COPPER MILL
3400 COPPERMILL TRACE
RICHMOND, VIRGINIA
MARKET VALUE -
FEE SIMPLE ESTATE
AS OF MAY 7, 2003
PREPARED FOR:
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
(AIMCO)
C/O LINER YANKELEVITZ SUNSHINE & REGENSTREIF LLP
&
LIEFF CABRASER HEIMANN & BERNSTEIN
ON BEHALF OF NUANES, ET. AL.
[AMERICAN APPRAISAL ASSOCIATES(R) LOGO]
[AMERICAN APPRAISAL ASSOCIATES(R) LETTERHEAD]
JULY 2, 2003
Apartment Investment and Management
Company ("AIMCO") c/o
Mr. Steven A. Velkei, Esq.
Liner Yankelevitz Sunshine & Regenstreif LLP
1100 Glendon Avenue, 14th Floor
Los Angeles, California 90024-3503
Nuanes, et al.( "Plaintiffs") c/o
Ms. Joy Kruse
Lieff Cabraser Heimann & Bernstein
Embarcadero Center West
275 Battery Street, 30th Floor
San Francisco, California 94111
RE: COPPER MILL
3400 COPPERMILL TRACE
RICHMOND, HENRICO COUNTY, VIRGINIA
In accordance with your authorization, we have completed the appraisal of the
above-referenced property. This complete appraisal is intended to report our
analysis and conclusions in a summary format.
The subject property consists of an apartment project having 192 units with a
total of 158,568 square feet of rentable area. The improvements were built in
1987. The improvements are situated on 13.3565 acres. Overall, the improvements
are in good condition. As of the date of this appraisal, the subject property is
97% occupied.
It is our understanding the appraisal will be used by the clients to assist the
San Mateo Superior Court in the settlement of litigation between the above
mentioned clients. The appraisal is intended to conform to the Uniform Standards
of Professional Appraisal Practice ("USPAP") as promulgated by the Appraisal
Standards Board of the Appraisal Foundation and the Code of Professional Ethics
and Standards of Professional Practice of the Appraisal Institute. The appraisal
is presented in a summary report, and the Departure Provision of USPAP has not
been invoked in this appraisal. It is entirely inappropriate to use this value
conclusion or the report for any purpose other than the one stated.
AMERICAN APPRAISAL ASSOCIATES, INC. LETTER OF TRANSMITTAL PAGE 2
COPPER MILL, RICHMOND, VIRGINIA
The opinions expressed in this appraisal cover letter can only be completely
understood reading the narrative report, addenda, and other data, which is
attached. The appraisal is subject to the attached general assumptions and
limiting conditions and general service conditions.
As a result of our investigation, it is our opinion that the fee simple market
value of the subject, effective May 7, 2003 is:
($13,500,000)
Respectfully submitted
AMERICAN APPRAISAL ASSOCIATES, INC.
/s/ Frank Fehribach
July 2, 2003 Frank Fehribach, MAI
#053272 Managing Principal, Real Estate Group
Virginia Temporary Certified General Real Estate
Appraiser #4001 007252
Report By:
Brian Johnson, MAI
Virginia Temporary Certification Pending
Assisted By:
Jonathan Hackerman
AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3
COPPER MILL, RICHMOND, VIRGINIA
TABLE OF CONTENTS
Cover
Letter of Transmittal
Table of Contents
APPRAISAL DATA
Executive Summary .......................................... 4
Introduction ............................................... 9
Area Analysis .............................................. 11
Market Analysis ............................................ 14
Site Analysis .............................................. 16
Improvement Analysis ....................................... 16
Highest and Best Use ....................................... 17
VALUATION
Valuation Procedure ........................................ 18
Sales Comparison Approach .................................. 20
Income Capitalization Approach ............................. 26
Reconciliation and Conclusion .............................. 37
ADDENDA
Exhibit A - Photographs of Subject Property
Exhibit B - Summary of Rent Comparables and Photograph of Comparables
Exhibit C - Assumptions and Limiting Conditions
Exhibit D - Certificate of Appraiser
Exhibit E - Qualifications
General Service Conditions
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 4
COPPER MILL, RICHMOND,VIRGINIA
EXECUTIVE SUMMARY
PART ONE - PROPERTY DESCRIPTION
PROPERTY NAME: Copper Mill
LOCATION: 3400 Coppermill Trace
Richmond, Virginia
INTENDED USE OF ASSIGNMENT: Court Settlement
PURPOSE OF APPRAISAL: "As Is" Market Value of the Fee Simple Estate
INTEREST APPRAISED: Fee simple estate
DATE OF VALUE: May 7, 2003
DATE OF REPORT: July 2, 2003
PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS:
SITE:
Size: 13.3565 acres, or 581,809 square feet
Assessor Parcel No.: 756-756-1972
Floodplain: Community Panel No. 510077 0050 B (February 4,
1981)
Flood Zone C, an area outside the floodplain.
Zoning: R-5C (General Residence District)
BUILDING:
No. of Units: 192 Units
Total NRA: 158,568 Square Feet
Average Unit Size: 826 Square Feet
Apartment Density: 14.4 units per acre
Year Built: 1987
UNIT MIX AND MARKET RENT:
GROSS RENTAL INCOME PROJECTION
- ----------------------------------------------------------------------------
Market Rent
Square --------------------- Monthly Annual
Unit Type Feet Per Unit Per SF Income Income
- ----------------------------------------------------------------------------
1A10 697 $ 710 $ 1.02 $ 76,680 $ 920,160
2A20 967 $ 860 $ 0.89 $ 30,960 $ 371,520
2B20 1,010 $ 850 $ 0.84 $ 40,800 $ 489,600
- ----------------------------------------------------------------------------
Total $148,440 $ 1,781,280
OCCUPANCY: 97%
ECONOMIC LIFE: 45 Years
EFFECTIVE AGE: 12 Years
REMAINING ECONOMIC LIFE: 33 Years
SUBJECT PHOTOGRAPHS AND LOCATION MAP:
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5
COPPER MILL, RICHMOND, VIRGINIA
SUBJECT PHOTOGRAPHS
[PICTURE]
EXTERIOR - APARTMENT BUILDING & LAKE
[PICTURE]
EXTERIOR - LANDSCAPE & APARTMENT BUILDING
AREA MAP
[MAP]
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6
COPPER MILL, RICHMOND, VIRGINIA
NEIGHBORHOOD MAP
[MAP]
HIGHEST AND BEST USE:
As Vacant: Hold for future multi-family development
As Improved: Continuation as its current use
METHOD OF VALUATION: In this instance, the Sales Comparison and Income
Approaches to value were utilized.
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 7
COPPER MILL, RICHMOND, VIRGINIA
PART TWO - ECONOMIC INDICATORS
INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION Amount $/Unit
--------------------- ------ ------
Potential Rental Income $ 1,781,280 $ 9,278
Effective Gross Income $ 1,790,990 $ 9,328
Operating Expenses $ 636,750 $ 3,316 35.6% of EGI
Net Operating Income: $ 1,115,841 $ 5,812
Capitalization Rate 8.75%
DIRECT CAPITALIZATION VALUE $ 12,700,000 * $ 66,146 / UNIT
DISCOUNTED CASH FLOW ANALYSIS:
Holding Period 10 years
2002 Economic Vacancy 8%
Stabilized Vacancy & Collection Loss: 7%
Lease-up / Stabilization Period N/A
Terminal Capitalization Rate 9.25%
Discount Rate 11.00%
Selling Costs 2.00%
Growth Rates:
Income 3.00%
Expenses: 3.00%
DISCOUNTED CASH FLOW VALUE $ 13,400,000 * $ 69,792 / UNIT
RECONCILED INCOME CAPITALIZATION VALUE $ 13,400,000 $ 69,792 / UNIT
SALES COMPARISON APPROACH
PRICE PER UNIT:
Range of Sales $/Unit (Unadjusted) $ 59,545 to $ 81,100
Range of Sales $/Unit (Adjusted) $ 68,775 to $ 81,814
VALUE INDICATION - PRICE PER UNIT $ 13,800,000 * $ 71,875 / UNIT
EGIM ANALYSIS
Range of EGIMs from Improved Sales 6.89 to 8.23
Selected EGIM for Subject 7.65
Subject's Projected EGI $ 1,790,990
EGIM ANALYSIS CONCLUSION $ 13,700,000 * $ 71,354 / UNIT
NOI PER UNIT ANALYSIS CONCLUSION $ 13,800,000 * $ 71,875 / UNIT
RECONCILED SALES COMPARISON VALUE $ 13,800,000 $ 71,875 / UNIT
- --------------------
* Value indications are after adjustments for concessions, deferred maintenance,
excess land and lease-up costs, if any.
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 8
COPPER MILL, RICHMOND, VIRGINIA
PART THREE - SUMMARY OF VALUE CONCLUSIONS
SALES COMPARISON APPROACH:
Price Per Unit $ 13,800,000
NOI Per Unit $ 13,800,000
EGIM Multiplier $ 13,700,000
INDICATED VALUE BY SALES COMPARISON $ 13,800,000 $ 71,875 / UNIT
INCOME APPROACH:
Direct Capitalization Method: $ 12,700,000
Discounted Cash Flow Method: $ 13,400,000
INDICATED VALUE BY THE INCOME APPROACH $ 13,400,000 $ 69,792 / UNIT
RECONCILED OVERALL VALUE CONCLUSION: $ 13,500,000 $ 70,313 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9
COPPER MILL, RICHMOND,VIRGINIA
INTRODUCTION
IDENTIFICATION OF THE SUBJECT
The subject property is located at 3400 Coppermill Trace, Richmond, Henrico
County, Virginia. Richmond identifies it as 756-756-1972.
SCOPE OF THE ASSIGNMENT
The property, neighborhood, and comparables were inspected by Jonathan Hackerman
on May 7, 2003. Brian Johnson, MAI and Frank Fehribach, MAI have not made a
personal inspection of the subject property. Jonathan Hackerman assisted Brian
Johnson, MAI in the research, valuation analysis and writing the report. Frank
Fehribach, MAI reviewed the report and concurs with the value. Frank Fehribach,
MAI, Brian Johnson, MAI, and Jonathan Hackerman have extensive experience in
appraising similar properties and meet the USPAP competency provision.
The scope of this investigation comprises the inspection of the property and the
collection, verification, and analysis of general and specific data pertinent to
the subject property. We have researched current improved sales and leases of
similar properties, analyzing them as to their comparability, and adjusting them
accordingly. We completed the Sales Comparison and Income Capitalization
Approaches to value. From these approaches to value, a concluded overall value
was made.
DATE OF VALUE AND REPORT
This appraisal was made to express the opinion of value as of May 7, 2003. The
date of the report is July 2, 2003.
PURPOSE AND USE OF APPRAISAL
The purpose of the appraisal is to estimate the market value of the fee simple
interest in the subject property. It is understood that the appraisal is
intended to assist the clients in litigation settlement proceedings. The
appraisal was not based on a requested minimum valuation, a specific valuation,
or the approval of a loan.
PROPERTY RIGHTS APPRAISED
We have appraised the Fee Simple Estate in the subject property (as applied in
the Sales &
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 10
COPPER MILL, RICHMOND, VIRGINIA
Income Approaches), subject to the existing short-term leases. A Fee Simple
Estate is defined in The Dictionary of Real Estate Appraisal, 3rd ed. (Chicago:
Appraisal Institute, 1993), as:
"Absolute ownership unencumbered by any other interest or estate,
subject only to the limitations imposed by the governmental powers of
taxation, eminent domain, police power, and escheat."
MARKETING/EXPOSURE PERIOD
MARKETING PERIOD: 6 to 12 months
EXPOSURE PERIOD: 6 to 12 months
HISTORY OF THE PROPERTY
Ownership in the subject property is currently vested in CPGF XXII. To the best
of our knowledge, no transfers of ownership or offers to purchase the subject
are known to have occurred during the past three years.
AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 11
COPPER MILL, RICHMOND, VIRGINIA
AREA / NEIGHBORHOOD ANALYSIS
NEIGHBORHOOD ANALYSIS
A neighborhood is a group of complementary land uses. The function of the
neighborhood analysis is to describe the immediate surrounding environs. The
subject is located in the city of Richmond, Virginia. Overall, the neighborhood
is characterized as a suburban setting with the predominant land use being
commercial. The subject's neighborhood is generally defined by the following
boundaries.
NEIGHBORHOOD BOUNDARIES
East - Route 250
West - Route 288
South - Route 6
North - I-295
MAJOR EMPLOYERS
Major employers in the subject's area include Virginia Power, AlliedSignal,
Trignon Blue Cross Blue Shield, Circuit City Stores, Inc., CSX Corporation,
James River Corporation of Virginia, Reynolds Metals company, Universal
Corporation, Dominion Resources, Signet Banking Corp., Owens & Colony Life and
Heilig-myers and Richfood Holdings. The overall economic outlook for the area is
considered favorable.
DEMOGRAPHICS
We have reviewed demographic data within the neighborhood. The following table
summarizes the key data points.
AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 12
COPPER MILL, RICHMOND, VIRGINIA
NEIGHBORHOOD DEMOGRAPHICS
- --------------------------------------------------------------------------------------------------
AREA
--------------------------------------------
CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA
- --------------------------------------------------------------------------------------------------
POPULATION TRENDS
Current Population 12,308 78,593 173,599 1,018,759
5-Year Population 13,234 84,532 186,833 1,078,199
% Change CY-5Y 7.5% 7.6% 7.6% 5.8%
Annual Change CY-5Y 1.5% 1.5% 1.5% 1.2%
HOUSEHOLDS
Current Households 6,600 34,284 72,213 398,125
5-Year Projected Households 7,293 37,362 78,476 425,997
% Change CY - 5Y 10.5% 9.0% 8.7% 7.0%
Annual Change CY-5Y 2.1% 1.8% 1.7% 1.4%
INCOME TRENDS
Median Household Income $ 41,039 $ 59,561 $ 61,791 $ 49,684
Per Capita Income $ 27,293 $ 28,466 $ 29,944 $ 24,502
Average Household Income $ 51,503 $ 65,584 $ 72,192 $ 62,697
Source: Demographics Now
The subject neighborhood's population is expected to show increases above that
of the region. The immediate market offers inferior income levels as compared to
the broader market.
The following table illustrates the housing statistics in the subject's
immediate area, as well as the MSA region.
HOUSING TRENDS
- ------------------------------------------------------------------------------------------------
AREA
--------------------------------------------
CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA
- ------------------------------------------------------------------------------------------------
HOUSING TRENDS
% of Households Renting 62.72% 38.00% 32.54% 29.95%
5-Year Projected % Renting 60.00% 36.69% 31.98% 29.09%
% of Households Owning 26.14% 55.41% 61.89% 63.93%
5-Year Projected % Owning 29.30% 56.99% 62.70% 65.14%
Source: Demographics Now
AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13
COPPER MILL, RICHMOND, VIRGINIA
SURROUNDING IMPROVEMENTS
The following uses surround the subject property:
North - Commercial/Retail properties
South - Apartment Community
East - Apartment Community
West - Apartment Community
CONCLUSIONS
The subject is well located within the city of Richmond. The neighborhood is
characterized as being mostly suburban in nature and is currently in the growth
stage of development. The economic outlook for the neighborhood is judged to be
favorable with a good economic base.
AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 14
COPPER MILL, RICHMOND, VIRGINIA
MARKET ANALYSIS
The subject property is located in the city of Richmond in Henrico County. The
overall pace of development in the subject's market is more or less decreasing.
There are currently 1,469 units under construction in the Richmond area. Some
include the Lofts at Canal Walk (89 units), Todd Hamm Apartments (99 units),
Creek Points (214 units), Park at Salisbury (320 units), Reflections at West
Creek (290 units) and the Lodge at Hunton Park (300 units). These complexes,
although in the Richmond area, are mostly south of the subject and will not
directly compete with the subject as the subject's immediate area is already
saturated with apartment complexes. The following table illustrates historical
vacancy rates for the subject's market.
HISTORICAL VACANCY RATE
- --------------------------------------------
Period Region Submarket
- --------------------------------------------
1Q01 5.4% 4.9%
2Q01 6.4% 6.0%
1Q02 6.4% 5.1%
2Q02 6.5% 6.7%
1Q03 9.2% 8.8%
Source: Carolina Real Data
Occupancy trends in the subject's market are decreasing. Historically speaking,
the subject's submarket has outperformed the overall market. Vacancy rates are
increasing in the region as well as the submarket and there has been negative
absorption over the last 6 months. A main factor for this is that the Richmond
area has only gained 3,000 jobs over the past year, an increase of 1%.
Unemployment however has decreased to 3.7% in 1Q03 from 4.1% in 1Q02. Also the
city was ranked the 5th best place to work and live in the US in Employment
Review magazine. So although there are some negative influences in the market
over the past year, Richmond is still a desirable place to live and work.
Market rents in the subject's market have been following a stable trend. The
following table illustrates historical rental rates for the subject's market.
AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15
COPPER MILL, RICHMOND, VIRGINIA
HISTORICAL AVERAGE RENT
- ------------------------------------------------------
Period Region % Change Submarket % Change
- ------------------------------------------------------
1Q01 $ 637 - $ 614 -
2Q01 $ 644 1.1% $ 607 -1.1%
1Q02 $ 660 2.5% $ 663 9.2%
2Q02 $ 676 2.4% $ 677 2.1%
1Q03 $ 685 1.3% $ 682 0.7%
Source: Carolina Real Data
The following table illustrates a summary of the subject's competitive set.
COMPETITIVE PROPERTIES
- ----------------------------------------------------------------------------------------------------
No. Property Name Units Ocpy. Year Built Proximity to subject
- ----------------------------------------------------------------------------------------------------
R-1 Hickory Creek 294 93% 1985 1-mile east of the subject
R-2 Broadmoor 360 88% 1985 Next to subject
R-3 Copper Spring Apartments 366 87% 1990 Next to subject
R-4 Sundance Station 300 97% 1969 1/2-mile east of the subject
R-5 Culpepper Farms 228 97% 1972 1 1/2-miles north of subject
Subject Copper Mill 192 97% 1987
Three-bedroom units had the highest vacancy rates in 1Q03 at 14.2% followed by
one bedroom units at 8.4% and then two bedroom units at 8.2%. One and two
bedroom vacancy rates have doubled from one year ago while three-bedroom units
vacancy has declined slightly. Average rents for all three-unit types have
increased by about $20 from 1Q02 to 1Q03.
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16
COPPER MILL, RICHMOND, VIRGINIA
PROPERTY DESCRIPTION
SITE ANALYSIS
Site Area 13.3565 acres, or 581,809 square feet
Shape Generally rectangular
Topography Level
Utilities All necessary utilities are available to the site.
Soil Conditions Stable
Easements Affecting Site None other than typical utility easements
Overall Site Appeal Good
Flood Zone:
Community Panel 510077 0050 B, dated February 4, 1981
Flood Zone Zone C
Zoning R-5C, the subject improvement represent a legal
conforming use of the site.
REAL ESTATE TAXES
ASSESSED VALUE - 2003
-------------------------------------------- TAX RATE / PROPERTY
PARCEL NUMBER LAND BUILDING TOTAL MILL RATE TAXES
- -----------------------------------------------------------------------------------------
756-756-1972 $ 1,728,000 $ 9,953,100 $ 11,681,100 0.00940 $ 109,802
IMPROVEMENT ANALYSIS
Year Built 1987
Number of Units 192
Net Rentable Area 158,568 Square Feet
Construction:
Foundation Reinforced concrete slab
Frame Heavy or light wood
Exterior Walls Wood or vinyl siding
Roof Composition shingle over a wood truss structure
Project Amenities Amenities at the subject include a swimming pool,
spa/jacuzzi, sand volleyball,tennis court, jogging
track, gym room, car wash, barbeque equipment,
and parking area.
Unit Amenities Individual unit amenities include a balcony,
fireplace, cable TV connection, and washer
dryer connection. Appliances available in each
unit include a refrigerator, stove, microwave
dishwasher, water heater, garbage disposal,
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17
COPPER MILL, RICHMOND, VIRGINIA
washer/dryer, and oven.
Unit Mix:
Unit Area
Unit Type Number of Units (Sq. Ft.)
- --------------------------------------------
1A10 108 697
2A20 36 967
2B20 48 1,010
Overall Condition Good
Effective Age 12 years
Economic Life 45 years
Remaining Economic Life 33 years
Deferred Maintenance None
HIGHEST AND BEST USE ANALYSIS
In accordance with the definition of highest and best use, an analysis of the
site relating to its legal uses, physical possibilities, and financial
feasibility is appropriate. The highest and best use as vacant is to hold for
future multi-family development. The subject improvements were constructed in
1987 and consist of a 192-unit multifamily project. The highest and best use as
improved is for a continued multifamily use. Overall, the highest and best use
of the subject property is the continued use of the existing apartment project.
AMERICAN APPRAISAL ASSOCIATES, INC. VALUATION PROCEDURE PAGE 18
COPPER MILL, RICHMOND, VIRGINIA
THE VALUATION PROCEDURE
There are three traditional approaches, which can be employed in establishing
the market value of the subject property. These approaches and their
applicability to the valuation of the subject are summarized as follows:
THE COST APPROACH
The application of the Cost Approach is based on the principle of substitution.
This principle may be stated as follows: no one is justified in paying more for
a property than that amount by which he or she can obtain, by purchase of a site
and construction of a building, without undue delay, a property of equal
desirability and utility. In the case of a new building, no deficiencies in the
building should exist.
In the case of income-producing real estate, the cost of construction plays a
minor and relatively insignificant role in determining market value. The Cost
Approach is typically only a reliable indicator of value for: (a) new
properties; (b) special use properties; and (c) where the cost of reproducing
the improvements is easily and accurately quantified and there is no economic
obsolescence. In all instances, the issue of an appropriate entrepreneurial
profit - the reward for undertaking the risk of construction, remains a highly
subjective factor especially in a market lacking significant speculative
development.
THE SALES COMPARISON APPROACH
The Sales Comparison Approach is an estimate of value based upon a process of
comparing recent sales of similar properties in the surrounding or competing
areas to the subject property. Inherent in this approach is the principle of
substitution.
The application of this approach consists of comparing the subject property with
similar properties of the same general type, which have been sold recently or
currently are available for sale in competing areas. This comparative process
involves judgment as to the similarity of the subject property and the
comparable sale with respect to many value factors such as location, contract
rent levels, quality of construction, reputation and prestige, age and
condition, among others. The estimated value through this approach represents
the probable price at which a willing seller would sell the subject property to
a willing and knowledgeable buyer as of the date of value.
AMERICAN APPRAISAL ASSOCIATES, INC. VALUATION PROCEDURE PAGE 19
COPPER MILL, RICHMOND, VIRGINIA
THE INCOME CAPITALIZATION APPROACH
The theory of the Income Capitalization Approach is based on the premise that
present value is the value of the cash flow and reversionary value the property
will produce over a reasonable holding (ownership) period.
The Discounted Cash Flow Analysis will convert equity cash flows (including cash
flows and equity reversion) into a present value utilizing an internal rate of
return (or discount rate). The Internal Rate of Return (IRR) will be derived
from a comparison of alternate investments, a comparative analysis of IRR's used
by recent buyers of similar properties, and a review of published industry
surveys.
The Direct Capitalization Analysis converts one year of income into an overall
value using overall capitalization rates from similar sales. The overall rates
take into consideration buyers assumptions of the market over the long-term.
The results of the Income Capitalization Analysis are usually the primary value
indicator for income producing properties. Investors expect a reasonable rate of
return on their equity investment based on the ownership risks involved; this
approach closely parallels the investment decision process.
RECONCILIATION
In this instance, we have completed the Sales Comparison and Income
Capitalization Approaches to value. As an income producing property, the income
approach is a primary approach to value. The Sales Comparison Approach is also
considered reliable as investors are buying similar buildings in the market.
Our research indicates that market participants are generally not buying,
selling, investing, or lending with reliance placed on the methodology of the
Cost Approach to establish the value. Therefore, we have decided that the Cost
Approach is not a reliable indicator of value for the subject, and this approach
has not been utilized.
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 20
COPPER MILL, RICHMOND, VIRGINIA
SALES COMPARISON APPROACH
Use of market or comparable sales requires the collection and analysis of
comparable sales data. Similar properties recently sold are compared to the
subject and adjusted based on any perceived differences. This method is based on
the premise that the costs of acquiring a substitute property would tend to
establish a value for the subject property. The premise suggests that if a
substitute is unavailable in the market, the reliability of the approach may be
subordinate to the other approaches.
The reliance on substitute properties produces shortcomings in the validity of
this approach. Geographic and demographic characteristics from each submarket
restrict which sales may be selected. Recent sales with a similar physical
characteristics, income levels, and location are usually limited. The sales we
have identified, however, do establish general valuation parameters as well as
provide support to our conclusion derived through the income approach method.
The standard unit of comparison among similar properties is the sales price per
unit and price per square foot of net rentable area. To accurately adjust prices
to satisfy the requirements of the sales comparison approach, numerous
calculations and highly subjective judgments would be required including
consideration of numerous income and expense details for which information may
be unreliable or unknown. The sales price per unit and square foot are
considered relevant to the investment decision, but primarily as a parameter
against which value estimates derived through the income approach can be judged
and compared.
In examining the comparable sales, we have applied a subjective adjustment
analysis, which includes specific adjustments derived from our experience and
consulting with the market participants.
SALES COMPARISON ANALYSIS
Detailed on the following pages are sales transactions involving properties
located in the subject's competitive investment market.
Photographs of the sale transactions are located in the Addenda. Following the
summary of sales is an adjustment grid that is used to arrive at a value.
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 21
COPPER MILL, RICHMOND, VIRGINIA
SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE COMPARABLE
DESCRIPTION SUBJECT I - 1 I - 2 I - 3
- -------------------------------------------------------------------------------------------------------------------------------
Property Name Copper Mill Chase Gayton Oaks @ Gayton Crossings @ Short Pump
LOCATION:
Address 3400 100 Chase 12520 Gayton Road 3400 Cox Road
Coppermill Gayton Drive
Trace
City, State Richmond, Richmond, VA Richmond, VA Richmond, VA
Virginia
County Henrico Henrico Henrico Henrico
PHYSICAL CHARACTERISTICS:
Net Rentable Area (SF) 158,568 311,196 179,920 401,152
Year Built 1987 1985 1987 1997
Number of Units 192 328 220 424
Unit Mix: Type Total Type Total Type Total Type Total
1A10 108 1Br/1Ba 156 1Br/1Ba 96 1Br/1Ba 168
2A20 36 2Br/1Ba 54 1Br/1Ba/den 32 2Br/2Ba 208
2B20 48 2Br/2Ba 88 2Br/2Ba 92 3Br/2Ba 48
3Br/2Ba 30
Average Unit Size (SF) 826 949 818 946
Land Area (Acre) 13.3565 27.6190 16.2300 29.2120
Density (Units/Acre) 14.4 11.9 13.6 14.5
Parking Ratio (Spaces/Unit) 1.63 N/A N/A N/A
Parking Type (Gr.,Cov.,etc.) Garage,Open Open Open, Covered Open, Garage
Covered
CONDITION: Good Good Good Very Good
APPEAL: Good Good Good Good
AMENITIES:
Pool/Spa Yes/Yes Yes/Yes Yes/No Yes/No
Gym Room Yes Yes Yes Yes
Laundry Room No Yes No Yes
Secured Parking No No No No
Sport Courts No Yes Yes Yes
Washer/Dryer Connection Yes No Yes Yes
Playground No No No No
Sauna No No No No
OCCUPANCY: 97% 97% 95% 98%
TRANSACTION DATA:
Sale Date June, 2001 September, 2000 March, 2001
Sale Price ($) $ 21,175,000 $ 13,100,000 $ 33,500,000
Grantor Principal Archstone Archstone
Life Communities Communities
Insurance Trust
Grantee Cornerstone Carpreit TCRD, LLC
Realty Income
Sale Documentation Book 3114 Page 2222 Book 5130 Page 357 Book 3081 Page 148
Verification Representative Buyer Grantor
of Grantee
Telephone Number
ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF
Potential Gross Income $3,021,720 $9,213 $9.71 $2,000,000 $9,091 $11.12 $4,258,080 $10,043 $10.61
Vacancy/Credit Loss $ 79,320 $ 242 $0.25 $ 100,000 $ 455 $ 0.56 $ 63,684 $ 150 $ 0.16
Effective Gross Income $2,942,400 $8,971 $9.46 $1,900,000 $8,636 $10.56 $4,194,396 $ 9,892 $10.46
Operating Expenses $ 1,082400 $3,300 $3.48 $ 747,80 $3,399 $ 4.16 $1,272,000 $ 3,000 $ 3.17
Net Operating Income $ 1,86000 $5,671 $5.98 $1,192,100 $5,419 $ 6.63 $2,922,396 $ 6,892 $ 7.29
NOTES: The property has 2 Good locale as it is close
tennis courts. to major arteries and retail
centers.
PRICE PER UNIT $64,558 $59,545 $79,009
PRICE PER SQUARE FOOT $ 68.04 $ 72.81 $ 83.51
EXPENSE RATIO 36.8% 39.4% 30.3%
EGIM 7.20 6.89 7.99
OVERALL CAP RATE 8.78% 9.10% 8.72%
Cap Rate based on Pro Forma or PRO FORMA PRO FORMA ACTUAL
Actual Income?
COMPARABLE COMPARABLE
DESCRIPTION I - 4 I - 5
- ---------------------------------------------------------------------------------------
Property Name Addison @ Wyndham Summit Stony
Point Apartments
LOCATION:
Address 11401 Old Nuckols Road 3012 Stony Lake Drive
City, State Richmond, VA Richmond, VA
County Henrico Henrico
PHYSICAL CHARACTERISTICS:
Net Rentable Area (SF) 293,792 264,610
Year Built 1998 1985
Number of Units 312 250
Unit Mix: Type Total Type Total
1Br/1Ba 128 1Br/1Ba 54
2Br/2Ba 148 1Br/1Ba/den 54
3Br/2Ba 36 2Br/2Ba 142
Average Unit Size (SF) 942 1,058
Land Area (Acre) 21.6640 37.4940
Density (Units/Acre) 14.4 6.7
Parking Ratio (Spaces/Unit) N/A N/A
Parking Type (Gr.,Cov.,etc.) Open, Garage Open
CONDITION: Very Good Good
APPEAL: Good Good
AMENITIES:
Pool/Spa Yes/No Yes/Yes
Gym Room Yes No
Laundry Room Yes Yes
Secured Parking No No
Sport Courts Yes Yes
Washer/Dryer Connection Yes Yes
Playground Yes No
Sauna No Yes
OCCUPANCY: 96% 95%
TRANSACTION DATA:
Sale Date December, 2000 June, 2001
Sale Price ($) $ 24,150,000 $ 20,275,000
Grantor Archstone Communities Stony Point/Summit LP
Grantee Addison MGM
Assoc., LLC Enterprises
Sale Documentation Book 3057 Page 218 N/A
Verification Grantor Third party
Telephone Number
ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF
Potential Gross Income $2,968,560 $9,515 $10.10 $2,710,000 $10,840 $10.24
Vacancy/Credit Loss $ 35,760 $ 115 $ 0.12 $ 155,000 $ 620 $ 0.59
Effective Gross Income $2,932,800 $9,400 $ 9.98 $ 2,555,00 $10,220 $ 9.66
Operating Expenses $ 920,400 $2,950 $ 3.13 $ 905,000 $ 3,620 $ 3.42
Net Operating Income $2,012,400 $6,450 $ 6.85 $1,650,000 $ 6,600 $ 6.24
NOTES: New Property at date
of sales.
PRICE PER UNIT $77,404 $81,100
PRICE PER SQUARE FOOT $ 82.20 $ 76.62
EXPENSE RATIO 31.4% 35.4%
EGIM 8.23 7.94
OVERALL CAP RATE 8.33% 8.14%
Cap Rate based on Pro Forma or
Actual Income? ACTUAL PRO FORMA
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22
COPPER MILL, RICHMOND, VIRGINIA
IMPROVED SALES MAP
[MAP]
IMPROVED SALES ANALYSIS
The improved sales indicate a sales price range from $59,545 to $81,100 per
unit. Adjustments have been made to the sales to reflect differences in
location, age/condition and quality/appeal. Generally speaking, larger
properties typically have a lower price per unit when compared to smaller
properties, all else being equal. Similarly, those projects with a higher
average unit size will generally have a higher price per unit. After appropriate
adjustments are made, the improved sales demonstrate an adjusted range for the
subject from $68,775 to $81,814 per unit with a mean or average adjusted price
of $76,139 per unit. The median adjusted price is $78,099 per unit. Based on the
following analysis, we have concluded to a value of $72,000 per unit, which
results in an "as is" value of $13,800,000 (rounded after necessary adjustment,
if any).
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23
COPPER MILL, RICHMOND, VIRGINIA
SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE COMPARABLE
DESCRIPTION SUBJECT I - 1 I - 2 I - 3
- ----------------------------------------------------------------------------------------------------------------------------------
Property Name Copper Mill Chase Gayton Oaks @ Gayton Crossings @ Short Pump
Address 3400 Coppermill Trace 100 Chase Gayton Drive 12520 Gayton Road 3400 Cox Road
Nuckols Road
City Richmond, Virginia Richmond, VA Richmond, VA Richmond, VA
Sale Date June, 2001 September, 2000 March, 2001
Sale Price ($) $21,175,000 $13,100,000 $33,500,000
Net Rentable Area (SF) 158,568 311,196 179,920 401,152
Number of Units 192 328 220 424
Price Per Unit $64,558 $59,545 $79,009
Year Built 1987 1985 1987 1997
Land Area (Acre) 13.3565 27.6190 16.2300 29.2120
VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ.
Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0%
Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0%
Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0%
Date of Sale (Time) June, 2001 8% September, 2000 10% March, 2001 9%
VALUE AFTER TRANS.
ADJUST. ($/UNIT) $69,723 $65,500 $86,120
Location Comparable 0% Inferior 5% Comparable 0%
Number of Units 192 328 5% 220 0% 424 10%
Quality / Appeal Good Comparable 0% Comparable 0% Comparable 0%
Age / Condition 1987 1985 / Good 0% 1987 / Good 0% 1997 / Very Good -10%
Occupancy at Sale 97% 97% 0% 95% 0% 98%
Amenities Good Comparable 0% Comparable 0% Comparable 0%
Average Unit Size (SF) 826 949 -3% 818 0% 946 - 5%
PHYSICAL ADJUSTMENT 2% 5% - 5%
FINAL ADJUSTED VALUE
($/UNIT) $71,117 $68,775 $81,814
COMPARABLE COMPARABLE
DESCRIPTION I - 4 I - 5
- -------------------------------------------------------------------------------------
Property Name Addison @ Wyndham Summit Stony Point Apartments
Address 11401 Old Nuckols Road 3012 Stony Lake Drive
City Richmond, VA Richmond, VA
Sale Date December, 2000 June, 2001
Sale Price ($) $24,150,000 $20,275,000
Net Rentable Area (SF) 293,792 264,610
Number of Units 312 250
Price Per Unit $77,404 $81,100
Year Built 1998 1985
Land Area (Acre) 21.6640 37.4940
VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ.
Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0%
Financing Cash To Seller 0% Cash To Seller 0%
Conditions of Sale Arm's Length 0% Arm's Length 0%
Date of Sale (Time) 12-2000 10% 06-2001 7%
VALUE AFTER TRANS.
ADJUST. ($/UNIT) $85,144 $86,777
Location Inferior 5% Comparable 0%
Number of Units 312 5% 250 0%
Quality / Appeal Comparable 0% Comparable 0%
Age / Condition 1998 / Very Good -10% 1985 / Good 0%
Occupancy at Sale 96% 95%
Amenities Comparable 0% Comparable 0%
Average Unit Size (SF) 942 -5% 1,058 -10%
PHYSICAL ADJUSTMENT -5% -10%
FINAL ADJUSTED VALUE
($/UNIT) $80,887 $78,099
SUMMARY
VALUE RANGE (PER UNIT) $68,775 TO $81,814
MEAN (PER UNIT) $76,139
MEDIAN (PER UNIT) $78,099
VALUE CONCLUSION (PER UNIT) $72,000
VALUE OF IMPROVEMENT & MAIN SITE $13,824,000
PV OF CONCESSIONS -$ 47,000
VALUE INDICATED BY SALES
COMPARISON APPROACH $13,777,000
ROUNDED $13,800,000
NET OPERATING INCOME (NOI) ANALYSIS
We have also conducted a net operating income (NOI) comparison analysis. The NOI
effectively takes into account the various physical, location, and operating
aspects of the sale. When the subject's NOI is compared to the sale NOI, a
percent adjustment can be arrived at. The following table illustrates this
analysis.
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 24
COPPER MILL, RICHMOND, VIRGINIA
NOI PER UNIT COMPARISON
SALE PRICE NOI/ SUBJECT NOI
COMPARABLE NO. OF ---------- -------- -------------- ADJUSTMENT INDICATED
NO. UNITS PRICE/UNIT OAR NOI/UNIT SUBJ. NOI/UNIT FACTOR VALUE/UNIT
- ---------------------------------------------------------------------------------------------------------------------------------
I-1 328 $21,175,000 8.78% $1,860,000 $1,115,841 1.025 $66,162
$64,558 $5,671 $5,812
I-2 220 $13,100,000 9.10% $1,192,100 $1,115,841 1.073 $63,865
$59,545 $5,419 $5,812
I-3 424 $33,500,000 8.72% $2,922,396 $1,115,841 0.843 $66,620
$79,009 $6,892 $5,812
I-4 312 $24,150,000 8.33% $2,012,400 $1,115,841 0.901 $69,744
$77,404 $6,450 $5,812
I-5 250 $20,275,000 8.14% $1,650,000 $1,115,841 0.881 $71,413
$81,100 $6,600 $5,812
PRICE/UNIT
- --------------------------------------------
Low High Average Median
$63,865 $71,413 $67,561 $66,620
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT
- ------------------------------------------------
Estimated Price Per Unit $ 72,000
-----------
Number of Units 192
Value $13,824,000
PV of Concessions -$ 47,000
-----------
Value Based on NOI Analysis $13,777,000
Rounded $13,800,000
The adjusted sales indicate a range of value between $63,865 and $71,413 per
unit, with an average of $67,561 per unit. Based on the subject's competitive
position within the improved sales, a value of $72,000 per unit is estimated.
This indicates an "as is" market value of $13,800,000 (rounded after necessary
adjustment, if any) for the NOI Per Unit Analysis.
EFFECTIVE GROSS INCOME MULTIPLIER (EGIM) ANALYSIS
The effective gross income multiplier (EGIM) is derived by dividing the sales
price by the total effective gross income. The following table illustrates the
EGIMs for the comparable improved sales.
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 25
COPPER MILL, RICHMOND, VIRGINIA
EFFECTIVE GROSS INCOME MULTIPLIER COMPARISON
SALE PRICE
COMPARABLE NO. OF ---------- EFFECTIVE OPERATING SUBJECT
NO. UNITS PRICE/UNIT GROSS INCOME EXPENSE OER PROJECTED OER EGIM
- -----------------------------------------------------------------------------------------------------------------
I-1 328 $21,175,000 $2,942,400 $1,082,400 36.79% 7.20
$64,558
I-2 220 $13,100,000 $1,900,000 $ 747,800 39.36% 6.89
$59,545
I-3 424 $33,500,000 $4,194,396 $1,272,000 30.33% 7.99
$79,009 35.55%
I-4 312 $24,150,000 $2,932,800 $ 920,400 31.38% 8.23
$77,404
I-5 250 $20,275,000 $2,555,000 $ 905,000 35.42% 7.94
$81,100
EGIM
- ----------------------------------------
Low High Average Median
6.89 8.23 7.65 7.94
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES
- -----------------------------------------------------
Estimate EGIM 7.65
------------
Subject EGI $ 1,790,990
Value $ 13,701,077
PV of Concessions -$ 47,000
------------
Value Based on EGIM Analysis $ 13,654,077
Rounded $ 13,700,000
Value Per Unit $ 71,354
There is an inverse relationship, which generally holds among EGIMs and
operating expenses. Properties, which have higher expense ratios, typically sell
for relatively less and therefore produce a lower EGIM. As will be illustrated
in the Income Capitalization Approach of this report, the subject's operating
expense ratio (OER) is estimated at 35.55% before reserves. The comparable sales
indicate a range of expense ratios from 30.33% to 39.36%, while their EGIMs
range from 6.89 to 8.23. Overall, we conclude to an EGIM of 7.65, which results
in an "as is" value estimate in the EGIM Analysis of $13,700,000.
SALES COMPARISON CONCLUSION
The three valuation methods in the Sales Comparison Approach are shown below.
The overall value via the Sales Comparison Approach is estimated at $13,800,000.
Price Per Unit $13,800,000
NOI Per Unit $13,800,000
EGIM Analysis $13,700,000
Sales Comparison Conclusion $13,800,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26
COPPER MILL, RICHMOND, VIRGINIA
INCOME CAPITALIZATION APPROACH
The income capitalization approach is based on the premise that value is created
by the expectation of future benefits. We estimated the present value of those
benefits to derive an indication of the amount that a prudent, informed
purchaser-investor would pay for the right to receive them as of the date of
value.
This approach requires an estimate of the NOI of a property. The estimated NOI
is then converted to a value indication by use of either the direct
capitalization or the discounted cash flow analysis (yield capitalization).
Direct capitalization uses a single year's stabilized NOI as a basis for a value
indication by dividing the income by a capitalization rate. The rate chosen
accounts for a recapture of the investment by the investor and should reflect
all factors that influence the value of the property, such as tenant quality,
property condition, neighborhood change, market trends, interest rates, and
inflation. The rate may be extracted from local market transactions or, when
transaction evidence is lacking, obtained from trade sources.
A discounted cash flow analysis focuses on the operating cash flows expected
from the property and the proceeds of a hypothetical sale at the end of a
holding period (the reversion). The cash flows and reversion are discounted to
their present values using a market-derived discount rate and are added together
to obtain a value indication. Because benefits to be received in the future are
worth less than the same benefits received in the present, this method weights
income in the early years more heavily than the income and the sale proceeds to
be received later. The strength of the discounted cash flow method is its
ability to recognize variations in projected net income, such as those caused by
inflation, stepped leases, neighborhood change, or tenant turnover. Its weakness
is that it requires many judgments regarding the actions of likely buyers and
sellers of the property in the future.
In some situations, both methods yield a similar result. The discounted cash
flow method is typically more appropriate for the analysis of investment
properties with multiple or long-term leases, particularly leases with
cancellation clauses or renewal options. It is especially useful for
multi-tenant properties in volatile markets. The direct capitalization
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 27
COPPER MILL, RICHMOND, VIRGINIA
method is normally more appropriate for properties with relatively stable
operating histories and expectations.
A pro forma analysis for the first year of the investment is made to estimate a
reasonable potential net operating income for the Subject Property. Such an
analysis entails an estimate of the gross income the property should command in
the marketplace. From this total gross income must be deducted an allowance for
vacancy/collection loss and operating expenses as dictated by general market
conditions and the overall character of the subject's tenancy and leased income
to arrive at a projected estimate of net operating income. Conversion of the net
operating income to an indication of value is accomplished by the process of
capitalization, as derived primarily from market data.
MARKET RENT ANALYSIS
In order to determine a market rental rate for the subject, a survey of
competing apartment communities was performed. This survey was displayed
previously in the market analysis section of the report. Detailed information
pertaining to each of the comparable rental communities, along with photographs,
is presented in the Addenda of this report.
The following charts display the subject's current asking and actual rent rates
as well as a comparison with the previous referenced comparable rental
properties.
SUMMARY OF ACTUAL AVERAGE RENTS
Average
Unit Area ------------------
Unit Type (Sq. Ft.) Per Unit Per SF %Occupied
- ------------------------------------------------------
1A10 697 $719 $1.03 96.0%
2A20 967 $872 $0.90 97.0%
2B20 1010 $901 $0.89 100.0%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28
COPPER MILL, RICHMOND, VIRGINIA
RENT ANALYSIS
COMPARABLE RENTS
--------------------------------------------------
R-1 R-2 R-3 R-4 R-5
--------------------------------------------------
Copper
Hickory Spring Sundance Culpepper
Creek Broadmoor Apartments Station Farms
--------------------------------------------------
COMPARISON TO SUBJECT
SUBJECT SUBJECT --------------------------------------------------
SUBJECT UNIT ACTUAL ASKING Slightly Slightly
DESCRIPTION TYPE RENT RENT Similar Inferior Similar Similar Superior
- -------------------------------------------------------------------------------------------------------------
Monthly Rent 1A10 $ 719 $ 735 $ 683 $ 695 $ 718 $ 728
Unit Area (SF) 697 697 862 687 700 665 712
Monthly Rent Per Sq. Ft. $ 1.03 $ 0.85 $0.99 $ 0.99 $1.08 $1.02
Monthly Rent 2A20 $ 872 $ 840 $1,050 $ 815 $ 880
Unit Area (SF) 967 967 930 903 872 957
Monthly Rent Per Sq. Ft. $ 0.90 $0.90 $ 1.16 $0.93 $0.92
Monthly Rent 2B20 $ 901 $ 845
Unit Area (SF) 1,010 1,010 1,030
Monthly Rent Per Sq. Ft. $ 0.89 $ 0.82
DESCRIPTION MIN MAX MEDIAN AVERAGE
- -------------------------------------------------------------
Monthly Rent $ 683 $ 735 $ 718 $ 712
Unit Area (SF) 665 862 700 725
Monthly Rent Per Sq. Ft. $ 0.85 $ 1.08 $ 0.99 $ 0.99
Monthly Rent
Unit Area (SF) $ 815 $1,050 $ 860 $ 896
Monthly Rent Per Sq. Ft. 872 957 917 915
$ 0.90 $ 1.16 $ 0.93 $ 0.98
Monthly Rent
Unit Area (SF)
Monthly Rent Per Sq. Ft. $ 845 $ 845 $ 845 $ 845
1,030 1,030 1,030 1,030
$ 0.82 $ 0.82 $ 0.82 $ 0.82
CONCLUDED MARKET RENTAL RATES AND TERMS
Based on this analysis above, the subject's concluded market rental rates and
gross rental income is calculated as follows:
GROSS RENTAL INCOME PROJECTION
Market Rent
Unit Area ------------------- Monthly Annual
Unit Type Number of Units (Sq. Ft.) Per Unit Per SF Income Income
- -------------------------------------------------------------------------------------
1A10 108 697 $710 $1.02 $ 76,680 $ 920,160
2A20 36 967 $860 $0.89 $ 30,960 $ 371,520
2B20 48 1,010 $850 $0.84 $ 40,800 $ 489,600
--------- -----------
Total $148,440 $1,781,280
========= ===========
PRO FORMA ANALYSIS
For purposes of this appraisal, we were provided with income and expense data
for the subject property. A summary of this data is presented on the following
page.
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 29
COPPER MILL, RICHMOND, VIRGINIA
SUMMARY OF HISTORICAL INCOME & EXPENSES
FISCAL YEAR 2000 FISCAL YEAR 2001 FISCAL YEAR 2002
---------------------------------------------------------------------------
ACTUAL ACTUAL ACTUAL
---------------------------------------------------------------------------
DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT
- -------------------------------------------------------------------------------------------------------
Revenues
Rental Income $1,679,384 $ 8,747 $1,760,499 $ 9,169 $1,775,354 $ 9,247
Vacancy $ 54,121 $ 282 $ 51,187 $ 267 $ 82,856 $ 432
Credit Loss/Concessions $ 69,132 $ 360 $ 47,711 $ 248 $ 64,472 $ 336
---------------------------------------------------------------------------
Subtotal $ 123,253 $ 642 $ 98,898 $ 515 $ 147,328 $ 767
Laundry Income $ 0 $ 0 $ 0 $ 0 $ 1,093 $ 6
Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Other Misc. Revenue $ 88,999 $ 464 $ 105,627 $ 550 $ 137,517 $ 716
---------------------------------------------------------------------------
Subtotal Other Income $ 88,999 $ 464 $ 105,627 $ 550 $ 138,610 $ 722
---------------------------------------------------------------------------
Effective Gross Income $1,645,130 $ 8,568 $1,767,228 $ 9,204 $1,766,636 $ 9,201
Operating Expenses
Taxes $ 87,874 $ 458 $ 91,158 $ 475 $ 91,472 $ 476
Insurance $ 13,372 $ 70 $ 35,206 $ 183 $ 30,774 $ 160
Utilities $ 92,154 $ 480 $ 87,012 $ 453 $ 86,020 $ 448
Repair & Maintenance $ 39,451 $ 205 $ 24,364 $ 127 $ 17,071 $ 89
Cleaning $ 66,467 $ 346 $ 60,073 $ 313 $ 50,668 $ 264
Landscaping $ 37,775 $ 197 $ 42,666 $ 222 $ 56,817 $ 296
Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Marketing & Leasing $ 40,472 $ 211 $ 23,721 $ 124 $ 24,109 $ 126
General Administrative $ 23,067 $ 120 $ 25,329 $ 132 $ 28,712 $ 150
Management $ 83,928 $ 437 $ 91,204 $ 475 $ 94,991 $ 495
Miscellaneous $ 132,938 $ 692 $ 185,982 $ 969 $ 151,359 $ 788
---------------------------------------------------------------------------
Total Operating Expenses $ 617,498 $ 3,216 $ 666,715 $ 3,472 $ 631,993 $ 3,292
Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
---------------------------------------------------------------------------
Net Income $1,027,632 $ 5,352 $1,100,513 $ 5,732 $1,134,643 $ 5,910
FISCAL YEAR 2003 ANNUALIZED 2003
-------------------------------------------------
MANAGEMENT BUDGET PROJECTION AAA PROJECTION
------------------------------------------------------------------------------------
DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT %
- ----------------------------------------------------------------------------------------------------------------
Revenues
Rental Income $1,805,900 $ 9,406 $1,772,248 $ 9,230 $1,781,280 $ 9,278 100.0%
Vacancy $ 82,135 $ 428 $ 89,784 $ 468 $ 80,158 $ 417 4.5%
Credit Loss/Concessions $ 38,210 $ 199 $ 60,672 $ 316 $ 44,532 $ 232 2.5%
------------------------------------------------------------------------------------
Subtotal $ 120,345 $ 627 $ 150,456 $ 784 $ 124,690 $ 649 7.0%
Laundry Income $ 11,004 $ 57 $ 0 $ 0 $ 0 $ 0 0.0%
Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0%
Other Misc. Revenue $ 105,972 $ 552 $ 126,516 $ 659 $ 134,400 $ 700 7.5%
------------------------------------------------------------------------------------
Subtotal Other Income $ 116,976 $ 609 $ 126,516 $ 659 $ 134,400 $ 700 7.5%
------------------------------------------------------------------------------------
Effective Gross Income $1,802,531 $ 9,388 $1,748,308 $ 9,106 $1,790,990 $ 9,328 100.0%
Operating Expenses
Taxes $ 93,577 $ 487 $ 94,084 $ 490 $ 96,000 $ 500 5.4%
Insurance $ 32,130 $ 167 $ 29,356 $ 153 $ 30,720 $ 160 1.7%
Utilities $ 86,616 $ 451 $ 106,812 $ 556 $ 88,320 $ 460 4.9%
Repair & Maintenance $ 18,480 $ 96 $ 13,056 $ 68 $ 18,240 $ 95 1.0%
Cleaning $ 50,732 $ 264 $ 42,608 $ 222 $ 48,000 $ 250 2.7%
Landscaping $ 58,792 $ 306 $ 52,540 $ 274 $ 60,480 $ 315 3.4%
Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0%
Marketing & Leasing $ 24,000 $ 125 $ 22,724 $ 118 $ 24,960 $ 130 1.4%
General Administrative $ 27,348 $ 142 $ 25,016 $ 130 $ 26,880 $ 140 1.5%
Management $ 90,200 $ 470 $ 87,032 $ 453 $ 89,550 $ 466 5.0%
Miscellaneous $ 146,946 $ 765 $ 151,160 $ 787 $ 153,600 $ 800 8.6%
------------------------------------------------------------------------------------
Total Operating Expenses $ 628,821 $ 3,275 $ 624,388 $ 3,252 $ 636,750 $ 3,316 35.6%
Reserves $ 0 $ 0 $ 0 $ 0 $ 38,400 $ 200 6.0%
------------------------------------------------------------------------------------
Net Income $1,173,710 $ 6,113 $1,123,920 $ 5,854 $1,115,841 $ 5,812 62.3%
REVENUES AND EXPENSES
The subject's revenue and expense projections are displayed on the previous
chart. Rental income is based on the market analysis previously discussed. Other
income consists of forfeited deposits, laundry income, late rent payments, month
to month fees, pet fees, vending machine revenue, etc.
We forecasted the property's annual operating expenses after reviewing its
historical performance at the subject property. We analyzed each item of expense
and attempted to forecast amounts a typical informed investor would consider
reasonable.
VACANCY AND COLLECTION LOSS
An investor is primarily interested in the annual revenue an income property is
likely to produce over a specified period of time, rather than the income it
could produce if it were always 100% occupied and all tenants were paying their
rent in full and on time. An investor normally expects some income loss as
tenants vacate, fail to pay rent, or pay their rent late.
We have projected a stabilized vacancy and collection loss rate of 7% based on
the subject's historical performance, as well as the anticipated future market
conditions.
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30
COPPER MILL, RICHMOND, VIRGINIA
RESERVES FOR REPLACEMENT
"Reserves for replacements" is a contingency account allocated to the expenses
of the property to provide for replacement of short-lived items and for
unforeseen necessary capital expenditures. We have utilized the Korpacz Real
Estate Investor Survey of the national apartment market, which reports a range
of replacement reserves between $150 and $400 per unit. For purposes of this
analysis, we have included an allowance of $200 per unit for reserves for
replacement.
CAPITAL EXPENDITURES
Capital expenditures represent expenses for immediate repair or replacement of
items that have average to long lives. Based on our inspection of the property
as well as discussions with property management personnel, there are no major
items remaining in need of repair or replacement that would require an expense
beyond our reserves for replacement. Therefore an allowance of $200 per unit
should be satisfactory in our reserves for replacement to cover future capital
expenditures.
DISCOUNTED CASH FLOW ANALYSIS
As the subject is a multi-tenant income property, the Discounted Cash Flow
Method is considered appropriate. This method is especially meaningful in that
it isolates the timing of the annual cash flows and discounts them, along with
the expected equity reversion, to a present value. The present value of the cash
flow is added to the present value of the reversion, resulting in a total
property value.
INVESTMENT CRITERIA
Appropriate investment criteria will be derived for the subject based upon
analysis of comparable sales and a survey of real estate investors. The
following table summarizes the findings of Korpacz National Investor Survey for
the most recent period.
KORPACZ NATIONAL INVESTOR SURVEY
1ST QUARTER 2003
NATIONAL APARTMENT MARKET
CAPITALIZATION RATES
-------------------------------
GOING-IN TERMINAL
-------------- --------------
LOW HIGH LOW HIGH
-------------------------------
RANGE 6.00% 10.00% 7.00% 10.00%
AVERAGE 8.14% 8.47%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 31
COPPER MILL, RICHMOND, VIRGINIA
SUMMARY OF OVERALL
CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR
- ---------------------------------------------------------
I-1 June, 2001 97% $ 64,558 8.78%
I-2 September, 2000 95% $ 59,545 9.10%
I-3 March, 2001 98% $ 79,009 8.72%
I-4 Dec-00 96% $ 77,404 8.33%
I-5 Jun-01 95% $ 81,100 8.14%
High 9.10%
Low 8.14%
Average 8.62%
Based on this information, we have concluded the subject's overall
capitalization rate should be 8.75%. The terminal capitalization rate is applied
to the net operating income estimated for the year following the end of the
holding period. Based on the concluded overall capitalization rate, the age of
the property and the surveyed information, we have concluded the subject's
terminal capitalization rate to be 9.25%. Finally, the subject's discount rate
or yield rate is estimated based on the previous investor survey and an
examination of returns available on alternative investments in the market. Based
on this analysis, the subject's discount rate is estimated to be 11.00%.
HOLDING PERIOD
The survey of investors indicates that most investors are completing either
10-year cash flows or extending the analysis to the end of the lease if it is
more than 10-years. A 10-year period has been used in the analysis of the
subject with the eleventh year stabilized NOI used to determine the reversion.
SELLING COSTS
Sales of similar size properties are typically accomplished with the aid of a
broker and will also incur legal and other transaction related cost. Based on
our survey of brokers and a review of institutional investor projections, an
allowance of 2.00% of the sale amount is applied.
DISCOUNTED CASH FLOW CONCLUSION
Discounting the annual cash flows and the equity reversion at the selected rate
of 11.00% indicates a value of $13,400,000. In this instance, the reversion
figure contributes
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32
COPPER MILL, RICHMOND, VIRGINIA
approximately 42% of the total value. Investors surveyed for this assignment
indicated they would prefer to have the cash flow contribute anywhere from 50%
to 60%. Overall, the blend seems reasonable. The cash flow and pricing matrix
are located on the following pages.
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 33
COPPER MILL, RICHMOND, VIRGINIA
DISCOUNTED CASH FLOW ANALYSIS
COPPER MILL
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009
FISCAL YEAR 1 2 3 4 5 6
- ------------------------------------ ---------- ---------- ---------- ---------- ---------- ----------
REVENUE
Base Rent $1,781,280 $1,834,718 $1,889,760 $1,946,453 $2,004,846 $2,064,992
Vacancy $ 80,158 $ 82,562 $ 85,039 $ 87,590 $ 90,218 $ 92,925
Credit Loss $ 44,532 $ 45,868 $ 47,244 $ 48,661 $ 50,121 $ 51,625
Concessions $ 35,626 $ 18,347 $ 0 $ 0 $ 0 $ 0
--------------------------------------------------------------------------------
Subtotal $ 160,315 $ 146,777 $ 132,283 $ 136,252 $ 140,339 $ 144,549
Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Other Misc. Revenue $ 134,400 $ 138,432 $ 142,585 $ 146,863 $ 151,268 $ 155,806
--------------------------------------------------------------------------------
Subtotal Other Income $ 134,400 $ 138,432 $ 142,585 $ 146,863 $ 151,268 $ 155,806
--------------------------------------------------------------------------------
EFFECTIVE GROSS INCOME $1,755,365 $1,826,373 $1,900,062 $1,957,064 $2,015,775 $2,076,249
OPERATING EXPENSES:
Taxes $ 96,000 $ 98,880 $ 101,846 $ 104,902 $ 108,049 $ 111,290
Insurance $ 30,720 $ 31,642 $ 32,591 $ 33,569 $ 34,576 $ 35,613
Utilities $ 88,320 $ 90,970 $ 93,699 $ 96,510 $ 99,405 $ 102,387
Repair & Maintenance $ 18,240 $ 18,787 $ 19,351 $ 19,931 $ 20,529 $ 21,145
Cleaning $ 48,000 $ 49,440 $ 50,923 $ 52,451 $ 54,024 $ 55,645
Landscaping $ 60,480 $ 62,294 $ 64,163 $ 66,088 $ 68,071 $ 70,113
Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Marketing & Leasing $ 24,960 $ 25,709 $ 26,480 $ 27,274 $ 28,093 $ 28,935
General Administrative $ 26,880 $ 27,686 $ 28,517 $ 29,373 $ 30,254 $ 31,161
Management $ 87,768 $ 91,319 $ 95,003 $ 97,853 $ 100,789 $ 103,812
Miscellaneous $ 153,600 $ 158,208 $ 162,954 $ 167,843 $ 172,878 $ 178,064
--------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES $ 634,968 $ 654,935 $ 675,528 $ 695,793 $ 716,667 $ 738,167
Reserves $ 38,400 $ 39,552 $ 40,739 $ 41,961 $ 43,220 $ 44,516
--------------------------------------------------------------------------------
NET OPERATING INCOME $1,081,997 $1,131,886 $1,183,796 $1,219,309 $1,255,889 $1,293,565
================================================================================
Operating Expense Ratio (% of EGI) 36.2% 35.9% 35.6% 35.6% 35.6% 35.6%
Operating Expense Per Unit $ 3,307 $ 3,411 $ 3,518 $ 3,624 $ 3,733 $ 3,845
YEAR Apr-2010 APR-2011 APR-2012 APR-2013 APR-2014
FISCAL YEAR 7 8 9 10 11
- ------------------------------------ ---------- ---------- ---------- ---------- ----------
REVENUE
Base Rent $2,126,941 $2,190,750 $2,256,472 $2,324,166 $2,393,891
Vacancy $ 95,712 $ 98,584 $ 101,541 $ 104,58 $ 107,725
Credit Loss $ 53,174 $ 54,769 $ 56,412 $ 58,104 $ 59,847
Concessions $ 0 $ 0 $ 0 $ 0 $ 0
-----------------------------------------------------------------
Subtotal $ 148,886 $ 153,352 $ 157,953 $ 162,692 $ 167,572
Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0
Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0
Other Misc. Revenue $ 160,481 $ 165,295 $ 170,254 $ 175,362 $ 180,622
-----------------------------------------------------------------
Subtotal Other Income $ 160,481 $ 165,295 $ 170,254 $ 175,362 $ 180,622
-----------------------------------------------------------------
EFFECTIVE GROSS INCOME $2,138,536 $2,202,692 $2,268,773 $2,336,836 $2,406,941
OPERATING EXPENSES:
Taxes $ 114,629 $ 118,068 $ 121,610 $ 125,258 $ 129,016
Insurance $ 36,681 $ 37,782 $ 38,915 $ 40,083 $ 41,285
Utilities $ 105,459 $ 108,622 $ 111,881 $ 115,238 $ 118,695
Repair & Maintenance $ 21,780 $ 22,433 $ 23,106 $ 23,799 $ 24,513
Cleaning $ 57,315 $ 59,034 $ 60,805 $ 62,629 $ 64,508
Landscaping $ 72,216 $ 74,383 $ 76,614 $ 78,913 $ 81,280
Security $ 0 $ 0 $ 0 $ 0 $ 0
Marketing & Leasing $ 29,804 $ 30,698 $ 31,619 $ 32,567 $ 33,544
General Administrative $ 32,096 $ 33,059 $ 34,051 $ 35,072 $ 36,124
Management $ 106,927 $ 110,135 $ 113,439 $ 116,842 $ 120,347
Miscellaneous $ 183,406 $ 188,909 $ 194,576 $ 200,413 $ 206,426
-----------------------------------------------------------------
TOTAL OPERATING EXPENSES $ 760,312 $ 783,122 $ 806,615 $ 830,814 $ 855,738
Reserves $ 45,852 $ 47,227 $ 48,644 $ 50,103 $ 51,606
-----------------------------------------------------------------
NET OPERATING INCOME $1,332,372 $1,372,344 $1,413,514 $1,455,919 $1,499,597
=================================================================
Operating Expense Ratio (% of EGI) 35.6% 35.6% 35.6% 35.6% 35.6%
Operating Expense Per Unit $ 3,960 $ 4,079 $ 4,201 $ 4,327 $ 4,457
Estimated Stabilized NOI $1,115,841 Sales Expense Rate 2.00%
Months to Stabilized 1 Discount Rate 11.00%
Stabilized Occupancy 95.5% Terminal Cap Rate 9.25%
Gross Residual Sale Price $ 16,211,858 Deferred Maintenance $ 0
Less: Sales Expense $ 324,237 Add: Excess Land $ 0
------------ Other Adjustments $ 0
Net Residual Sale Price $ 15,887,621 ------------
PV of Reversion $ 5,595,373 Value Indicated By "DCF" $ 13,372,860
Add: NPV of NOI $ 7,777,487 Rounded $ 13,400,000
------------
PV Total $ 13,372,860
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE
-----------------------------------------------------------------------------
TOTAL VALUE 10.50% 10.75% 11.00% 11.25% 11.50%
- ---------------- ------------- ------------- ------------- ------------- -------------
8.75% $ 14,154,278 $ 13,920,877 $ 13,692,596 $ 13,469,305 $ 13,250,879
9.00% $ 13,982,382 $ 13,752,822 $ 13,528,288 $ 13,308,652 $ 13,093,792
TERMINAL 9.25% $ 13,819,777 $ 13,593,850 $ 13,372,860 $ 13,156,683 $ 12,945,196
CAP RATE 9.50% $ 13,665,730 $ 13,443,246 $ 13,225,614 $ 13,012,712 $ 12,804,420
9.75% $ 13,519,583 $ 13,300,365 $ 13,085,918 $ 12,876,124 $ 12,670,864
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 34
COPPER MILL, RICHMOND, VIRGINIA
INCOME LOSS DURING LEASE-UP
The subject is currently near or at a stabilized condition. Therefore, there is
no income loss during lease-up at the subject property.
CONCESSIONS
Due to softness in the market, concessions have been utilized at the subject
property and within the market. Based on our discussions with the subject's
property manager and those at competing properties, these concessions are
expected to continue in the near term until the market returns to a stabilized
level. Concessions have been included as a line item deduction within the
discounted cash flow analysis. The present value of these concessions equates to
$47,000 (rounded). This amount has been deducted from the Direct Capitalization
analysis, as well as the Sales Comparison Approach value.
DIRECT CAPITALIZATION METHOD
After having projected the income and expenses for the property, the next step
in the valuation process is to capitalize the net income into an estimate of
value. The selected overall capitalization rate ("OAR") covers both return on
and return of capital. It is the overall rate of return an investor expects.
After considering the market transactions and the investor surveys, we
previously conclude that an overall rate of 8.75% percent is applicable to the
subject. The results of our direct capitalization analysis are as follows:
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 35
COPPER MILL, RICHMOND, VIRGINIA
COPPER MILL
TOTAL PER SQ. FT. PER UNIT % OF EGI
----------- ----------- -------- --------
REVENUE
Base Rent $ 1,781,280 $ 11.23 $ 9,278
Less: Vacancy & Collection Loss 7.00% $ 124,690 $ 0.79 $ 649
Plus: Other Income
Laundry Income $ 0 $ 0.00 $ 0 0.00%
Garage Revenue $ 0 $ 0.00 $ 0 0.00%
Other Misc. Revenue $ 134,400 $ 0.85 $ 700 7.50%
----------------------------------------------
Subtotal Other Income $ 134,400 $ 0.85 $ 700 7.50%
EFFECTIVE GROSS INCOME $ 1,790,990 $ 11.29 $ 9,328
OPERATING EXPENSES:
Taxes $ 96,000 $ 0.61 $ 500 5.36%
Insurance $ 30,720 $ 0.19 $ 160 1.72%
Utilities $ 88,320 $ 0.56 $ 460 4.93%
Repair & Maintenance $ 18,240 $ 0.12 $ 95 1.02%
Cleaning $ 48,000 $ 0.30 $ 250 2.68%
Landscaping $ 60,480 $ 0.38 $ 315 3.38%
Security $ 0 $ 0.00 $ 0 0.00%
Marketing & Leasing $ 24,960 $ 0.16 $ 130 1.39%
General Administrative $ 26,880 $ 0.17 $ 140 1.50%
Management 5.00% $ 89,550 $ 0.56 $ 466 5.00%
Miscellaneous $ 153,600 $ 0.97 $ 800 8.58%
TOTAL OPERATING EXPENSES $ 636,750 $ 4.02 $ 3,316 35.55%
Reserves $ 38,400 $ 0.24 $ 200 2.14%
----------------------------------------------
NET OPERATING INCOME $ 1,115,841 $ 7.04 $ 5,812 62.30%
"GOING IN" CAPITALIZATION RATE 8.75%
VALUE INDICATION $12,752,467 $ 80.42 $ 66,419
PV OF CONCESSIONS ($ 47,000)
"AS IS" VALUE INDICATION
(DIRECT CAPITALIZATION APPROACH) $12,705,467
ROUNDED $12,700,000 $ 80.09 $ 66,146
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 36
COPPER MILL, RICHMOND, VIRGINIA
DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF
- -------- ----------- ----------- -------- ------
8.00% $13,901,011 $13,900,000 $ 72,396 $87.66
8.25% $13,478,344 $13,500,000 $ 70,313 $85.14
8.50% $13,080,540 $13,100,000 $ 68,229 $82.61
8.75% $12,705,467 $12,700,000 $ 66,146 $80.09
9.00% $12,351,232 $12,400,000 $ 64,583 $78.20
9.25% $12,016,145 $12,000,000 $ 62,500 $75.68
9.50% $11,698,693 $11,700,000 $ 60,938 $73.79
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD
Applying the capitalization rate to our estimated NOI results in an estimated
value of $12,700,000.
CORRELATION AND CONCLUSION BY THE INCOME APPROACH
The two methods used to estimate the market value of the subject property by the
income approach resulted in the following indications of value:
Discounted Cash Flow Analysis $13,400,000
Direct Capitalization Method $12,700,000
Giving consideration to the indicated values provided by both techniques, we
have concluded the estimated value by the income capitalization approach to be
$13,400,000.
AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 37
COPPER MILL, RICHMOND, VIRGINIA
RECONCILIATION AND CONCLUSION
This appraisal was made to express an opinion as of the Market Value of the fee
simple estate in the property.
AS IS MARKET VALUE OF THE FEE SIMPLE ESTATE
Cost Approach Not Utilized
Sales Comparison Approach $13,800,000
Income Approach $13,400,000
Reconciled Value $13,500,000
The Direct Capitalization Method is considered a reliable indicator of value.
Income and expenses were estimated and projected based on historical operating
statements and market oriented expenses. This method is primarily used by
investors in their underwriting analysis. Furthermore, there was good support
for an overall rate in the Direct Capitalization Method.
The Sales Comparison Approach to value supported the value conclusion by the
Income Approach and was given secondary consideration. Investment-grade,
income-producing properties such as the subject are not typically traded based
on cost. Therefore, the Cost Approach has not been considered in our valuation.
FINAL VALUE - FEE SIMPLE ESTATE
Based on the investigation and premise outlined, it is our opinion that as of
May 7, 2003 the market value of the fee simple estate in the property is:
$13,500,000
AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA
COPPER MILL, RICHMOND, VIRGINIA
ADDENDA
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A
COPPER MILL, RICHMOND, VIRGINIA
EXHIBIT A
SUBJECT PHOTOGRAPHS
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A
COPPER MILL, RICHMOND, VIRGINIA
SUBJECT PHOTOGRAPHS
[PICTURE]
EXTERIOR - APARTMENT BUILDING & LAKE
[PICTURE]
EXTERIOR - LANDSCAPE & APARTMENT BUILDING
[PICTURE]
EXTERIOR - POOL
[PICTURE]
INTERIOR - SAUNA
[PICTURE]
EXTERIOR - TENNIS COURT
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B
COPPER MILL, RICHMOND, VIRGINIA
EXHIBIT B
SUMMARY OF RENT COMPARABLES
AND PHOTOGRAPH OF COMPARABLES
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B
COPPER MILL, RICHMOND, VIRGINIA
PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES
COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3
CHASE GAYTON OAKS @ GAYTON CROSSINGS @ SHORT PUMP
100 Chase Gayton Drive 12520 Gayton Road 3400 Cox Road
Richmond, VA Richmond, VA Richmond, VA
[PICTURE] [PICTURE] [PICTURE]
COMPARABLE I-4 COMPARABLE I-5
ADDISON @ WYNDHAM SUMMIT STONY POINT APARTMENTS
11401 Old Nuckols Road 3012 Stony Lake Drive
Richmond, VA Richmond, VA
[PICTURE] [PICTURE]
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B
COPPER MILL, RICHMOND, VIRGINIA
SUMMARY OF COMPARABLE RENTAL PROPERTIES
DESCRIPTION SUBJECT COMPARABLE
R - 1
====================================================================================================================================
Property Name Copper Mill Hickory Creek
Management Company Aimco Equity
LOCATION:
Address 3400 Coppermill Trace 2344 Hickory Creek Drive
City, State Richmond, Virginia Richmond, VA
County Henrico Henrico
Proximity to Subject 1-mile east of the subject
PHYSICAL CHARACTERISTICS:
Net Rentable Area (SF) 158,568 280,940
Year Built 1987 1985
Effective Age 12 12
Building Structure Type Wood walls; wood roof Brick veneer; wood roof
Parking Type (Gr., Cov., etc.) Open Open, Covered
Number of Units 192 294
Unit Mix: Type Unit Qty. Mo.Rent Type Unit Qty. Mo.
1 1A10 697 108 $719 1 1Bd/1Ba 830 124 $720
2 2A20 967 36 $872 1 1Bd/1Ba/den 945 48 $775
3 2B20 1,010 48 $901 3 2Bd/2Ba 1,030 122 $845
Average Unit Size (SF) 826 932
Unit Breakdown: Efficiency 0% 2-Bedroom 44% Efficiency 0% 2-Bedroom 41%
1-Bedroom 56% 3-Bedroom 0% 1-Bedroom 59% 3-Bedroom 0%
CONDITION: Good Good
APPEAL: Good Good
AMENITIES:
Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling
X Balcony W/D Connect. X Balcony X W/D Connect.
X Fireplace Other X Fireplace Other
X Cable TV Ready X Cable TV Ready
Project Amenities X Swimming Pool X Swimming Pool
X Spa/Jacuzzi X Car Wash X Spa/Jacuzzi Car Wash
Basketball Court X BBQ Equipment Basketball Court X BBQ Equipment
Volleyball Court Theater Room Volleyball Court Theater Room
X Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall
X Tennis Court Secured Parking X Tennis Court Secured Parking
Racquet Ball Laundry Room Racquet Ball Laundry Room
X Jogging Track Business Office Jogging Track X Business Office
X Gym Room X Gym Room
OCCUPANCY: 97% 93%
LEASING DATA:
Available Leasing Terms 9 to 12 months 3 to 13 Months
Concessions 1 month free on 12 month lease 2 Bdrm for $799
Pet Deposit $250 - $450 $200 - $400
Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas
X Water Trash X Water Trash
Confirmation May 7, 2003; Catherine Mason (Community Manager) May 7, 2003; Property Manager
Telephone Number (804) 747-7267 (804) 346-4580
NOTES:
Similar
COMPARISON TO SUBJECT:
DESCRIPTION COMPARABLE COMPARABLE
R - 2 R - 3
====================================================================================================================================
Property Name Broadmoor Copper Spring Apartments
Management Company Semtinel Ram/Post
LOCATION:
Address 9475 W. Broad Street 3301 Copper Mill Trace Drive
City, State Richmond, VA Richmond, VA
County Henrico Henrico
Proximity to Subject Next to subject Next to subject
PHYSICAL CHARACTERISTICS:
Net Rentable Area (SF) 259,900 310,100
Year Built 1985 1990
Effective Age 12 7
Building Structure Type Brick walls; wood roof Brick & wood siding walls; asphalt shingle roof
Parking Type (Gr., Cov., etc.) Open Open
Number of Units 360 366
Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo.
1 1Bd/1Ba 658 220 $670 1 1Bd/1Ba 700 212 $ 695
1 1Bd/1.5Ba 845 40 $755 1 2Bd/1Ba 903 154 $1,050
2 2Bd/2Ba 930 100 $840
Average Unit Size (SF) 754 785
Unit Breakdown: Efficiency 0% 2-Bedroom 28% Efficiency 0% 2-Bedroom 42%
1-Bedroom 72% 3-Bedroom 0% 1-Bedroom 58% 3-Bedroom 0%
CONDITION: Good Good
APPEAL: Good Good
AMENITIES:
Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling
X Balcony X W/D Connect. X Balcony X W/D Connect.
X Fireplace Other X Fireplace Other
X Cable TV Ready X Cable TV Ready
Project Amenities X Swimming Pool X Swimming Pool
X Spa/Jacuzzi Car Wash X Spa/Jacuzzi X Car Wash
Basketball Court BBQ Equipment Basketball Court BBQ Equipment
X Volleyball Court Theater Room Volleyball Court Theater Room
Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall
X Tennis Court Secured Parking X Tennis Court Secured Parking
Racquet Ball Laundry Room X Racquet Ball Laundry Room
Jogging Track Business Office Jogging Track X Business Office
X Gym Room X Gym Room
OCCUPANCY: 88% 87%
LEASING DATA:
Available Leasing Terms 6 to 13 Months 12 to 14 Months
Concessions 13 to 16 month lease, 2 months free $50 off one month free
Pet Deposit $250
$100 to $200 free
Utilities Paid by Tenant: X Electric X Natural Gas X Electric Natural Gas
Water Trash Water Trash
Confirmation May 7 2003; Property Manager May 7 2003; Sean Property Contact
Telephone Number 1-866-242-4480 1-866-249-2183
NOTES:
Slightly Inferior Similar
COMPARISON TO SUBJECT:
DESCRIPTION COMPARABLE COMPARABLE
R - 4 R - 5
===================================================================================================================================
Property Name Sundance Station Culpepper Farms
Management Company Capreit Capreit
LOCATION:
Address 3500 Sundance Way 3450 Spendthrift Drive
City, State Richmond, VA Richmond, VA
County Henrico Henrico
Proximity to Subject 1/2-mile east of the subject 1 1/2-miles north of subject
PHYSICAL CHARACTERISTICS:
Net Rentable Area (SF) 284,784 207,554
Year Built 1969 1972
Effective Age 23 20
Building Structure Type Stone veneer; asphalt shingle roof Brick walls; asphalt shingle roof
Parking Type (Gr., Cov., etc.) Open Open
Number of Units 300 228
Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo.
1 1Bd/1Ba 644 118 $710 1 1Bd/1Ba 712 136 $728
1 1Bd/1Ba/den 754 28 $750 2 2Bd/1Ba 957 92 $880
2 2Bd/1Ba 798 36 $765
2 2Bd/2Ba 894 118 $830
Average Unit Size (SF) 771 811
Unit Breakdown: Efficiency 0% 2-Bedroom 51% Efficiency 0% 2-Bedroom 40%
1-Bedroom 49% 3-Bedroom 1-Bedroom 60% 3-Bedroom 0%
CONDITION: Good Good
APPEAL: Good Good
AMENITIES:
Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling
X Balcony X W/D Connect. X Balcony X W/D Connect.
X Fireplace Other X Fireplace Other
X Cable TV Ready X Cable TV Ready
Project Amenities X Swimming Pool X Swimming Pool
X Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash
Basketball Court BBQ Equipment Basketball Court BBQ Equipment
Volleyball Court Theater Room Volleyball Court Theater Room
Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall
X Tennis Court Secured Parking X Tennis Court Secured Parking
Racquet Ball Laundry Room X Racquet Ball Laundry Room
Jogging Track Business Office Jogging Track Business Office
X Gym Room X Gym Room
OCCUPANCY: 97% 97%
LEASING DATA:
Available Leasing Terms 6 to 12 months 6 to 12 months
Concessions $100 off vacants, $50 on notice $99 -mth. 1 $75 off per month
Pet Deposit $200 - $250 $250
Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas
Water Trash X Water Trash
Confirmation May 7 2003; Property Contact May 7 2003; Property Contact
Telephone Number (804)270-7291 (804)346-0726
NOTES: Contains 2 tennis courts and covered
parking costs $20/month.
Similar Slightly Superior
COMPARISON TO SUBJECT:
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B
COPPER MILL, RICHMOND, VIRGINIA
PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES
COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3
HICKORY CREEK BROADMOOR COPPER SPRING APARTMENTS
2344 Hickory Creek Drive 9475 W. Broad Street 3301 Copper Mill Trace
Richmond, VA Richmond, VA Richmond, VA
[PICTURE] [PICTURE] [PICTURE]
COMPARABLE R-4 COMPARABLE R-5
SUNDANCE STATION CULPEPPER FARMS
3500 Sundance Way 3450 Spendthrift Drive
Richmond, VA Richmond, VA
[PICTURE] [PICTURE]
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C
COPPER MILL, RICHMOND, VIRGINIA
EXHIBIT C
ASSUMPTIONS AND LIMITING CONDITIONS
(3 PAGES)
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C
COPPER MILL, RICHMOND, VIRGINIA
No responsibility is assumed for matters legal in nature. No investigation has
been made of the title to or any liabilities against the property appraised. In
this appraisal, it is presumed that, unless otherwise noted, the owner's claim
is valid, the property rights are good and marketable, and there are no
encumbrances which cannot be cleared through normal processes.
To the best of our knowledge, all data set forth in this report are true and
accurate. Although gathered from reliable sources, no guarantee is made nor
liability assumed for the accuracy of any data, opinions, or estimates
identified as being furnished by others which have been used in formulating this
analysis.
Land areas and descriptions used in this appraisal were obtained from public
records and have not been verified by legal counsel or a licensed surveyor.
No soil analysis or geological studies were ordered or made in conjunction with
this report, nor were any water, oil, gas, or other subsurface mineral and use
rights or conditions investigated.
Substances such as asbestos, urea-formaldehyde foam insulation, other chemicals,
toxic wastes, or other potentially hazardous materials could, if present,
adversely affect the value of the property. Unless otherwise stated in this
report, the existence of hazardous substance, which may or may not be present on
or in the property, was not considered by the appraiser in the development of
the conclusion of value. The stated value estimate is predicated on the
assumption that there is no material on or in the property that would cause such
a loss in value. No responsibility is assumed for any such conditions, and the
client has been advised that the appraiser is not qualified to detect such
substances, quantify the impact on values, or develop the remedial cost.
No environmental impact study has been ordered or made. Full compliance with
applicable federal, state, and local environmental regulations and laws is
assumed unless otherwise stated, defined, and considered in the report. It is
also assumed that all required licenses, consents, or other legislative or
administrative authority from any local, state, or national government or
private entity organization either have been or can be obtained or renewed for
any use which the report covers.
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C
COPPER MILL, RICHMOND, VIRGINIA
It is assumed that all applicable zoning and use regulations and restrictions
have been complied with unless a nonconformity has been stated, defined, and
considered in the appraisal report. Further, it is assumed that the utilization
of the land and improvements is within the boundaries of the property described
and that no encroachment or trespass exists unless noted in the report.
The Americans with Disabilities Act ("ADA") became effective January 26, 1992.
We have not made a specific compliance survey and analysis of this property to
determine whether or not it is in conformity with the various detailed
requirements of the ADA. It is possible that a compliance survey of the property
together with a detailed analysis of the requirements of the ADA could reveal
that the property is not in compliance with one or more of the requirements of
the act. If so, this fact could have a negative effect on the value of the
property. Since we have no direct evidence relating to this issue, we did not
consider the possible noncompliance with the requirements of ADA in estimating
the value of the property.
We have made a physical inspection of the property and noted visible physical
defects, if any, in our report. This inspection was made by individuals
generally familiar with real estate and building construction. However, these
individuals are not architectural or structural engineers who would have
detailed knowledge of building design and structural integrity. Accordingly, we
do not opine on, nor are we responsible for, the structural integrity of the
property including its conformity to specific governmental code requirements,
such as fire, building and safety, earthquake, and occupancy, or any physical
defects which were not readily apparent to the appraiser during the inspection.
The value or values presented in this report are based upon the premises
outlined herein and are valid only for the purpose or purposes stated.
The date of value to which the conclusions and opinions expressed apply is set
forth in this report. The value opinion herein rendered is based on the status
of the national business economy and the purchasing power of the U.S. dollar as
of that date.
Testimony or attendance in court or at any other hearing is not required by
reason of this appraisal unless arrangements are previously made within a
reasonable time in advance for
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C
COPPER MILL, RICHMOND, VIRGINIA
such testimony, and then such testimony shall be at American Appraisal
Associates, Inc.'s, prevailing per diem for the individuals involved.
Possession of this report or any copy thereof does not carry with it the right
of publication. No portion of this report (especially any conclusion to use, the
identity of the appraiser or the firm with which the appraiser is connected, or
any reference to the American Society of Appraisers or the designations awarded
by this organization) shall be disseminated to the public through prospectus,
advertising, public relations, news, or any other means of communication without
the written consent and approval of American Appraisal Associates, Inc.
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D
COPPER MILL, RICHMOND, VIRGINIA
EXHIBIT D
CERTIFICATE OF APPRAISER
(1 PAGE)
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D
CERTIFICATE OF APPRAISER
I certify that, to the best of my knowledge and belief:
The statements of fact contained in this report are true and correct.
The reported analyses, opinions, and conclusions are limited only by
the reported assumptions and limiting conditions, and represent the
unbiased professional analyses, opinions, and conclusions of American
Appraisal Associates, Inc.
American Appraisal Associates, Inc. and I personally, have no present
or prospective interest in the property that is the subject of this
report and have no personal interest or bias with respect to the
parties involved.
Compensation for American Appraisal Associates, Inc. is not contingent
on an action or event resulting from the analyses, opinions, or
conclusions in, or the use of, this report.
The analyses, opinions, and conclusions were developed, and this report
has been prepared, in conformity with the requirements of the Uniform
Standards of Professional Appraisal Practice and the Code of
Professional Ethics and the Standards of Professional Practice of the
Appraisal Institute.
The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
I personally did not inspect the subject property. Brian Johnson, MAI
and Jonathan Hackerman provided significant real property appraisal
assistance in the preparation of this report.
I am currently in compliance with the Appraisal Institute's continuing
education requirements.
-s- Frank Fehribach
---------------------------------------
Frank Fehribach, MAI
Managing Principal, Real Estate Group
Temporary Certified General Real Estate
Appraiser #4001 007252
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E
COPPER MILL, RICHMOND, VIRGINIA
EXHIBIT E
QUALIFICATIONS OF APPRAISER
(2 PAGES)
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E
COPPER MILL, RICHMOND, VIRGINIA
FRANK A. FEHRIBACH, MAI
MANAGING PRINCIPAL, REAL ESTATE GROUP
POSITION Frank A. Fehribach is a Managing Principal for the Dallas
Real Estate Group of American Appraisal Associates, Inc.
("AAA").
EXPERIENCE
Valuation Mr. Fehribach has experience in valuations for resort
hotels; Class A office buildings; Class A multifamily
complexes; industrial buildings and distribution
warehousing; multitract mixed-use vacant land; regional
malls; residential subdivision development; and special-
purpose properties such as athletic clubs, golf courses,
manufacturing facilities, nursing homes, and medical
buildings. Consulting assignments include development and
feasibility studies, economic model creation and
maintenance, and market studies.
Mr. Fehribach also has been involved in overseeing appraisal
and consulting assignments in Mexico and South America.
Business Mr. Fehribach joined AAA as an engagement director in
1998. He was promoted to his current position in 1999. Prior
to that, he was a manager at Arthur Andersen LLP. Mr.
Fehribach has been in the business of real estate appraisal
for over ten years.
EDUCATION University of Texas - Arlington
Master of Science - Real Estate
University of Dallas
Master of Business Administration - Industrial Management
Bachelor of Arts - Economics
STATE State of Arizona
CERTIFICATIONS Certified General Real Estate Appraiser, #30828
State of Arkansas
State Certified General Appraiser, #CG1387N
State of Colorado
Certified General Appraiser,#CG40000445
State of Georgia
Certified General Real Property Appraiser, #218487
State of Michigan
Certified General Appraiser, #1201008081
State of Texas
Real Estate Salesman License, #407158 (Inactive)
State of Texas
State Certified General Real Estate Appraiser,
#TX-1323954-G
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E
COPPER MILL, RICHMOND, VIRGINIA
PROFESSIONAL Appraisal Institute, MAI Designated Member
AFFILIATIONS Candidate Member of the CCIM Institute pursuing Certified
Commercial Investment Member (CCIM) designation
PUBLICATIONS "An Analysis of the Determinants of Industrial Property
-authored with Dr. Ronald C. Rutherford and Dr.
Mark Eakin, The Journal of Real Estate Research, Vol. 8,
No.3, Summer 1993, p. 365.
AMERICAN APPRAISAL ASSOCIATES, INC.
COPPER MILL, RICHMOND, VIRGINIA
GENERAL SERVICE CONDITIONS
AMERICAN APPRAISAL ASSOCIATES, INC.
COPPER MILL, RICHMOND, VIRGINIA
GENERAL SERVICE CONDITIONS
The services(s) provided by AAA will be performed in accordance with
professional appraisal standards. Our compensation is not contingent in any way
upon our conclusions of value. We assume, without independent verification, the
accuracy of all data provided to us. We will act as an independent contractor
and reserve the right to use subcontractors. All files, workpapers or documents
developed by us during the course of the engagement will be our property. We
will retain this data for at least five years.
Our report is to be used only for the specific purpose stated herein; and any
other use is invalid. No reliance may be made by any third party without our
prior written consent. You may show our report in its entirety to those third
parties who need to review the information contained herein. No one should rely
on our report as a substitute for their own due diligence. We understand that
our reports will be described in public tender offer documents distributed to
limited partners. We reserve the right to review the public tender offer
documents prior to their issuance to confirm that disclosures of facts from the
current appraisals are accurate. No reference to our name or our report, in
whole or in part, in any other SEC filing or private placement memorandum you
prepare and/or distribute to third parties may be made without our prior written
consent.
The Tender Offer Partnerships, as that term is defined in the Settlement
Agreement, agree to indemnify and hold us harmless against and from any and all
losses, claims, actions, damages, expenses or liabilities, including reasonable
attorneys' fees, to which we may become subject in connection with this
engagement except where such losses, claims, actions, damages, expenses or
liabilities, including reasonable attorney's fees, arise or result from AAA's
misconduct, bad faith or negligence. Co-Clients will not be liable for any of
our acts or omissions.
AAA is an equal opportunity employer.