois. The city of Chicago apartment market is comprised of six submarkets,
including the South Loop, the Loop, Gold Coast, River North, Near North and
North. The subject is located in the North submarket. The total supply is
estimated at 70,000 units, of which nearly 24,000 units have been constructed
since 1980. Over the past 20 years, the planners for the City of Chicago have
maintained a policy that encourages residential development. This policy views a
stable downtown population as the nucleus that binds its office, hotel, and
retail functions.
45
APARTMENT MARKET ANALYSIS
- -------------------------------------------------------------------------------
Traditionally, residential development has been focused on Chicago's
near north side; however, this trend has changed dramatically over the past ten
years with the introduction of several thousand residential units to the
downtown area. Development in this area first proceeded with luxury units along
Lake Shore Drive and low-rise units in River North. As the downtown area
continued to grow, the residential development spread to the south, through
Streeterville, into the East Loop, and west into the heart of River North.
INVENTORY
According to the July 1998 apartment market survey prepared by Grubb &
Ellis, the subject property is located in the North submarket. The North
submarket is defined by Fullerton Avenue to the south, Ashland Avenue to the
west, Irving Park Road to the north and Lake Shore Drive to the east. Of the six
downtown submarkets, comprising approximately 27,031 apartment units tracked by
the Grubb & Ellis survey, the North submarket is the third largest, representing
19.72 percent of the total inventory or approximately 5,330 units.
After a record number of apartment units were delivered to the downtown
market during 1991, the construction of downtown high-rise apartment complexes
halted. The absence of high-rise apartment construction over the past several
years has been primarily due to downward pressures on effective rents caused by
the general recession, overbuilding in the downtown high-rise apartment market,
increased home ownership and lack of available financing. These factors, which
virtually suspended new high-rise apartment construction in Chicago, promoted
the biggest wave of condominium conversions in more than a decade.
CONDOMINIUM CONVERSION ACTIVITY
Condominium conversions have rebounded sharply since the early-1980's,
when high interest rates caused the market to slump. The primary factors fueling
the conversion market were continued low interest rates and the tax advantage of
home ownership on the demand side; and increasing operating expenses and
existing heavy debt obligations, which threatened the economic feasibility of
many stabilized apartment buildings, on the supply side. Reportedly, between
1991 and 1999, there have been 17 conversion of rental apartment buildings to
condo in downtown Chicago. These total more than 4,000 units, of which,
approximately 75.0 percent have sold. Rental developments with larger unit sizes
and higher bedroom counts are the most likely conversion candidates. Examples of
conversion activity in downtown Chicago are presented in the following
discussion.
46
APARTMENT MARKET ANALYSIS
- --------------------------------------------------------------------------------
Three new condominium conversion have been announced (officially) in the
last nine months, the Gold Coast Galleria, the Grand Ohio and the 401 East
Ontario.
- The Gold Coast Galleria, located at 111 West Maple, represents a
34-story, 331-unit complex which recently began sales. Local
investor, Nicholas Gouletas, is leading this project.
- Draper and Kramer, which recently purchased the property, began
marketing 593 units at the Grand Ohio. The Grand Ohio represents a
27-story building and is located at 211 East Ohio Street.
- Draper and Kramer, which also recently purchased this property,
began marketing 394 units at 401 East Ontario in July 1998. The
project is reportedly 50.0 percent sold out, with strong sales
expected in the latter half of 1999.
In addition to these recently announced conversions, we were able to
obtain more extensive details of the following properties which represent more
established condo conversion projects.
- According to the Sales Manager at River View (previously Cityfront
Center), the south half of the property's Mid-Rise tower was
converted in 1997 (about 220 units), while the north half was
converted in 1998. The tower, which is considered in direct
competition with the subject property, remains a rental property.
The tenant program began in late June/ early July 1997, while
sales to the public occurred shortly thereafter. Sources report
that the tenant program was strong with 25-30 percent of the
tenants buying a unit. However, we have heard from another source,
that the tenant program was slower than this reported pace.
Reports from one of the tenants at the North McClurg Building
indicate that MCL is telling tenants that they had until October
1997 to buy or move out. In addition, this resident stated that
MCL will not discuss upgrades until a contract is signed. It
should be noted that this information came from a third party
source that spoke to a resident in this building. Based on
information that we have gathered to date, the average price is
between $200 and $205 per square foot before the 10 percent tenant
discount is applied.
- Draper and Kramer's luxury 140-unit building in the Lake Meadows
complex completed their conversion program in mid-1998. The
average price per square foot ranged between $100 and $115 PSF.
47
APARTMENT MARKET ANALYSIS
- -------------------------------------------------------------------------------
- An affiliate of Golub & Company purchased 40 East Delaware Place
in 1997 and converted the 17-story, 75-unit apartment complex to
condominiums. The building was operated as the Maryland Hotel
until 1983, when it was fully renovated and converted for
apartment use. The building is located at the northwest corner of
Delaware Place and Rush Street, one block west of North Michigan
Avenue.
- Markwell Properties has completed the conversion of the Chicago
Motor Club office building to residential condominiums. Despite a
90 percent occupancy rate, the 15-story office building located at
68 East Wacker was not a financial success. The plans included 14
condominium units measuring 4,400 square feet, which would sell
for an average of $1.3 million. Markwell Properties purchased the
property from TA Realty and completed the project in 1997.
According to a recent article in the CHICAGO TRIBUNE, the City of
Chicago is considering a plan to induce developers to convert more older office
buildings for residential use, as a way to shore up the downtown tax base,
preserve historic structures, and maintain the vitality of the central business
district. The plan includes a progressive attitude about building and zoning,
and subsidies for infrastructure improvements. The money would come from the
$300.0 million in revenues generated by the Loop TIF district. The city has
identified more than 100 Loop buildings built before 1940.
Several other rumors about conversions have been surfacing; including
River City totaling 446 units and two projects in Printers Row/ Dearborn Station
totaling over 400 units which are being analyzed for conversion potential.
Finally, many of the other buildings that had HUD mortgages have
condominium potential. These include Doral Plaza, Burnham Plaza, 2 East 8th,
1212 South Michigan, Clark Elm, and the Old Franklin and Terminal Building. The
Oakwood has been discussed as a conversion candidate as has Doral Plaza. Habitat
has 711 Gordon Terrace under contract, a 96-unit duplex-style complex on the
north side. Apparently, 50 percent of the serious bidders were condominium
converters. Listed at $6.5 million, the bidding reportedly went above $7.5
million.
NEW APARTMENT DEVELOPMENT
As a result of the significant amount of conversion activity, residents
that desire to maintain their rental lifestyle in luxury oriented buildings have
increasingly fewer options.
48
APARTMENT MARKET ANALYSIS
- -------------------------------------------------------------------------------
After many difficult years, the conversion market has enhanced the outlook for
the downtown apartment market by decreasing the supply of available apartment
units.
As noted within this analysis, the downtown rental market has
experienced strong rental growth throughout the past several years, and is
currently experiencing high single-digit rental growth. Additionally, as of July
1998, apartment occupancies in the six downtown submarkets ranged from 96.6 to
98.7 percent, with an overall average of 97.4 percent. Strong rental growth and
increasing occupancies, combined with significant conversion activity, has
initiated a renewed interest in several downtown residential developments.
However, with an 18 to 24 month delivery period, the majority of
planned/proposed rental units are two years away. A detailed analysis regarding
expected and potential new rental development follows.
The first groundbreaking ceremony in six years regarding rental
development within the downtown Chicago market occurred in early December 1997.
This project, known as Cathedral Place (1W. Superior) is located on the block
bounded by Dearborn, Superior, Huron and State Street. The development is
comprised of an 810-unit apartment component, with an average unit size of 650
square feet, 52,000 square feet of retail/office space and 750 parking spaces.
Cathedral Place is expected to begin delivering units in late 1999 or in early
2000.
In addition to Cathedral Place, the next new development in the near term
will be located on a site east of Michigan Avenue. The site, proposed for
development by Draper and Kramer, is located on the block bounded by Fairbanks
Court, Ohio Street and Grand Avenue. Draper and Kramer, an active developer in
downtown Chicago, is proposing a 295-unit apartment development, including
13,000 square feet of retail space and 300 parking spaces. Reportedly, the
development could break ground in the next two months. This is one of two rental
developments expected east of Michigan Avenue.
The second new development broke ground in May 1999 with a location east
of Michigan Avenue and will be known as the River East Complex. MCL is the
developer and when completed the project will be located at the Northwest and
Northeast corners of Illinois Street and McClurg Court. According to
representatives of MCL, the River East Complex will represent a mixed-use
project consisting of hospitality, retail and residential type uses. With regard
to the residential portion of the plan, approximately 400 new luxury rental
units will be constructed within a high-rise setting. This figure, however, is
currently under consideration due to voices of concern from City Hall and local
neighborhood organizations.
49
APARTMENT MARKET ANALYSIS
- -------------------------------------------------------------------------------
River Front Park is a proposed 40-story, 600-unit apartment complex
located at the northwest corner of Kinzie and Dearborn Streets in the River
North submarket of downtown Chicago. The luxury apartment complex will have an
average unit size of 775 square feet, 20,000 square feet of retail space, and
350 parking spaces in a five-story parking garage. This project was reported to
be on hold due to an incomplete financing package.
The Sterling is a 387-unit luxury apartment tower to be located at the
southeast corner of LaSalle and Kinzie Street in downtown Chicago. The Sterling
is situated two blocks west of River Front Park. The proposed 48-story building
will house 387 apartment units with an average size of 1,019 square feet, a
535-stall, nine-level parking garage, 17,000 square feet of retail space and a
16,400 square foot health club and pool.
Additional planned projects include a 36-story, 230-unit complex at 121
W. Chestnut, currently proposed by the Barton Investments/Jannes Building joint
venture and a 45-story, 450-unit complex located in the Illinois Center Complex
(200 North Columbus), currently proposed by a joint venture including the
Charles E. Smith Corporation.
In addition, there are a number of vacant land parcels in downtown
Chicago which have been considered for apartment development for many years;
however, no significant progress has been made. Several projects had been
expected to break ground by now but have been delayed because of financing and
unrelated issues. Hard costs have tended to remain constant while the land
carry/costs continues to increase as developments are delayed. In addition, we
are finding significant dollars being budgeted for financing and equity
placement fees. While the equity money is available, it is also expensive.
While developers have been attempting to begin rental high-rise
construction for the past two years, increasing labor and land costs have made
new construction difficult to justify. The market is currently experiencing
strong demand, increasing rent levels and a depletion of existing supply due to
conversions and the lack of new construction. The market continues to tighten,
with rents rapidly approaching levels to justify new construction. The downtown
rental market will not likely see any new rental competition delivered before
the year 2000, but may witness a surge of new product thereafter.
OCCUPANCY AND RENTAL RATES
As of July 1998, the overall average apartment occupancy in the North
submarket was 97.9 percent, a 0.30 percent increase from January 1998, according
to the Grubb & Ellis
50
APARTMENT MARKET ANALYSIS
- -------------------------------------------------------------------------------
study. The survey further delineates the North submarket by property type ( as
discussed previously, we believe the subject is representative of Class A
product). Class A apartment buildings exhibited an average occupancy rate
consistent with that of the overall market, or 97.3, as of July 1998. Average
occupancy rates for Class A apartment complexes in downtown Chicago over the
past year are summarized in the table on the following page.
51
APARTMENT MARKET ANALYSIS
- -------------------------------------------------------------------------------
===============================================================================
AVERAGE OCCUPANCY RATES IN CLASS A APARTMENT COMPLEX
DOWNTOWN CHICAGO - JULY 1998 VS. JULY 1997
- ----------------------------- -------------------------- --------------------------- --------------------------
SUBMARKET JULY 1998 JULY 1997 % CHANGE
- ----------------------------- -------------------------- --------------------------- --------------------------
South Loop 98.60% 97.30% +1.34%
Loop 96.50% 97.70% -1.23%
Gold Coast 96.90% 97.00% -0.10%
River North 98.20% 96.80% +1.45%
Near North 98.70% 99.20% -0.50%
North 97.30% 98.50% -1.22%
- ----------------------------- -------------------------- --------------------------- --------------------------
Average 97.40% 97.40% 0%
- ----------------------------- -------------------------- --------------------------- --------------------------
================================================================================
Source: Grubb & Ellis Chicago/Metro Apartment Study, July 1998 and July 1997.
================================================================================
Furthermore, Grubb & Ellis has reported the average rent for Class A
apartment buildings in the North submarket at $1.58 per square foot in July
1998, as compared to $1.55 per square foot in January 1998. Average rental rates
for Class A Apartment complexes located in downtown Chicago are summarized in
the following table.
================================================================================
AVERAGE RENTAL RATES IN CLASS A APARTMENT COMPLEX
DOWNTOWN CHICAGO - JULY 1998 VS. JULY 1997
- ----------------------------- -------------------------- --------------------------- -------------------------
SUBMARKET JULY 1998 JULY 1997 % CHANGE
- ----------------------------- -------------------------- --------------------------- -------------------------
South Loop $1.19 $1.13 + 5.31%
Loop $1.54 $1.45 + 6.21%
Gold Coast $1.70 $1.58 + 7.60%
River North $1.58 $1.46 + 8.22%
Near North $1.58 $1.42 +11.27%
North $1.58 $1.57 + 0.64%
- ----------------------------- -------------------------- --------------------------- -------------------------
Average $1.56 $1.47 + 6.12%
- ----------------------------- -------------------------- --------------------------- -------------------------
================================================================================
Source: Grubb & Ellis Chicago/Metro Apartment Study, July 1998 and July 1997.
================================================================================
COMPETITIVE MARKET
The subject property contains 901 apartment units in a 56-story
residential building. Park Place Tower represents a high-rise apartment complex
situated near Lake Shore Drive, along the western shore of Lake Michigan.
Competitive high-rise apartment complexes in the area share similar lake and
skyline views and offer a large number of amenities such as a health club,
swimming pool, parking garage, laundry room, 24-hour doorman, dry cleaners, and
convenience store. While some buildings may lack some of the above amenities in
their building, these services may be located nearby. The typical tenants are
white-collar workers who are employed in Chicago's Central Business District.
Tenants are often attracted to these buildings by their prestigious image,
project amenities, convenient location to employment centers and other
locational amenities and security. In our survey of the Chicago apartment
52
APARTMENT MARKET ANALYSIS
- -------------------------------------------------------------------------------
market, we uncovered four apartment projects in, or around the North Submarket,
which are considered to be competitive, to varying degrees, with the subject.
We conducted a market analysis, which concentrated on four high-rise
apartment projects, located near, or along Lake Shore Drive, in northeastern
Chicago, representing a total of 1,566 units. These apartment projects revealed
occupancy levels ranging from 96.0 to 100.0 percent, with an average occupancy
rate of 97.75 percent, which is generally consistent with the overall average
occupancy rate of 97.40 for the City of Chicago, as surveyed by Grubb & Ellis,
July 1998. It is noted that the subject property includes the tenant's heating
and cooling expenses in its quoted rental rates. Two of the projects selected
include tenant heating and cooling expenses in their quoted rates while two do
not. In determining the market orientation of subject's quoted rental rates we
have given this factor consideration and adjusted accordingly. The following
pages provide an apartment rental survey chart, a location map, and a detailed
description of each property.
53
APARTMENT MARKET ANALYSIS
- -------------------------------------------------------------------------------
===============================================================================
APARTMENT RENTAL SURVEY
- -------------------------------- ------- -------- ------------- ------------- ------------- ----------- --------
AVERAGE
NAME/ YEAR NO. REPORTED APT. TYPE MONTHLY SIZE RENTAL RATE
LOCATION BUILT UNITS OCCUPANCY BR/BA RENT(1) PER SF RANGE/SF
- --------------------------- ------- -------- ------------- ------------- ------------------------- ------------
R-1 1988 593 98% Studio $760-$1,050 540 $1.41-$1.94
The New York Convertible $957-$1,250 675 $1.42-$1.85
3660 North Lake Shore Drive 1 BR/1BA $935-$1,450 750 $1.25-$1.93
Chicago, IL 2 BR/2BA $1,590-$2,200 1,170 $1.36-$1.88
- --------------------------- ------- -------- ------------- ------------- ------------------------- ------------
R-2 1985 253 100% Studio/
The Park Sheridan Convertible $755-$905 595 $1.27-$1.52
5320 North Sheridan Road 1 BR/1 BA $920-$1,100 766 $1.20-$1.44
Chicago, IL 2 BR/2BA $1,205-$1,450 1,025 $1.18-$1.41
3 BR/2BA $1,515-$1,675 1,205 $1.26-$1.39
- --------------------------- ------- -------- ------------- ------------- ------------------------- ------------
R-3 1980 264 97% Studio/
Pensacola Place Convertible $710-$765 540 $1.31-$1.42
4334 North Hazel Street 1 BR/1BA $890-$945 810 $1.10-$1.17
Chicago, Illinois 2 BR/1BA $1,085-$1,140 1,038 $1.04-$1.10
2BR/1.5BA $1,165 1,025 $1.14
- --------------------------- ------- -------- ------------- ------------- ------------------------- ------------
R-4 1966 456 96% Studio/
Hawthorne House Convertible $750-$850 600 $1.25-$1.42
3450 North Lake Shore Drive 1 BR/1BA $1,050-$1,150 850 $1.23-$1.35
Chicago, Illinois 2 BR/2BA $1,450-$1,750 1,100 $1.32-$1.59
- --------------------------- ------- -------- ------------- ------------- ------------------------- ------------
======================================================================
- --------------------------- ------------------- --------------------
AVERAGE RENTAL
NAME/ RATE/SF OVERALL WEIGHTED
LOCATION OVERALL AVERAGE RENTAL RATE
- --------------------------- ------------------- -------------------------
R-1 $1.68
The New York $1.63
3660 North Lake Shore Drive $1.59 $1.62/SF
Chicago, IL $1.62
- --------------------------- --------------- -------------------------
R-2
The Park Sheridan $1.40
5320 North Sheridan Road $1.30 $1.32/SF
Chicago, IL $1.30
$1.32
- --------------------------- --------------- -------------------------
R-3
Pensacola Place $1.37
4334 North Hazel Street $1.13 $1.17/SF
Chicago, Illinois $1.07
$1.14
- --------------------------- --------------- -------------------------
R-4
Hawthorne House $1.33
3450 North Lake Shore Drive $1.29 $1.33/SF
Chicago, Illinois $1.46
- --------------------------- --------------- -------------------------
================================================================================
(1) The quoted rental rates regarding comparable rentals R-2 and R-3 DO NOT
include heating expenses, where as the quoted rental rates for comparable
rentals R-1 and R-4 DO include heating expenses.
================================================================================
54
APARTMENT MARKET ANALYSIS
- -------------------------------------------------------------------------------
Insert rental map
55
APARTMENT MARKET ANALYSIS
- --------------------------------------------------------------------------------
R-1
------------------------------------------------------------------
------------------------------------------------------------------
View: The New York
APARTMENT COMPLEX R-1, The New York is located at 3660 North Lake Shore
Drive in the Lakeview/Wrigleyville neighborhood. The New York was built
in 1988. The 47-story building includes 593 rentable units, which are
currently 98.0 percent occupied. The overall weighted average unit size
is 764 square feet. The average rental rates, which include heat and
air-conditioning, currently range from $1.52 to $1.68 per square foot,
per month. The overall weighted average monthly rent is $1.60 per square
foot, inclusive of heat and air-conditioning. According to management,
current rents represent an increase of 3.0 to 6.0 percent from 1998 rent
levels. At present, general rent concessions are not being offered.
The building features a community/party room, 24-hour doorman, central
storage, a fitness center, an outdoor swimming pool, a sun deck, and a
covered parking garage. Commercial space includes a dry-cleaner and a
small grocery store.
56
APARTMENT MARKET ANALYSIS
- --------------------------------------------------------------------------------
Monthly parking is $135 per space per month. Apartment amenities
include: cable television hook-ups, wall-to-wall carpeting, blinds,
dishwashers, balcony/patio and microwave oven. This complex enjoys lake
views, and is located just west of Lake Michigan, relatively proximate
to Chicago's Central Business District. The chart below represents the
unit mix, square footage and current monthly rental range for the New
York:
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
GROSS
MONTHLY RENT GROSS MONTHLY
AVERAGE SIZE PER SF RENTAL RATE
UNIT TYPE NUMBER OF % OF TOTAL AVERAGE RANGE/SF
UNITS UNITS AVERAGE/SF
--------------- ------------ ------------- --------------- ------------- -----------------
Studio 128 21.6% $760-$1,050 540 $1.41-$1.94
----------- --- -----------
$907 540 $1.68/SF
--------------- ------------ ------------- --------------- ------------- -----------------
Convertible 136 22.9% $957-$1,250 650-700 $1.42-$1.85
----------- ------- -----------
$1,100 675 $1.63/SF
--------------- ------------ ------------- --------------- ------------- -----------------
1BR/1BA 221 37.3% $935-$1,450 700-800 $1.25-$1.93
----------- ------- -----------
$1,193 750 $1.59/SF
--------------- ------------ ------------- --------------- ------------- -----------------
2BR/2BA 108 18.2% $1,590-$2,200 1,100-1,240 $1.36-$1.88
------------- ----------- -----------
$1,895 1,170 $1.62/SF
--------------- ------------ ------------- --------------- ------------- -----------------
TOTAL 593 100.00% 764 SF $1.62/SF
(Weighted (Weighted
Average) Average)
==========================================================================================
(1) Inclusive of heat and A/C.
==========================================================================================
57
APARTMENT MARKET ANALYSIS
- --------------------------------------------------------------------------------
R-2
------------------------------------------------------------------
------------------------------------------------------------------
View: The Park Sheridan
APARTMENT COMPLEX R-2, The Park Sheridan Apartment Complex, is located at
5320 North Sheridan Road, in Chicago's Lakeview/Edgewater neighborhood.
The Park Sheridan was built in 1985. The Park Sheridan Tower consists of
253 units, contained in one 25-story apartment tower, and is currently
100.0 percent occupied. The overall weighted average unit size is 822
square feet. The average rental rates, which EXCLUDE heat and
air-conditioning, currently range from $1.30 to $1.40 per square foot per
month. The overall weighted average monthly rent is $1.32 per square foot,
EXCLUSIVE of heat and air-conditioning. According to management, these
rents represent an increase of 2.0 to 5.0 percent from the 1998 rent
levels. At present, rent concessions are not currently being offered.
The building features a 24-hour doorman and concierge, an indoor swimming
pool, a sun deck, tennis courts, community room, common laundry
facilities, a fitness
58
center and a covered parking garage. Parking is $135 per month.
Apartment amenities include: cable television hook-up, wall-to-wall
carpeting, blinds and a balcony in each apartment unit. This 25-story
apartment complex offers panoramic city and lake views and is located
within close proximity to Lake Michigan. The following chart represents
the unit mix, square footage and current monthly rental range for The
Park Sheridan:
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
NUMBER OF % OF TOTAL GROSS GROSS MONTHLY
UNITS UNITS MONTHLY RENT(1) SIZE PER SF RENTAL RATE
AVERAGE AVERAGE RANGE/SF
UNIT TYPE AVERAGE/SF
---------------- ------------ ------------ ----------------- --------------- ----------------
Studio/
Convertible 46 18.2% $755-$905 595 $1.27-$1.52
--------- --- -----------
$833 595 $1.40/SF
---------------- ------------ ------------ ----------------- --------------- ----------------
1BR/1BA 138 54.5% $920-$1,100 702-830 $1.20-$1.44
----------- ------- -----------
$996 766 $1.30/SF
---------------- ------------ ------------ ----------------- --------------- ----------------
2BR/2BA 46 18.2% $1,205-$1,450 1,015-1,035 $1.18-$1.41
------------- ----------- -----------
$1,332 1,025 $1.30/SF
---------------- ------------ ------------ ----------------- --------------- ----------------
3BR/2BA 23 9.1% $1,515-$1,675 1,205 $1.26-$1.39
------------- ----- -----------
$1,591 1,205 $1.32/SF
---------------- ------------ ------------ ----------------- --------------- ----------------
TOTAL 253 100.00% 822 SF $1.32/SF
(Wgted Ave) (Wgted Ave)
==============================================================================================
(1) Exclusive of heat and A/C.
==============================================================================================
59
APARTMENT MARKET ANALYSIS
- --------------------------------------------------------------------------------
R-3
------------------------------------------------------------------
------------------------------------------------------------------
View: Pensacola Place
APARTMENT COMPLEX R-3, the Pensacola Place high-rise is located at 4334
North Hazel Street, in Chicago's Lakeview neighborhood. Pensacola Place
was built in 1980, consists of 264 units contained in one 18-story
apartment tower, and is currently 97.0 percent occupied. The overall
weighted average unit size is 823 square feet. The average rental rates,
which EXCLUDE heat and air-conditioning, currently range from $1.07 to
$1.37 per square foot per month. The overall weighted average monthly rent
is $1.17 per square foot, EXCLUSIVE of heat and air-conditioning.
According to management, these rents represent an increase of 2.0 to 5.0
percent from the 1998 rent levels. At present, rent concessions are not
currently being offered.
60
The building features a 24-hour doorman and concierge, an outdoor swimming
pool, a sun deck, tennis courts, community room, common laundry facilities
and a covered parking garage. Additionally, the property includes an
on-site Jewel/Osco grocery store and World's Gym. Parking is $125 per
month. Apartment amenities include: cable television hook-up, wall-to-wall
carpeting, blinds and a balcony in each apartment unit. This 18-story
apartment complex offers panoramic city and lake views and is located
within close proximity to Lake Michigan. The following chart represents
the unit mix, square footage and current monthly rental range for
Pensacola Place:
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
GROSS MONTHLY
GROSS RENTAL RATE
NUMBER OF % OF TOTAL MONTHLY SIZE PER SF RANGE/SF
UNIT TYPE UNITS UNITS RENT(1) AVERAGE AVERAGE/SF
AVERAGE
--------------- ------------ ------------- --------------- ------------ --------------
Studio/
Convertible 53 20.0% $710-$765 540 $1.31-$1.42
--------- --- -----------
$740 540 $1.37/SF
--------------- ------------ ------------- --------------- ------------ --------------
1BR/1BA 132 50.0% $890-$945 810 $1.10-$1.17
--------- --- -----------
$915 810 $1.13/SF
--------------- ------------ ------------- --------------- ------------ --------------
2BR/1BA 53 20.0% $1,085-$1,140 1,000-1,075 $1.04-$1.10
------------- ----------- -----------
$1,111 1,038 $1.07/SF
--------------- ------------ ------------- --------------- ------------ --------------
2BR/1.5BA 26 10.0% $1,165 1,025 $1.14
------ ----- -----
$1,165 1,025 $1.14/SF
--------------- ------------ ------------- --------------- ------------ --------------
TOTAL 264 100.0% 823 SF $1.17/SF
(Weighted (Weighted
Average) Average)
=======================================================================================
(1) Exclusive of heat and A/C.
=======================================================================================
61
APARTMENT MARKET ANALYSIS
- --------------------------------------------------------------------------------
R-4
------------------------------------------------------------------
------------------------------------------------------------------
View: Hawthorne House
APARTMENT COMPLEX R-4, Hawthorne House is located at 3450 North Lake Shore
Drive in Chicago's Wrigleyville/Lakeview neighborhood. Hawthorne House was
built in 1966, consists of 456 units contained in one 40-story apartment
tower, and is currently 96.0 percent occupied. The overall weighted
average unit size is 850 square feet. The average rental rates, which
INCLUDE heat and air-conditioning, currently range from $1.29 to $1.46 per
square foot per month. The overall weighted average monthly rent is $1.33
per square foot, INCLUSIVE of heat and air-conditioning. According to
management, these rents represent an increase of 3.0 to 6.0 percent from
the 1998 rent levels.
At present, rent concessions are not currently being offered.
62
The building features a 24-hour doorman and concierge, an outdoor swimming
pool, a sun deck, a fitness center, a community room, common laundry
facilities and a covered parking garage. Parking is $135 per month.
Apartment amenities include: cable television hook-up, wall-to-wall
carpeting, and blinds in each apartment unit. This 40-story apartment
complex offers panoramic city and lake views and is located within close
proximity to Lake Michigan. The following chart represents the unit mix,
square footage and current monthly rental range for Hawthorne House:
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
GROSS MONTHLY
GROSS RENTAL RATE
NUMBER OF % OF TOTAL MONTHLY SIZE PER SF RANGE/SF
UNIT TYPE UNITS UNITS RENT(1) AVERAGE AVERAGE/SF
AVERAGE
--------------- ------------ ------------- --------------- ------------ ---------------
Studio/
Convertible 91 20.0% $750-$850 600 $1.25-$1.42
--------- --- -----------
$798 600 $1.33/SF
--------------- ------------ ------------- --------------- ------------ ---------------
1BR/1BA 274 60.0% $1,050-$1,150 800-900 $1.23-$1.35
------------- ------- -----------
$1,097 850 $1.29/SF
--------------- ------------ ------------- --------------- ------------ ---------------
2BR/1BA 91 20.0% $1,450-$1,750 1,100 $1.32-$1.59
------------- ----- -----------
$1,606 1,100 $1.46/SF
--------------- ------------ ------------- --------------- ------------ ---------------
TOTAL 456 100.0% 850 SF $1.33/SF
(Weighted (Weighted
Average) Average)
=======================================================================================
(1) Inclusive of heat and A/C.
=======================================================================================
63
APARTMENT MARKET ANALYSIS
- --------------------------------------------------------------------------------
The following chart summarizes our survey of the four competitive
apartment complexes, by unit type:
===============================================================================================================
SUMMARY OF COMPETITIVE APARTMENT SURVEY
===============================================================================================================
TOTAL RANGE OF AVERAGE AVERAGE GROSS MONTHLY
UNIT TYPE NUMBER OF UNITS AVERAGE UNIT SIZE MONTHLY RENTAL RENTAL RATE/SF
SURVEYED PER SF RATES/SF
---------------------------------------------------------------------------------------------------------------
Studio/Convertible 454 569 $1.25 - $1.94/SF $1.48/SF
---------------------------------------------------------------------------------------------------------------
1BR/1BA 765 794 $1.10 - $1.93/SF $1.33/SF
---------------------------------------------------------------------------------------------------------------
2BR/2BA 324 1,072 $1.04 - $1.88/SF $1.32/SF
---------------------------------------------------------------------------------------------------------------
3BR/2BA 23 1,205 $1.26 - $1.39/SF $1.32/SF
---------------------------------------------------------------------------------------------------------------
TOTAL 1,566 791 $1.13 - $1.92/SF $1.37/SF
(Weighted Average) (Weighted Average)
(Weighted Average)
===============================================================================================================
VACANCY RATES
The Class A apartment market comprising the City of Chicago, Northwest
Cook County, DuPage County, and Lake County, as surveyed by Grubb & Ellis,
reports occupancy levels ranging from 97.0 percent to 98.10 percent, as of July
1998. Our survey of four northeastern Chicago luxury high-rise apartment
complexes revealed occupancy levels ranging from a low of 96.0 percent to a high
of 100.0 percent, with an average occupancy rate of 97.75 percent. This
information is presented in the table below.
========================================================================
OCCUPANCY RATES
DOWNTOWN CHICAGO HIGH-RISE APARTMENT COMPLEXES
========================================================================
R-1, The New York 98.0%
R-2, The Park Sheridan 100.0%
R-3, Pensacola Place 97.0%
R-4, Hawthorne House 96.0%
-------------------------------------------------------------------
AVERAGE 97.75%
========================================================================
For the purposes of stabilization, we have applied a 4.0 percent vacancy
rate for the subject property. Our vacancy assumption is supported by the
previously presented market data, as well as historical occupancy levels
achieved at the subject property. Please refer to the INCOME APPROACH section
for a more detailed discussion regarding vacancy rates.
64
APARTMENT MARKET ANALYSIS
- --------------------------------------------------------------------------------
CONCLUSION
Occupancy levels of luxury high-rise apartment complexes located within
the downtown area of Chicago have increased over the last four years, coupled
with healthy increases in monthly rental rates. Based on the high occupancy and
per square foot rental rates of the four Chicago luxury high-rise apartment
complexes we surveyed, it is evident that the local apartment market has
recovered from the last wave of downtown apartment construction, which ended in
1991, and resulted in an oversupply of units. While the overall downtown
apartment market is fundamentally strong, new construction deliveries in the
near- to mid-term future could serve to upset the current equilibrium. Overall,
it is our opinion that the subject's rent structure is supported by market-based
evidence, primarily by the historically achieved rent rate levels witnessed at
the property and the rent levels displayed by the comparable data. As such, we
believe the subject property will remain a viable project into the foreseeable
future.
65
APARTMENT MARKET ANALYSIS
- --------------------------------------------------------------------------------
Insert site plan
66
PROPERTY DESCRIPTION
- --------------------------------------------------------------------------------
SITE DESCRIPTION
Location: 655 West Irving Park Road Chicago,
Illinois
Shape: Irregular
Area: 123,818 square feet, or 2.84247 acres
Frontage: 336' along the south side of West
Irving Park Road 95' along the east
side of North Pine Grove, and 100'
along the north side of Sheridan
Road. The subject property includes a
private roadway, named Frontier
Avenue, that is shared with the
condominium property to the east.
This roadway extends southward from
Irving Park Road, approximately 284',
and forms the eastern boundary of the
north portion of the subject site
(see Site Plan on the facing page).
Topography/Terrain: Level and at street grade
Street Improvements: All the streets along
the perimeter of the subject property
are two-lane asphalt-paved roadways
with room for parallel parking on
both sides. The streets are further
improved with concrete curbs and
gutters, sidewalks, and street
lights.
Soil Conditions: We did not receive nor
review a soil report. However, we
assume that the soil's load-bearing
capacity is sufficient to support the
existing structure. We did not
observe any evidence to the contrary
during our physical inspection of the
property. The parcel's drainage
appears to be adequate.
Utilities
Water: City of Chicago
Sewer: City of Chicago
67
PROPERTY DESCRIPTION
- --------------------------------------------------------------------------------
Electricity: Commonwealth Edison
Gas: People's Gas
Telephone: Ameritech
Access: Access to the subject property can be
gained by curb cuts along Irving Park
Road, Pine Grove Avenue, Frontier
Avenue, and Sheridan Road. The main
entrance to the subject is along the
south side of Irving Park Road.
Land Use Restrictions: We reviewed a title
report prepared by First American
Title Insurance Company of the
Mid-West on April 28, 1989. Based
upon our review of the title report,
we do not believe that there are any
easements, encroachments, or
restrictions that would adversely
affect the site's use. However, we
recommend an attorney's opinion in
the final analysis regarding the
status of title, and whether any
adverse conditions exist.
Flood Hazard: According to the Northeastern
Illinois Planning Commission, the
subject property is not located in a
flood hazard area. Map # H-01-75 of
the National Flood Insurance Program
was referenced.
Wetlands: We were not given a Wetlands survey.
If subsequent engineering data reveal
the presence of regulated wetlands,
it could materially affect property
value. We recommend a wetlands survey
by a competent engineering firm.
Seismic Hazard: The site is not located in a Special
Study Zone.
Hazardous Substances: We observed no evidence of toxic or
hazardous substances during our
inspection of the site. However, we
are not trained to perform technical
environmental inspections and
recommend the services of a
professional engineer for this
purpose.
68
PROPERTY DESCRIPTION
- --------------------------------------------------------------------------------
Comments: The site appeared to be well-kept at
the time of inspection. Additionally,
the site appeared to be functional
for the existing high-rise apartment
and parking use.
IMPROVEMENTS DESCRIPTION
General Description
Year Built: 1973
Unit Size and Mix:
- --------------------------------------------------------------------
UNIT MIX
- --------------------------------------------------------------------
- --------------------------------------------------------------------
NET
NO. SIZE RENTABLE
UNIT TYPE UNITS (SF) AREA (SF)
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Studio-A5 53 533 28,249
- --------------------------------------------------------------------
Studio-A9 53 533 28,249
- --------------------------------------------------------------------
Studio-A11 31 533 16,523
- --------------------------------------------------------------------
Convertible-A7 53 600 31,800
- --------------------------------------------------------------------
1BD/1BA-B3 53 762 40,386
- --------------------------------------------------------------------
1BD/1BA-B11 22 762 16,764
- --------------------------------------------------------------------
1BD/1BA-B13 53 762 40,386
- --------------------------------------------------------------------
1BD/1BA-B15 53 762 40,386
- --------------------------------------------------------------------
1BD/1BA-B16 53 834 44,202
- --------------------------------------------------------------------
1BD/1BA-B4 53 835 44,255
- --------------------------------------------------------------------
1BD/1BA-B6 53 835 44,255
- --------------------------------------------------------------------
1BD/1BA-B8 53 835 44,255
- --------------------------------------------------------------------
1BD/1BA-B12 53 835 44,255
- --------------------------------------------------------------------
1BD/1BA-B14 53 835 44,255
- --------------------------------------------------------------------
1BD/1BA-B17 53 841 44,573
- --------------------------------------------------------------------
2BD/2BA-F1 53 1,150 60,950
- --------------------------------------------------------------------
2BD/2BA-F2 53 1,150 60,950
- --------------------------------------------------------------------
2BD/2BA-F10 53 1,150 60,950
====================================================================
TOTAL/WEIGHTED AV. 901 816 735,643
- --------------------------------------------------------------------
Average Unit Size: 816 square feet
Density: 317 units per acre
69
PROPERTY DESCRIPTION
- --------------------------------------------------------------------------------
Construction Detail
Foundation: Reinforced concrete
Framing: Steel and concrete
Floors: Concrete
Number of Stories: 56
Exterior Walls: Concrete and glass (set in
aluminum frames)
Roof Structure: Flat
Roof Cover: Rubber membrane
Windows: Single-pane set in aluminum frames
Exterior Doors: There are four entrances to
the subject property. The main
entrance, located along Irving Park
Road, as well as the secondary
entrance, along Pine Grove, each have
a revolving door flanked by two side
doors. There is one steel door
leading to the garage, and there is a
loading area with steel doors.
Mechanical Detail
Heating and Cooling: Baseboard radiator heat
throughout, and coldwater circulation
for cooling.
Plumbing: Standard fixtures
Electrical Service: 120 Volt throughout
Elevator Service: There are six passenger and
two freight elevators
70
PROPERTY DESCRIPTION
- --------------------------------------------------------------------------------
Fire Protection: Only the garbage "shute
rooms" have sprinklers. Each floor
has three fire exits, three water
hoses, and a centrally monitored heat
and smoke sensor. Additionally, each
apartment unit is equipped with a
battery-operated smoke detector.
Security: There is a 24-hour doorman and a
private security patrol between 6:00
p.m. and 12:00 a.m. on Monday through
Thursday, and throughout the
weekends, beginning at 6:00 p.m. on
Fridays and extending until 12:00
a.m., on Monday.
Interior Detail
Floor Covering: The common-area hallways
have commercial grade carpeting,
while the main lobby has a
combination of Terrazzo and carpet.
The apartment units have carpeting,
except in the kitchen and bathroom
areas, which have vinyl- and
ceramic-tile floors, respectively.
Walls: Painted drywall throughout
Ceilings: Painted concrete
Lighting: Primarily incandescent
Kitchen Appliances: Include a stove, a dishwasher and a
refrigerator. A complete renovation
of the subject's kitchens was
performed in 1995-96. Such renovation
included new vinyl-tile flooring, new
lighting, new frost-free
refrigerators, and newly painted
cabinets.
Bathrooms: Standard residential fixtures with
vanity sink, a medicine cabinet, and
ceramic-tile floors.
Site Improvements
On-Site Parking: A two- and three-story parking garage
provides parking for approximately
593 cars.
71
PROPERTY DESCRIPTION
- --------------------------------------------------------------------------------
Landscaping: Site improvements include concrete
driveways and walkways, and
landscaping along the perimeter of
the building. Such landscaping
includes small bushes, ground
covering, plants and grass.
Other Amenities: Site and building amenities include a
swimming pool, two tennis courts, a
volleyball court, an exercise room, a
laundry room, a community room, a
bike room, and storage facilities.
Condition: At the time of inspection, the
property was in average condition.
Recently completed improvements
include a newly remodeled lobby, new
exterior landscaping near the
pedestrian entryways, a renovated
exercise room, newly painted and
carpeted hallways, a renovated
leasing office, and a new children's
playground on the recreation deck,
above the parking structure.
Additionally, the building's cooling
system has been rebuilt, as have the
mechanical systems for the swimming
pool and the ventilation systems of
the parking structure. Finally, the
concrete exterior of the building
recently underwent structural and
cosmetic repairs. Planned
improvements for the property's
future include a renovation of the
building's heating system; continued
repair to the building's exterior
walls and windows; sealing of the
parking garage deck; the replacement
of all electrical fuse panels; and
the installation of a storm water
flood valve. The economic impact of
these programs on the subject's
estimated market value is discussed
in detail in the INCOME APPROACH
section of this analysis.
Americans With Disabilities Act: The Americans With Disabilities Act
(ADA) became effective January 26,
1992. We have not made, nor are we
qualified by training to make, a
specific compliance survey and
analysis of this property to
determine
72
PROPERTY DESCRIPTION
- --------------------------------------------------------------------------------
whether or not it is in conformity
with the various detailed
requirements of the ADA. It is
possible that a
73
PROPERTY DESCRIPTION
- --------------------------------------------------------------------------------
Stacking plan
74
PROPERTY DESCRIPTION
- --------------------------------------------------------------------------------
compliance survey and a detailed
analysis of the requirements of the
ADA could reveal that the property is
not in compliance with one or more of
the requirements of the Act. If so,
this fact could have a negative
effect upon the value of the
property. Since we have not been
provided with the results of a
survey, we did not consider possible
non-compliance with the requirements
of ADA in estimating the value of the
property.
Hazardous Substances: We are not aware of any
potentially hazardous materials (such
as formaldehyde foam insulation,
asbestos insulation, radon gas
emitting materials, or other
potentially hazardous materials)
which may be used in the construction
of the improvements. However, we are
not qualified to detect such
materials and urge the client to
employ an expert in the field to
determine if such hazardous materials
are thought to exist.
Design Features
and Functionality: The subject property appears to be of
a functional design, in terms of both
the unit floor plans and the overall
building layout. A building stacking
plan is presented on the facing page
while individual floor plans are
presented in the ADDENDA section of
this report. At the time of
inspection, the building appeared to
be in average condition. However, the
number, quality, and condition of the
amenities continues to make the
subject highly competitive with
similar apartment building in the
market.
Physical Condition: As stated previously, the subject
property generally appeared to be in
average condition at the time of
inspection.
75
PROPERTY DESCRIPTION
- --------------------------------------------------------------------------------
Personal Property Included
In Value Estimate: While by definition these items are
considered personal property (stoves,
ranges, refrigerators, ovens,
dishwashers, etc.), the market
perceives them to be necessary
fixtures required in order to
maintain the functional adequacy of a
multi-family complex. As such, these
particular items typically are not
allocated a separate value, but
included within a property's overall
sale price or estimated value. Based
on current market practice's, we have
not assigned a separate estimate of
value for these items, but rather
have included their contributory
value within our reconciled market
value estimate of the subject
property.
76
REAL PROPERTY TAXES AND ASSESSMENTS
- --------------------------------------------------------------------------------
Apartment buildings (over six units) in Cook County are assessed at
33.33 percent of the assessor's opinion of market value. Properties are
reassessed every three years in Cook County. Assessments are subject to a
state-equalizing factor to make assessments uniform throughout the state. The
1997, payable in 1998 equalization factor for Cook County is 2.1489. Real estate
taxes are paid in arrears; taxes are payable in two installments on March 1st
and September 1st of the respective year. In accordance with Chapter 120,
Section 705, of the Illinois Revised Statutes, the first installment tax bill of
the respective year is based on 50.0 percent of the prior year's taxes. The
second installment reflects the increase in real estate taxes. The subject
improvements are identified by two tax parcel numbers. The tax parcel numbers,
equalized value, and real estate tax liability for 1998 are summarized in the
following table. The 1998 real estate tax rate equates to $8.843 per $100 of
equalized value.
===============================================================================================================
REAL ESTATE TAXES & ASSESSMENT
PARK PLACE TOWER
- ---------------------------------------------------------------------------------------------------------------
ASSESSOR'S OPINION STATE EQUALIZATION 1997 TAX LIABILITY
PARCEL NUMBERS OF MARKET VALUE VALUATION PAYABLE IN 1998
ASSESSMENT
- ---------------------------------------------------------------------------------------------------------------
14-21-101-031 $ 816,542 $ 269,459 $ 579,040 $ 51,205
14-21-1-1-032 $ 27,297,518 $ 9,008,181 $ 19,357,680 $ 1,711,800
- ---------------------------------------------------------------------------------------------------------------
TOTAL $ 28,114,060 $ 9,277,640 $ 19,936,720 $ 1,763,005
===============================================================================================================
The subject property's 1997 real estate taxes, payable in 1998, were
$1,763,005, or $1,957 per apartment unit. Based on our experience and extensive
interviews with several prominent Chicago property management companies, real
estate taxes for downtown high-rise apartment buildings typically range from
$2,500 to $3,500 per apartment unit. With a 1998 real estate tax liability of
$1,957 per unit, we believe that, while consistent with historical amounts
actually incurred at Park Place, the subject's real estate tax liability and
corresponding assessment are somewhat less than what is typically associated
with buildings similar to the subject in the local market. As a direct result,
we believe that, were the subject property to transfer ownership, there would be
a high degree of certainty regarding an upward reassessment by the Cook County
Assessor's Office. As such, we have attempted to mirror the likely actions of
the assessor's office by assigning the subject property a more market oriented
per unit real estate tax liability. Based on the subject's age, condition,
current achieved rent levels and overall market position, we believe the
subject's "market derived" real estate tax liability should fall somewhere near
the mid-aspect of the above-cited range, or at approximately $3,000 per
apartment unit. This equates to $2,700,000, as rounded. We have utilized this
figure when stabilizing the subject's real estate tax liability for the purposes
of capitalization.
77
REAL PROPERTY TAXES AND ASSESSMENTS
- --------------------------------------------------------------------------------
In order to test the reasonableness of our real estate tax liability for
the subject property, we have presented the real estate tax liabilities at
several similar apartment complexes within the subject's market. Our findings
are presented in the following table:
TAX COMPARISONS
- ----------------------------------------------
NAME OF COMPLEX PER UNIT
- ----------------------------------------------
City Front Center $2,937
1120 N. LaSalle $2,130
401 East Ontario $3,230
Plaza 440 $2,964
- ----------------------------------------------
Based on the age and overall condition of the subject property relative
to the comparables, our estimated real estate tax liability of $3,000 per
apartment unit for the subject property appears reasonable and market oriented.
78
ZONING
- --------------------------------------------------------------------------------
The subject property is zoned "R-7", General Residence District, under
the City of Chicago's zoning ordinance (as amended through January 11, 1995).
This zoning designation, which covers the majority of the subject's
neighborhood, is intended to maintain the residential character of the area.
Permitted uses in this area include a variety of residential structures, as well
as numerous complementary uses including schools, restaurants, medical
facilities, and small professional offices and retail facilities in multi-story
multi-family housing structures designed principally for the convenience and use
of residents of such buildings.
We are not experts in the interpretation of complex zoning ordinances,
but the property appears to be a legal conforming use based on our review of
public information. The determination of compliance is beyond the scope of a
real estate appraisal. We know of no deed restrictions, private or public, that
further limit the subject property's use. The research required to determine
whether such restrictions exist, however, is beyond the scope of this appraisal
assignment. Deed restrictions are a legal matter, and only a title examination
by an attorney or title company can usually uncover such restrictive covenants.
Thus, we recommend a title search to determine if any such restrictions do
exist.
79
HIGHEST AND BEST USE
- --------------------------------------------------------------------------------
HIGHEST AND BEST USE OF SITE AS THOUGH VACANT
According to the DICTIONARY OF REAL ESTATE APPRAISAL, THIRD EDITION
(1993), a publication of the APPRAISAL INSTITUTE, the highest and best use of
the site as though vacant is defined as:
"Among all reasonable, alternative uses, the use that yields the highest
present land value, after payments are made for labor, capital, and
coordination. The use of a property based on the assumption that the
parcel of land is vacant or can be made vacant by demolishing any
improvements."
In evaluating the site's highest and best use, as if vacant, the use
must be (1) legally permissible, (2) physically possible, (3) financially
feasible and (4) maximally productive.
- - The first test concerns permitted uses. The subject site is zoned R-7 by
the City of Chicago. According to representatives of the Chicago Building
and Zoning Department, the area surrounding the site has been slated for
residential developments, including attached dwelling units and accessory
structures.
- - The second test is what is physically possible. As discussed in the
PROPERTY DESCRIPTION section of this report, the site's topography, and
soil conditions generally limit its use. With 2.84247 acres or 123,818
square feet, the subject site is large enough to accommodate most URBAN
land uses.
- - The third and fourth tests are, respectively, what is feasible and what
will produce the highest net return to the land. These items will be
addressed in tandem. Of primary significance to the financially feasible
uses of the property are its specific location, which influences the
possible alternatives for future development. The subject parcel has
frontage along Irving Park Road, North Sheridan Road Street and North Pine
Grove Avenue. In addition, the immediate area contains primarily
residential developments. Given the zoning limitations and the size of the
subject site, multi-family/retail development is considered feasible for
the subject site.
- - The specific location of the subject property is influenced by its
surrounding development and land use patterns. As discussed in the
NEIGHBORHOOD ANALYSIS section of this report, the surrounding land uses are
comprised primarily of residential type developments. There have been no
recent land sales or developments in the neighborhood that would have a
negative impact on the subject property. As discussed in the APARTMENT
MARKET ANALYSIS section of this report, the apartment market is at stable
levels of occupancy and overall, market rental rates have been increasing
moderately over the past year. Given the issue of maximal productivity,
multi-family residential development appears to be the most appropriate
development alternative.
80
HIGHEST AND BEST USE
- --------------------------------------------------------------------------------
- - Therefore, it is our opinion that the highest and best use of the subject
site, as vacant, is for multi-family residential development, likely
consisting of a high-rise apartment complex with complementary retail
development.
HIGHEST AND BEST USE OF PROPERTY, AS IMPROVED
According to the DICTIONARY OF REAL ESTATE APPRAISAL, highest and best
use of the property as improved is defined as:
"The use that should be made of a property as it exists. An existing
property should be renovated or retained as is so long as it continues
to contribute to the total market value of the property, or until the
return from a new improvement would more than offset the cost of
demolishing the existing building and constructing a new one."
The highest and best use "as vacant" and "as improved" must be
compatible. If the site value as though vacant is greater than the property as
improved (less demolition cost), then existing improvements have no value.
Sometimes existing improvements have interim use value. If the highest and best
use of the site is holding for future development, then the improvements might
make a short-term contribution to property value.
- - As noted in the PROPERTY DESCRIPTION section of this report, the subject
site is improved with a 901-unit high-rise apartment complex containing
735,643 square feet of net rentable area, plus related site
improvements. In addition, the subject has a retail/office portion with
11,175 square feet of net rentable area. The improvements were built in
1973, have been adequately maintained, and are functional in design.
Overall, the improvements appear to be in average.
- - As of July 31, 1999, the subject complex was 96.78 percent occupied and
was commanding an average rental rate of approximately $1.26 per square
foot. The data within the APARTMENT MARKET ANALYSIS reveals that the
Chicago apartment market is operating at stabilized levels. Further, the
subject property is competitive with other apartment complexes. The
retail/office component has historically operated at approximately 95.0
percent occupancy. As a result, it is our opinion that the existing
improvements are capable of providing a satisfactory return to the land
over both the near and long term. This conclusion is supported by the
data, analysis, and value conclusions presented in the balance of this
report.
- - Consequently, it is our opinion that the highest and best use of the
site, as improved, is for its continued use as an apartment complex
with complimentary retail space.
81
VALUATION PROCESS
- --------------------------------------------------------------------------------
Appraisers typically use three approaches in valuing real property the
Cost Approach, the Sales Comparison Approach and the Income Approach. The type
and age of the property and the quantity of data affect the applicability of
each approach in a specific appraisal situation.
IN THE COST APPROACH, THE FOLLOWING STEPS ARE UTILIZED IN ESTIMATING
MARKET VALUE:
- Estimated land value, as vacant;
- Estimated replacement cost new (including developer's overhead and
profit);
- Subtracted depreciation due to age and condition (as well as
functional and external obsolescence);
- Add site value to depreciated replacement cost new.
The Cost Approach is most relevant where sufficient information is
available to reasonably estimate the replacement cost new of the improvements as
well as the land value. Properties similar to the subject are typically
purchased based upon the quality and quantity of the income stream that they are
able to generate to the investor. The ability of a property to generate
sufficient income levels in order to fulfill investor expectations is rarely
tied to the cost to replace the property and, therefore, the Cost Approach is
generally not considered to be a reliable indicator of value for properties such
as the subject property. Further, the subject property was built in 1973, making
the estimate of physical depreciation conjectural in nature. Additionally, we
were not provided with detailed building plans to assist in developing a
reliable replacement cost analysis. Finally, the lack of applicable multi-family
vacant land sales along, or near Lake Shore Drive, make estimating an accurate
land value difficult. Due to these factors, we have not the developed the Cost
Approach in our analysis.
In this appraisal, we have used the Sales Comparison Approach and the
Income Approach to develop a market value estimate for the subject property.
82
VALUATION PROCESS
- --------------------------------------------------------------------------------
IN THE SALES COMPARISON APPROACH, WE PERFORMED THE FOLLOWING STEPS:
- Searched the market for recent sales.
- Analyzed those sales based on the sale prices per unit.
- Correlated the various value indications into a point value
estimate from within the range.
IN DEVELOPING THE INCOME APPROACH, WE:
- Studied rents in effect in this and competing complexes to
estimate potential rental income at market levels.
- Estimated income from sources other than apartment rentals.
- Studied the recent history of operating expenses at this and
competing properties to estimate an appropriate level of
stabilized expenses and reserves for replacement.
- Estimated net operating income by subtracting stabilized expenses
from potential gross income.
- Capitalized stabilized net operating income into an indication of
capital value, disregarding any existing financing.
The valuation process is completed by a reconciliation of the approaches
used.
83
COST APPROACH
- --------------------------------------------------------------------------------
METHODOLOGY
This approach consists of an analysis of the property's physical value.
The principle of substitution, the underlying rationale of this approach, holds
that no prudent person will pay more for a property than the price of a site and
the cost of constructing, without undue delay, an equally desirable and useful
property.
In the Cost Approach, these steps are followed in order to reach an
estimate of value:
1. estimate land value as if vacant and available to be developed to
its highest and best use;
2. estimate the replacement cost new of all improvements, including
both direct and indirect costs;
3. estimate the necessary developer's administrative overhead and
profit;
4. estimate accrued depreciation, if any, from physical, functional,
and/or external causes;
5. deduct accrued depreciation from the total cost new of all
improvements;
6. add land value and depreciated replacement cost to estimate the
market value of the property by this approach.
The Cost Approach is most relevant where sufficient information is
available to reasonably estimate the replacement cost new of the improvements as
well as the land value. Properties similar to the subject are typically
purchased based upon the quality and quantity of the income stream that they are
able to generate to the investor. The ability of a property to generate
sufficient income levels in order to fulfill investor expectations is rarely
tied to the cost to replace the property and, therefore, the Cost Approach is
generally not considered to be a reliable indicator of value for properties such
as the subject property. Further, the subject property was built in 1973, making
the estimate of physical depreciation conjectural in nature. Additionally, we
were not provided with detailed building plans to assist in developing a
reliable replacement cost analysis. Finally, the lack of applicable multi-family
vacant land sales along, or near Lake Shore Drive, make estimating an accurate
land value difficult. Due to these factors, we have not the developed the Cost
Approach in our analysis.
84
SALES COMPARISON APPROACH
- --------------------------------------------------------------------------------
METHODOLOGY
In the Sales Comparison Approach, we estimated value by comparing this
property with similar, recently sold properties in the surrounding or competing
area. Inherent in this approach is the principle of substitution, which holds
that when a property is replaceable in the market, its value tends to be set at
the cost of acquiring an equally desirable substitute property, assuming that no
costly delay is encountered in making the substitution.
By analyzing sales that qualify as arms-length transactions between
willing and knowledgeable buyers and sellers, we can identify value and price
trends. The basic steps of this approach are:
1. Research recent, relevant property sales and current offerings
throughout the competitive area;
2. Select and analyze properties that are similar to the property
appraised, considering changes in economic conditions that may
have occurred between the sale date and the date of value, and
other physical, functional, or locational factors;
3. Identify sales that include favorable financing and calculate the
cash equivalent price;
4. Reduce the sale prices to a common unit of comparison such as
price per unit, effective gross income multiplier, and overall
capitalization rate;
5. Make appropriate comparative adjustments to the prices of the
comparable properties to relate them to the property being
appraised; and
6. Interpret the adjusted sales data and draw a logical value
conclusion.
The most widely used and market-oriented unit of comparison for
properties such as the subject is the sales price per unit. All comparable sales
were analyzed on this basis. Provided on the following facing page is a summary
of the improved properties that we compared with the subject property. A map
displaying the location of the comparable sales relative to the subject property
is found on the following page.
85
Insert sales summary
SALES COMPARISON APPROACH
- ------------------------------------------------------------------------------
Insert sales map
87
SALES COMPARISON APPROACH
- ------------------------------------------------------------------------------
The sales prices exhibited by the comparable data range from $43,554 to
$77,640 per unit, with an average unit sales price of $65,280 per unit. The wide
range of unadjusted sale prices per unit reflect a variety of factors including
unit size, unit mix, age, condition, amenities, and more importantly, the style
of the units and the rents achieved by these units.
Since this approach relies on physical units of comparison, it requires
an adequate sample of recently sold properties that possess physical, economic,
and financial comparability to the subject property. Implicit in this definition
of comparability is the concept of utility, in that the motivation and needs of
a particular segment of market demand are comparably met, or served.
What constitutes an adequate market sample is dependent on the type of
property and the market context. With respect to apartment complexes, there
generally exists a relatively high degree of economic and financial
comparability, as well as reasonable physical comparability, together with a
level of sales activity sufficient to give credence to the Sales Comparison
Approach. The preceding improved property sales represent the sales of apartment
complexes that are considered comparable to the subject property.
Comparability of the physical, neighborhood, and economic
characteristics are the most important criteria in analyzing the comparable
improved property sales in relation to the subject property. The comparables
were constructed between 1957 and 1984, while the subject was built in 1973.
Reportedly, the comparable improved property sales were in average to good
condition at the time of sale. In addition, the occupancy rates of these
properties were at a stabilized level at the time of purchase.
It is noted that comparability does not imply an identical or exact
duplicate, but rather the possession of a similar utility and affected by
similar supply and demand forces. As such, differences exist between the subject
property and the comparables that must be considered in order to estimate an
accurate value for the subject property by this approach. Following is a
qualitative discussion regarding noted differences between the subject property
and the comparable data.
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SALES COMPARISON APPROACH
- ------------------------------------------------------------------------------
QUALITATIVE ANALYSIS
PROPERTY RIGHTS CONVEYED
As shown on the previous facing page, all of the comparables are
substantially occupied and encumbered by short-term leases; therefore, the
leased fee estate was conveyed in each case.
SELLER FINANCING/CASH EQUIVALENCY
All of the improved sales were either financed at market terms at the
time of sale or were all cash transactions. Therefore, no adjustments regarding
financing were required.
CONDITIONS OF SALE
The buyer's motivation in comparable sale I-3 was condominium conversion.
As previously discussed in the APARTMENT MARKET ANALYSIS section of this report,
condominium converters will pay a premium for an apartment building. Therefore,
this sale required a downward adjustment for condition of sale. We identified no
special motivational conditions concerning the other three comparable improved
sales and, as such, they required no adjustments for this factor.
MARKET CONDITIONS
The four sales occurred between February 1996 and April 1998. While
conditions regarding high-rise residential investments have improved over the
past several years, they have not changed significantly enough to warrant an
adjustment for this factor. As such, we have not applied a market condition
adjustment to the four sales presented.
OTHER
The additional considerations, mostly involving location, condition and
age-quality issues, are described in the following property data sheets.
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SALES COMPARISON APPROACH
- ------------------------------------------------------------------------------
IMPROVED PROPERTY SALE I-1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
View: McClurg Court Center
IMPROVED PROPERTY SALE I-1 is located at 600 North McClurg Court in
Chicago, Illinois and is commonly referred to as McClurg Court Center. The
1,075-unit apartment building is located in Chicago's Gold Coast
submarket. Smith Property Holdings purchased the high-rise building from
McClurg Court Associates (Jupiter Industries) in April 1998. The sale
transacted for $70,100,000 or $65,209 per unit. The transfer was
reportedly all cash to the seller; therefore, no cash equivalent
adjustment was required. The apartment building was approximately 95.0
percent occupied at the time of sale. The buyer reportedly plans to
maintain the property as a rental building and intends to invest
$4,000,000 in capital improvements in an attempt to raise achievable rent
levels. In addition to the residential units, McClurg Court Center is
serviced by a 52,000 square foot health club and 58,000 square feet of
ground floor
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SALES COMPARISON APPROACH
- ------------------------------------------------------------------------------
retail, which includes as it's largest tenant, a Cineplex Odeon Movie
Theater, whose lease runs through 2007. Physically, McClurg Court Center
consists of two, 45-story steel frame, common-corridor, high-rise
apartment buildings constructed in 1972. The property contains a total of
1,075 residential units, with a net rentable building area of 740,000
square feet, which is inclusive of the aforementioned retail space. Due to
its age and style, this property is considered to be similar to the
subject property in terms of overall style, condition and tenant appeal.
This property, however, enjoys a superior location when compared to the
subject's location.
McClurg Court Center offers 344 convertible units 464 square feet in size,
172 efficiency units of 464 square feet in size, 473 one-bedroom units 653
square feet in size, and 86 two-bedroom units 1,207 square feet in size.
Project amenities include: the health club mentioned earlier; a sundeck;
an indoor swimming pool; a sauna/steamroom; a whirlpool; a
conference/community room; a 24-hour doorman; tennis courts, racquetball
courts. Amenities are considered to be similar to the project amenities
offered at the subject property.
According to the selling broker, the net operating income at the time of
sale equated to $5,958,500 after a deduction for replacement reserves. As
such, the implied going-in capitalization rate equates to 8.5 percent.
This represents a blended rate, with the residential portion of the
property priced utilizing an 8.25 going-in capitalization rate.
Reportedly, this transfer included only 12.67 percent of the land area.
The remaining portion is on a ground lease.
91
IMPROVED PROPERTY SALE I-2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
View: 1120 North LaSalle Street
IMPROVED PROPERTY SALE I-2 is located at 1120 North LaSalle in Chicago,
Illinois. The apartment building is located on the border defining the
Near North and the Gold Coast submarket. Clark/Diversey Properties Limited
Partnership purchased the high-rise building in November 1996 from CAMCO.
The sale transacted for $19,650,000 or $74,715 per unit. The transfer was
reportedly all cash to the seller; therefore, no cash equivalent
adjustment was required. The apartment building was approximately 99.0
percent occupied at the time of sale. The comparable consists of a
20-story masonry, common corridor high-rise apartment building. The
property contains a total of 263 residential units and 3 retail units
located on the first floor. The gross building area is 200,319 square feet
plus a partial basement area. The residential net rentable area equals
195,409 square feet. The ground floor retail space consists of
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SALES COMPARISON APPROACH
- ------------------------------------------------------------------------------
approximately 5,215 net rentable square feet. This property was
constructed in 1981. The studio units range from 505 to 598 square feet,
the one-bedroom units range from 733 to 846 square feet, and the
two-bedroom units range in size from 933 to 953 square feet. According to
the buyer, the effective gross income was $3,580,706 and the net operating
income was $1,691,342, after replacement reserves. Based on the projected
stabilized income, the going-in capitalization rate equates to 8.61
percent and the effective gross income multiplier was 5.49. This property
is superior to the subject property in terms of location and condition,
but offers an inferior amenity package when compared to the subject
property.
93
SALES COMPARISON APPROACH
- ------------------------------------------------------------------------------
IMPROVED PROPERTY SALE I-3
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
View: 70 West Huron
IMPROVED PROPERTY SALE I-3, 70 West Huron, is a 239-unit apartment complex
located on the west half of the block bounded by Superior Street to the
north, Clark Street to the west and Huron Street to the south. 70 West
Huron is in the River North submarket of downtown Chicago. The building
was purchased by Invesco from Clark Huron Associates in April 1996. The
intended use is to convert the apartment building to condominiums. The
sale transacted for $18,556,000, or $77,640 per apartment unit. The
transfer was reportedly cash to the seller; therefore, no cash equivalent
adjustment was required. The 26-story apartment building was 97 percent
occupied at the time of sale. The gross building area is 257,086 square
feet, the net rentable area is 215,979 square feet, and the land area is
0.55 acres. The density equates to 435 units per acre. The basic
construction is steel frame and masonry
94
SALES COMPARISON APPROACH
- ------------------------------------------------------------------------------
exterior walls. It was constructed in 1984 and the building was in good
overall condition at the time of sale.
The property has 239 apartment units, allocated as 48 studios, 143
one-bedroom and 48 two-bedroom units. In addition, there is a five-story
parking garage with 149 covered parking spaces and 3,800 square feet of
commercial space on the first floor. At the time of sale, the commercial
tenants included a dry cleaner, Cooperfield's Market and a vacant space.
Building amenities include a fitness center, community/party room,
balconies, secured parking, patio, 24-hour security, and laundry rooms.
The buyer will reportedly invest $2.3 million to refurbish the building
for condominium use. The studio units were initially listed at $61,500 to
$81,000; the one- bedroom units at $91,900 to $144,500 and the two-bedroom
units were listed between $150,000 to $198,500. The effective gross income
was reportedly $2,915,000 and the net operating income was $1,360,000,
after replacement reserves. The indicated expense ratio is 53.3 percent.
Based on the projected stabilized income, the going-in capitalization rate
equates to 7.33 percent and the effective gross income multiplier was
6.37. Overall, this property is superior to the subject in terms of
condition and location, but relatively similar in regard to amenities.
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SALES COMPARISON APPROACH
- ------------------------------------------------------------------------------
IMPROVED PROPERTY SALE I-4
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
View: 3130 N. Lake Shore Drive
IMPROVED PROPERTY SALE I-4 is located at 3130 North Lakeshore Drive in
Chicago, Illinois. The apartment building is situated in the North
submarket. This property transacted in February of 1996. The purchase
price equated to for $12,500,000 or $43,554 per unit. This building was
constructed as a condominium building in 1972, but abandoned its sales
program at the time of construction due to a soft condominium market. The
transfer was reportedly all cash to the seller; therefore, no cash
equivalent adjustment was required. The apartment building was
approximately 96.0 percent occupied at the time of sale. The apartment net
rentable area is 200,508 square feet and the commercial rentable area is
2,700 square feet.
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SALES COMPARISON APPROACH
- ------------------------------------------------------------------------------
The 287-unit apartment building has an average apartment size of 699
square feet. The property has 144 indoor parking spaces. According to the
buyer, the effective gross income was $2,600,000 and the net operating
income was $1,348,000, after replacement reserves. Based on the stabilized
net operating income, the going-in capitalization rate equates to 10.78
percent and the effective gross income multiplier was 4.81. Overall, this
property is relatively similar to the subject in terms of location, but
offers inferior amenities and displays an inferior condition when compared
to the subject property.
The following chart summarizes our qualitative analysis between the
subject property and the comparable sales:
==============================================================================================================
IMPROVED SALES COMPARISON-PHYSICAL ASPECTS
COMP. PROPERTY PRICE OVERALL RATING
NO. IDENTIFICATION PER UNIT RELATIVE TO THE SUBJECT
I-1 McClurg Court Center $65,209 Superior
I-2 1120 N. LaSalle $74,715 Superior
I-3 70 West Huron $77,640 Superior
I-4 3130 N. Lake Shore Drive $43,554 Inferior
==============================================================================================================
QUANTITATIVE ANALYSIS
In addition to the consideration and adjustments necessary for location
and physical property characteristics, the most important factor regarding the
subject property is the net operating income per unit, relative to the
comparable sales. The net operating income per unit is a significant variable
and indicator. Rent levels reflect such factors as unit mix, unit sizes, unit
and project amenities, age, condition, quality, location, etc., and the net
operating income per unit measures the relative productivity of the complex.
Based on the above analysis, we compared the net operating incomes
($NOIs) per unit between the enclosed sales and the subject property. With this
technique, each of the respective comparable sale prices per unit is multiplied
by the $NOI per unit of the subject property and then divided by the comparables
corresponding $NOI per unit, which produces an adjusted value indication for the
subject property. A relationship exists between the sales price per unit and the
amount of income a complex is expected to achieve.
As noted previously, the comparable sales reflect a broad range of price
per unit indices from $43,554 to $77,640 per unit. As displayed, the price per
unit indications vary due to variations in location, exposure, unit type, unit
mix, unit sizes, project and unit amenities, age, condition, quality, and most
importantly, the level and quality of rental
97
SALES COMPARISON APPROACH
- ------------------------------------------------------------------------------
income which is determined collectively through the market perception of the
above noted factors.
We have found price per unit indications to be primarily affected by the
earning capacity of productivity of a given complex, i.e., the ability of an
apartment complex to achieve a particular level of net operating income per
unit. In this regard, the rental market is considered to accurately define
overall property quality and condition as the typical apartment tenant is highly
discerning about rental rates and strives to obtain the best possible location
and space for their rental dollars. Therefore, we believe that apartment
complexes can be effectively analyzed by their net operating income per unit, as
this reflects a property's income producing capabilities and operating
efficiencies.
The sales price per unit generally increases as the productivity ($NOI
per unit) of a particular complex increases. On occasion, some of the
comparables may display comparatively lower $NOI's per unit, but higher prices
paid on a per unit basis. This circumstance can be produced by the perceived
upside potential found in the comparable, the structure of existing leases, or
by changing rate of return requirements. Other variations in the general
relationship can occur when properties are in a non-stabilized, or otherwise
distressed condition when purchased.
Provided in the following chart is a summary of adjustment grid which
accounts for the disparity of the net operating incomes ($NOI's) per unit
between the comparables and the subject property. Again, with this technique,
each of the respective comparable sale prices per unit are multiplied by the
$NOI per unit of the subject and then divided by the comparables corresponding
$NOI per unit, which produces an adjusted value indication for the subject
property. The adjusted value indications for the subject property are
subsequently presented:
===============================================================================================================
PRICE PER SQUARE UNIT ADJUSTMENT SUMMARY
(BASED ON $NOI/UNIT)
- ---------------------------------------------------------------------------------------------------------------
Sale Number Sale Subject Sale Adjusted
$/Unit X $NOI/Unit (1) / $NOI/Unit = Price/Unit
- ---------------------------------------------------------------------------------------------------------------
I-1 $65,209/Unit X $4,952/Unit / $5,543/Unit = $58,256/Unit
I-2 $74,715/Unit X $4,952/Unit / $6,433/Unit = $57,514/Unit
I-3 $77,640/Unit X $4,952/Unit / $5,691/Unit = $67,558/Unit
I-4 $43,554/Unit X $4,952/Unit / $4,695/Unit = $45,938/Unit
===============================================================================================================
(1) Subject's NOI/Unit established in the Income Approach section.
===============================================================================================================
The adjusted sale prices per unit range from $45,938 to $67,558 with an
average adjusted sale price of approximately $57,317 per unit. Based on our
analysis of the subject's physical and locational characteristics in relation to
each of the comparable properties, we believe the value of the subject property
would lie within the range of the
98
SALES COMPARISON APPROACH
- ------------------------------------------------------------------------------
adjusted sale prices indicated by the comparable sales, or from $53,000 to
$55,000 per unit. Centering on the mid-aspect of this range, or at $54,000 per
unit, and using the subject total unit count of 901, an overall value conclusion
for the subject property by the SALES COMPARISON APPROACH of $48,650,000, as
rounded, is indicated.
INCOME APPROACH
- --------------------------------------------------------------------------------
METHODOLOGY
The Income Approach based upon the economic principle that the value of a
property capable of producing income is the present worth of anticipated future
net benefits. The net income projected for the property is translated into a
present value indication using the capitalization process. There are various
methods of capitalization that are based on inherent assumptions concerning the
quality, durability and pattern of the income projection.
The two most common methods of converting net income into value are
direct capitalization and discounted cash flow analysis. In direct
capitalization, the net operating income is divided by an overall rate extracted
from market sales to indicate a value. In the discounted cash flow method,
anticipated future net income streams and a reversionary value are discounted at
an appropriate rate of return to arrive at an estimate of present value. Where
the pattern of income is irregular due to existing leases that will terminate at
staggered future dates or due to the stabilization requirement on a newer
development, the discounted cash flow analysis is the most accurate.
In our opinion the direct capitalization method is most appropriate
here. The property is operating at a stabilized level and this is the analytical
method most likely to be used by potential investors. Again, with this technique
the estimated net operating income for the subject property is divided by an
overall rate extracted from market sales to indicate a value estimate for the
subject property.
POTENTIAL GROSS INCOME
APARTMENT INCOME
The potential gross revenue generated from the subject property
comprises a number of distinct elements: the monthly rental income generated
from the building's residents, the income generated by the building's commercial
tenants, parking related income, and miscellaneous income incurred in the
ownership and operation of the real estate. Deductions from these income
categories include a vacancy/credit loss and operating expenses.
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INCOME APPROACH
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Insert rental chart
100
INCOME APPROACH
- --------------------------------------------------------------------------------
The subject property has 901 apartment units, of which, 896 are available
for lease. The remaining five units are provided rent-free to employees (2
units) or are utilized as model units (3 units). In order to estimate the market
rent for the actively leased apartment unit types at the subject property, we
surveyed the competitive apartment market. The results of our survey were
previously presented in the APARTMENT MARKET ANALYSIS section of the report and
reference is made thereto. The pertinent information for the four competitive
high-rise apartment complexes is presented on the facing page and has been
summarized in the following table. The apartment buildings are generally located
in the Wrigleyville/Lakeview/Rogers Park neighborhoods, generally within three
blocks of Lake Shore Drive. Additionally, all of the properties are located
within a one-mile radius of the subject property.
The following chart summarizes our survey of the four competitive
apartment complexes, by unit type:
===============================================================================================================
SUMMARY OF COMPETITIVE APARTMENT SURVEY
===============================================================================================================
TOTAL RANGE OF AVERAGE AVERAGE GROSS
UNIT TYPE NUMBER OF UNITS AVERAGE UNIT SIZE MONTHLY RENTAL MONTHLY RENTAL
SURVEYED PER SF RATES/SF RATE/SF
----------------------- ------------------ ------------------- ----------------------- -----------------------
Studio/Convertible 454 569 $1.25 - $1.94/SF $1.48/SF
----------------------- ------------------ ------------------- ----------------------- -----------------------
1BR/1BA 765 794 $1.10 - $1.93/SF $1.33/SF
----------------------- ------------------ ------------------- ----------------------- -----------------------
2BR/2BA 324 1,072 $1.04 - $1.88/SF $1.32/SF
----------------------- ------------------ ------------------- ----------------------- -----------------------
3BR/2BA 23 1,205 $1.26 - $1.39/SF $1.32/SF
----------------------- ------------------ ------------------- ----------------------- -----------------------
TOTAL 1,566 791 $1.13 - $1.92/SF $1.37/SF
(Weighted Average) (Weighted Average)
(Weighted Average)
==============================================================================================================
Although the preceding four competitive apartment buildings were
considered in our analysis, we have placed equal weight on current
leases-in-place recently negotiated at the subject property. Presented on the
following facing page is the unit mix with the average ACTUAL rents currently
in-place for each of the subject's unit types. Presented in the subsequent
chart, we show the range and average of ASKING market rents for each of the
subject's units types.
101
INCOME APPROACH
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==========================================================================================================================
UNIT MIX/CURRENT OCCUPANCY/AVERAGE ACTUAL RENTAL RATES
NET NO. AVERAGE
NO. SIZE RENTABLE UNITS ACTUAL RENT
UNIT TYPE UNITS (SF) AREA (SF) LEASED OCCUPANCY RENT PER SF
==========================================================================================================================
Studio-A5 53 533 28,249 51 96% $ 793 $ 1.49
Studio-A9 53 533 28,249 48 91% $ 799 $ 1.50
Studio-A11 31 533 16,523 31 100% $ 754 $ 1.41
Convertible-A7 53 600 31,800 51 96% $ 858 $ 1.43
1BD/1BA-B3 53 762 40,386 52 98% $ 987 $ 1.30
1BD/1BA-B11 22 762 16,764 21 95% $ 926 $ 1.22
1BD/1BA-B13 53 762 40,386 52 98% $ 981 $ 1.29
1BD/1BA-B15 53 762 40,386 52 98% $ 995 $ 1.31
1BD/1BA-B16 53 834 44,202 53 100% $ 1,001 $ 1.20
1BD/1BA-B4 53 835 44,255 53 100% $ 1,006 $ 1.20
1BD/1BA-B6 53 835 44,255 51 96% $ 984 $ 1.18
1BD/1BA-B8 53 835 44,255 51 96% $ 956 $ 1.14
1BD/1BA-B12 53 835 44,255 50 94% $ 1,001 $ 1.20
1BD/1BA-B14 53 835 44,255 52 98% $ 990 $ 1.19
1BD/1BA-B17 53 841 44,573 51 96% $ 1,005 $ 1.20
2BD/2BA-F1 53 1,150 60,950 51 96% $ 1,508 $ 1.31
2BD/2BA-F2 53 1,150 60,950 50 94% $ 1,456 $ 1.27
2BD/2BA-F10 53 1,150 60,950 52 98% $ 1,456 $ 1.27
==========================================================================================================================
TOTAL/WEIGHTED AV. 901 816 735,643 872 97% $ 1,025 $ 1.26
==========================================================================================================================
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INCOME APPROACH
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===================================================================================================================
SUMMARY OF MARKET RENTAL RATES FOR PARK PLACE TOWER
===================================================================================================================
ASKING MARKET AVERAGE ASKING ASKING MARKET RENTAL AVERAGE ASKING
UNIT TYPE UNIT SIZE RENTAL RANGE PER MONTHLY RENTAL RANGE RENTAL RATE PER
MONTH RATE RATE PER SF, PER MONTH SF, PER MONTH
- ---------------- ----------- --------------------- ------------------- ----------------------- --------------------
Studio 533 $ 728 - $ 960 $ 779 $1.37-$1.80 $ 1.46
Convertible 600 $ 836 - $ 933 $ 859 $1.39-$1.56 $ 1.43
1BD/1BA 762 $ 910 - $1,092 $ 971 $1.19-$1.43 $ 1.27
1BD/1BA 834 $ 910 - $1,092 $1,000 $1.09-$1.31 $ 1.20
1BD/1BA 835 $ 910 - $1,092 $ 991 $1.09-$1.31 $ 1.19
1BD/1BA 841 $ 910 - $1,092 $1,003 $1.08-$1.30 $ 1.19
2BD/2BA 1,150 $1,333 - $1,782 $1,493 $1.16-$1.55 $ 1.30
===================================================================================================================
The average asking rents for each of the subject's unit types fall within
the ranges displayed by the direct competition and are consistent with average
achieved rent levels at the subject property. As such, we believe the quoted
rental rates at the subject property are consistent with its competition, are
market oriented and are supported by actual leasing activity at the subject
property.
In establishing the subject's potential apartment gross income in a
12-month period, we calculated the average ACTUAL rental collection for each of
the subject's unit types. We then applied these averages to their respective
unit types for each month of the 12-month period. Based on this formula, the
subject's estimated potential apartment gross income in the next 12 months from
the effective date of this appraisal equates to $11,194,488.
COMMERCIAL INCOME
The subject property has 11,175 square feet of commercial/office space on
the street and second floor levels. Retail tenants include Park Place Foods,
Critic's Choice Video Rental, a Beauty Salon and Foremost Dry Cleaners. These
establishments, all retail in nature, are located on the first floor of the
complex. Additionally, there is approximately 6,409 square feet of office space
divided into approximately 13 suites, of which 300 square feet is currently
vacant and available for lease. All office suites are located on the second
floor of the complex. Historically, the subject property collected net
commercial income of approximately $206,582 in 1996, $109,661 in 1997, $125,523
in 1998 while management budgeted net commercial income in 1999 at approximately
$97,431. We have estimated potential gross income for the subject's commercial
space in the first 12 months at $100,000. To this figure we have applied our
general vacancy/collection loss factor of 5.0 percent.
PARKING GARAGE INCOME
The two- and three-story parking garage at Park Place Tower offers
roughly 593 parking spaces. Rates range from $115 to $160 per space per month.
Historically, the subject property collected parking income of $615,733 in 1996,
$595,548 in 1997 and $656,561 in
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INCOME APPROACH
- --------------------------------------------------------------------------------
1998. Additionally, property management budgeted parking income at $618,000 in
1999. We have estimated potential gross income for the subject's parking garage
in the first 12 months at $620,000. To this figure we have applied our general
vacancy/collection loss factor of 5.0 percent.
OTHER INCOME
Other income for the subject property is generated from forfeited
security deposits, additional pet charges, pool side cabana rentals, credit
report fees, late payment penalties, termination fees, storage income, laundry
income and other various sources. Historically, the subject property collected
other income of $216,533 in 1996, $192,054 in 1997 and $242,821 in 1998.
Additionally, property management budgeted other income at $250,841 in 1999.
Based on historical collections and property management's projected figures, we
have stabilized this component of income for the subject property at $225,000.
CONCLUSION-POTENTIAL GROSS INCOME (PGI)
The various factors comprising the subject's potential gross income
include: Apartment rental collections; Retail/commercial rental collections;
Parking revenue; and Other income. Combining the expected revenues generated by
these various components results in an annual estimated gross potential income
of $12,139,488 for the subject property. Historically, the subject generated a
PGI of $10,996,240 in 1996, $11,180,834 in 1997 and $11,780,643 in 1998. Between
1996 and 1997, the subject's PGI displayed an increase of 1.68 percent, while
between 1997 and 1998, the subject property's PGI grew by 5.36 percent. Our
estimate represents a 3.05 percent increase over the subject's 1998 achieved
potential gross income, a figure near, but slightly below the mid-aspect of the
demonstrated growth rates. In addition, ownership reflects a budgeted PGI in
1999 of $12,099,168. Based on historical collections, the indicated annual
growth rates and ownership's projected figure, we believe our PGI estimate of
$12,139,488 is reasonable and supported by operations at the subject property.
In order to arrive at the subject property's effective gross income
(EGI), we must address three factors: a vacancy and collection loss factor,
income lost to non-revenue units and any concessions which may, or may not be
relevant. Once the subject's EGI is established, operating expenses will be
stabilized and deducted from the EGI in order to arrive at a net operating
income (NOI) for the subject property.
VACANCY AND CREDIT LOSS
Investors are primarily interested in the effective income a property is
likely to produce during the holding period (12 months), rather than the gross
potential income at 100 percent
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INCOME APPROACH
- --------------------------------------------------------------------------------
occupancy with all tenants paying rent in full and on time. It is normally a
prudent practice to expect some income loss as tenants vacate, fail to pay rent
or pay rent late.
In determining the appropriate vacancy and collection loss, we considered
vacancy levels in the subject's North submarket, at the competitive properties
and the subject property's historical experience. As discussed in the APARTMENT
MARKET ANALYSIS section of the report, the vacancy rate for Class A apartment
buildings in the subject's North submarket was 97.30 percent as of July 1998.
Further, our survey of the four competitive apartment complexes indicated a
range of 96.0 to 100.0 percent, with an average of 97.75 percent. In our
analysis, the historical and current occupancy levels at the subject property
were also given consideration. As of the July 31, 1999 rent roll provided, the
subject property displayed an occupancy rate of 96.78 percent. Historically,
property management at the subject indicates that occupancy levels have been
maintained within the upper-aspect of the 90 percentile for the better part of
the past three calendar years. A historical occupancy report, however, was not
provided to the appraiser.
Upon review of occupancy levels in the North submarket of Chicago, the
occupancy levels at directly competitive properties and historical/current
occupancy levels at the subject property, we have estimated a 4.0 percent
vacancy rate for the subject property. We have also included a 1.0 percent
deduction of potential gross income to reflect potential credit loss.
NON-REVENUE UNITS
According to property management, Park Place Tower maintains three model
units and two employee occupied units. In order to account for these non-revenue
units, we have deducted the possible income generated by these units from the
subject's overall gross potential income. Historically, the subject has lost
$65,688 in 1996 to non-revenue units, $59,900 in 1997, $75,719 in 1998 and
expects to lose $74,592 in 1999 to non-revenue units. We have based our estimate
by applying the appropriate average actual rental collection for each of these
unit types in order to gauge the amount of income lost to non-revenue units at
the subject property. Based on this formula, we have deducted $61,692 in the 12
months following the effective date of this analysis to account for the
subject's non-revenue units. Our estimated amount is consistent with historical
losses to non-revenue units at the subject property.
RENTAL CONCESSIONS
Conversations with property managers at competing complexes, revealed
that rental concessions to prospective tenants are minimal to non-existent
within the subject's market.
105
INCOME APPROACH
- --------------------------------------------------------------------------------
This is primarily due to strong occupancy rates, and an overall healthy
apartment submarket (see Apartment Market Analysis section for further details).
Concessions, however, have historically been reflected in the operating
statements provided by ownership. In 1996, the
106
INCOME APPROACH
- --------------------------------------------------------------------------------
Insert historical operating
107
INCOME APPROACH
- --------------------------------------------------------------------------------
subject property reported concession losses of $78,943; in 1997, $60,619; in
1998, $52,123; and are budgeted in 1999 at $21,000. Based on historical
operations at the subject property, we believe it is necessary to reflect this
charge against the subject's potential gross income. As such, we have estimated
a concession loss of $50,000 at the subject property in the first 12 months of
operations at the subject property.
CONCLUSION-EFFECTIVE GROSS INCOME (EGI)
By deducting our estimated vacancy and collection loss estimations of
$595,724 and $119,145, respectively, and our estimated concession charge of
$50,000 plus the lost income associated with non-revenue units of $61,692 from
the previously established PGI of $12,139,488, we arrive at an estimated EGI of
$11,312,927 for the subject property. Historically, the subject generated an EGI
of $10,098,572 in 1996, $10,736,277 in 1997 and $11,220,590 in 1998.
Additionally, ownership reflects a budgeted EGI in 1999 of $11,549,032. Based on
historical collections and ownership's projected figure, we believe our EGI
estimate of $11,312,927 is reasonable and supported by operations at the subject
property.
OPERATING EXPENSES
Our estimates of operating and fixed expenses are based upon a review of
known operating statements of other apartment projects, as well as historical
information provided by the client. The subject property represents a high-rise
apartment complex located in downtown Chicago, and therefore has more amenities,
higher maintenance costs and significantly higher real estate taxes when
compared to traditional, suburban garden-style apartment complexes. We have
analyzed each item of expense individually and attempted to project what the
typical investor would consider reasonable. The historical operating statements
for the subject property are summarized on the facing page. A summary of
operating expenses at comparable properties is included on the following facing
page.
ADMINISTRATIVE - This expense category includes office supplies and
equipment, legal and professional fees, office telephone expenses, dues
and subscriptions and a variety of other office operation related
expenses. Historically, the subject has incurred administrative expenses
of $164,932 in 1996, $165,081 in 1997 and $160,309 in 1998. Additionally,
ownership reflects a budgeted administrative expense in 1999 of $165,945.
Mindful of the fact that the management fee covers many similar expenses,
and based on historical collections and ownership's projected figure, we
believe $165,000 for administrative expenses is reasonable and supported
by operations at the subject property.
ADVERTISING/MARKETING - Marketing expenses include the costs of
advertising in local directories; tenant retention promotions, referral
and broker commissions and credit report expenses. Historically, the
subject has incurred marketing/advertising expenses of $370,764 in 1996,
$315,581 in 1997 and $292,412 in 1998.
108
INCOME APPROACH
- --------------------------------------------------------------------------------
Insert comparable expenses
109
INCOME APPROACH
- --------------------------------------------------------------------------------
Additionally, ownership reflects a budgeted advertising expense in 1999
of $304,539. Based on historical and projected amounts, we believe
$300,000 for advertising/marketing related expenses is reasonable and
supported by operations at the subject property.
PAYROLL - Payroll expenses are directly connected to the administration
of the complex, including the property manager's salary, payroll
associated with office personnel, leasing agents, the doorman's salary
and maintenance salaries. This category also accounts for workmen's
compensation, payroll taxes and any benefits associated with salaried
personnel. Historically, the subject has incurred payroll expenses of
$1,128,970 in 1996, $1,163,549 in 1997 and $1,172,900 in 1998.
Additionally, ownership reflects a budgeted salary expense in 1999 of
$1,187,262. Based on historical collections and ownership's projected
figure, we believe $1,200,000 for payroll related expenses is reasonable
and supported by operations at the subject property.
UTILITIES - Utility expenses include trash removal, electricity in the
common areas and vacated units, natural gas and water/sewer.
Historically, the subject has incurred utility expenses of $810,322 in
1996, $902,212 in 1997 and $760,546 in 1998. Additionally, ownership
reflects a budgeted utility expense in 1999 of $964,916. Based on
historical collections and ownership's projected figure, we believe
$950,000 for utility related expenses is reasonable and supported by
operations at the subject property.
REPAIRS AND MAINTENANCE - This expense category covers HVAC maintenance,
elevator maintenance, grounds maintenance, exterior and interior building
maintenance, interior decorating, unit carpet replacement, extermination
fees, janitorial supplies, uniforms, miscellaneous supplies and
licenses/inspection fees and a variety of other maintenance related
costs. Historically, the subject has incurred repairs and maintenance
expenses of $588,695 in 1996, $738,827 in 1997 and $628,346 in 1998.
Additionally, ownership reflects a budgeted repairs and maintenance
expense in 1999 of $615,254. Based on historical collections and
ownership's projected figure, we believe $625,000 for repairs and
maintenance related expenses is reasonable and supported by operations at
the subject property.
MANAGEMENT FEE - Management expenses in the downtown apartment market
typically range from 2.0 to 4.0 percent of effective gross income. The
management fee at the subject property has historically equated to
roughly 3.0 to 3.5 percent of effective gross income. We have projected
the management fee at 3.5 percent of effective gross income, or $395,952.
REAL ESTATE TAXES - Real estate taxes for the subject are discussed in
greater detail within the REAL ESTATE TAXES AND ASSESSMENTS section of
this report. Please refer to this section for a complete discussion, as
our estimated real estate tax liability of $2,700,000 for the subject
property varies significantly from historical real estate tax liabilities
incurred at the subject property.
110
INCOME APPROACH
- --------------------------------------------------------------------------------
INSURANCE - Historically, the subject has incurred an insurance expense
of $147,615 in 1996 and is budgeted at $118,668 in 1999. Figures for 1997
and 1998 were skewed by insurance related claims and payouts, and as
such, were considered unreliable examples. Due to this accounting
practice, we have placed little credence on the 1996 and budget 1999
figures as well. Instead, we have primarily relied on our experience with
the insurance expense at similar buildings in the subject's submarket, as
well as the insurance related expenses demonstrated by the comparables on
the facing page. Based on historical collections and ownership's
projected figure, we believe $0.15 per square foot, or approximately
$110,000 for insurance related expenses at the subject property is
reasonable and supported by market data.
DISCUSSION AND CONCLUSION
The total combined stabilized operating expenses for the subject property
during the initial fiscal year, which begins August 2, 1999, are forecasted at
$6,445,952. This reflects corresponding expense levels of $7,154 on a per unit
basis, and 57.0 percent (before reserves) of the annual effective gross income.
The subject's expense ratio falls within the range of ratios indicated by
comparable data, and is also generally consistent with the per unit expense
range displayed by the comparables.
The more market sensitive comparisons for expenses at apartment complexes
relates to expenses per square foot and per unit, with the percentage
correlation between expenses and effective gross income being a less sensitive
method due to the variables associated with apartment revenue. Expenses for
apartments are generally consistent with respect to most categories and, as
such, comparisons on an expense-per-square foot and expense-per-unit are more
market sensitive.
The subject's expense levels generally fall within or near the ranges
indicated by those items for which specific detail was obtainable. The subject's
overall expense amount is within the range of expenses indicated by the
comparables. As the subject represents a Class A, high-rise apartment building
in average condition, our forecasted amounts are considered to be a reasonable
estimation for the subject property for the 12 months following the date of
valuation, consistent with the need to show a stabilized expense level for
capitalization purposes.
RESERVES FOR REPLACEMENTS
In regard to older, high-rise apartment complexes such as the subject
property, investors typically make an allowance of $250 to $500 per unit for
future replacement reserves such as exterior painting, roof replacement, parking
lot resurfacing and renovation
111
INCOME APPROACH
- --------------------------------------------------------------------------------
of common area amenities. Recent market trends indicate that while the
replacement reserve allowance was traditionally treated as a below-the-line
expense item, it has become commonplace to include an allocation for this
expense above the net operating income line. Based on the subject's age and
condition, and mindful of the fact that we have allocated some unit turnover
costs within the repairs and maintenance expense category, we have estimated
capital reserves at $450 per unit.
CAPITAL EXPENDITURES
According to documentation provided by ownership, the subject property is
projected to incur a number of one-time capital expenditures which may, or may
not be required over the near- to mid-term future. The economic impact of
several of these potential costs have already been included in our replacement
reserve fund discussed earlier and reference is made thereto. In order to
reflect the potential impact of the remaining capital expenditure items on the
market value of the subject property, the appraiser must either make a
"lump-sum" deduction from their final value estimate for any future costs
expected to be incurred or the appraiser may categorize these items as potential
risk factors and address them through the selection of an appropriate going-in
capitalization rate. The capitalization rate is generally perceived as a
barometer which investors utilize in an attempt to reflect known and unknown
risk factors associated with a real estate investment. The capitalization rate
is then applied to a property's stabilized net operating income (NOI) in order
to convert the property's NOI into a market value estimate. We believe that, due
to the somewhat nebulous nature regarding the timing of these expenditures
coupled with the conjectural nature associated with the process of present
valuing future potential expenses into a "lump-sum" estimate, the economic
impact of future capital expenditures at the subject property is best reflected
as a risk related factor. As such, we have added an additional 50 basis points
to our going-in capitalization rate for the subject property to reflect any
unforeseen capital expenditures which may, or may not be incurred over the near-
to mid-term future.
DIRECT CAPITALIZATION
LOCAL SALES
In the Direct Capitalization method, we estimated market value by
dividing stabilized net operating income, after reserves, by an overall rate
derived from our analyses of market sales and computed by dividing the net
operating income from a sold property by its sale price. Presented in the table
below are overall rates of return from our market sale comparisons.
SUMMARY OF APARTMENT OVERALL RATES (OARS)
=========================================================
SALE SALE DATE CAPITALIZATION RATE
=========================================================
I-1 4/98 8.50%
=========================================================
112
INCOME APPROACH
- --------------------------------------------------------------------------------
I-2 11/96 8.61%
=========================================================
I-3 4/96 7.33%
=========================================================
I-4 2/96 10.78%
=========================================================
The indicated range of market capitalization rates is from 7.33 to 10.78
percent, with an average capitalization rate of 8.81 percent. All of the
transactions are noted as consisting of apartment complexes with property and
operational differences to the subject that have been considered.
The capitalization rate for sale I-3 is considered too aggressive for the
subject property, as this property was purchased with the intent of converting
to condominium ownership. Generally, buyers will pay a premium when purchasing
an apartment complex for condominium conversion. According to the buyer of this
property, INVESCO, was willing to pay a premium of roughly 75 to 100 basis
points over the remaining pool of buyers for 70 West Huron. The capitalization
rate for sale I-4 is considered to high for the subject property, as this
property represents older product which offers inferior amenities, inferior
views and subsequently a lower NOI per unit indication when compared to the
subject property. Comparable sale I-2's capitalization rate is somewhat
applicable to the subject property, however, this sale is found in a stronger
submarket and displays a higher NOI per unit when compared to the subject
property. Finally, the overall capitalization rate implied for sale I-1 is
thought to be relatively applicable to the subject property due to the
motivation behind the sale, as well the physical similarities this property
shares with the subject. These factors are somewhat off-set by this property's
location in a stronger submarket and subsequent higher NOI per unit indication.
Of equal importance to capitalization rates displayed by local high-rise
apartment sales, is an investor's perception of the subject property's ability
to generate future income. This perception is two-tiered. The first component is
comprised of macro-economic issues such as asset class and overall market
conditions pertaining to a particular product type. The second factor addresses
whether potential economic "upside" exists at a specific property. Combined,
these components allow for the reasonable estimation of a real estate investor's
most likely actions.
Macro-economic issues affecting the subject property were addressed in
the REGIONAL and APARTMENT MARKET ANALYSES sections of this report, and
reference is made thereto. Overall, Chicago enjoys a healthy and diversified
economy with strong job growth resulting in low unemployment, increasing
salaries, and a sense of long-term security. In short, Chicago provides a stable
economic base which is poised for future growth. As a direct
113
INCOME APPROACH
- --------------------------------------------------------------------------------
result, real estate classes, including multi-family product, have benefited. As
stated in our APARTMENT MARKET ANALYSIS, "Investors are particularly interested
in acquiring apartments within urban location due to the resurgence of
residential living in downtown areas". Based on these and a variety of other
positive factors, we believe a potential investor would have an optimistic
outlook regarding the macro-economic issues affecting the subject property.
More localized, or specific factors determining the subject potential
economic upside were discussed in the NEIGHBORHOOD and APARTMENT MARKET
ANALYSES, sections of this report, and reference is made thereto. In summary, we
believe the subject's direct proximity to Lake Michigan and Chicago's CBD
coupled with its strategic position in the desirable Wrigelyville/Lakeview
neighborhood greatly enhances its ability to grow rental, parking, and
commercial revenues beyond the revenue increases witnessed at its direct
competition. As such, it is our opinion that a potential investor would perceive
a moderate amount of "upside" when pricing the subject property.
Based on our analysis of the subject property, relative to the comparable
improved sales, and perceived investor interest, we have concluded an
appropriate going-in capitalization rate near the mid-aspect of the market
range, or at 8.75 percent. This rate is further supported by conversations with
Brian Nagle of Cushman & Wakefield and Brian McCauliffe of CB Richard Ellis,
both of whom are active in the selling of downtown, investment grade properties.
NATIONAL INVESTOR SURVEYS
In a further attempt to support our estimated going-in capitalization
rate for the subject property, we turn to two nationally recognized investor
surveys. A review of the most recent KORPACZ REAL ESTATE INVESTOR SURVEY (Second
Quarter 1999) and the CUSHMAN & WAKEFIELD NATIONAL INVESTOR SURVEY
(Spring/Summer 1999) indicates going-in capitalization rates for institutional
grade, Class A, apartment complexes ranging from 7.5 to 11.0 percent, before
allocations of reserves. The following chart summarizes the surveys:
================================================================================================================
(2ND QUARTER FREE AND CLEAR EQUITY FREE AND CLEAR FREE AND CLEAR EQUITY FREE AND CLEAR
1999 & CAP RATE (KORPACZ) OR EQUITY CAP RATE IRR (KORPACZ) OR EQUITY IRR
SPRING/ GOING-IN CAP RATE (KORPACZ) OR IRR (C&W) (KORPACZ)
SUMMER 1999) (C&W) GOING-IN CAP RATE RANGE OR
RANGE (C&W) IRR (C&W)
AVERAGE AVERAGE
================================================================================================================
Korpacz 7.5% to 11.0% 8.83% 10.0% to 15.0% 11.48%
- ----------------------------------------------------------------------------------------------------------------
Cushman & 7.5% to 9.20% 8.45% 9.80%-15.0% 11.85%
Wakefield
================================================================================================================
114
INCOME APPROACH
- --------------------------------------------------------------------------------
Insert pro-forma
115
INCOME APPROACH
- --------------------------------------------------------------------------------
CONCLUSION
With regional and national investors using capitalization rates between
7.5 and 9.0 percent; high levels of occupancy in the subject submarket, and
local apartment sales ranging between 7.5 and 10.5 percent, we have selected an
overall capitalization rate, applicable to capitalizing the market derived net
operating income for the subject property of 8.75 percent. As discussed
previously under the Capital Expenditure heading within this section of the
analysis, we believe that an additional 50 basis points to the subject's
capitalization rate is appropriate in order to reflect the unforeseen risk of
potential capital expenditures at the subject property in the near- to mid-term
future. As such, our concluded going-in capitalization rate for the subject
property equates to 9.25 percent. We believe this rate appropriately reflects
the relative risk associated with the subject property.
Our 12-month pro forma for the subject property is displayed on the
facing page. The subject's net operating income was capitalized as follows:
Capitalization Rate Selected: 9.25 Percent
=====================================================================================================
DIRECT CAPITALIZATION - PARK PLACE TOWER
=====================================================================================================
Net Operating Income, After Replacement Reserves $4,461,524
Divided by Overall Capitalization Rate 9.25%
Estimated Market Value $48,232,695
=====================================================================================================
Rounded Value Estimate By Direct Capitalization: $48,250,000
=====================================================================================================
Therefore, based on the above, we have estimated the market value of the
subject property, by the INCOME APPROACH, at $48,250,000, as rounded.
116
RECONCILIATION AND FINAL VALUE ESTIMATE
- --------------------------------------------------------------------------------
The relevant approaches indicate the following values for the subject
property:
Cost Approach N/A
Sales Comparison Approach $48,650,000
Income Approach $48,250,000
The purpose of the reconciliation and final value estimate is to
emphasize the approach or approaches we believe would be most greatly utilized
by a potential purchaser in determining the value of the subject property.
We considered both the Sales Comparison and Income Approaches of primary
relevance. The Sales Comparison approach is critical in determining per unit
prices around which participants are trading, and in determining factors that
add and detract from value - including expense ratios, occupancy levels, and
location factors. This approach is very relevant in the subject's valuation, and
we have emphasized it moderately in our determination of final value. It does
not, however, completely reflect the value from differing income streams. As a
result, we do not place primary emphasis on the value resulting from Sales
Comparison.
Because all operating income is derived from various rental revenue
sources, the Income Approach is a critical approach to value. Buyers are
concerned with current revenue as it relates to future revenue, and current
expenses as they relate to expected future expenses. The Income Approach
benefits from a strong reporting history for the subject, and plentiful
comparable information, including market survey data, rental comparison data,
and OAR information. The Income Approach has received strong emphasis in our
determination of final value. The direct capitalization method is the primary
method upon which investors in the market determine value for stabilized
properties like the subject, and is the primary valuation methodology emphasized
in this report.
Giving primary weight to the indication of value via the INCOME
CAPITALIZATION APPROACH, as supported by the SALES COMPARISON APPROACH, it is
our opinion that the leased fee market value of subject property, disregarding
existing financing and considering the assumptions, limiting conditions,
certification and definitions, as of August 2, 1999, the AS IS valuation date,
is:
FORTY EIGHT MILLION TWO HUNDRED FIFTY THOUSAND DOLLARS
$48,250,000
117
RECONCILIATION AND FINAL VALUE ESTIMATE
- --------------------------------------------------------------------------------
MARKETING TIME
Marketing time is an estimate of the time that might be required to sell
a real property interest at the appraised value. Marketing time is presumed to
start on the effective date of the appraisal. (Marketing time is subsequent to
the effective date of the appraisal and exposure time is presumed to precede the
effective date of the appraisal.) The estimate of marketing time uses some of
the same data analyzed in the process of estimating reasonable exposure time and
it is not intended to be a prediction of a date of sale.
Based on our discussions with local real estate professionals, we have
concluded that a marketing period of approximately 9 months would be required in
order to sell the subject property. This estimate is based on our conversations
with brokers familiar with the local high-rise apartment market, as well as
actual marketing time of similar apartment complexes located in the downtown
Chicago area. The value conclusions expressed in this report are based on
current market conditions. These value estimates should not be interpreted as
being representative of the final price at which the property might sell
throughout the entire marketing period, due to uncertain market conditions.
118
ASSUMPTIONS AND LIMITING CONDITIONS
- --------------------------------------------------------------------------------
"Appraisal" means the appraisal report and opinion of value stated therein; or
the letter opinion of value, to which these Assumptions and Limiting Conditions
are annexed.
"Property" means the subject of the Appraisal.
"C&W" means Cushman & Wakefield, Inc. or its subsidiary which issued the
Appraisal.
"Appraiser(s)" means the employee(s) of C&W who prepared and signed the
Appraisal.
This appraisal is made subject to the following assumptions and limiting
conditions:
1. No opinion is intended to be expressed and no responsibility is assumed for
the legal description or for any matters which are legal in nature or
require legal expertise or specialized knowledge beyond that of a real
estate appraiser. Title to the Property is assumed to be good and
marketable and the Property is assumed to be free and clear of all liens
unless otherwise stated. No survey of the Property was undertaken. We
relied on documentation provided by the owner as to the current principal
amount of the tax exempt loan and as to the annual principal, interest and
fee payments related to serving that debt.
2. The information contained in the Appraisal or upon which the Appraisal is
based has been gathered from sources the Appraiser assumes to be reliable
and accurate. Some of such information may have been provided by the owner
of the Property. Neither the Appraiser nor C&W shall be responsible for the
accuracy or completeness of such information, including the correctness of
estimates, opinions, dimensions, sketches, exhibits and factual matters.
3. The opinion of value is only as of the date stated in the Appraisal.
Changes since that date in external and market factors or in the Property
itself can significantly affect property value.
4. The Appraisal is to be used in whole and not in part. No part of the
Appraisal shall be used in conjunction with any other appraisal.
Publication of the Appraisal or any portion thereof without the prior
written consent of C&W is prohibited. Except as may be otherwise stated in
the letter of engagement, the Appraisal may not be used by any person other
than the party to whom it is addressed or for purposes other than that for
which it was prepared. No part of the Appraisal shall be conveyed to the
public through advertising, or used in any sales or promotional material
without C&W's prior written consent. Reference to the Appraisal Institute
or to the MAI designation is prohibited.
5. Except as may be otherwise stated in the letter of engagement, the
Appraiser shall not be required to give testimony in any court or
administrative proceeding relating to the Property or the Appraisal.
6. The Appraisal assumes (a) responsible ownership and competent management of
the Property; (b) there are no hidden or unapparent conditions of the
Property, subsoil or
119
ASSUMPTIONS AND LIMITING CONDITIONS
- --------------------------------------------------------------------------------
structures that render the Property more or less valuable (no
responsibility is assumed for such conditions or for arranging for
engineering studies that may be required to discover them); (c) full
compliance with all applicable federal, state and local zoning and
environmental regulations and laws, unless noncompliance is stated, defined
and considered in the Appraisal; and (d) all required licenses,
certificates of occupancy and other governmental consents have been or can
be obtained and renewed for any use on which the value estimate contained
in the Appraisal is based.
7. The physical condition of the improvements considered by the Appraisal is
based on visual inspection by the Appraiser or other person identified in
the Appraisal. C&W assumes no responsibility for the soundness of
structural members nor for the condition of mechanical equipment, plumbing
or electrical components.
8. In preparing this appraisal, we have relied on the rent roll and the
history of income and expenses furnished by the owner or the management
company representing the owner. We have not reviewed actual tenant leases.
9. The forecasts of income and expenses are not predictions of the future.
Rather, they are the Appraiser's best estimates of current market thinking
on future income and expenses. The Appraiser and C&W make no warranty or
representation that these forecasts will materialize. The real estate
market is constantly fluctuating and changing. It is not the Appraiser's
task to predict or in any way warrant the conditions of a future real
estate market; the Appraiser can only reflect what the investment
community, as of the date of the Appraisal, envisages for the future in
terms of rental rates, expenses, supply and demand.
10. Unless otherwise stated in the Appraisal, the existence of potentially
hazardous or toxic materials which may have been used in the construction
or maintenance of the improvements or may be located at or about the
Property was not considered in arriving at the opinion of value. These
materials (such as formaldehyde foam insulation, asbestos insulation and
other potentially hazardous materials) may adversely affect the value of
the Property. The Appraisers are not qualified to detect such substances.
C&W recommends that an environmental expert be employed to determine the
impact of these matters on the opinion of value.
11. Unless otherwise stated in the Appraisal, compliance with the requirements
of the Americans With Disabilities Act of 1990 (ADA) has not been
considered in arriving at the opinion of value. Failure to comply with the
requirements of the ADA may adversely affect the value of the property. C&W
recommends that an expert in this field be employed.
120
CERTIFICATION OF APPRAISAL
- --------------------------------------------------------------------------------
We certify that, to the best of our knowledge and belief:
1. Craig A. Schumacher inspected the property, and Michael J. Schaeffer and
Stephen B. Kay, MAI have reviewed and approved the report, but did not
inspect the interior of the property.
2. The statements of fact contained in this report are true and correct.
3. The reported analyses, opinions, and conclusions are limited only by the
reported assumptions and limiting conditions, and are our personal,
unbiased professional analyses, opinions, and conclusions.
4. We have no present or prospective interest in the property that is the
subject of this report, and we have no personal interest or bias with
respect to the parties involved.
5. Our compensation is not contingent upon the reporting of a predetermined
value or direction in value that favors the cause of the client, the amount
of the value estimate, the attainment of a stipulated result, or the
occurrence of a subsequent event. The appraisal assignment was not based on
a requested minimum valuation, a specific valuation or the approval of a
loan.
6. No one provided significant professional assistance to the persons signing
this report.
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 Code of Professional
Ethics and the Standards of Professional Appraisal Practice of the
Appraisal Institute.
8. The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
9. As of the date of this report, Stephen B. Kay, MAI has completed the
requirements of the continuing education program of the Appraisal
Institute.
Craig A. Schumacher Stephen B. Kay, MAI Michael J. Schaeffer
Senior Appraiser Senior Appraiser Director, Manager
Illinois Certification Illinois Certification
#153-001054 #153-000885
121
ADDENDA
- --------------------------------------------------------------------------------
LETTER OF ENGAGEMENT
LEGAL DESCRIPTION
RENT ROLL
FLOOR PLANS
INVESTOR SURVEYS
QUALIFICATIONS OF APPRAISERS
122
PHOTOGRAPHS OF SUBJECT PROPERTY
- --------------------------------------------------------------------------------
123
UNIT MIX & OCCUPANCY (2)
==================================================================================================
UNIT MIX/CURRENCY OCCUPANCY/AVERAGE ACTUAL RENTAL RATES
NET No. AVERAGE
NO. SIZE RENTABLE UNITS ACTUAL RENT
UNIT TYPE UNITS (SF) AREA (SF) LEASED OCCUPANCY RENT PER SF
==================================================================================================
Studio-A5 53 533 28,249 51 96% $ 793 $1.49
Studio-A9 53 533 28,249 48 91% $ 799 $1.50
Studio-A11 31 533 16,523 31 100% $ 754 $1.41
Convertible-A7 53 600 31,800 51 96% $ 858 $1.43
1BD/1BA-B3 53 762 40,386 52 98% $ 987 $1.30
1BD/1BA-B11 22 762 16,764 21 95% $ 926 $1.22
1BD/1BA-B13 53 762 40,386 52 98% $ 981 $1.29
1BD/1BA-B15 53 762 40,386 52 98% $ 995 $1.31
1BD/1BA-B16 53 834 44,202 53 100% $ 1,001 $1.20
1BD/1BA-B4 53 835 44,255 53 100% $ 1,006 $1.20
1BD/1BA-B6 53 835 44,255 51 96% $ 984 $1.18
1BD/1BA-B8 53 835 44,255 51 96% $ 956 $1.14
1BD/1BA-B12 53 835 44,255 50 94% $ 1,001 $1.20
1BD/1BA-B14 53 835 44,255 52 98% $ 990 $1.19
1BD/1BA-B17 53 841 44,573 51 96% $ 1,005 $1.20
2BD/2BA-F1 53 1,150 60,950 51 96% $ 1,508 $1.31
2BD/2BA-F2 53 1,150 60,950 50 94% $ 1,456 $1.27
2BD/2BA-F10 53 1,150 60,950 52 98% $ 1,456 $1.27
=============================================================================================
TOTAL/WEIGHTED AV 901 816 735,643 872 97% $ 1,025 $1.26
=============================================================================================
=================================================
UNIT MIX
NET
NO. SIZE RENTABLE
UNIT TYPE UNITS (SF) AREA (SF)
=================================================
Studio-A5 53 533 28,249
Studio-A9 53 533 28,249
Studio-A11 31 533 16,523
Convertible-A7 53 600 31,800
1BD/1BA-B3 53 762 40,386
1BD/1BA-B11 22 762 16,764
1BD/1BA-B13 53 762 40,386
1BD/1BA-B15 53 762 40,386
1BD/1BA-B16 53 834 44,202
1BD/1BA-B4 53 835 44,255
1BD/1BA-B6 53 835 44,255
1BD/1BA-B8 53 835 44,255
1BD/1BA-B12 53 835 44,255
1BD/1BA-B14 53 835 44,255
1BD/1BA-B17 53 841 44,573
2BD/2BA-F1 53 1,150 60,950
2BD/2BA-F2 53 1,150 60,950
2BD/2BA-F10 53 1,150 60,950
=================================================
TOTAL/WEIGHTED AV 901 816 735,643
=================================================
Tax Assessment
=====================================================================
Assessors' Market Value
Land $0
Improvements $0
-----------------
Total Market Value $0
Assessment Ratio 0%
-----------------
Total Assessment $0
Combined City and County Tax Rate $0.00
-----------------
Total Tax (1994) $0
=====================================================================
====================================================================================================================================
APARTMENT LAND SALES SUMMARY
====================================================================================================================================
PRICE PER
SALE SIZE UNITS PRICE PERMITTED
NO. LOCATION DATE SALES PRICE (ACRES) PERMITTED PER ACRE UNIT
====================================================================================================================================
====================================================================================================================================
====================================================================================================================================
Replacement Cost New
=================================================================================================================
ESTIMATING REPLACEMENT COST NEW
DIRECT CONSTRUCTION COSTS
Buildings 250,000 Square Feet
Replacement Cost $30.00 Per Square Foot $7,500,000
Site Development Costs $500,000
Recreational Amenities and Site
Improvements $500,000
---------------
Total Direct Costs $8,500,000
(Per Square Foot) $34.00
INDIRECT CONSTRUCTION COSTS
Architectural and Engineering
2.00% of Direct Costs $170,000
Interim and Permanent Loan Fees
1.50% of 90% of Direct Costs, Architectural and Site Value $130,545
Construction Loan
Interest
0.71% Per Month
18 Months
60.00% Average Outstanding Balance
of 90% of Direct Costs, Architectural and Site Value $665,780
Legal Fees and Closing Costs
2.50% of 90% of Direct Costs, Architectural and Site Value $217,575
Developer's General and Administrative Overhead
3.00% of 90% of Direct Costs, Architectural and Site Value $261,090
Developer's Entrepreneurial Profit
12.00% Direct Costs and Architectural $1,160,400
--------------
Total Indirect Costs $2,605,390
Total Replacement Cost New $11,105,390
Add: Estimated Site Value
$1,000,000
---------------
Total $12,105,390
ESTIMATED REPLACEMENT COST NEW $12,000,000
=================================================================================================================
==================================================================================================================================
APARTMENT SALES SUMMARY
==================================================================================================================================
YEAR NET
BUILT RENTABLE SF
CASH ----- ----------- OVERALL
SALE SALE EQUIVALENT NO. AVERAGE OCCUPANCY CAPITALIZATION
NO. NAME/LOCATION DATE SALES PRICE UNITS UNIT SIZE AT SALE RATE EGIM
==================================================================================================================================
1 Woods of Earhart 3/1/95 $11,262,397 1977-79 173,472 SF 98% 8.70% 6.4
------- ----------
Ann Arbor, MI 216 803 SF
2 Oak Village Feb-95 $7,140,000 1953 378,000 SF 92% 12.68% 4.1
---- ----------
Westland, MI 315 1,200 SF
3 Woodcrest Villa Aug-94 $17,000,000 1970 425,200 SF 95% N/A N/A
---- ----------
Westland, MI 458 928 SF
4 Glenwood Orchard Jul-94 $3,450,000 1970 151,160 SF 93% 9.87% N/A
---- ----------
Westland, MI 160 945 SF
5 Cranbrook Dec-93 $9,850,000 1981-86 179,000 SF N/A 9.5% N/A
------- ----------
Southfield, MI 204 877 SF
6 Gateway Sep-93 $16,800,000 1973 380,328 SF 96% 9.13% 5.2
---- ----------
Farmington Hills, MI 424 897 SF
7 Meadow Tree Dec-92 $7,200,000 1974 313,000 SF N/A 11.07% N/A
---- ----------
Pittsfield Twp.,MI 336 931 SF
8 Woodhaven Square Jan-92 $3,060,000 1972 124,288 SF N/A 9.41% N/A
---- ----------
Woodhaven, MI 158 787 SF
==================================================================================================================================
=========================================
SALES SALES
OPERATING PRICE PRICE
SALE EXPENSE PER PER
NO. RATIO SF UNIT
=========================================
1 44% $64.92 $52,141
2 48% $18.89 $22,667
3 N/A $39.98 $37,118
4 N/A $22.82 $21,563
5 N/A $55.03 $48,204
6 50% $44.17 $39,623
7 N/A $23.00 $21,429
8 N/A $24.62 $19,368
=========================================
Rental Comparisons
================================================================================
UNIT TYPE:ONE BEDROOM, ONE BATH
================================================================================
NO. UNITS AMENITY RENT PER RENT PER
COMP NO. NAME THIS TYPE FEATURES SIZE (SF) UNIT SF
===========================================================================================================
3 Bayou Bend 12 Fireplace 500 $500 $1.00
Balcony
5 The Corners 15 Mountain 650 $700 $1.08
View
7 The Angles 10 Washer 700 $800 $1.14
Balcony
------------------------------------------------------------------------
Range 500 $500 $1.00
700 $800 $1.14
Subject 750 $825 $1.10
===========================================================================================================
UNIT TYPE: TWO BEDROOM, TWO BATH
===========================================================================================================
NO. UNITS AMENITY RENT PER RENT PER
COMP NO. NAME THIS TYPE FEATURES SIZE (SF) UNIT SF
===========================================================================================================
1 Vista View 10 Mountain 750 $600 $0.80
View
2 Mona Lisa 12 Fireplace 800 $720 $0.90
4 L'Apex 9 Balcony 900 $765 $0.85
------------------------------------------------------------------------
Range 750 $600 $0.80
900 $765 $0.85
Subject 900 $800 $0.89
===========================================================================================================
UNIT TYPE: THREE BEDROOM, TWO BATH
===========================================================================================================
NO. UNITS AMENITY RENT PER RENT PER
COMP NO. NAME THIS TYPE FEATURES SIZE (SF) UNIT SF
===========================================================================================================
------------------------------------------------------------------------
Range
Subject
===========================================================================================================
====================================================================================================================================
1993 1994 Owner's Budget C&W Forecast
==================================================================================================
Per Per Per Per Per Per Per Per
Total Unit SF Total Unit SF Total Unit SF Total Unit SF
====================================================================================================================================
INCOME
Rental $0.00 $0 $0.00 $0.00 $0 $0.00 $0.00 $0 $0.00 $0.00 $0 $0.00
Other $0.00 $0 $0.00 $0.00 $0 $0.00 $0.00 $0 $0.00 $0.00 $0 $0.00
--------------------------------------------------------------------------------------------------
Effective Gross Income $0.00 $0 $0.00 $0.00 $0 $0.00 $0.00 $0 $0.00 $0.00 $0 $0.00
OPERATING EXPENSES
Management $0.00 $0 $0.00 $0.00 $0 $0.00 $0.00 $0 $0.00 $0.00 $0 $0.00
General & Administrative $0.00 $0 $0.00 $0.00 $0 $0.00 $0.00 $0 $0.00 $0.00 $0 $0.00
Payroll/Benefits $0.00 $0 $0.00 $0.00 $0 $0.00 $0.00 $0 $0.00 $0.00 $0 $0.00
Utilities $0.00 $0 $0.00 $0.00 $0 $0.00 $0.00 $0 $0.00 $0.00 $0 $0.00
Advertising/Promotion $0.00 $0 $0.00 $0.00 $0 $0.00 $0.00 $0 $0.00 $0.00 $0 $0.00
Repairs & Maintenance $0.00 $0 $0.00 $0.00 $0 $0.00 $0.00 $0 $0.00 $0.00 $0 $0.00
Unit Reserves $0.00 $0 $0.00 $0.00 $0 $0.00 $0.00 $0 $0.00 $0.00 $0 $0.00
Other $0.00 $0 $0.00 $0.00 $0 $0.00 $0.00 $0 $0.00 $0.00 $0 $0.00
FIXED EXPENSES
Real Estate Taxes $0.00 $0 $0.00 $0.00 $0 $0.00 $0.00 $0 $0.00 $0.00 $0 $0.00
Insurance $0.00 $0 $0.00 $0.00 $0 $0.00 $0.00 $0 $0.00 $0.00 $0 $0.00
TOTAL EXPENSES $0.00 $0 $0.00 $0.00 $0 $0.00 $0.00 $0 $0.00 $0.00 $0 $0.00
--------------------------------------------------------------------------------------------------
NET OPERATING INCOME $0.00 $0 $0.00 $0.00 $0 $0.00 $0.00 $0 $0.00 $0.00 $0 $0.00
RESERVES FOR REPLACEMENT $0.00 $0 $0.00 $0.00 $0 $0.00 $0.00 $0 $0.00 $0.00 $74 $0.00
CASH FLOW $0.00 $0 $0.00 $0.00 $0 $0.00 $0.00 $0 $0.00 $0.00 ($74) $0.00
====================================================================================================================================
===============================================================
EXPENSE SUMMARY TOTAL PER UNIT PER SF
===============================================================
INCOME
1993 $0.00 $0 $0.00
1994 $0.00 $0 $0.00
1995 Budget $0.00 $0 $0.00
Annualized 1995 YTD
Forecast 1995 (1) $0.00 $0 $0.00
- ---------------------------------------------------------------
OPERATING EXPENSES
1993 $0.00 $0 $0.00
1994 $0.00 $0 $0.00
1995 Budget $0.00 $0 $0.00
Annualized 1995 YTD
Forecast 1995 (1) $0.00 $0 $0.00
- ---------------------------------------------------------------
(1) Annualized
===============================================================
Inc & Exp Summary
================================================================================
NAME OF COMPLEX
================================================================================
Potential Rental Income:
Less: Allowance for
Vacancy/Collection Loss
Less: Employee Units/Model Units
Effective Rental Income:
Plus: Miscellaneous Income:
Effective Gross Income (EGI): __________
Less: Operating Expenses:
Management Fee
Administrative & General
Payroll/Salaries
Utilities
Advertising/Promotion
Repairs/Maintenance
Unit Reserves
Less: Fixed Expenses:
Real Estate Taxes
Insurance
NET OPERATING INCOME __________
================================================================================
================================================================================
DISCOUNTED CASH FLOW ANALYSIS
BEGINNING MM/DD/YY
================================================================================
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
-----------------------------------------------------------------
TOTAL RENTAL INCOME AT MARKET $2,181,600 $2,225,232 $2,314,241 $2,406,811 $2,503,083
Less: Vacancy, Model Units
& Collection Loss $152,712 $155,766 $161,997 $168,477 $175,216
-----------------------------------------------------------------
Effective Rental Income $2,028,888 $2,069,466 $2,152,244 $2,238,334 $2,327,868
Add: Other Miscellaneous Income $50,722 $51,737 $53,806 $55,958 $58,197
-----------------------------------------------------------------
EFFECTIVE GROSS INCOME $2,079,610 $2,121,202 $2,206,051 $2,294,293 $2,386,064
OPERATING EXPENSES:
Management Fee $103,981 $106,060 $110,303 $114,715 $119,303
Administrative and General $250,000 $260,000 $270,400 $281,216 $292,465
Payroll/Salaries $200,000 $208,000 $216,320 $224,973 $233,972
Utilities $75,000 $78,000 $81,120 $84,365 $87,739
Advertising/Promotion $15,000 $15,600 $16,224 $16,873 $17,548
Repairs and Maintenance $125,000 $130,000 $135,200 $140,608 $146,232
Reserves for Unit Replacement $75,000 $78,000 $81,120 $84,365 $87,739
FIXED EXPENSES
Real Estate Taxes $125,000 $130,000 $135,200 $140,608 $146,232
Insurance $50,000 $52,000 $54,080 $56,243 $58,493
-----------------------------------------------------------------
TOTAL OPERATING EXPENSES $1,018,981 $1,057,660 $1,099,967 $1,143,965 $1,189,724
NET OPERATING INCOME $1,060,630 $1,063,542 $1,106,084 $1,150,327 $1,196,340
CAPITAL RESERVES $0.15 Per SF $40,500 $42,120 $43,805 $45,557 $47,379
Total (x NRA)
-----------------------------------------------------------------
CASH FLOW AFTER CAPITAL RESERVES $1,020,130 $1,021,422 $1,062,279 $1,104,770 $1,148,961
Annual Cash on Cash Return 8.50% 8.51% 8.85% 9.21% 9.57%
YEAR 6 YEAR 7 YEAR 8 YEAR 9 YEAR 10 YEAR 11
-------------------------------------------------------------------------
TOTAL RENTAL INCOME AT MARKET $2,603,207 $2,707,335 $2,815,628 $2,928,254 $3,045,384 $3,167,199
Less: Vacancy, Model Units
& Collection Loss $182,224 $189,513 $197,094 $204,978 $213,177 $221,704
-------------------------------------------------------------------------
Effective Rental Income $2,420,982 $2,517,822 $2,618,534 $2,723,276 $2,832,207 $2,945,495
Add: Other Miscellaneous Income $60,525 $62,946 $65,463 $68,082 $70,805 $73,637
-------------------------------------------------------------------------
EFFECTIVE GROSS INCOME $2,481,507 $2,580,767 $2,683,998 $2,791,358 $2,903,012 $3,019,132
OPERATING EXPENSES:
Management Fee $124,075 $129,038 $134,200 $139,568 $145,151 $150,957
Administrative and General $304,163 $316,330 $328,983 $342,142 $355,828 $370,061
Payroll/Salaries $243,331 $253,064 $263,186 $273,714 $284,662 $296,049
Utilities $91,249 $94,899 $98,695 $102,643 $106,748 $111,018
Advertising/Promotion $18,250 $18,980 $19,739 $20,529 $21,350 $22,204
Repairs and Maintenance $152,082 $158,165 $164,491 $171,071 $177,914 $185,031
Reserves for Unit Replacement $91,249 $94,899 $98,695 $102,643 $106,748 $111,018
FIXED EXPENSES
Real Estate Taxes $152,082 $158,165 $164,491 $171,071 $177,914 $185,031
Insurance $60,833 $63,266 $65,797 $68,428 $71,166 $74,012
-------------------------------------------------------------------------
TOTAL OPERATING EXPENSES $1,237,313 $1,286,805 $1,338,277 $1,391,809 $1,447,481 $1,505,380
NET OPERATING INCOME $1,244,194 $1,293,962 $1,345,720 $1,399,549 $1,455,531 $1,513,752
CAPITAL RESERVES $0.15 Per SF $49,274 $51,245 $53,295 $55,427 $57,644 $59,950
Total (x NRA)
-------------------------------------------------------------------------
CASH FLOW AFTER CAPITAL RESERVES $1,194,920 $1,242,716 $1,292,425 $1,344,122 $1,397,887 $1,453,802
$14,420,307
(Reversion)
Annual Cash on Cash Return 9.96% 10.36% 10.77% 11.20% 11.65%
----------------------------------------------- -------------------------------------------------------------------
CASH FLOW ASSUMPTIONS VALUATION
----------------------------------------------- -------------------------------------------------------------------
Number of Units 300
NRA (sf) 270,000 Discount Rate 11.50%
1994 Average Unit Rent/Month $600 Terminal Capitalization Rate 9.50%
Rental Growth Rate
Year 1 (Blended for Lag) 1.0% Cost of Sale at Reversion 2.00%
Year 2 2.0%
Thereafter 4.0% Value of Cash Flow $6,873,365
Vacancy & Collection Loss 7.0% Value of the Reversion $4,855,409
----------------
Miscellaneous Income (% of Gross) 2.5% Total Value $11,728,774
Expense Growth Rate 4.0%
Real Estate Tax Growth Rate 4.0%
Management Fee (% of Gross) 5.0% ESTIMATED MARKET VALUE $12,000,000
Reserves for Unit Replacement $250 Per Unit $40,000
Overall Capitalization Rate (on NOI) 8.84%
================================================================================================================================
====================================================================================================================================
LAND SALES ADJUSTMENT TABLE
====================================================================================================================================
PERCENTAGE ADJUSTMENTS PERCENTAGE ADJUSTMENTS
----------------------------------- ----------------------------------------
CASH
EQUIVALENT UTILITY/ INDICATED
SALE SALES PRICE PROPERTY CONDITIONS MARKET ADJUSTED PERMITTED NET VALUE PER
NO. PER SF RIGHTS OF SALE CONDITIONS PRICE LOCATION DENSITY ADJUSTMENT ACRE
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
===============================================================================
COST APPROACH SUMMARY
===============================================================================
Total Replacement Cost Including Developer's Overhead and Profit
LESS
Curable Physical Deterioration
Curable Functional Obsolescence
Incurable Functional Obsolescence
Subtotal
LESS
Physical Incurable Depreciation (Age-Life)
External Obsolescence
Total Depreciation
Depreciated Replacement Cost New
ADD
Estimated Site Value
Total (Rounded to)
VALUE INDICATED BY COST APPROACH
===============================================================================