LAKE MEADOWS APARTMENTS
5401 ZION ROAD
GARLAND, TEXAS
MARKET VALUE -
FEE SIMPLE ESTATE
AS OF MAY 9, 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) LOGO]
[LETTERHEAD OF AMERICAN APPRAISAL ASSOCIATES]
JULY 16, 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: LAKE MEADOWS APARTMENTS
5401 ZION ROAD
GARLAND, DALLAS COUNTY, TEXAS
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 96 units with a
total of 93,280 square feet of rentable area. The improvements were built in
1983. The improvements are situated on 9.072 acres. Overall, the improvements
are in average condition. As of the date of this appraisal, the subject property
is 89% 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
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
The opinions expressed in this appraisal cover letter can only be completely
understood by 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 9, 2003 is:
($3,800,000)
Respectfully submitted,
AMERICAN APPRAISAL ASSOCIATES, INC.
/s/ Frank Fehribach
------------------------------------
July 16, 2003 Frank Fehribach, MAI
#053272 Managing Principal, Real Estate Group
Texas State Certified General Real Estate Appraiser
#TX-1323954-G
Report By:
Shayne Hatch
Texas Appraiser Trainee
# TX-1330454-T
AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
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.............................................. 38
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
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
EXECUTIVE SUMMARY
PART ONE - PROPERTY DESCRIPTION
PROPERTY NAME: Lake Meadows Apartments
LOCATION: 5401 Zion Road
Garland, Texas
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 9, 2003
DATE OF REPORT: July 16, 2003
PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS:
SITE:
Size: 9.072 acres, or 395,176 square feet
Assessor Parcel No.: 2629745001001-0000
Floodplain: Community Panel No. 48113C0380K (February 5,
2003)
Flood Zone X, an area outside the floodplain.
Zoning: MF-18 (Multi-Family: 18 units/acre)
BUILDING:
No. of Units: 96 Units
Total NRA: 93,280 Square Feet
Average Unit Size: 972 Square Feet
Apartment Density: 10.6 units per acre
Year Built: 1983
UNIT MIX AND MARKET RENT:
GROSS RENTAL INCOME PROJECTION
Market Rent
Square ------------------ Monthly Annual
Unit Type Feet Per Unit Per SF Income Income
- --------------------------------------------------------------
1Br/1Ba - 1A10 755 $ 550 $ 0.73 $ 6,600 $ 79,200
1Br/1Ba - 1B10 880 $ 580 $ 0.66 $ 6,960 $ 83,520
1Br/1Ba - 1C10 890 $ 650 $ 0.73 $ 7,800 $ 93,600
2Br/2Ba - 2A20 1,029 $ 700 $ 0.68 $ 11,200 $134,400
2Br/2Ba - 2B20 1,029 $ 750 $ 0.73 $ 12,000 $144,000
2Br/2Ba - 2C20 1,059 $ 750 $ 0.71 $ 6,000 $ 72,000
2Br/2Ba - 2D20 1,079 $ 800 $ 0.74 $ 16,000 $192,000
Total $ 66,560 $798,720
OCCUPANCY: 89%
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
ECONOMIC LIFE: 45 Years
EFFECTIVE AGE: 20 Years
REMAINING ECONOMIC LIFE: 25 Years
SUBJECT PHOTOGRAPHS AND LOCATION MAP:
SUBJECT PHOTOGRAPHS
[PICTURE] [PICTURE]
AREA MAP
[MAP]
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
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
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
PART TWO - ECONOMIC INDICATORS
INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION Amount $/Unit
- --------------------- ------ ------
Potential Rental Income $798,720 $8,320
Effective Gross Income $744,461 $7,755
Operating Expenses $361,458 $3,765 48.6% of EGI
Net Operating Income: $359,002 $3,740
Capitalization Rate 9.50%
DIRECT CAPITALIZATION VALUE $3,700,000 * $38,542 / UNIT
DISCOUNTED CASH FLOW ANALYSIS:
- ------------------------------
Holding Period 10 years
2002 Economic Vacancy 20%
Stabilized Vacancy & Collection Loss: 11%
Lease-up / Stabilization Period N/A
Terminal Capitalization Rate 10.00%
Discount Rate 11.00%
Selling Costs 3.00%
Growth Rates:
Income 3.00%
Expenses: 3.00%
DISCOUNTED CASH FLOW VALUE $3,900,000 * $40,625 / UNIT
RECONCILED INCOME CAPITALIZATION VALUE $3,900,000 $40,625 / UNIT
SALES COMPARISON APPROACH
PRICE PER UNIT:
Range of Sales $/Unit (Unadjusted) $24,734 to $47,891
Range of Sales $/Unit (Adjusted) $32,500 to $37,572
VALUE INDICATION - PRICE PER UNIT $3,300,000 * $34,375 / UNIT
EGIM ANALYSIS
Range of EGIMs from Improved Sales 4.24 to 5.52
Selected EGIM for Subject 4.90
Subject's Projected EGI $744,461
EGIM ANALYSIS CONCLUSION $3,600,000 * $37,500 / UNIT
NOI PER UNIT ANALYSIS CONCLUSION $3,600,000 * $37,500 / UNIT
RECONCILED SALES COMPARISON VALUE $3,500,000 $36,458 / 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
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
PART THREE - SUMMARY OF VALUE CONCLUSIONS
SALES COMPARISON APPROACH:
Price Per Unit $3,300,000
NOI Per Unit $3,600,000
EGIM Multiplier $3,600,000
INDICATED VALUE BY SALES COMPARISON $3,500,000 $36,458 / UNIT
INCOME APPROACH:
Direct Capitalization Method: $3,700,000
Discounted Cash Flow Method: $3,900,000
INDICATED VALUE BY THE INCOME APPROACH $3,900,000 $40,625 / UNIT
RECONCILED OVERALL VALUE CONCLUSION: $3,800,000 $39,583 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
INTRODUCTION
IDENTIFICATION OF THE SUBJECT
The subject property is located at 5401 Zion Road, Garland, Dallas County,
Texas. Garland identifies it as 2629745001001-0000.
SCOPE OF THE ASSIGNMENT
The property, neighborhood, and comparables were inspected by Shayne Hatch on
May 9, 2003. Frank Fehribach, MAI has not made a personal inspection of the
subject property. Shayne Hatch performed the research, valuation analysis and
wrote the report. Frank Fehribach, MAI reviewed the report and concurs with the
value. Frank Fehribach, MAI and Shayne Hatch 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 9, 2003. The
date of the report is July 16, 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 & Income Approaches), subject to the existing short-term leases. A Fee
Simple Estate is
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 10
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
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 AOP. 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
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
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 Garland, Texas. Overall, the neighborhood is
characterized as a suburban setting with the predominant land use being single
family residential. The subject's neighborhood is generally defined by the
following boundaries.
NEIGHBORHOOD BOUNDARIES
East - Bobtown Road
West - Lyons Road
South - Lyons Road
North - Interstate 30
MAJOR EMPLOYERS
Major employers in the subject's area include Baylor Medical Center-Garland,
Karlee Company, Raytheon/ E-Systems Inc. Software Spectrum Inc, Intercontinental
Manufacturing, and Wal-Mart Supercenter. 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
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
NEIGHBORHOOD DEMOGRAPHICS
AREA
----------------------------------------
CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA
- ----------------------------------------------------------------------------------
POPULATION TRENDS
Current Population 8,382 70,991 205,724 3,673,578
5-Year Population 9,486 76,484 222,416 4,073,691
% Change CY-5Y 13.2% 7.7% 8.1% 10.9%
Annual Change CY-5Y 2.6% 1.5% 1.6% 2.2%
HOUSEHOLDS
Current Households 3,161 26,088 71,757 1,333,540
5-Year Projected Households 3,515 27,811 76,047 1,464,730
% Change CY-5Y 11.2% 6.6% 6.0% 9.8%
Annual Change CY-5Y 2.2% 1.3% 1.2% 2.0%
INCOME TRENDS
Median Household Income $ 56,798 $ 63,056 $ 53,170 $ 52,302
Per Capita Income $ 22,617 $ 24,836 $ 21,466 $ 25,319
Average Household Income $ 60,174 $ 67,683 $ 61,539 $ 69,747
Source: Demographics Now
The subject neighborhood's population is expected to show increases above that
of the region. The immediate market offers superior 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 41.20% 33.86% 33.91% 36.71%
5-Year Projected % Renting 40.56% 33.71% 33.45% 36.11%
% of Households Owning 47.61% 56.57% 57.43% 53.58%
5-Year Projected % Owning 48.74% 56.91% 58.10% 54.86%
Source: Demographics Now
AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
SURROUNDING IMPROVEMENTS
The following uses surround the subject property:
North - Vacant Land
South - Residential
East - Residential/Apartments
West - Vacant Land
CONCLUSIONS
The subject is well located within the city of Garland. 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
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
MARKET ANALYSIS
The subject property is located in the city of Garland in Dallas County. The
overall pace of development in the subject's market is more or less increasing.
There is new construction to the south of the subject property. It appears to be
duplexes or single family residences. The following table illustrates historical
vacancy rates for the subject's market.
HISTORICAL VACANCY RATE
Period Region Submarket
- -------------------------------------------------------------------
4Q01 N/A 4.2%
1Q02 N/A 4.8%
2Q02 N/A 5.3%
3Q02 N/A 6.0%
4Q02 8.6% 6.3%
1Q03 9.4% 7.5%
Source: REIS
Occupancy trends in the subject's market are decreasing. Historically speaking,
the subject's submarket has outperformed the overall market. Vacancy rates in
the subject's submarket have continued to increase since the 4th quarter of
2001. At year end 2001, the vacancy rate was 4.2% and this rate has increased to
7.5%. However, this rate remains less than the vacancy rate for the region.
Market rents in the subject's market have been stable. The following table
illustrates historical rental rates for the subject's market.
HISTORICAL AVERAGE RENT
Period Region % Change Submarket % Change
- ----------------------------------------------
4Q01 N/A - $651 -
1Q02 N/A N/A $660 1.4%
2Q02 N/A N/A $665 0.8%
3Q02 N/A N/A $667 0.3%
4Q02 N/A N/A $672 0.7%
1Q03 N/A N/A $664 -1.2%
Source: REIS
The following table illustrates a summary of the subject's competitive set.
AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject
- --------------------------------------------------------------------------------
R-1 Lakeway Colony 592 98% 1985 2 Miles
R-2 Lakeway Place and Trace 388 N/A 1985 0.5 Miles
R-3 Lakeway Meadows 460 91% 1984 0.5 Miles
R-4 Lakeway Forest 393 N/A 1988 2 Miles
R-5 Lakeway Harbor Point 597 98% 1985 2 Miles
Subject Lake Meadows Apartments 96 89% 1983
From the fourth quarter 2001 through the fourth quarter 2002, the average rent
increased each quarter. However, rents decreased during the first quarter 2003
to $664 per unit, similar to the second quarter 2002 rate.
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
PROPERTY DESCRIPTION
SITE ANALYSIS
Site Area 9.072 acres, or 395,176 square feet
Shape Irregular
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 Average
Flood Zone:
Community Panel 48113C0380K, dated February 5, 2003
Flood Zone Zone X
Zoning MF-18, the subject improvements represent a legal
conforming use of the site.
REAL ESTATE TAXES
ASSESSED VALUE - 2002
-------------------------------- TAX RATE / PROPERTY
PARCEL NUMBER LAND BUILDING TOTAL MILL RATE TAXES
- ----------------------------------------------------------------------
2629745001001-
0000 $790,350 $2,709,650 $3,500,000 0.02615 $91,532
IMPROVEMENT ANALYSIS
Year Built 1983
Number of Units 96
Net Rentable Area 93,280 Square Feet
Construction:
Foundation Reinforced concrete slab
Frame Heavy or light wood
Exterior Walls Brick or masonry
Roof Composition shingle over a wood truss structure
Project Amenities Amenities at the subject include a swimming pool,
sand volleyball, business office, 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, dishwasher, water
heater, garbage disposal, and oven.
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
Unit Mix:
Unit Area
Unit Type Number of Units (Sq. Ft.)
- ------------------------------------------
1Br/1Ba - 1A10 12 755
1Br/1Ba - 1B10 12 880
1Br/1Ba - 1C10 12 890
2Br/2Ba - 2A20 16 1,029
2Br/2Ba - 2B20 16 1,029
2Br/2Ba - 2C20 8 1,059
2Br/2Ba - 2D20 20 1,079
Overall Condition Average
Effective Age 20 years
Economic Life 45 years
Remaining Economic Life 25 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
1983 and consist of a 96-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
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
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
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
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
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
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
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE
DESCRIPTION SUBJECT I - 1 I - 2
- ----------------------------------------------------------------------------------------------------------------
Property Name Lake Meadows Apartments Oak Glen Apartments San Simeon Apartments
LOCATION:
Address 5401 Zion Road 4420 Saturn Road 11115 E Lake Highlands Drive
City, State Garland, Texas Garland, TX Dallas, TX
County Dallas Dallas Dallas
PHYSICAL CHARACTERISTICS:
Net Rentable Area (SF) 93,280 117,780 100,100
Year Built 1983 1983 1971
Number of Units 96 150 124
Unit Mix: Type Total Type Total Type Total
1Br/1Ba - 1A10 12 1 Bedroom 76 N/A
1Br/1Ba - 1B10 12 2 Bedroom 74
1Br/1Ba - 1C10 12
2Br/2Ba - 2A20 16
2Br/2Ba - 2B20 16
2Br/2Ba - 2C20 8
2Br/2Ba - 2D20 20
Average Unit Size (SF) 972 785 807
Land Area (Acre) 9.0720 6.2300 4.1200
Density (Units/Acre) 10.6 24.1 30.1
Parking Ratio (Spaces/Unit) 2.19 1.97 2.02
Parking Type (Gr., Cov., etc.) Open Open Open
CONDITION: Average Good Average
APPEAL: Average Good Average
AMENITIES:
Pool/Spa Yes/No Yes/No Yes/No
Gym Room No No No
Laundry Room No Yes Yes
Secured Parking No No No
Sport Courts No No No
OCCUPANCY: 89% 0% 0%
TRANSACTION DATA:
Sale Date July, 2002 December, 2000
Sale Price ($) $6,200,000 $3,100,000
Grantor SMF Oak Glen (LP) B.F. Saul Real Estate
Investment Trust
Grantee Oak Glen Apartments (Ltd) Gould San Simeon I (LP)
Sale Documentation 2002148-9530 2000244-6809
Verification Oak Glen Apartments Gould San Simeon I
Telephone Number 972-503-6966 516-466-3100
ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF
Potential Gross Income $ 0 $ 0 $ 0.00 $ 0 $ 0 $ 0.00
Vacancy/Credit Loss $ 0 $ 0 $ 0.00 $ 0 $ 0 $ 0.00
Effective Gross Income $ 0 $ 0 $ 0.00 $ 0 $ 0 $ 0.00
Operating Expenses $ 0 $ 0 $ 0.00 $ 0 $ 0 $ 0.00
Net Operating Income $ 0 $ 0 $ 0.00 $ 0 $ 0 $ 0.00
NOTES:
PRICE PER UNIT $ 41,333 $ 25,000
PRICE PER SQUARE FOOT $ 52.64 $ 30.97
EXPENSE RATIO N/A N/A
EGIM N/A N/A
OVERALL CAP RATE N/A N/A
Cap Rate based on Pro Forma or Actual Income?
COMPARABLE COMPARABLE COMPARABLE
DESCRIPTION I - 3 I - 4 I - 5
- ----------------------------------------------------------------------------------------------------------------
Property Name Chesapeake Apartments Meadow Creek Apartments Cedarmont Apartments
LOCATION:
Address 11620 Audelia Road 518 Tacoma Drive 7107 Holly Hill Drive
City, State Dallas, TX Garland, TX Dallas, TX
County Dallas Dallas Dallas
PHYSICAL CHARACTERISTICS:
Net Rentable Area (SF) 116,372 102,672 68,260
Year Built 1982 1979 1978
Number of Units 128 128 94
Unit Mix: Type Total Type Total Type Total
1 Bedroom 64 1Br/1Ba-A 32 N/A
2 Bedroom 64 1Br/1.5Ba-B 16
1Br/1.5Ba-C 16
1Br/1.5Ba-D 16
2Br/2Ba-2A 32
2Br/2Ba-2B 16
Average Unit Size (SF) 909 802 726
Land Area (Acre) 4.7000 7.3900 1.4900
Density (Units/Acre) 27.2 17.3 63.1
Parking Ratio (Spaces/Unit) N/A 1.50 1.47
Parking Type (Gr., Cov., etc.) Open Open Open
CONDITION: Good Average Average
APPEAL: Good Average Average
AMENITIES:
Pool/Spa Yes/No Yes/No No/No
Gym Room No No No
Laundry Room Yes Yes Yes
Secured Parking No No No
Sport Courts No No No
OCCUPANCY: 0% 0% 0%
TRANSACTION DATA:
Sale Date September, 2000 February, 2000 November, 1999
Sale Price ($) $6,130,000 $3,690,000 $2,325,000
Grantor Camden Operating (LP) MLD/HI-Life Properties (J.V.) Dusty Mesa (Ltd)
Grantee Alliance GT 1 (Ltd) Meadow Creek Apartments (LP) Cedarmont (LP)
Sale Documentation 2000179-4540 200032-0517 99231-5357
Verification Mr Goris Gottsacker Brothers Marcus & Millichap
Telephone Number 972-458-4800 214-373-1322 972-980-4800
ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF
Potential Gross Income $ 0 $ 0 $0.00 $ 0 $ 0 $0.00 $ 0 $ 0 $0.00
Vacancy/Credit Loss $ 0 $ 0 $0.00 $ 0 $ 0 $0.00 $ 0 $ 0 $0.00
Effective Gross Income $1,111,370 $8,683 $9.55 $869,864 $6,796 $8.47 $ 0 $ 0 $0.00
Operating Expenses $ 533,000 $4,164 $4.58 $485,944 $3,796 $4.73 $ 0 $ 0 $0.00
Net Operating Income $ 578,370 $4,519 $4.97 $383,920 $2,999 $3.74 $ 0 $ 0 $0.00
NOTES:
PRICE PER UNIT $ 47,891 $ 28,828 $ 24,734
PRICE PER SQUARE FOOT $ 52.68 $ 35.94 $ 34.06
EXPENSE RATIO 48.0% 55.9% N/A
EGIM 5.52 4.24 N/A
OVERALL CAP RATE 9.44% 10.40% N/A
Cap Rate based on Pro Forma or
Actual Income? ACTUAL ACTUAL
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
IMPROVED SALES MAP
[MAP]
IMPROVED SALES ANALYSIS
The improved sales indicate a sales price range from $24,734 to $47,891 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 $32,500 to $37,572 per unit with a mean or average adjusted price
of $35,200 per unit. The median adjusted price is $34,810 per unit. Based on the
following analysis, we have concluded to a value of $35,000 per unit, which
results in an "as is" value of $3,300,000 (rounded after necessary adjustment,
if any).
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE
DESCRIPTION SUBJECT I - 1 I - 2
- --------------------------------------------------------------------------------------------------------------------
Property Name Lake Meadows Apartments Oak Glen Apartments San Simeon Apartments
Address 5401 Zion Road 4420 Saturn Road 11115 E Lake Highlands Drive
City Garland, Texas Garland, TX Dallas, TX
Sale Date July, 2002 December, 2000
Sale Price ($) $6,200,000 $3,100,000
Net Rentable Area (SF) 93,280 117,780 100,100
Number of Units 96 150 124
Price Per Unit $41,333 $25,000
Year Built 1983 1983 1971
Land Area (Acre) 9.0720 6.2300 4.1200
VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ.
Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0%
Financing Cash To Seller 0% Cash To Seller 0%
Conditions of Sale Arm's Length 0% Arm's Length 0%
Date of Sale (Time) 07-2002 1% 12-2000 4%
VALUE AFTER TRANS. ADJUST. ($/UNIT) $41,747 $26,000
Location Comparable 0% Inferior 10%
Number of Units 96 150 -5% 124 0%
Quality / Appeal Good Superior -10% Comparable 0%
Age / Condition 1983 1983 / Good 0% 1971 / Average 10%
Occupancy at Sale 89% 0% 0%
Amenities Good Comparable 0% Comparable 0%
Average Unit Size (SF) 972 785 5% 807 5%
PHYSICAL ADJUSTMENT -10% 25%
FINAL ADJUSTED VALUE ($/UNIT) $37,572 $32,500
COMPARABLE COMPARABLE COMPARABLE
DESCRIPTION I - 3 I - 4 I - 5
- ---------------------------------------------------------------------------------------------------------------
Property Name Chesapeake Apartments Meadow Creek Apartments Cedarmont Apartments
Address 11620 Audelia Road 518 Tacoma Drive 7107 Holly Hill Drive
City Dallas, TX Garland, TX Dallas, TX
Sale Date September, 2000 February, 2000 November, 1999
Sale Price ($) $6,130,000 $3,690,000 $2,325,000
Net Rentable Area (SF) 116,372 102,672 68,260
Number of Units 128 128 94
Price Per Unit $47,891 $28,828 $24,734
Year Built 1982 1979 1978
Land Area (Acre) 4.7000 7.3900 1.4900
VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ.
Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0%
Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0%
Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0%
Date of Sale (Time) 09-2000 4% 02-2000 5% 11-1999 5%
VALUE AFTER TRANS. ADJUST. ($/UNIT) $49,806 $30,270 $25,971
Location Superior -15% Comparable 0% Inferior 10%
Number of Units 128 0% 128 0% 94 0%
Quality / Appeal Superior -10% Comparable 0% Comparable 0%
Age / Condition 1982 / Good 0% 1979 / Average 10% 1978 / Average 10%
Occupancy at Sale 0% 0% 0%
Amenities Comparable 0% Comparable 0% Comparable 0%
Average Unit Size (SF) 909 0% 802 5% 726 10%
PHYSICAL ADJUSTMENT -25% 15% 30%
FINAL ADJUSTED VALUE ($/UNIT) $37,355 $34,810 $33,762
SUMMARY
VALUE RANGE (PER UNIT) $32,500 TO $ 37,572
MEAN (PER UNIT) $35,200
MEDIAN (PER UNIT) $34,810
VALUE CONCLUSION (PER UNIT) $35,000
VALUE OF IMPROVEMENT & MAIN SITE $3,360,000
PV OF CONCESSIONS $ -59,000
VALUE INDICATED BY SALES COMPARISON APPROACH $3,301,000
ROUNDED $3,300,000
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
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
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-1 150 $6,200,000 0.00% $ 359,002
$ 41,333 $ 3,740
I-2 124 $3,100,000 0.00% $ 359,002
$ 25,000 $ 3,740
I-3 128 $6,130,000 9.44% $ 578,370 $ 359,002 0.828 $ 39,635
$ 47,891 $ 4,519 $ 3,740
I-4 128 $3,690,000 10.40% $ 383,920 $ 359,002 1.247 $ 35,943
$ 28,828 $ 2,999 $ 3,740
I-5 94 $2,325,000 0.00% $ 359,002
$ 24,734 $ 3,740
PRICE/UNIT VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT
========================================================================================
Low High Average Median Estimated Price Per Unit $ 38,000
$35,943 $39,635 $37,789 $37,789 Number of Units 96
Value $ 3,648,000
PV of Concessions $ -59,000
-----------
Value Based on NOI Analysis $ 3,589,000
Rounded $ 3,600,000
The adjusted sales indicate a range of value between $35,943 and $39,635 per
unit, with an average of $37,789 per unit. Based on the subject's competitive
position within the improved sales, a value of $38,000 per unit is estimated.
This indicates an "as is" market value of $3,600,000 (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
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
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-1 150 $6,200,000
$ 41,333
I-2 124 $3,100,000
$ 25,000
I-3 128 $6,130,000 $ 1,111,370 $ 533,000 47.96% 5.52
$ 47,891 48.55%
I-4 128 $3,690,000 $ 869,864 $ 485,944 55.86% 4.24
$ 28,828
I-5 94 $2,325,000
$ 24,734
EGIM VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES
================================================================================================
Low High Average Median Estimate EGIM 4.90
4.24 5.52 4.88 4.88 Subject EGI $ 744,461
Value $3,647,858
PV of Concessions $ -59,000
Value Based on EGIM Analysis $3,588,858
Rounded $3,600,000
Value Per Unit $ 37,500
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 48.55% before reserves. The comparable sales
indicate a range of expense ratios from 47.96% to 55.86%, while their EGIMs
range from 4.24 to 5.52. Overall, we conclude to an EGIM of 4.90, which results
in an "as is" value estimate in the EGIM Analysis of $3,600,000.
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 $3,500,000.
Price Per Unit $3,300,000
NOI Per Unit $3,600,000
EGIM Analysis $3,600,000
Sales Comparison Conclusion $3,500,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
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
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
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
- ------------------------------------------------------
1Br/1Ba - 1A10 755 $ 553 $0.73 100.0%
1Br/1Ba - 1B10 880 $ 565 $0.64 83.3%
1Br/1Ba - 1C10 890 $ 608 $0.68 100.0%
2Br/2Ba - 2A20 1029 $ 696 $0.68 100.0%
2Br/2Ba - 2B20 1029 $ 684 $0.66 93.8%
2Br/2Ba - 2C20 1059 $ 758 $0.72 75.0%
2Br/2Ba - 2D20 1079 $ 744 $0.69 70.0%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
RENT ANALYSIS
COMPARABLE RENTS
----------------------------------------------
R-1 R-2 R-3 R-4 R-5
----------------------------------------------
Lakeway Lakeway
Lakeway Place and Lakeway Lakeway Harbor
Colony Trace Meadows Forest Point
----------------------------------------------
COMPARISON TO SUBJECT
SUBJECT SUBJECT ----------------------------------------------
SUBJECT UNIT ACTUAL ASKING Slightly
DESCRIPTION TYPE RENT RENT Similar Similar Similar Inferior Similar
- ----------------------------------------------------------------------------------------------------------
Monthly Rent 1BR/1BA - 1A10 $ 553 $ 559 $ 590 $ 567 $ 568 $ 570 $ 605
Unit Area (SF) 755 755 755 689 755 760 812
Monthly Rent Per Sq. Ft. $ 0.73 $ 0.74 $ 0.78 $ 0.82 $ 0.75 $ 0.75 $ 0.75
Monthly Rent 1BR/1BA - 1B10 $ 565 $ 639 $ 725 $ 690
Unit Area (SF) 880 880 903 850
Monthly Rent Per Sq. Ft. $ 0.64 $ 0.73 $ 0.80 $ 0.81
Monthly Rent 1BR/1BA - 1C10 $ 608 $ 619 $ 740 $ 745
Unit Area (SF) 890 890 950 950
Monthly Rent Per Sq. Ft. $ 0.68 $ 0.70 $ 0.78 $ 0.78
Monthly Rent 2BR/2BA - 2A20 $ 696 $ 709 $ 925 $ 730
Unit Area (SF) 1,029 1,029 1,210 1,018
Monthly Rent Per Sq. Ft. $ 0.68 $ 0.69 $ 0.76 $ 0.72
Monthly Rent 2BR/2BA - 2B20 $ 684 $ 709 $ 810
Unit Area (SF) 1,029 1,029 1,000
Monthly Rent Per Sq. Ft. $ 0.66 $ 0.69 $ 0.81
Monthly Rent 2BR/2BA - 2C20 $ 758 $ 709
Unit Area (SF) 1,059 1,059
Monthly Rent Per Sq. Ft. $ 0.72 $ 0.67
Monthly Rent 2BR/2BA - 2D20 $ 744 $ 779 $ 800 $ 870
Unit Area (SF) 1,079 1,079 1,100 1,216
Monthly Rent Per Sq. Ft. $ 0.69 $ 0.72 $ 0.73 $ 0.72
DESCRIPTION MIN MAX MEDIAN AVERAGE
- -----------------------------------------------------------
Monthly Rent $ 567 $ 605 $ 570 $ 580
Unit Area (SF) 689 812 755 754
Monthly Rent Per Sq. Ft. $ 0.75 $ 0.82 $ 0.75 $ 0.77
Monthly Rent $ 690 $ 725 $ 708 $ 708
Unit Area (SF) 850 903 877 877
Monthly Rent Per Sq. Ft. $ 0.80 $ 0.81 $ 0.81 $ 0.81
Monthly Rent $ 740 $ 745 $ 743 $ 743
Unit Area (SF) 950 950 950 950
Monthly Rent Per Sq. Ft. $ 0.78 $ 0.78 $ 0.78 $ 0.78
Monthly Rent $ 730 $ 925 $ 828 $ 828
Unit Area (SF) 1,018 1,210 1,114 1,114
Monthly Rent Per Sq. Ft. $ 0.72 $ 0.76 $ 0.74 $ 0.74
Monthly Rent $ 810 $ 810 $ 810 $ 810
Unit Area (SF) 1,000 1,000 1,000 1,000
Monthly Rent Per Sq. Ft. $ 0.81 $ 0.81 $ 0.81 $ 0.81
Monthly Rent
Unit Area (SF)
Monthly Rent Per Sq. Ft.
Monthly Rent $ 800 $ 870 $ 835 $ 835
Unit Area (SF) 1,100 1,216 1,158 1,158
Monthly Rent Per Sq. Ft. $ 0.72 $ 0.73 $ 0.72 $ 0.72
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
- --------------------------------------------------------------------------------
1Br/1Ba - 1A10 12 755 $550 $0.73 $ 6,600 $ 79,200
1Br/1Ba - 1B10 12 880 $580 $0.66 $ 6,960 $ 83,520
1Br/1Ba - 1C10 12 890 $650 $0.73 $ 7,800 $ 93,600
2Br/2Ba - 2A20 16 1,029 $700 $0.68 $11,200 $134,400
2Br/2Ba - 2B20 16 1,029 $750 $0.73 $12,000 $144,000
2Br/2Ba - 2C20 8 1,059 $750 $0.71 $ 6,000 $ 72,000
2Br/2Ba - 2D20 20 1,079 $800 $0.74 $16,000 $192,000
Total $66,560 $798,720
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 29
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
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 30
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
SUMMARY OF HISTORICAL INCOME & EXPENSES
FISCAL YEAR 2000 FISCAL YEAR 2001 FISCAL YEAR 2002 FISCAL YEAR 2003
----------------- ----------------- ----------------- -----------------
ACTUAL ACTUAL ACTUAL MANAGEMENT BUDGET
----------------- ----------------- ----------------- -----------------
DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT
- ------------------------------------------------------------------------------------------------
Revenues
Rental Income $770,003 $ 8,021 $829,783 $ 8,644 $817,277 $ 8,513 $836,720 $ 8,716
Vacancy $ 18,759 $ 195 $ 47,744 $ 497 $ 89,266 $ 930 $ 57,500 $ 599
Credit Loss/Concessions $ 25,178 $ 262 $ 30,552 $ 318 $ 75,742 $ 789 $ 37,320 $ 389
-----------------------------------------------------------------------
Subtotal $ 43,937 $ 458 $ 78,296 $ 816 $165,008 $ 1,719 $ 94,820 $ 988
Laundry Income $ 0 $ 0 $ 4,242 $ 44 $ 5,802 $ 60 $ 4,404 $ 46
Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Other Misc. Revenue $ 27,000 $ 281 $ 23,348 $ 243 $ 58,359 $ 608 $ 24,000 $ 250
-----------------------------------------------------------------------
Subtotal Other Income $ 27,000 $ 281 $ 27,590 $ 287 $ 64,161 $ 668 $ 28,404 $ 296
-----------------------------------------------------------------------
Effective Gross Income $753,066 $ 7,844 $779,077 $ 8,115 $716,430 $ 7,463 $770,304 $ 8,024
Operating Expenses
Taxes $ 90,279 $ 940 $ 83,877 $ 874 $ 95,347 $ 993 $ 95,191 $ 992
Insurance $ 10,643 $ 111 $ 12,912 $ 135 $ 20,281 $ 211 $ 23,490 $ 245
Utilities $ 23,296 $ 243 $ 23,504 $ 245 $ 28,732 $ 299 $ 31,725 $ 330
Repair & Maintenance $ 15,103 $ 157 $ 15,968 $ 166 $ 17,824 $ 186 $ 15,300 $ 159
Cleaning $ 22,072 $ 230 $ 26,656 $ 278 $ 28,978 $ 302 $ 27,500 $ 286
Landscaping $ 19,221 $ 200 $ 21,504 $ 224 $ 20,834 $ 217 $ 21,600 $ 225
Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Marketing & Leasing $ 23,448 $ 244 $ 17,994 $ 187 $ 19,106 $ 199 $ 30,000 $ 313
General Administrative $106,285 $ 1,107 $ 93,485 $ 974 $108,235 $ 1,127 $ 82,488 $ 859
Management $ 39,047 $ 407 $ 40,025 $ 417 $ 37,745 $ 393 $ 39,731 $ 414
Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
-----------------------------------------------------------------------
Total Operating Expenses $349,394 $ 3,640 $335,925 $ 3,499 $377,082 $ 3,928 $367,025 $ 3,823
Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
-----------------------------------------------------------------------
Net Income $403,672 $ 4,205 $443,152 $ 4,616 $339,348 $ 3,535 $403,279 $ 4,201
ANNUALIZED 2003
-----------------
PROJECTION AAA PROJECTION
----------------- ------------------------
DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT %
- -------------------------------------------------------------------
Revenues
Rental Income $793,936 $ 8,270 $798,720 $ 8,320 100.0%
Vacancy $ 81,640 $ 850 $ 63,898 $ 666 8.0%
Credit Loss/Concessions $ 63,984 $ 667 $ 23,962 $ 250 3.0%
-----------------------------------------
Subtotal $145,624 $ 1,517 $ 87,859 $ 915 11.0%
Laundry Income $ 8,312 $ 87 $ 4,800 $ 50 0.6%
Garage Revenue $ 0 $ 0 $ 0 $ 0 0.0%
Other Misc. Revenue $ 44,412 $ 463 $ 28,800 $ 300 3.6%
-----------------------------------------
Subtotal Other Income $ 52,724 $ 549 $ 33,600 $ 350 4.2%
-----------------------------------------
Effective Gross Income $701,036 $ 7,302 $744,461 $ 7,755 100.0%
Operating Expenses
Taxes $ 95,444 $ 994 $ 96,000 $ 1,000 12.9%
Insurance $ 23,188 $ 242 $ 24,000 $ 250 3.2%
Utilities $ 20,468 $ 213 $ 30,240 $ 315 4.1%
Repair & Maintenance $ 10,628 $ 111 $ 15,360 $ 160 2.1%
Cleaning $ 26,344 $ 274 $ 26,880 $ 280 3.6%
Landscaping $ 18,400 $ 192 $ 21,600 $ 225 2.9%
Security $ 0 $ 0 $ 0 $ 0 0.0%
Marketing & Leasing $ 22,312 $ 232 $ 21,600 $ 225 2.9%
General Administrative $140,572 $ 1,464 $ 96,000 $ 1,000 12.9%
Management $ 35,788 $ 373 $ 29,778 $ 310 4.0%
Miscellaneous $ 0 $ 0 $ 0 $ 0 0.0%
-----------------------------------------
Total Operating Expenses $393,144 $ 4,095 $361,458 $ 3,765 48.6%
Reserves $ 0 $ 0 $ 24,000 $ 250 6.6%
-----------------------------------------
Net Income $307,892 $ 3,207 $359,002 $ 3,740 48.2%
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 11% based on
the subject's historical performance, as well as the anticipated future market
conditions.
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 31
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
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 $250 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 $250 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 32
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
SUMMARY OF OVERALL
CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR
- -----------------------------------------------
I-1 Jul-02 N/A $ 41,333 N/A
I-2 Dec-00 N/A $ 25,000 N/A
I-3 Sep-00 N/A $ 47,891 9.44%
I-4 Feb-00 N/A $ 28,828 10.40%
I-5 Nov-99 N/A $ 24,734 N/A
High 10.40%
Low 9.44%
Average 9.92%
Based on this information, we have concluded the subject's overall
capitalization rate should be 9.50%. 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 10.00%. 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 3.00% 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 $3,900,000. In this instance, the reversion
figure contributes
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 33
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
approximately 40% 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 34
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
DISCOUNTED CASH FLOW ANALYSIS
LAKE MEADOWS APARTMENTS
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009
FISCAL YEAR 1 2 3 4 5 6
- ----------------------------------------------------------------------------------------------------
REVENUE
Base Rent $798,720 $798,720 $822,682 $847,362 $872,783 $898,966
Vacancy $ 63,898 $ 63,898 $ 65,815 $ 67,789 $ 69,823 $ 71,917
Credit Loss $ 23,962 $ 23,962 $ 24,680 $ 25,421 $ 26,183 $ 26,969
Concessions $ 23,962 $ 23,962 $ 16,454 $ 8,474 $ 0 $ 0
---------------------------------------------------------------
Subtotal $111,821 $111,821 $106,949 $101,683 $ 96,006 $ 98,886
Laundry Income $ 4,800 $ 4,800 $ 4,944 $ 5,092 $ 5,245 $ 5,402
Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Other Misc. Revenue $ 28,800 $ 28,800 $ 29,664 $ 30,554 $ 31,471 $ 32,415
---------------------------------------------------------------
Subtotal Other Income $ 33,600 $ 33,600 $ 34,608 $ 35,646 $ 36,716 $ 37,817
---------------------------------------------------------------
EFFECTIVE GROSS INCOME $720,499 $720,499 $750,341 $781,325 $813,492 $837,897
OPERATING EXPENSES:
Taxes $ 96,000 $ 98,880 $101,846 $104,902 $108,049 $111,290
Insurance $ 24,000 $ 24,720 $ 25,462 $ 26,225 $ 27,012 $ 27,823
Utilities $ 30,240 $ 31,147 $ 32,082 $ 33,044 $ 34,035 $ 35,056
Repair & Maintenance $ 15,360 $ 15,821 $ 16,295 $ 16,784 $ 17,288 $ 17,806
Cleaning $ 26,880 $ 27,686 $ 28,517 $ 29,373 $ 30,254 $ 31,161
Landscaping $ 21,600 $ 22,248 $ 22,915 $ 23,603 $ 24,311 $ 25,040
Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Marketing & Leasing $ 21,600 $ 22,248 $ 22,915 $ 23,603 $ 24,311 $ 25,040
General Administrative $ 96,000 $ 98,880 $101,846 $104,902 $108,049 $111,290
Management $ 28,820 $ 28,820 $ 30,014 $ 31,253 $ 32,540 $ 33,516
Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
---------------------------------------------------------------
TOTAL OPERATING EXPENSES $360,500 $370,450 $381,893 $393,689 $405,848 $418,024
Reserves $ 24,000 $ 24,720 $ 25,462 $ 26,225 $ 27,012 $ 27,823
---------------------------------------------------------------
NET OPERATING INCOME $335,999 $325,329 $342,986 $361,411 $380,632 $392,051
---------------------------------------------------------------
Operating Expense Ratio (% of EGI) 50.0% 51.4% 50.9% 50.4% 49.9% 49.9%
Operating Expense Per Unit $ 3,755 $ 3,859 $ 3,978 $ 4,101 $ 4,228 $ 4,354
YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014
FISCAL YEAR 7 8 9 10 11
- ---------------------------------------------------------------------------------------------
REVENUE
Base Rent $925,935 $953,713 $982,325 $1,011,795 $1,042,148
Vacancy $ 74,075 $ 76,297 $ 78,586 $ 80,944 $ 83,372
Credit Loss $ 27,778 $ 28,611 $ 29,470 $ 30,354 $ 31,264
Concessions $ 0 $ 0 $ 0 $ 0 $ 0
--------------------------------------------------------
Subtotal $101,853 $104,908 $108,056 $ 111,297 $ 114,636
Laundry Income $ 5,565 $ 5,731 $ 5,903 $ 6,080 $ 6,263
Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0
Other Misc. Revenue $ 33,387 $ 34,389 $ 35,420 $ 36,483 $ 37,577
--------------------------------------------------------
Subtotal Other Income $ 38,952 $ 40,120 $ 41,324 $ 42,563 $ 43,840
--------------------------------------------------------
EFFECTIVE GROSS INCOME $863,034 $888,925 $915,593 $ 943,061 $ 971,352
OPERATING EXPENSES:
Taxes $114,629 $118,068 $121,610 $ 125,258 $ 129,016
Insurance $ 28,657 $ 29,517 $ 30,402 $ 31,315 $ 32,254
Utilities $ 36,108 $ 37,191 $ 38,307 $ 39,456 $ 40,640
Repair & Maintenance $ 18,341 $ 18,891 $ 19,458 $ 20,041 $ 20,643
Cleaning $ 32,096 $ 33,059 $ 34,051 $ 35,072 $ 36,124
Landscaping $ 25,792 $ 26,565 $ 27,362 $ 28,183 $ 29,029
Security $ 0 $ 0 $ 0 $ 0 $ 0
Marketing & Leasing $ 25,792 $ 26,565 $ 27,362 $ 28,183 $ 29,029
General Administrative $114,629 $118,068 $121,610 $ 125,258 $ 129,016
Management $ 34,521 $ 35,557 $ 36,624 $ 37,722 $ 38,854
Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0
--------------------------------------------------------
TOTAL OPERATING EXPENSES $430,565 $443,482 $456,786 $ 470,490 $ 484,604
Reserves $ 28,657 $ 29,517 $ 30,402 $ 31,315 $ 32,254
--------------------------------------------------------
NET OPERATING INCOME $403,812 $415,927 $428,404 $ 441,257 $ 454,494
--------------------------------------------------------
Operating Expense Ratio (% of EGI) 49.9% 49.9% 49.9% 49.9% 49.9%
Operating Expense Per Unit $ 4,485 $ 4,620 $ 4,758 $ 4,901 $ 5,048
Gross Residual Sale Price $4,544,942 Deferred Maintenance $ 0
Estimated Stabilized NOI $359,002 Sales Expense Rate 3.00% Less: Sales Expense $ 136,348 Add: Excess Land $ 0
Months to Stabilized 1 Discount Rate 11.00% Net Residual Sale Price $4,408,594 Other Adjustments $ 0
Stabilized Occupancy 92.0% Terminal Cap Rate 10.00% PV of Reversion $1,552,638 Value Indicated By "DCF"$3,885,801
Add: NPV of NOI $2,333,162 Rounded $3,900,000
PV Total $3,885,801
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE
----------------------------------------------------------
TOTAL VALUE 10.50% 10.75% 11.00% 11.25% 11.50%
- ----------------------------------------------------------------------------
TERMINAL 9.50% $4,099,777 $4,032,918 $3,967,518 $3,903,541 $3,840,951
CAP 9.75% $4,055,935 $3,990,056 $3,925,612 $3,862,567 $3,800,886
RATE 10.00% $4,014,285 $3,949,337 $3,885,801 $3,823,641 $3,762,824
10.25% $3,974,667 $3,910,604 $3,847,931 $3,786,614 $3,726,619
10.50% $3,936,936 $3,873,716 $3,811,865 $3,751,351 $3,692,139
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 35
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
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
$59,000 (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 9.50% percent is applicable to the
subject. The results of our direct capitalization analysis are as follows:
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 36
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
LAKE MEADOWS APARTMENTS
TOTAL PER SQ. FT. PER UNIT %OF EGI
- -----------------------------------------------------------------------------------------
REVENUE
Base Rent $ 798,720 $ 8.56 $ 8,320
Less: Vacancy & Collection Loss 11.00% $ 87,859 $ 0.94 $ 915
Plus: Other Income
Laundry Income $ 4,800 $ 0.05 $ 50 0.64%
Garage Revenue $ 0 $ 0.00 $ 0 0.00%
Other Misc. Revenue $ 28,800 $ 0.31 $ 300 3.87%
------------------------------------------
Subtotal Other Income $ 33,600 $ 0.36 $ 350 4.51%
EFFECTIVE GROSS INCOME $ 744,461 $ 7.98 $ 7,755
OPERATING EXPENSES:
Taxes $ 96,000 $ 1.03 $ 1,000 12.90%
Insurance $ 24,000 $ 0.26 $ 250 3.22%
Utilities $ 30,240 $ 0.32 $ 315 4.06%
Repair & Maintenance $ 15,360 $ 0.16 $ 160 2.06%
Cleaning $ 26,880 $ 0.29 $ 280 3.61%
Landscaping $ 21,600 $ 0.23 $ 225 2.90%
Security $ 0 $ 0.00 $ 0 0.00%
Marketing & Leasing $ 21,600 $ 0.23 $ 225 2.90%
General Administrative $ 96,000 $ 1.03 $ 1,000 12.90%
Management 4.00% $ 29,778 $ 0.32 $ 310 4.00%
Miscellaneous $ 0 $ 0.00 $ 0 0.00%
TOTAL OPERATING EXPENSES $ 361,458 $ 3.87 $ 3,765 48.55%
Reserves $ 24,000 $ 0.26 $ 250 3.22%
------------------------------------------
NET OPERATING INCOME $ 359,002 $ 3.85 $ 3,740 48.22%
==========================================
"GOING IN" CAPITALIZATION RATE 9.50%
VALUE INDICATION $3,778,972 $40.51 $ 39,364
PV OF CONCESSIONS $ (59,000)
"AS IS" VALUE INDICATION
(DIRECT CAPITALIZATION APPROACH) $3,719,972
ROUNDED $3,700,000 $39.67 $ 38,542
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 37
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF
- -------------------------------------------------
8.75% $4,043,884 $4,000,000 $41,667 $42.88
9.00% $3,929,915 $3,900,000 $40,625 $41.81
9.25% $3,822,107 $3,800,000 $39,583 $40.74
9.50% $3,719,972 $3,700,000 $38,542 $39.67
9.75% $3,623,076 $3,600,000 $37,500 $38.59
10.00% $3,531,024 $3,500,000 $36,458 $37.52
10.25% $3,443,462 $3,400,000 $35,417 $36.45
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD
Applying the capitalization rate to our estimated NOI results in an estimated
value of $3,700,000.
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 $3,900,000
Direct Capitalization Method $3,700,000
Giving consideration to the indicated values provided by both techniques, we
have concluded the estimated value by the income capitalization approach to be
$3,900,000.
AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 38
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
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 $ 3,500,000
Income Approach $ 3,900,000
Reconciled Value $ 3,800,000
The Income 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 9, 2003 the market value of the fee simple estate in the property is:
$3,800,000
AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
ADDENDA
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
EXHIBIT A
SUBJECT PHOTOGRAPHS
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
SUBJECT PHOTOGRAPHS
[PICTURE] [PICTURE]
EXTERIOR - OFFICE INTERIOR - APARTMENT UNIT
[PICTURE] [PICTURE]
EXTERIOR - APARTMENT BUILDING INTERIOR - KITCHEN AREA
[PICTURE] [PICTURE]
EXTERIOR - SWIMMING AREA EXTERIOR - SIGN AND FRONTAGE
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
SUBJECT PHOTOGRAPHS
[PICTURE] [PICTURE]
EXTERIOR - APARTMENT UNITS INTERIOR - APARTMENT UNITS
[PICTURE] [PICTURE]
INTERIOR - APARTMENT UNIT INTERIOR - APARTMENT UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
EXHIBIT B
SUMMARY OF RENT COMPARABLES
AND PHOTOGRAPH OF COMPARABLES
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES
COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3
OAK GLEN APARTMENTS SAN SIMEON APARTMENTS CHESAPEAKE APARTMENTS
4420 Saturn Road 11115 E Lake Highlands Drive 11620 Audelia Road
Garland, TX Dallas, TX Dallas, TX
[PICTURE] [PICTURE] [PICTURE]
COMPARABLE I-4 COMPARABLE I-5
MEADOW CREEK APARTMENTS CEDARMONT APARTMENTS
518 Tacoma Drive 7107 Holly Hill Drive
Garland, TX Dallas, TX
[PICTURE] [PICTURE]
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE
DESCRIPTION SUBJECT R - 1
- ----------------------------------------------------------------------------------------------------------------
Property Name Lake Meadows Apartments Lakeway Colony
Management Company AIMCO N/A
LOCATION:
Address 5401 Zion Road 1044 E. I-30
City, State Garland, Texas Garland, TX
County Dallas Dallas
Proximity to Subject 2 Miles
PHYSICAL CHARACTERISTICS:
Net Rentable Area (SF) 93,280 N/A
Year Built 1983 1985
Effective Age 20 18
Building Structure Type Brick Brick/Wood
Parking Type (Gr., Cov., etc.) Open Open
Number of Units 96 592
Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo.
1 1Br/1Ba - 1A10 755 12 $553 1 1Br/1Ba- A3 755 N/A $ 590
2 1Br/1Ba - 1B10 880 12 $565 Efficiency A1 518 N/A $ 515
3 1Br/1Ba - 1C10 890 12 $608 Efficiency A2 575 N/A $ 549
4 2Br/2Ba - 2A20 1,029 16 $696 3 2Br/2Ba- B1 950 N/A $ 740
5 2Br/2Ba - 2B20 1,029 16 $684 2Br/2Ba- B2 1,244 N/A $ 865
6 2Br/2Ba - 2C20 1,059 8 $758 3Br/2Ba- C1 1,440 N/A $1,095
7 2Br/2Ba - 2D20 1,079 20 $744 3Br/2Ba- C2 1,845 N/A $1,195
Average Unit Size (SF) 972
Unit Breakdown: Efficiency 0% 2-Bedroom 62% Efficiency N/A 2-Bedroom N/A
1-Bedroom 38% 3-Bedroom 0% 1-Bedroom N/A 3-Bedroom N/A
CONDITION: Average Average
APPEAL: Average Average
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 X Fireplace
X Cable TV Ready X Cable TV Ready
Project Amenities X Swimming Pool X Swimming Pool
Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash
Basketball Court BBQ Equipment X Basketball Court BBQ Equipment
Volleyball Court Theater Room Volleyball Court Theater Room
X Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall
Tennis Court Secured Parking Tennis Court Secured Parking
Racquet Ball Laundry Room Racquet Ball X Laundry Room
Jogging Track X Business Office Jogging Track X Business Office
Gym Room X Gym Room
OCCUPANCY: 89% 98%
LEASING DATA:
Available Leasing Terms 6 to 12 6 to 14
Concessions None 2 weeks free
Pet Deposit 300 300
Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas
X Water Trash X Water X Trash
Confirmation Stephanie Kaysha
Telephone Number 972-226-6781
NOTES:
COMPARISON TO SUBJECT: Similar
COMPARABLE COMPARABLE
DESCRIPTION R - 2 R - 3
- ----------------------------------------------------------------------------------------------------------------
Property Name Lakeway Place and Trace Lakeway Meadows
Management Company N/A N/A
LOCATION:
Address 241 E. I-30 241 E. I-30
City, State Garland, TX Garland, TX
County Dallas Dallas
Proximity to Subject 0.5 Miles 0.5 Miles
PHYSICAL CHARACTERISTICS:
Net Rentable Area (SF) N/A N/A
Year Built 1985 1984
Effective Age 18 19
Building Structure Type Stucco/Wood Wood/Brick
Parking Type (Gr., Cov., etc.) Open Open
Number of Units 388 460
Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo.
1Br/1Ba- 1A 674 $530 1Br/1Ba- 1A 720 $532
1Br/1Ba- 1B 870 $630 1Br/1Ba- 1B 752 $503
1 1Br/1Ba- 1C 689 $567 1 1Br/1Ba- 1C 755 $568
1Br/1Ba- 1D 855 $670 1Br/1Ba- 1D 797 $581
2 2Br/2Ba- 2A 903 $725 2Br/2Ba- 2A 983 $683
3 2Br/2Ba- 2A 950 $745 2Br/2Ba- 2B 984 $683
4 3Br/2Ba- 3A 1,210 $925 2Br/2Ba- 2C 999 $675
3Br/3Ba- 3B 1,271 $940 5 2Br/2Ba- 2D 1,000 $810
Average Unit Size (SF)
Unit Breakdown: Efficiency N/A 2-Bedroom N/A Efficiency N/A 2-Bedroom N/A
1-Bedroom N/A 3-Bedroom N/A 1-Bedroom N/A 3-Bedroom N/A
CONDITION: Average Average
APPEAL: Average Average
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 X Fireplace
X Cable TV Ready X Cable TV Ready
Project Amenities X Swimming Pool X Swimming Pool
Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash
X Basketball Court X BBQ Equipment X Basketball Court X BBQ Equipment
X Volleyball Court Theater Room Volleyball Court Theater Room
Sand Volley Ball Meeting Hall X Sand Volley Ball Meeting Hall
X Tennis Court Secured Parking X Tennis Court Secured Parking
Racquet Ball X Laundry Room Racquet Ball X Laundry Room
Jogging Track X Business Office Jogging Track X Business Office
X Gym Room X Gym Room
OCCUPANCY: N/A 91%
LEASING DATA:
Available Leasing Terms 6 to 14 3 to 12
Concessions Reduced Rent 2 weeks free
Pet Deposit 250 400
Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas
X Water Trash X Water Trash
Confirmation Paula Shannon
Telephone Number 972-303-0927 888-969-9689
NOTES:
COMPARISON TO SUBJECT: Similar Similar
COMPARABLE COMPARABLE
DESCRIPTION R - 4 R - 5
- ------------------------------------------------------------------------------------------------------------------
Property Name Lakeway Forest Lakeway Harbor Point
Management Company N/A N/A
LOCATION:
Address 1227 Forest Creek Drive 1044 E. I-30
City, State Garland, TX Garland, TX
County Dallas Dallas
Proximity to Subject 2 Miles 2 Miles
PHYSICAL CHARACTERISTICS:
Net Rentable Area (SF) N/A N/A
Year Built 1988 1985
Effective Age 15 18
Building Structure Type Brick/Wood Brick/Wood
Parking Type (Gr., Cov., etc.) Open Open
Number of Units 393 597
Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo.
1 Efficiency 760 $570 Efficiency 518 $565
4 2Br/2Ba- 2A 1,018 $730 1 1Br/1Ba- 1A 812 $605
7 2Br/2Ba- 2B 1,100 $800 2 1Br/1Ba- 1B 850 $690
1Br/Den/1Ba- 1C 835 $665
2Br/2Ba- 2A 994 $805
7 2Br/2Ba- 2B 1,216 $870
Average Unit Size (SF)
Unit Breakdown: Efficiency N/A 2-Bedroom N/A Efficiency N/A 2-Bedroom N/A
1-Bedroom N/A 3-Bedroom N/A 1-Bedroom N/A 3-Bedroom N/A
CONDITION: Average Average
APPEAL: Average Average
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 X Fireplace
X Cable TV Ready X Cable TV Ready
Project Amenities X Swimming Pool X Swimming Pool
Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash
X Basketball Court X BBQ Equipment X Basketball Court X BBQ Equipment
Volleyball Court Theater Room Volleyball Court Theater Room
X Sand Volley Ball Meeting Hall X Sand Volley Ball Meeting Hall
X Tennis Court Secured Parking X Tennis Court Secured Parking
Racquet Ball X Laundry Room Racquet Ball X Laundry Room
Jogging Track X Business Office Jogging Track X Business Office
X Gym Room X Gym Room
OCCUPANCY: N/A 98%
LEASING DATA:
Available Leasing Terms 6 to 14 months 6 to 14
Concessions 2 Weeks free None
Pet Deposit 350 250
Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas
X Water Trash X Water Trash
Confirmation Jamie Jodie
Telephone Number 972-240-6013 972-226-8227
NOTES:
COMPARISON TO SUBJECT: Slightly Inferior Similar
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES
COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3
LAKEWAY COLONY LAKEWAY PLACE AND TRACE LAKEWAY MEADOWS
1044 E. I-30 241 E. I-30 241 E. I-30
Garland, TX Garland, TX Garland, TX
[PICTURE] [PICTURE] [PICTURE]
COMPARABLE R-4 COMPARABLE R-5
LAKEWAY FOREST LAKEWAY HARBOR POINT
1227 FOREST CREEK DRIVE 1044 E. I-30
Garland, TX Garland, TX
[PICTURE] [PICTURE]
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
EXHIBIT C
ASSUMPTIONS AND LIMITING CONDITIONS
(3 PAGES)
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
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
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
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
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
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 Appraisal Institute 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
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
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. Shayne Hatch
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
Texas State Certified General Real Estate
Appraiser #TX-1323954-G
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
EXHIBIT E
QUALIFICATIONS OF APPRAISER
(2 PAGES)
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
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 Mr. Fehribach has experience in valuations for resort
Valuation 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 CERTIFICATIONS State of Arizona
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
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
PROFESSIONAL AFFILIATIONS Appraisal Institute, MAI Designated Member
Candidate Member of the CCIM Institute pursuing
Certified
Commercial Investment Member (CCIM) designation
PUBLICATIONS "An Analysis of the Determinants of Industrial
Property Valuation," Co-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.
MEADOWS APARTMENTS, GARLAND, TEXAS
GENERAL SERVICE CONDITIONS
AMERICAN APPRAISAL ASSOCIATES, INC.
LAKE MEADOWS APARTMENTS, GARLAND, TEXAS
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.