U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14D-9
Solicitation/Recommendation Statement Under Section 14(d)(4)
of the Securities Exchange Act of 1934
FJS PROPERTIES FUND I, L.P.
--------------------------------
(Name of Subject Company)
FJS PROPERTIES FUND I, L.P.
-------------------------------
(Name of Person Filing Statement)
Units of Limited Partnership Interest
-----------------------------------------
(Title of Class of Securities)
NONE
--------
(CUSIP Number of Class of Securities)
Andrew C. Alson, President
FJS Properties, Inc.,
General Partner
264 Route 537 East
Colts Neck, NJ 07722
(732)542-9209
-----------------
(Name, address and telephone number of person
authorized to receive notice and communications
on behalf of the person filing statement.)
[ ] Check the box if the filing relates solely to preliminary
communications made before the commencement of a tender offer.
ITEM 1. SUBJECT COMPANY INFORMATION
(a) Subject Company: FJS Properties Fund I, L.P. (the "Subject Company")
Address of principal executive offices of Subject Company: 264 Route
537 East, Colts Neck, NJ 07722. Telephone number of principal
executive offices of Subject Company: 732-542-9209.
(b) This statement relates to Units of Limited Partnership Interest (the
"Units") of the Subject Company. As of November 12, 2001, there are 16,788
Units outstanding.
ITEM 2. IDENTITY AND BACKGROUND OF FILING PERSON
(a) Name and Address: This statement is being filed by FJS Properties Fund I,
L.P., the Subject Company. The business address of the Subject Company is
264 Route 537 East, Colts Neck, NJ 07722, and its telephone number is
732-542-9209.
(d) Tender Offer: This statement relates to a tender offer to purchase up to
2,500 Units of the Subject Company for $105 per Unit issued by MACKENZIE
PATTERSON, INC.; MP VALUE FUND 7, LLC; MP VALUE FUND 4, LLC; MP DEWAAY
FUND, LLC; and PREVIOUSLY OWNED PARTNERSHIPS INCOME FUND, LP (collectively
the "Bidders"). The principal business address of the Bidders is 1640
School Street, Suite 100, Moraga, CA 94556, and the business telephone
number of the Bidders is 925-631-9100.
ITEM 3. PAST CONTRACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS.
(d) Conflicts of Interest: None.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(a) The Subject Company is advising that Limited Partners of the Subject
Company reject the tender offer from the Bidders.
(b) The reason for this recommendation is that the $105 offered per Unit
is substantially less than the Subject Company's reasonable valuation of the
current value of the Units. The following describes the items considered by the
Subject Company in arriving at its reasonable value for the Units.
Summary of Items Considered
- ---------------------------
1. Potential Liquidation Value of Units;
2. Potential change of control of partnership.
3. Other investment considerations.
2
POTENTIAL LIQUIDATION VALUE OF UNITS
Partnership Assets:
The assets of the Subject Company consist solely of real estate and liquid
cash on hand. These are considered separately below.
REAL ESTATE ASSETS: The only real estate owned by the Subject Company is a
312 unit garden apartment project located at 401 Executive Center Drive, West
Palm Beach, Florida (the "Pavilion"). The Pavilion constitutes substantially all
of the Subject Company's assets, excluding only cash on hand. Fee title to the
Pavilion is owned subject to an existing first mortgage presently held of record
by Greenwich Capital Financial Products, Inc., and serviced by Washington
Mutual, Houston, Texas. This mortgage is a real estate mortgage and constitutes
a lien solely on the real estate and associated personal property (on site
equipment) comprising the Pavilion. In valuing the Pavilion the Subject Company
considered the following items.
a. An appraisal prepared in 1994 by the first mortgagee in connection with
the refinance of the Pavilion Apartments;
b. A limited appraisal obtained by the trustee in bankruptcy for the 80%
owner of the general partner of the Subject Company; and
c. A valuation provided by the managing agent of the Pavilion Apartments
in connection with an offer to purchase the property from the Subject Company.
d. A written purchase offer for the Pavilion Apartments submitted by the
managing agent of the Pavilion Apartments.
A discussion of each of these items follows.
a. The 1994 Appraisal:
In 1994, in connection with the refinance of the first mortgage on the
Pavilion, an appraisal was obtained for the lender's use (Long Beach Bank, which
later assigned its mortgage to Greenwich Capital Financial Products, Inc.) in
its due diligence on the Pavilion Apartments. This appraisal was prepared by
Michael R. Slade, MAI, SRA, CRE of Callaway & Price (the "Appraiser").
The appraisal estimated the value of the Pavilion on three different
basis, replacement cost, comparable sales and income approach. The replacement
cost method computes the current cost to build a project equivalent to the
Pavilion. The comparable sales approach evaluates the actual selling prices of
comparable properties in the local area. The income approach actually takes two
different approaches to the valuation. One approach, the Income Capitalization
Approach is computed by estimating the net income from the property's
improvements and then capitalizes this income stream at an appropriate rate
which is an expression of the ratio between net operating
3
income and value. The appraiser utilized a rate between 10.5% and 11% concluding
that "an overall rate abstracted from comparable sales is given the most weight
in arriving at an appropriate capitalization rate." The other income approach
use by the appraiser was to utilize the Discounted Cash Flow method. This
technique is simply a method of reducing projected annual cash flows to a
current dollar amount. "The net operating income is projected less debt service
(if applicable), to arrive at a first year's cash flow. The same procedures are
followed for each subsequent year of the holding period. Finally in the last
year of the holding period, the property is resold for a projected resale price,
and the resulting total cash flow over the entire holding period is discounted
back to the beginning of the investment at an appropriate rate of return." Cash
flows were based on assumed increases in market rate rents of 3% per year and
expense increases of 4% per year. The final sales price was computed by applying
an overall rate of 11% to the projected net operating income in that year. The
discount rate utilized by the appraiser was assumed to be in the 12.5% to 13.5%
range as being that rate "which would be required by most investors for this
type of property".
The valuations arrived at in the three methods were as follows: Cost
Approach: $11,500,000; Sales Comparison Approach: $7,200,000 to $7,400,000; and
the Income Capitalization Approach: $7,300,000 to $7,700,000. The Appraiser
concluded that the market value of the Pavilion, free and clear of all mortgages
was $7,500,000 - $7,300,000 for the real property and $200,000 for the
furniture, fixtures and equipment which would be included in the sale of the
Pavilion. The Appraiser received no instructions from the Subject Company with
respect to the Appraisal, and no limitations were imposed on the scope of the
Appraiser's investigation of the Pavilion.
The Appraiser, was selected by the Long Beach Bank, is unaffiliated with
the Subject Company, and the Appraiser has had no other relationship with the
Subject Company and/or its affiliates. The qualifications of Michael R. Slade
include the following as set forth in the attachments to the appraisal: licensed
by Real Estate Commission State of Florida since 1974, Registered Real Estate
Broker and State-Certified General Appraiser; Member Appraisal Institute,
Society of Real Estate Appraisers, American Society of Real Estate Counselors,
MBA from Florida Atlantic University; Appraisal experience: principal, Callaway
& Price, from 1981, Staff Appraiser, Callaway & Price 1975 to 1981; Expert
Witness in Circuit Courts of Broward, Palm Beach and Martin Counties as well as
in Federal Bankruptcy Court; Special Master, Tax Appeal Hearings, Palm Beach
County.
The value of $7,500,000 set forth in the appraisal is approximately
$3,018,545 in excess of the current unpaid principal balance of the existing
first mortgage, which is approximately $4,481,455.
Although this appraisal is approximately seven years old, there have been
no material changes in the Pavilion since such appraisal which would
substantially limit the usefulness of such appraisal or otherwise affect the
validity and accuracy of such appraisal. In addition, the valuation is not
significantly different from the valuations provided by the other two appraisals
discussed below.
4
The Appraisal is available for inspection and copying at the principal
executive offices of the Subject Company during its regular business hours by
any Limited Partner of the Subject Company, or such Limited Partner's
representative who has been so designated in writing.
5
b. Trustee's Limited Appraisal:
In 1995, Robert E. Brennan, the owner of 80% of the equity interest in the
General Partner of the Subject Company, filed for bankruptcy protection. In
August 2000, the trustee in bankruptcy (the "Trustee") obtained a limited
appraisal of the Pavilion Apartments in connection with his administration of
the bankruptcy estate. This appraisal was prepared by Boyle & Drake, Inc., Vero
Beach, Florida, and stated a market value of the Pavilion Apartments of
$7,000,000. It must be noted that this appraisal is "a restricted use appraisal
intended to comply with the reporting requirements set forth under Standard Rule
2-2(c) of the Uniform Standards of Professional Appraisal Practice for a
Restricted Appraisal Report. As such, it does not include discussions of the
data, reasoning, and analyses that were used in the appraisal process to develop
the appraiser's opinion of value."
c. Valuation Provided by the Managing Agent
MSL Property Management, Inc. ("MSL"), the Subject Company's independent
onsite managing agent for the Pavilion Apartments has submitted a written offer
dated November 12, 2001, to purchase the Pavilion Apartments for $7,200,000,
cash, subject to the existing first mortgage (see discussion of the "Purchase
Offer" below). In support of this offer, MSL has attached to its offer a copy of
a letter stating a valuation of the Pavilion Apartments by Callaway & Price,
Inc., Real Estate Appraisers and Consultants. This stated value as of October
15, 2001, was $7,300,000, for the Fee Simple Estate of the Subject Property, and
$6,600,000 for the "Fee Simple Estate of the Subject Property subject to the
existing unfavorable mortgage encumbering the property."
d. The Managing Agent's Purchase Offer:
The Subject Company has over the past few years discussed a potential sale
of the Pavilion Apartments to MSL. On November 12, 2001, MSL delivered to the
Subject Company a written offer for the purchase of the Pavilion. This offer is
solely for the real estate owned by the Subject Company, exclusive of any liquid
assets the Subject Company might have. This is a firm offer, which was received
from the existing unaffiliated on site managing agent which owns and operates
other residential real estate projects in Florida, subject to the execution and
delivery of a fully negotiated contract of sale, and requiring the consent of
the first mortgage holder. The first mortgage requires the consent of the holder
to any transfer of title to the Pavilion. A transfer without such consent,
provides the holder of the mortgage with the option to declare the unpaid
principal balance of the mortgage immediately due and payable. The offer
provides for a purchase price of $7,200,000 to be paid in cash in excess of the
unpaid balance of the first mortgage (approximately $4,481,455) at closing, with
other adjustments and conditions as are customarily provided for in real estate
contracts for garden apartment projects. There would be no brokerage fee or
commission due in connection with this transaction.
In addition, the offer is subject to the required approval of the limited
partners of the Subject Company as required by the partnership agreement, and a
"Satisfactory Environmental Report"
6
which will be obtained at purchaser's cost. MSL has received a copy of an
environmental report dated 3/25/94, is satisfied with the results of that
report, and MSL has advised that it does not anticipate any detrimental changes
in the project since such time. It is noted that MSL has been managing the
property since that time and could be expected to be fully familiar with any
unsatisfactory changes which could have taken place since such earlier
environmental report.
The Subject Company has neither negotiated nor accepted this offer. There
is no assurance that a sale of the Pavilion, constituting substantially all of
the Subject Company's assets, and resulting in a liquidating distribution to
Unitholders will take place at this time. In addition there is no assurance that
the holder of the first mortgage would consent to the transfer of the Pavilion
subject to the lien of their mortgage as contemplated by the offer.
Under the partnership agreement of the Subject Company, the sale of
substantially all of the company's assets requires the approval of the holders
of a majority of the Units of Limited Partnership Interests. There is no
assurance that a majority of the holders of Limited Partnership Units would
approve the sale of the Pavilion in the event such a proposal is submitted to
them for consideration and vote.
Real Estate Valuation:
In light of the above, and utilizing a minimum valuation of $7,000,000
(the lowest of the values provided), the Subject Company has concluded that the
current value of the Pavilion is not less than $2,518,500 in excess of the
unpaid balance of the existing first mortgage. Net proceeds of $2,368,000 is
assumed allowing $150,500 for costs in connection with the sale of the property
including approximately $50,400 for transfer fees and taxes and $20,000 for
title insurance premiums to be paid by seller, as required.
LIQUID NON-REAL ESTATE ASSETS: In addition to the real estate assets, the
Subject Company has working capital and short term liquid assets in the amount
of approximately $287,640 as reflected in the Subject Company's 10Q for the
quarter ending September 30, 2001. There has been no substantial change in the
amount or nature of such assets since such filing. The Subject Company has
concluded that the value of the liquid non-real estate assets is $287,600.
Aggregate Partnership Liquidation Valuation:
In as much as the Subject Company has no significant liabilities other
than the first mortgage on the Pavilion, and which is taken into account in the
above valuation, the liquidation value of the Subject Company is the aggregate
of the valuations of the Real Estate Assets ($2,368,000) and the Liquid-Non-Real
Estate Assets ($287,640). This yields a valuation of $2,655,640. Assuming
liquidation costs and expenses of approximately $100,000 including required
proxy statement preparation and solicitation costs in connection with the
approval for the sale of the Pavilion Apartments, $2,555,640 would be available
for distribution to the partners.
7
Liquidation Distribution Calculation:
- ------------------------------------
Were the Subject Company to realize liquidation proceeds of $2,555,640,
such funds would, pursuant to the Partnership Agreement, be distributed 99%
($2,530,084) to the Limited Partners and 1% ($25,556) to the General Partner.
The Limited Partners would therefore receive $150.71 per Unit ($2,530,084 /
16,788 Units).
2. POTENTIAL CHANGE OF CONTROL OF PARTNERSHIP:
---------------------------------------------
The Subject Company has been informed by both the Trustee and by MSL that
an oral agreement has been reached for the sale of the trustee's 80% interest in
the general partner of the Subject Company to MSL. This agreement is subject to
the execution of a written agreement and the approval of the bankruptcy court.
There is no assurance that such transaction will be approved and if so approved
completed.
The transfer of the 80% interest in the general partner of the Subject
Company to MSL could have a beneficial effect on the Subject Company, combining
the ownership interest with the operating management company. This could promote
improved long term planning for the operations of the Pavilion Apartments by
eliminating the interest of the bankruptcy estate in the general partner and
replacing this with ownership by a local Florida real estate company.
This transfer could create a potential conflict between MSL's interest as
a general partner and its separate interest in purchasing the Pavilion
Apartments. We are unable to predict when or whether this sale will take place
and what the actual effect on the Partnership would be.
3. OTHER INVESTMENT CONSIDERATIONS:
----------------------------------
Current Cash Flow Distributions:
-------------------------------
During the first three quarters of 2001 the Subject Company has made no
cash flow distributions. All cash flow from the Pavilion Apartments has been
utilized for required Replacements and Renovations at the property.
There is no assurance that any cash flow distributions will be made in the
future, as such distributions are affected by occupancy rates, rent levels and
expenses of the Subject Company.
No Other Valuations:
The Subject Company has not obtained any other third party appraisals or
valuations in connection with its review of this tender offer. The Subject
Company is of the opinion that it has sufficient information available to it to
evaluate this offer without incurring the additional expense involved in
obtaining further appraisals or valuations at this time.
8
No Present Commitment to Sell or Liquidate:
------------------------------------------
Although the tender offer is being evaluated by the Subject Company in
light of a liquidation value for the Units, there is no present commitment to
sell the Pavilion Apartments, and there can be no assurance that a sale of all
or substantially all of the Subject Company's assets with a corresponding
liquidating distribution to Unitholders will occur.
Mortgage Lender's Consent Required for Transfer of Limited Partnership
----------------------------------------------------------------------
Units or Sale of Pavilion Apartments:
- -------------------------------------
The first mortgage affecting the Pavilion Apartments provides that the
holder of the mortgage may accelerate and declare the unpaid principal balance
of the mortgage due and payable on the sale or transfer of ownership of the
Pavilion Apartments, on the transfer of more than 49% of the Units of Limited
Partnership Interests or on the transfer to any one party of more than 10% of
the Units of Limited Partnership Interests. In the event the Purchasers under
the tender offer acquire more than 10% of the Units of Limited Partnership
Interests the holder of the mortgage may, but is not required to, accelerate the
unpaid balance of the mortgage. The Subject Company is unable to express an
opinion as to whether the mortgagee would exercise this right. Conclusion:
Based on the above considerations, the Subject Company has concluded that
the tender offer does not provide sufficient consideration for the Unit holders,
and such offer should be rejected.
(c) Intent to tender. Lawrence E. Bathgate, II, a director of the Subject
Company is the owner of 5 Units, and has advised that his present intention is
not to accept the Tender Offer and intends to hold the Units.
ITEM 5. PERSONS/ASSETS, RETAINED, EMPLOYED COMPENSATED OR USED.
None
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
(b) No transactions have occurred during the past 60 days for any person
required to be reported under Item 1008(b) of Regulation M-A.
ITEM 7. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS.
(a) As a result of the receipt of the tender offer, the Subject Company
has had discussions with a potential purchaser concerning the potential sale of
the Pavilion Apartments. See Item 4 above for the terms of these discussions.
The sale of the Pavilion Apartments would constitute a sale of a material amount
of the Subject Company's assets and would result in a liquidation of the Subject
Company and a liquidating distribution to the partners.
9
(b) None.
ITEM 8. ADDITIONAL INFORMATION
None.
ITEM 9. EXHIBITS
(a)(1) Recommendation sent to security holders is attached as Exhibit
9(a)(1).
(a)(2) Purchase offer dated November 12, 2001, from MSL
Property Management, Inc.
(a)(3) Appraisal Letter dated August 29, 2000, from Boyle and Drake,
Inc.
(a)(4) 1994 Appraisal of Pavilion Apartments discussed in item 4(b)
filed by reference to exhibit 9(d) to Schedule 14D-9/A filed with
the Securities and Exchange Commission on December 11, 1997.
(e) Not Applicable.
(g) Not Applicable.
SIGNATURE. After reasonable inquiry and to the best of my knowledge and belief,
I certify that the information set forth in this statement is true, complete and
correct.
FJS PROPERTIES FUND I, L.P.
(Subject Company)
Dated: November 13, 2001 by: FJS PROPERTIES, INC., General Partner
by Andrew C. Alson
---------------------------------
Andrew C. Alson, President
10
INDEX TO EXHIBITS
(a)(1)Recommendation sent to security holders is attached as Exhibit 9(a)(1).
(a)(2)Purchase offer dated November 12, 2001, from MSL Property Management, Inc.
attached as Exhibit 9(a)(2)
(a)(3)Appraisal Letter dated August 29, 2000, from Boyle and Drake, Inc.
attached as Exhibit 9(a)(3)
(a)(4)1994 Appraisal of Pavilion Apartments discussed in item 4(b) filed by
reference to exhibit 9(d) to Schedule 14D-9/A filed with the Securities
and Exchange Commission on December 11, 1997.
.
EXHIBIT 9(a)(1)
FJS PROPERTIES FUND I, L.P.
264 ROUTE 537 EAST
COLTS NECK, NJ 07722
(732)542-9209
November 13, 2001
Re: FJS Properties Fund I, L.P. - Tender Offer
Dear Limited Partner:
We are aware that you have received a tender offer for your Units of
Limited Partnership Interests in FJS Properties Fund I, L.P. As the company
affected by such offer, we are required by Securities and Exchange Commission
rules and regulations to review this offer and to provide you with our
recommendation as to your acceptance or rejection of such offer.
It is our recommendation that you reject this offer because the $105
offered per Unit is substantially less than the Subject Company's reasonable
valuation of the current value of the Units. The following describes the items
considered by the Partnership ("Subject Company") in arriving at its reasonable
value for the Units.
Summary of Items Considered
1. Potential Liquidation Value of Units;
2. Potential change of control of partnership.
3. Other investment considerations.
POTENTIAL LIQUIDATION VALUE OF UNITS
Partnership Assets:
The assets of the Subject Company consist solely of real estate and liquid
cash on hand. These are considered separately below.
REAL ESTATE ASSETS: The only real estate owned by the Subject Company is a
312 unit garden apartment project located at 401 Executive Center Drive, West
Palm Beach, Florida (the "Pavilion"). The Pavilion constitutes substantially all
of the Subject Company's assets, excluding only cash on hand. Fee title to the
Pavilion is owned subject to an existing first mortgage presently held of record
by Greenwich Capital Financial Products, Inc., and serviced by Washington
Mutual, Houston, Texas. This mortgage is a real estate mortgage and constitutes
a lien solely on the real estate and associated personal property (on site
equipment) comprising the Pavilion. In valuing the Pavilion the Subject Company
considered the following items.
a. An appraisal prepared in 1994 by the first mortgagee in connection with
the refinance of the Pavilion Apartments;
b. A limited appraisal obtained by the trustee in bankruptcy for the 80%
owner of the general partner of the Subject Company; and
c. A valuation provided by the managing agent of the Pavilion Apartments
in connection with an offer to purchase the property from the Subject Company.
d. A written purchase offer for the Pavilion Apartments submitted by the
managing agent of the Pavilion Apartments.
A discussion of each of these items follows.
a. The 1994 Appraisal:
In 1994, in connection with the refinance of the first mortgage on the
Pavilion, an appraisal was obtained for the lender's use (Long Beach Bank, which
later assigned its mortgage to Greenwich Capital Financial Products, Inc.) in
its due diligence on the Pavilion Apartments. This appraisal was prepared by
Michael R. Slade, MAI, SRA, CRE of Callaway & Price (the "Appraiser").
The appraisal estimated the value of the Pavilion on three different
basis, replacement cost, comparable sales and income approach. The replacement
cost method computes the current cost to build a project equivalent to the
Pavilion. The comparable sales approach evaluates the actual selling prices of
comparable properties in the local area. The income approach actually takes two
different approaches to the valuation. One approach, the Income Capitalization
Approach is computed by estimating the net income from the property's
improvements and then capitalizes this income stream at an appropriate rate
which is an expression of the ratio between net operating income and value. The
appraiser utilized a rate between 10.5% and 11% concluding that "an overall rate
abstracted from comparable sales is given the most weight in arriving at an
appropriate capitalization rate." The other income approach use by the appraiser
was to utilize the Discounted Cash Flow method. This technique is simply a
method of reducing projected annual cash flows to a current dollar amount. "The
net operating income is projected less debt service (if applicable), to arrive
at a first year's cash flow. The same procedures are followed for each
subsequent year of the holding period. Finally in the last year of the holding
period, the property is resold for a projected resale price, and the resulting
total cash flow over the entire holding period is discounted back to the
beginning of the investment at an appropriate rate of return." Cash flows were
based on assumed increases in market rate rents of 3% per year and expense
increases of 4% per year. The final sales price was computed by applying an
overall rate of 11% to the projected net operating income in that year. The
discount rate utilized by the appraiser was assumed to be in the 12.5% to 13.5%
range as being that rate "which would be required by most investors for this
type of property".
The valuations arrived at in the three methods were as follows: Cost
Approach: $11,500,000; Sales Comparison Approach: $7,200,000 to $7,400,000; and
the Income
Capitalization Approach: $7,300,000 to $7,700,000. The Appraiser concluded that
the market value of the Pavilion, free and clear of all mortgages was $7,500,000
- - $7,300,000 for the real property and $200,000 for the furniture, fixtures and
equipment which would be included in the sale of the Pavilion. The Appraiser
received no instructions from the Subject Company with respect to the Appraisal,
and no limitations were imposed on the scope of the Appraiser's investigation of
the Pavilion.
The Appraiser, was selected by the Long Beach Bank, is unaffiliated with
the Subject Company, and the Appraiser has had no other relationship with the
Subject Company and/or its affiliates. The qualifications of Michael R. Slade
include the following as set forth in the attachments to the appraisal: licensed
by Real Estate Commission State of Florida since 1974, Registered Real Estate
Broker and State-Certified General Appraiser; Member Appraisal Institute,
Society of Real Estate Appraisers, American Society of Real Estate Counselors,
MBA from Florida Atlantic University; Appraisal experience: principal, Callaway
& Price, from 1981, Staff Appraiser, Callaway & Price 1975 to 1981; Expert
Witness in Circuit Courts of Broward, Palm Beach and Martin Counties as well as
in Federal Bankruptcy Court; Special Master, Tax Appeal Hearings, Palm Beach
County.
The value of $7,500,000 set forth in the appraisal is approximately
$3,018,545 in excess of the current unpaid principal balance of the existing
first mortgage, which is approximately $4,481,455.
Although this appraisal is approximately seven years old, there have been
no material changes in the Pavilion since such appraisal which would
substantially limit the usefulness of such appraisal or otherwise affect the
validity and accuracy of such appraisal. In addition, the valuation is not
significantly different from the valuations provided by the other two appraisals
discussed below.
The Appraisal is available for inspection and copying at the principal
executive offices of the Subject Company during its regular business hours by
any Limited Partner of the Subject Company, or such Limited Partner's
representative who has been so designated in writing.
b. Trustee's Limited Appraisal:
In 1995, Robert E. Brennan, the owner of 80% of the equity interest in the
General Partner of the Subject Company, filed for bankruptcy protection. In
August 2000, the trustee in bankruptcy (the "Trustee") obtained a limited
appraisal of the Pavilion Apartments in connection with his administration of
the bankruptcy estate. This appraisal was prepared by Boyle & Drake, Inc., Vero
Beach, Florida, and stated a market value of the Pavilion Apartments of
$7,000,000. It must be noted that this appraisal is "a restricted use appraisal
intended to comply with the reporting requirements set forth under Standard Rule
2-2(c) of the Uniform Standards of Professional Appraisal Practice for a
Restricted Appraisal Report. As such, it does not include discussions of the
data, reasoning, and analyses that were used in the appraisal process to develop
the appraiser's opinion of value."
c. Valuation Provided by the Managing Agent
MSL Property Management, Inc. ("MSL"), the Subject Company's independent
onsite managing agent for the Pavilion Apartments has submitted a written offer
dated November 12, 2001, to purchase the Pavilion Apartments for $7,200,000,
cash, subject to the existing first mortgage (see discussion of the "Purchase
Offer" below). In support of this offer, MSL has attached to its offer a copy of
a letter stating a valuation of the Pavilion Apartments by Callaway & Price,
Inc., Real Estate Appraisers and Consultants. This stated value as of October
15, 2001, was $7,300,000, for the Fee Simple Estate of the Subject Property, and
$6,600,000 for the "Fee Simple Estate of the Subject Property subject to the
existing unfavorable mortgage encumbering the property."
d. The Managing Agent's Purchase Offer:
The Subject Company has over the past few years discussed a potential sale
of the Pavilion Apartments to MSL. On November 12, 2001, MSL delivered to the
Subject Company a written offer for the purchase of the Pavilion. This offer is
solely for the real estate owned by the Subject Company, exclusive of any liquid
assets the Subject Company might have. This is a firm offer, which was received
from the existing unaffiliated on site managing agent which owns and operates
other residential real estate projects in Florida, subject to the execution and
delivery of a fully negotiated contract of sale, and requiring the consent of
the first mortgage holder. The first mortgage requires the consent of the holder
to any transfer of title to the Pavilion. A transfer without such consent,
provides the holder of the mortgage with the option to declare the unpaid
principal balance of the mortgage immediately due and payable. The offer
provides for a purchase price of $7,200,000 to be paid in cash in excess of the
unpaid balance of the first mortgage (approximately $4,481,455) at closing, with
other adjustments and conditions as are customarily provided for in real estate
contracts for garden apartment projects. There would be no brokerage fee or
commission due in connection with this transaction.
In addition, the offer is subject to the required approval of the limited
partners of the Subject Company as required by the partnership agreement, and a
"Satisfactory Environmental Report" which will be obtained at purchaser's cost.
MSL has received a copy of an environmental report dated 3/25/94, is satisfied
with the results of that report, and MSL has advised that it does not anticipate
any detrimental changes in the project since such time. It is noted that MSL has
been managing the property since that time and could be expected to be fully
familiar with any unsatisfactory changes which could have taken place since such
earlier environmental report.
The Subject Company has neither negotiated nor accepted this offer. There
is no assurance that a sale of the Pavilion, constituting substantially all of
the Subject Company's assets, and resulting in a liquidating distribution to
Unitholders will take place at this time. In addition there is no assurance that
the holder of the first mortgage would consent to the transfer of the Pavilion
subject to the lien of their mortgage as contemplated by the offer.
Under the partnership agreement of the Subject Company, the sale of
substantially all of the company's assets requires the approval of the holders
of a majority of the Units of Limited
Partnership Interests. There is no assurance that a majority of the holders of
Limited Partnership Units would approve the sale of the Pavilion in the event
such a proposal is submitted to them for consideration and vote.
Real Estate Valuation:
In light of the above, and utilizing a minimum valuation of $7,000,000
(the lowest of the values provided), the Subject Company has concluded that the
current value of the Pavilion is not less than $2,518,500 in excess of the
unpaid balance of the existing first mortgage. Net proceeds of $2,368,000 is
assumed allowing $150,500 for costs in connection with the sale of the property
including approximately $50,400 for transfer fees and taxes and $20,000 for
title insurance premiums to be paid by seller, as required.
LIQUID NON-REAL ESTATE ASSETS: In addition to the real estate assets, the
Subject Company has working capital and short term liquid assets in the amount
of approximately $287,640 as reflected in the Subject Company's 10Q for the
quarter ending September 30, 2001. There has been no substantial change in the
amount or nature of such assets since such filing. The Subject Company has
concluded that the value of the liquid non-real estate assets is $287,600.
Aggregate Partnership Liquidation Valuation:
- -------------------------------------------
In as much as the Subject Company has no significant liabilities other
than the first mortgage on the Pavilion, and which is taken into account in the
above valuation, the liquidation value of the Subject Company is the aggregate
of the valuations of the Real Estate Assets ($2,368,000) and the Liquid-Non-Real
Estate Assets ($287,640). This yields a valuation of $2,655,640. Assuming
liquidation costs and expenses of approximately $100,000 including required
proxy statement preparation and solicitation costs in connection with the
approval for the sale of the Pavilion Apartments, $2,555,640 would be available
for distribution to the partners.
Liquidation Distribution Calculation:
- ------------------------------------
Were the Subject Company to realize liquidation proceeds of $2,555,640,
such funds would, pursuant to the Partnership Agreement, be distributed 99%
($2,530,084) to the Limited Partners and 1% ($25,556) to the General Partner.
The Limited Partners would therefore receive $150.71 per Unit ($2,530,084 /
16,788 Units).
2. POTENTIAL CHANGE OF CONTROL OF PARTNERSHIP:
---------------------------------------------
The Subject Company has been informed by both the Trustee and by MSL that
an oral agreement has been reached for the sale of the trustee's 80% interest in
the general partner of the Subject Company to MSL. This agreement is subject to
the execution of a written agreement and the approval of the bankruptcy court.
There is no assurance that such transaction will be approved and if so approved
completed.
The transfer of the 80% interest in the general partner of the Subject
Company to MSL could have a beneficial effect on the Subject Company, combining
the ownership interest with the operating management company. This could promote
improved long term planning for the operations of the Pavilion Apartments by
eliminating the interest of the bankruptcy estate in the general partner and
replacing this with ownership by a local Florida real estate company.
This transfer could create a potential conflict between MSL's interest as
a general partner and its separate interest in purchasing the Pavilion
Apartments. We are unable to predict when or whether this sale will take place
and what the actual effect on the Partnership would be.
3. OTHER INVESTMENT CONSIDERATIONS:
----------------------------------
Current Cash Flow Distributions:
-------------------------------
During the first three quarters of 2001 the Subject Company has made no
cash flow distributions. All cash flow from the Pavilion Apartments has been
utilized for required Replacements and Renovations at the property.
There is no assurance that any cash flow distributions will be made in the
future, as such distributions are affected by occupancy rates, rent levels and
expenses of the Subject Company.
No Other Valuations:
The Subject Company has not obtained any other third party appraisals or
valuations in connection with its review of this tender offer. The Subject
Company is of the opinion that it has sufficient information available to it to
evaluate this offer without incurring the additional expense involved in
obtaining further appraisals or valuations at this time.
No Present Commitment to Sell or Liquidate:
------------------------------------------
Although the tender offer is being evaluated by the Subject Company in
light of a liquidation value for the Units, there is no present commitment to
sell the Pavilion Apartments, and there can be no assurance that a sale of all
or substantially all of the Subject Company's assets with a corresponding
liquidating distribution to Unitholders will occur.
Mortgage Lender's Consent Required for Transfer of Limited Partnership
Units or Sale of Pavilion Apartments:
The first mortgage affecting the Pavilion Apartments provides that the
holder of the mortgage may accelerate and declare the unpaid principal balance
of the mortgage due and payable on the sale or transfer of ownership of the
Pavilion Apartments, on the transfer of more than 49% of the Units of Limited
Partnership Interests or on the transfer to any one party of more than 10% of
the Units of Limited Partnership Interests. In the event the Purchasers under
the tender offer acquire more than 10% of the Units of Limited Partnership
Interests the holder of the mortgage may, but is not required to, accelerate the
unpaid balance of the mortgage. The Subject Company is unable to express an
opinion as to whether the mortgagee would exercise this right.
Conclusion:
- ----------
Based on the above considerations, the Subject Company has concluded that
the tender offer does not provide sufficient consideration for the Unit holders,
and such offer should be rejected.
Should you have any questions regarding this matter please feel free to
call me at (732)542-9209.
Very truly yours,
FJS Properties Fund I, L.P.
by: FJS Properties, Inc., General Partner
By: Andrew C. Alson
--------------------------------------
Andrew C. Alson, President
ACA/kb
EXHIBIT 9(a)(2)
M.S.L. Property Management Inc.
2800 E. Commercial Blvd #200
Fort Lauderdale, FL 33308
(954)491-4511 (964)4814504 Fax
November 12, 2001
Donald Conway
Druker, Raul & Fein
3826 Quakerbridge Road
Hamilton, NJ 08619
Andy Alson
FJS Properties Fund
264 Route 537 East
Colts Bridge, NJ 07722
Lawrence E. Bathgate II
Bathgate, Wegener & Wolf
One Airport Road
Lakewood, NJ 08701
OFFER TO PURCHASE
RE: FJ$ Properties Fund I, D/B/A Pavilion Apartments, 312 Units
401 Executive Center Drive
West Palm Beech, FL
Gentlemen:
This letter shall be considered to be an offer to purchase the Subject property.
Purchase price would be S7,200,000, all cash subject to the existing mortgage.
This offer is net to the Seller except for prorations for Real Estate Tax,
Insurance and the cost of the mortgage transfer. There would be no real estate
commission.
Our offer is based upon an appraisal (face page enclosed) and our knowledge of
the property. We are aware that the property requires Improvements that will
cost between $2,000,000 and $3,000,000 to bring the property up to current
standards. Since we are familiar with the property we will not require the usual
due diligence items. The conditions for closing however would require:
1) Approval of LTD Partners
2) Mortgagors consent
3) Satisfactory Environmental Report. which will be done at our expense We
have a copy of the Environmental Report dated 3/25/94 and do not expect
that there would be any detrimental change.
Closing to take place sixty (60) days after approval of partners and mortgagor's
consent. We have retained the firm of:
Berman, Wolfe, Rennert Vogel & Mandler
100 SE 2nd Street, Suite 3500
Miami, FL 33131
to prepare a definitive offer which we expect to submit to you by November
20.2001.
Sincerely,
Murray Liebowitz
ENC: Appraisal Amount
CC; Jeffrey Mandler
Callaway & Price, Inc.
Real Estate Appraisers and Consultants
Licensed Real Estate Brokers
1639 Forum Place, West Palm Beach, Florida 33401
October 26, 2001
Mr. Murray Liebowitz
M.S.L. Management, Inc.
2600 E. Commercial Boulevard
Suite 200
Fort Lauderdale. Florida 33308
Dear Mr. Liebowitz:
We have made an Investigation and analysis of The Pavilion apartment complex
located at 401 Executive Center Drive, in West Palm Beach, Florida. The purpose
of this investigation and analysis was to estimate the Market Value of the Fee
Simple Estate of the Subject Property, and the Market Value, of the Fee Simple
Estate subject to the existing unfavorable mortgage encumbering the property (as
discussed within the appraisal) as of October 15, 2001. This Complete Appraisal
is in the Self-Contained Appraisal. report format as defined by the Uniform
Standards of Professional Appraisal Practice (USPAP). The intended user of the
report is the addressee, and it is our understanding that the intended use was
for the client's internal decision making purposes.
As a result of our investigation and analysis of the information obtained
therefrom, as well as a general knowledge of real estate valuation procedures,
it is our opinion that the Market Value of the Fee Simple Estate of the Subject
Property as of October 15, 2001 was: SEVEN MILLION THREE HUNDRED THOUSAND
DOLLARS ($7,300,000)
Further, it is our opinion that the Market Value of the Fee Simple Estate of the
Subject Property subject to the existing unfavorable mortgage encumbering the
property. as of October 15, 2001 was: SIX MILLION SIX HUNDRED THQUSAND DOLLARS
($6,600,OOO)
It should be dearly understood that the Market Value definition Includes a
reasonable exposure time. It is our opinion that exposure time could have ranged
from 6 to 12 months. Obviously, if a quick sale (liquidation) is the goal,
Market Value will not be realized, but rather a lower number-liquidation price.
Marketing time was also estimated at 6 to 12 months.
Further, we would point out that the above value estimate is based on a specific
date, wherein a theoretical market exposure has already occurred. To estimate a
future value at the end of a marketing time starting at the appraisal date would
be a prospective value as opposed to the current value estimated herein.
A description of the property appraised, together with an explanation of the
valuation procedures utilized, Is contained in the body of the attached report.
For your convenience, an Executive Summary follows this letter. Your attention
is directed to the Limiting Conditions and underlying assumptions upon which the
value conclusions era contingent.
Respectfully submitted,
CALLAWAY & PRICE, INC.
Michael R. Slade., MAI, SRA, CRE
St.Cert.Gen.REA RZ0000116
Jpmes F. Mader, Associate Appraiser
St.Cert.Gen.REA RZ0000832
EXHIBIT 9(a)(3)
A LIMITED RESTRICTED USE
APPRAISAL REPORT OF THE
PAVILION APARTMENTS
401 EXECUTIVE CENTER DRIVE,
WEST PALM BEACH, FL 33401
PREPARED FOR
MR. DONALD CONWAY
DRUKER, RAIL & FEIN
P.O. BOX 7648
PRINCETON, NEW JERSEY, 08543-7648
MAIL CODE NA
AS OF
AUGUST 10, 2000
BY
BOYLE & DRAKE, INC.
888 DAHLIA LANE
VERO BEACH, FL 32963
FILE NO. 4006
COMPLETED AUGUST 29, 2000
Boyle & Drake, Inc.
Vero Beach Real Estate Appraisers and Consultants Fort Pierce
Stephen J. Boyle MAI _________________________ Paul P. Drake, MAI, SRA
State Certified General State Certified General
Real Estate Appraiser RZ0000699 Real Estate Appraiser RZ0000027
888 Dahlia Lane. Vero Beach, FL 32963
Telephone: (561) 234-1303
Fax: (561) 234-1332
August 29, 2000
Mr. Donald Conway, Trustee for Robert Brennan
Druker, Rail & Fein
P.O. Box 7648
Princeton, New Jersey, 08543-7648
Re: Limited restricted use appraisal report of Pavilion Apartments located at
401 Executive Center Drive, West Palm Beach, Fl 33401. Druker, Rail & Fein
reference NA.
Dear Mr. Conway:
In accordance with your request, we have made an investigation and limited
analysis of the above referenced property. The purpose of this investigation and
analysis was to estimate the Market Value of the Fee Simple Estate of the
subject property as of August 10, 2000. This report is a Limited Report prepared
in a Restricted Use Format.
As a result of my investigation and analysis of the information obtained
therefrom, as well as a general knowledge of real estate valuation procedures,
it is my opinion that the Market Value of the Fee Simple Estate of the Subject
Property with all furniture, fixtures, and equipment in "as is" condition, as of
August 10, 2000 was.
SEVEN MILLION DOLLARS
($7,000,000)
The estimated market value takes into consideration the estimated cost of
deferred maintenance of approximately $3,300,000.
This is a restricted use appraisal report that is intended to comply with the
reporting requirements set forth under Standard Rule 2-2(c) of the Uniform
Standards of Professional Appraisal Practice for a Restricted Appraisal Report.
As such, it does not include discussions of the data, reasoning, and analyses
that were used in the appraisal process to develop the appraiser's opinion of
value. Supporting documentation concerning the data, reasoning, and analyses is
retained in the appraiser's file. The information contained in this report-t is
specific to the needs of the client and for the intended use stated in this
report. The appraiser is not responsible for unauthorized use of this report.
Furthermore, in accordance with prior agreement between the client and the
appraiser, this report is the result of a limited appraisal process in that
certain allowable departures from specific guidelines of the Uniform Standards
of Professional Appraisal Practice were invoked. The intended user of this
report is warned that the reliability of the value conclusion provided may be
impacted to the degree there is departure from specific guidelines of USPAP.
Your attention is directed to the limiting conditions and underlying assumptions
upon which the value conclusions are contingent. An Executive Summary has been
included for your convenience. It has been a pleasure to serve you in this
matter.
Respectfully submitted,
BOYLE & DRAKE, INC.
Paul P. Drake, MAI, SRA
Florida State Certified General R. E. Appraiser RZ0000027
Expires 11/00
RESTRICTED APPRAISAL REPORT - LIMITED APPRAISAL
CLIENT: Mr. Donald Conway
Druker, Rail & Fein
P.O. Box 7648
Princeton, New Jersey, 08543-7648
APPRAISERS: Boyle & Drake, Inc.
888 Dahlia Lane
Vero Beach, Florida 32963
SUBJECT:
The subject property is an existing 312-unit rental apartment project located at
401 Executive Center Drive, West Palm Beach, Fl 33401. The subject site is
located on the southwest side of Executive Center Drive, approximately 1,000
feet southeasterly of Congress Avenue. The project has frontage on the east side
of Interstate 95.
Site Description: The total land size per public records is approximately
631,184 square feet, or 14.49 acres. The shape is irregular with approximately
1,080 front feet on Executive Center Drive. The site is zoned MF 32, Multifamily
High Density. The master land use plan of West Palm Beach designates the area as
MF, Multifamily, permitting a maximum density of 32 units per acre. The existing
use of the site conforms to zoning as well as land use.
The 'on-site" parking ratio is 1.54 spaces per unit. Site coverage is
approximately 44% The site is located within flood B per map number 120229 0015
B. The property is located within Census Tract 20.00.
Utilities to the site include telephone, electricity, and central water and
sewer. Access to the project is via Executive Center Drive. The subject property
is located a short distance from two 1-95 interchanges for good access.
Site Improvements: The site is improved with asphalt paving with approximately
479 on site pal-king spaces. Recreational amenities include a large pool, a
small children's pool, two tennis courts, two shuffleboard courts and a 2,633
square foot clubhouse. Adequate landscaping is provided. Irrigation is provided
by underground sprinkler systems.
The condition of the grassed areas is poor since the irrigation system is not
functioning and needs extensive repairs. The parking areas are in fair condition
and need to be repaved/resealed.
Building Description: The site is improved with eleven two-story garden
apartment masonry buildings totaling approximately 283,790 square feet with a
total of 312 rentable units. Rentable building area is approximately 266,124
square feet with an average unit size
of 853 square feet. The unit sizes were based on field measurements. Interior
dimensions were used. The brochure provided by the management reports larger
unit sizes of approximately 290,800 square feet. Below is a summary of the units
by type, number and size:
SUMMARY OF UNITS
- ---------------------------------
Bed/Bath No/Units % Total Size/SF Total
1/1 108 35% 700 75,60
2/1 44 14% 793 34,89
2/2 116 37% 932 108,11
3/2 44 14% 1,080 47,52
312 100% 853 266,12
According to public records the building was constructed in 1971. The
construction is masonry with painted stucco walls and flat built-up roofs.
Each unit is equipped with a refrigerator, range/oven, dishwasher and a garbage
disposal. Floor cover- includes carpets, vinyl flooring in kitchens and ceramic
tile in bathrooms. A washer- and dryer is located in every other hallway as well
as a laundry facility in the clubhouse.
The project suffers extensively from deferred maintenance. Most of the
apartments need major renovations. The scope of apartment renovation includes
new appliances, air- conditioning systems, bathtub and shower replacements, new
floor cover, kitchen cabinets and plumbing work. The exterior, grounds and
amenities also need renovations. The current cost is approximately $3,300,000 as
summarized on the following page.
DEFERRED MAINTENANCE
Item Cost Cost/Unit
Parking Lots $106,800 $342
Roofs $571,895 $1,833
[irrigation $98,000 $314
Tennis Courts $6,500 $21
Pool Renovation $72,484 $232
Club House $32,175 $103
Laundry Room $15,000 $48
Pool Bathroom $15,000 $48
Landscaping $75,000 $240
Apartment Renovations $2,200,099 $7,052
Paint Exteriors $135,000 $433
Totals $3,327,953 $10,667
Below is a brief summary of major construction details, features and development
ratios:
Item/Component Description
Foundation Slab on Grade/Concrete Footer
Frame Masonry
Exterior Walls Painted stucco
Roof Flat with mansard
HVAC Central A/C
Observed Condition Fair
Design and Appearance Average
Quality Average
Functional Obsolescence None noted
Actual Age 29 Years
Effective Age 30 Years
Site Coverage 45%
Number parking spaces 479
Parking Spaces per Unit 1.54
Ad Valorem Taxes:
Tax ID No: 74-43-43-20-01-005
The subject property is currently assessed for $7,800,000 with real estate taxes
of $196,878.00 resulting in a tax rate of $25.2408 per- $1,000 of assessed
value. The land and improvements are assessed at $35.76 per square foot or
$25,000 per unit. Last years
assessed value was $6,500,000. Management reports they have filed for a tax
appeal. If the property were reassessed to $6,500,000, taxes would be
approximately $164,000. Management has estimated taxes at approximately
$177,402. I have estimated taxes at $175,000.
OWNER OF RECORD/PROPERTY HISTORY:
The owner of record is FJS Properties Fund I. L. P. Public records indicates the
property was purchased in 1984 for $5,357,200. The legal description is
Executive Center Park Parcel 5. The property is encumbered by a first mortgage
from Long Beach Bank. The loan was issued March 31, 1994. The loan provides for
a term often years with an interest rate of 9.75%. The payments are based on a
25-year amortization period. The balloon balance is due March 2004 in the
approximate amount of $4,215,000. The loan has a pre payment penalty based on
the difference between treasury bill rates and the mortgage interest rate.
PURPOSE OF APPRAISAL: The purpose of this appraisal was to estimate the
Market Value of the Fee Simple Estate of the
subject property as of August 10, 2000.
INTENDED USE OF REPORT
(FUNCTION OF APPRAlSAL): The appraisal is intended to aid in rendering a
decision on financing the property.
INTENDED USER OF REPORT: The appraisal is intended for the sole use of
Druker, Rail & Fein. Due to the restricted use
report format, this report is not intended for
third party use.
REAL PROPERTY INTEREST
APPRAISED: The interest appraised herein is the Fee Simple
Estate.
MARKET VALUE DEFINITION: Per Standards Rule 1-2 (b) of USPAP 1998
Edition.
HIGHEST AND BEST USE:
Highest and Best Use As Though
Vacant: For development of a rental apartment project
similar to the subject
Highest and Best Use As
Improved: Renovation and continued use of the existing
improvements
EFFECTIVE DATE OF VALUE: August 10, 2000
DATE OF REPORT: August 29, 2000
MARKET VALUE ESTIMATE:
FEE SIMPLE ESTATE: $7,000,000
MARKETING TIME: 12 Months
EXPOSURE TIME: 12 Months
APPRAISAL DEVELOPMENT AND REPORTING PROCESS: In preparing this
appraisal, the appraiser- inspected the subject neighborhood and property,
gathered information on market data. The search for comparable rentals was
concentrated in the subject neighborhood. Operating expenses were based on
historical data from the owners as well as in house expense comparables. Overall
rates were based on rates abstracted from similar use properties.
Per prior agreement with the client, the appraiser did not use the Cost Approach
or Sales Comparison Approach to value. The appraisal process therefore involved
departure from Standards Rule 1-4 (b) i, ii, iv, v, and vi.
This restricted use appraisal report sets forth a summary and analysis of the
data relied on, and appraiser's conclusion. Supporting documentation is retained
in the appraiser's file.
MARKET DATA: Although a Restricted Use Report typically does not contain a
discussion of market data, a brief discussion of the Income Approach has been
provided to assist our client.
Gross Income Estimate: Potential gross income was based on the current rents
averaging approximately $649 per unit per month. Given the extent of deferred
maintenance higher rents ale not achievable. It is noted that management has
proposed a new rent schedule with average rents of $689 per unit per month.
Management reports there is too much resistance to this level.
Rents are projected to reach a higher level of approximately $699 per unit after
renovations. Rents are projected to increase approximately $20 per year per unit
thereafter. I project two years of renovations to reach the higher rents. Other
income is based on the averages over the past three years.
Vacancy & Collection Loss: Analysis of neighborhood properties indicates that a
5% loss for- vacancy and collection losses is reasonable after renovation. The
subject property has maintained occupancies of approximately 92% to 95% over the
past three years in spite of below average condition of the units. During the
two-year renovation period I project an average vacancy & collection loss of
10%, then stabilizing at 5%.
Expenses: Details concerning the past three years expenses were provided by
Buchbinder Tunick & Company LLP, Druker, Rahl & Fein and M.S.L. Property
Management Company. A summary of income and expenses is contained in the addenda
of this report.
Total expenses over the past three years have ranged from approximately $4,200
to $4,700 per Unit. The average was $4,449 per unit. Operating expenses as of
the date of this report were estimated to be $4,300 (Rnd.) per unit of-
approximately $1,341,600.
Analysis of operating expenses from similar apartment projects indicated the
current operating costs are higher than typical due to the extent of on going
repairs required. As of August 2000 management reports approximately 600 work
orders per month processed by the maintenance department of the subject
property. Renovations as proposed will reduce operating cost to approximately
$4,000 per unit. In the Discounted Cash Flow Method I project that the reduction
in operating expenses will not be reached until year 3.
Capitalization/Yield Discounting: Consideration has been given to estimating
capitalization rates by overall property capitalization rates abstracted from
nine apartment sales. The range of rates was from approximately 8% to I 1% with
an average of 9.4%. A typical investor expectation for good quality rental
apartment buildings is 8% to 90/o. Given the amount of deferred maintenance and
thus higher risks a 9.5% rate is market oriented.
OveralI rates were also estimated by the mortgage equity formula. This approach
is based Upon current mortgage rates and terms, as well as investors' equity
yield expectations. This method was based on first mortgage financing at 8.75%
amortized over 25-years with a loan-to-value ratio of 75% with a balloon payment
in five years. The minimum investor equity yield expectation is estimated to be
approximately 10% to 12%. The maximum rate in our survey was 15%. A 15% equity
yield rate was estimated for the subject property. A minimum property
appreciation of 1% per year was estimated. The indicated overall rate by the
mortgage equity formula is 9.6%. Details are contained in the addenda.
Overall I estimate a 9.5% overall rate is market oriented. The terminal cap rate
is estimated to be 10%.
Leveraged Discount Rate: The subject property is encumbered by a first mortgage
with higher than normal interest rate as well as a high prepayment penalty.
Discussions with rental apartment investors indicated they would target a 20%
yield on a leveraged basis. A 20% discount i-ate was used in the leveraged
Discounted Cash Flow Method. The financing assumption was that the subject
property would be financed with a market rate loan when the existing first
mortgage becomes due in 2004.
Conclusion of Value: On the following pages is a summary of the Income Approach
to value via Direct Capitalization Approach and the Discounted Cash Flow Method.
Both methods estimate as is value by deducting the estimated renovation costs.
The indicated value via the Direct Capitalization Approach was $6,500,000. The
value indicated value by the Discounted Cash Flow Method-All Cash at 15% yield
rate was $7,150,000. The value indicated at a 20% rate on a leveraged basis was
$7,000,000 Overall an as is value of $7,000,000 is estimated based on the
Discounted Cash Flow Method.
INCOME APPROACH
Potential Gross Income
No. UnitsType X Rent/Mo. X 12 Months = Annual Gross Income Per Unit
108 1/1 $559 12 $724,464
44 2/1 $659 12 $347,952
116 2/2 $679 12 $945,168
44 3/2 $779 12 $411,312
312 Average $648.74
Total Gross Income $2,428,896
Less: Vacancy and Credit Loss 7% ($170,023)
-----------
Plus Other Income: $12,000
Effective Gross Income $2,270,873 $7,278
Less Expenses
Total % of EGI Per Unit
Real Estate Taxes $175,000 7.8% $561
Insurance $68,000 3.0% $218
Management $113,544 5.0% $364
Payroll $219,000 9.6% $702
Maintenace and Repairs $218,400 9.6% $700
Grounds Maintenance $35,880 1.6% $115
Utilities $218,400 9.6% $700
Court Costs $24,960 1.1% $80
Security $48,360 2.1% $155
Legal/Accounting $45,417 2.0% $146
Office Expense $31,200 1.4% $100
Advertising/Marketing $35,880 1.6% $115
Miscellaneous $22,709 1.0% $73
Reserves for Replacements $84,240 3.7% $270
------- ---- ----
Totals $1,340,990 59.1% $4298
Total Expenses $1,340,990
----------
Net Operating Income
$ 929,883 $2,980
CAPITALIZATION
Net Operating Income divided by Overall Rate equals Value
$929,883 divided by 9.50% = $9,788,247 $31,373/Unit
Less Deferred Maintenance: $3,327,953
As Is Value: $6,460,294
VALUE INDICATION$6,500,000
Estimate for Maintenance & Repairs Reserve
Item Cost Life/Years Annual Cost
AC Compressors $1,000 12 $83
Floor Cover 600 7 $86
Appliances 1,500 15 $100
Total Reserves $269
Rounded to $270
Software: ARGUS Ver. 8.6,02
:110 :4006
property Type Apartment
portfolio
Pavilion
401 Executive center Drive
West Palm beach, Florida 33401
SCHEDULE OF PROSPECTIVE CASH FLOW In Inflated Dollars for the Fiscal Year
Beginning 811/2000
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8
For the years ending Jul-2001 Jul.2002 Jul.2003 Jul.2004 Jul.2005 Jul 2006 Jul 2007 Jul 2008
Potential Gross Revenue
Potential Gross Revenue 2,429,856 2,523,456 2,617,056 2,691,936 2,766,816 2,841,696 2,916,576 2,991,456
Scheduled Base Rental Revenue 2,429,586 2,523,456 2,617,056 2,691,936 2,766,816 2,841,696 2,916,576 2,991,456
Other Income 12,000 12,36 12,731 13,113 13, 506 13,911 14,329 14,758
Total Potential Gross Revenue 2,441,856 2,535,816 2,629,787 2,705,049 2,780,322 2,855,607 2,930,905 3,006,214
General Vacancy (242,986) (252,346) (130,853) (134,597) (138,341) (142,085) (145,829) (149,573)
Effective Gross Revenue 2,198,870 2,283,470 2,498,934 2,570,452 2,641,981 2,713,522 2,785,076 2,856,641
Operating Expenses 1,340,990 1,309,790 1,248,000 1,285,440 1,324,003 1,363,723 1,404,635 1,446,774
Net Operating Income 857,880 973,680 1,250,934 1,285,012 1,317,978 1,349,799 1,380,441 1,409,867
Debt Service
Interest Payments 444,139 434,905 424,730 402,234 372,806 368,121 363,010
Principal Payments 90,544 99,777 109,952 95,630 51,421 56,105 61,216
Total Debt Service 534,683 534,682 534,682 497,864 424,227 424,226 424,226
Leasing & Capital Costs 1,650,000 1,650,000
Cash Flow after debt service
but before taxes ($1,326,803)($1,211,002)$716,252 $787,148 $893,751 $925,573 $956,215 $1,409,867
Pavilion
401 Executive Center Drive
Weal Palm beach, Florida 33401
PROSPECTIVE PRESENT VALUE
Cash Flow Before Debt Service plus Property Resale
Discounled Annually (Endpoint on Cash Flow & Resale) over a 7-Year Period
Analysis Period For year endingAnnual Cash Flow P.V. of P.V. of P.V. of
Cash Flow @ Cash Flow @ Cash Flow @
13% 14% 15%
Year 1 Jul 2001 ($792,120) (700,991) (694,842) (688,800)
Year 2 Jul 2002 (676,320) (529,658) (520,406) (511,395)
Year 3 Jul 2003 1,250,934 866,960 844,344 822,509
Year 4 Jul 2004 1,285,012 788,122 760,831 734,710
Year 5 Jul 2005 1,317,978 715,346 684,516 655,268
Year 6 Jul 2006 1,349,799 648,333 614,950 583,555
Year 7 Jul 2007 1,380,441 586,771 551,676 518,959
Total Cash Flow 5,115,724 2,374,883 2,241,069 2,114,806
Property Resale @ 10% cap rate 13,393,736 5,693,150 5,352,637 5,035,201
Total Property Present Value $8,068,033 $7,593,706 $7,150,007
Rounded to thousands $8,068,000 $7,594,000 $7,150,000
Per Unit 25,859 24,339 22,917
Percentage Value Distribution
Prospective Income 29.44% 29.51% 29.58%
Prospective Property Resale 70.56% 70.49% 70.42%
100% 100% 100%
ARGUS Ver. 8.6.02 :4006
Apartment
Pavilion
401 Executive Center Drive
West Palm beach, Florida 33401
PROSPECTIVE PRESENT VALUE
Cash Flow Alter Debt Service plus Property Resale
Discounted Annually (Endpoinl on Cash Flow & Resale) over a 7-Year Period
Analysis Period For year endingAnnual Cash Flow P.V. of P.V. of P.V. of
Cash Flow @ Cash Flow @ Cash Flow @
19% 20% 21%
Year 1 Jul 2001 ($1,326,803) ($1,114,961) ($1,105,669) ($1,096,531)
Year 2 Jul 2002 (1,211,002) (855,167) (840,974) (827,131)
Year 3 Jul 2003 716,252 425,036 414,498 404,306
Year 4 Jul 2004 870,841 434,261 419,966 406,253
Year 5 Jul 2005 893,751 374,526 359,178 344,580
Year 6 Jul 2006 925,573 325,933 309,973 294,916
Year 7 Jul 2007 956,215 282,961 266,862 251,801
Total Cash Flow 1,824,827 (127,411) (176,166) (221,806)
Property Resale @ 10% cap rate 9,278,645 2,745,717 2,589,500 2,443,357
Value of Equity Interest $2,618,306 $2,413,334 $2,221,551
Rounded to thousands $2,618,000 $2,413,000 $2,222,000
Per Unit 8,392 7,735 7,120
Value of Equity Interest $2,618,306 $2,413,334 $2,221,551
Debt Balance as of Aug-2000 4,596,042 4,596,042 4,596,042 4,596,042
Total Leveraged Present Value 7,214,348 7,009,376 6,817,593
Rounded to Thousands $7,214,000 $7,009,000 $6,818,000
Per Unit 23,123 22,466 21,851
EXPOSURE TIME/MARKETABILITY
The marketability of the subject property is rated as average. The estimated
exposure time and marketing time is estimated to be approximately nine to twelve
months.
ASSUMPTIONS AND LIMITING CONDITIONS:
The certification of the appraisers is subject to the following conditions and
to such other specific conditions as are set forth by the appraisers in this
report.
1.Unless other-wise stated, the value appealing in this appraisal represents
the opinion of the Market Value or the Value Defined AS OF THE DATE
SPECIFIED. Market Value of real estate is affected by national and local
economic conditions and consequently will vary with future changes in such
conditions.
2.The value estimated in this appraisal report is gross, without
consideration given to any encumbrance, restriction or question of title,
unless specifically defined.
3.This appraisal report covers only the property described and any values or
rates utilized are not to be construed as applicable to any other property,
however similar the properties might be.
4.It is assumed that the title to the premises is good; that the legal
description is correct; that the improvements are entirely and correctly
located on the property described and that theme are no encroachments on
this property, but no investigation or survey has been made.
5.This appraisal expresses our opinion, and employment to make this
appraisal was in no way contingent upon the reporting of pre determined
value or conclusion.
6.No responsibility is assumed for matters legal in nature, nor is any
opinion of title rendered. In the performance of our investigation and
analysis leading to the conclusions reached herein, the statements of others
were relied on. No liability is assumed for the correctness of these
statements; and, in any event, the appraisers' total liability for- this
report is limited to the actual fee charged.
7.Neither all nor any part of the contents of this report (especially any
conclusions, the identity of the appraiser or the firm with which he is
connected, or any reference to the Appraisal Institute or any of its
designations) shall be disseminated to the public through advertising media,
public relations media, news media, sales media or any other public means of
communication without our prior written consent and approval.
8.It is assumed that them-e are no hidden or unapparent conditions of the
property, subsoil, or structures which would render it more or less
valuable. The Appraiser assumes no responsibility for such conditions or the
engineering which might be required to discover these factors.
9.Unless otherwise stated in this report, the existence of hazardous
substances, including
without limitation asbestos, polychlorinated biphenyl's, petroleum leakage,
or agricultural chemicals, which may or may not be present on the property,
or other environmental conditions, were not called to the attention of, nor
did the appraiser become aware of such during the appraiser's inspection.
The appraiser has no knowledge of the existence of such materials on or- in
the property unless otherwise stated. The appraiser, however, is not
qualified to test for such substances or conditions. If the presence of such
substances, such as asbestos, urea formaldehyde foam insulation, or other
hazardous substances or environmental conditions, may affect the value of
the property, the value estimated is predicated on the assumption that there
is no such proximity thereto that would cause a loss in value. No
responsibility is assumed for any such conditions, not- for any expertise or
engineering knowledge required to discover them.
10. The Americans with Disabilities Act ("ADA') became effective January 26,
1992. The appraisers have not made a specific compliance survey and analysis
of this property to determine whether or not it is in conformity with the
various detailed requirements of the ADA. It is possible that a compliance
survey of the property, together with a detailed analysis of the
requirements of the ADA, could reveal that the property is not in compliance
with one or more of the requirements of the Act. If so, this fact could have
a negative effect upon the value of the property. Since the appraisers have
no direct evidence relating to this issue, possible noncompliance with the
requirements of the ADA in estimating the value of the property has not been
considered.
11. This is a restricted appraisal report which is intended to comply with
the reporting requirements set forth under Standard Rule 2-2(c) of the
Uniform Standards of Professional Appraisal Practice for a Restricted
Appraisal Report. As such, it does not include discussions of the data,
reasoning, and analyses that were used in the appraisal process to develop
the appraiser's opinion of value. Supporting documentation concerning the
data, reasoning, and analyses is retained in the appraiser's file. The
information contained in this report is specific to the needs. of the client
and for the intended use stated in this report. The appraiser is not
responsible for- unauthorized use of this report.
CERTIFICATION
I certify that, to the best of my knowledge and belief:
I.The statements and information in this report are true and correct; and
that I have not knowingly withheld any information.
2.The reported analyses, opinions, and conclusions are limited only by the
reported assumptions and limiting conditions, and is my personal, unbiased
professional analyses, opinions, and conclusions.
3.1 have no present or contemplated interest in the property appraised; and
I have no personal interest or bias with respect to the parties involved.
4.The analyses, opinions, and conclusion were developed, and this report has
been prepared, in conformity with the Uniform Standards of Professional
Appraisal Practice (USPAP) adopted by the Appraisal Standards Board of the
Appraisal Foundation and the Code of Professional Ethics and the Standards
of Professional Appraisal Practice of the Appraisal institute.
5.The use of this report is subject to the requirements of the State of
Florida relating to review by the Department of Professional Regulation,
Real Estate Appraisal Board, and to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
6.My 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.
7.Paul P. Drake made a personal inspection of the property appraised and no
other person assisted in the preparation of this report.
8.All conclusions and opinions concerning the real estate that are set forth
in this appraisal report were not based on a requested minimum valuation, a
specific valuation, or the approval of a loan.
9.Based on our experience and training, it is my opinion that we am
qualified to provide the following value estimate of the subject property.
10. As of the date of this report, I have completed the requirements of the
continuing education program of the State of Florida and The Appraisal
Institute.
11. It is our opinion that the Market Value of the Fee Simple Estate of
the subject property in "as is" condition, as of August 10, 2000 was:
(SEVEN MILLION DOLLARS)
----- ---------------
($7,000,000)
Paul P. Drake, MAI, SRA
Florida State Certified General R. E. Appraiser RZ0000027
Expires 1 1/00