LAZY HOLLOW
8782 CLOUDLEAP COURT
COLUMBIA, MARYLAND
MARKET VALUE -
FEE SIMPLE ESTATE
AS OF APRIL 25, 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]
JUNE 27, 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: LAZY HOLLOW
8782 CLOUDLEAP COURT
COLUMBIA, HOWARD COUNTY, MARYLAND
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 178 units with a
total of 176,972 square feet of rentable area. The improvements were built in
1978. The improvements are situated on 9.53 acres. Overall, the improvements are
in average condition. As of the date of this appraisal, the subject property is
95% 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
LAZY HOLLOW, COLUMBIA, MARYLAND
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 April 25, 2003 is:
($13,000,000)
Respectfully submitted,
AMERICAN APPRAISAL ASSOCIATES, INC.
-s- Brian Johnson
-----------------
June 27, 2003 Brian Johnson, MAI
#053272 Managing Principal, Real Estate Group
Report By:
Jonathan Hackerman
AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3
LAZY HOLLOW, COLUMBIA, MARYLAND
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
LAZY HOLLOW, COLUMBIA, MARYLAND
EXECUTIVE SUMMARY
PART ONE - PROPERTY DESCRIPTION
PROPERTY NAME: Lazy Hollow
LOCATION: 8782 Cloudleap Court
Columbia, Maryland
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: April 25, 2003
DATE OF REPORT: June 27, 2003
PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS:
SITE:
Size: 9.53 acres, or 415,127 square feet
Assessor Parcel No.: 16-101087
Floodplain: Community Panel No. 240044 0034 B (December 4,
1986)
Flood Zone C, an area outside the floodplain.
Zoning: NT (New Town)
BUILDING:
No. of Units: 178 Units
Total NRA: 176,972 Square Feet
Average Unit Size: 994 Square Feet
Apartment Density: 18.7 units per acre
Year Built: 1978
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-A1 820 $ 890 $1.09 $ 25,810 $ 309,720
1Br/1Ba - A2 882 $ 900 $1.02 $ 17,100 $ 205,200
2Br/1Ba - B1 993 $ 960 $0.97 $ 46,080 $ 552,960
2Br/2Ba - B2 1,085 $ 990 $0.91 $ 21,780 $ 261,360
2Br/2Ba - B3 1,009 $1,000 $0.99 $ 40,000 $ 480,000
3Bd/2Ba - C1 1,227 $1,180 $0.96 $ 23,600 $ 283,200
------------------------
Total $174,370 $2,092,440
========================
OCCUPANCY: 95%
ECONOMIC LIFE: 45 Years
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5
LAZY HOLLOW, COLUMBIA, MARYLAND
EFFECTIVE AGE: 15 Years
REMAINING ECONOMIC LIFE: 30 Years
SUBJECT PHOTOGRAPHS AND LOCATION MAP:
SUBJECT PHOTOGRAPHS
[PICTURE] [PICTURE]
EXTERIOR - APARTMENT BUILDING EXTERIOR - LANDSCAPE & PARKING
AREA MAP
[MAP]
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6
LAZY HOLLOW, COLUMBIA, MARYLAND
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
LAZY HOLLOW, COLUMBIA, MARYLAND
PART TWO - ECONOMIC INDICATORS
INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION Amount $/Unit
--------------------- ------ ------
Potential Rental Income $2,092,440 $11,755
Effective Gross Income $1,964,205 $11,035
Operating Expenses $752,422 $4,227 38.3% of EGI
Net Operating Income: $1,176,183 $6,608
Capitalization Rate 8.75%
DIRECT CAPITALIZATION VALUE $13,300,000 * $74,719 / UNIT
DISCOUNTED CASH FLOW ANALYSIS:
Holding Period 10 years
2002 Economic Vacancy 5%
Stabilized Vacancy & Collection Loss: 8%
Lease-up / Stabilization Period N/A
Terminal Capitalization Rate 9.25%
Discount Rate 11.25%
Selling Costs 2.00%
Growth Rates:
Income 3.00%
Expenses: 3.00%
DISCOUNTED CASH FLOW VALUE $13,700,000 * $76,966 / UNIT
RECONCILED INCOME CAPITALIZATION VALUE $13,600,000 $76,404 / UNIT
SALES COMPARISON APPROACH
PRICE PER UNIT:
Range of Sales $/Unit (Unadjusted) $49,592 to $118,258
Range of Sales $/Unit (Adjusted) $61,296 to $70,955
VALUE INDICATION - PRICE PER UNIT $11,600,000 * $65,169 / UNIT
EGIM ANALYSIS
Range of EGIMs from Improved Sales 6.11 to 9.52
Selected EGIM for Subject 6.50
Subject's Projected EGI $1,964,205
EGIM ANALYSIS CONCLUSION $12,600,000 * $70,787 / UNIT
NOI PER UNIT ANALYSIS CONCLUSION $12,300,000 * $69,101 / UNIT
RECONCILED SALES COMPARISON VALUE $12,300,000 $69,101 / 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
LAZY HOLLOW, COLUMBIA, MARYLAND
PART THREE - SUMMARY OF VALUE CONCLUSIONS
SALES COMPARISON APPROACH:
Price Per Unit $11,600,000
NOI Per Unit $12,300,000
EGIM Multiplier $12,600,000
INDICATED VALUE BY SALES COMPARISON $12,300,000 $69,101 / UNIT
INCOME APPROACH:
Direct Capitalization Method: $13,300,000
Discounted Cash Flow Method: $13,700,000
INDICATED VALUE BY THE INCOME APPROACH $13,600,000 $76,404 / UNIT
RECONCILED OVERALL VALUE CONCLUSION: $13,000,000 $73,034 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9
LAZY HOLLOW, COLUMBIA, MARYLAND
INTRODUCTION
IDENTIFICATION OF THE SUBJECT
The subject property is located at 8782 Cloudleap Court, Columbia, Howard
County, Maryland. Columbia identifies it as 16-101087.
SCOPE OF THE ASSIGNMENT
The property, neighborhood, and comparables were inspected by Jonathan Hackerman
on April 25, 2003. Brian Johnson, MAI has not made a personal inspection of the
subject property. Jonathan Hackerman performed the research, valuation analysis
and wrote the report. Brian Johnson, MAI reviewed the report and concurs with
the value. Both 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 April 25, 2003.
The date of the report is June 27, 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
LAZY HOLLOW, COLUMBIA, MARYLAND
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 Lazy Hollow Partners
C/O Eproperty Tax. 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
LAZY HOLLOW, COLUMBIA, MARYLAND
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 Columbia, Maryland. Overall, the neighborhood
is characterized as a suburban setting with the predominant land use being
residential. The subject's neighborhood is generally defined by the following
boundaries.
NEIGHBORHOOD BOUNDARIES
East - Waterloo Road
West - Route 175
South - Route 175
North - The Village of Long Reach
MAJOR EMPLOYERS
Major employers in the subject's area include educational and healthcare as the
main source of employment in the area. 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
LAZY HOLLOW, COLUMBIA, MARYLAND
NEIGHBORHOOD DEMOGRAPHICS
AREA
-------------------------------------------
CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA
- ------------------------------------------------------------------------------------------
POPULATION TRENDS
Current Population 14,632 81,011 167,025 2,567,693
5-Year Population 15,805 90,007 181,848 2,640,264
% Change CY-5Y 8.0% 11.1% 8.9% 2.8%
Annual Change CY-5Y 1.6% 2.2% 1.8% 0.6%
HOUSEHOLDS
Current Households 5,882 31,533 63,128 986,581
5-Year Projected Households 6,436 35,150 69,403 1,028,973
% Change CY - 5Y 9.4% 11.5% 9.9% 4.3%
Annual Change CY-5Y 1.9% 2.3% 2.0% 0.9%
INCOME TRENDS
Median Household Income $ 86,579 $ 90,656 $ 91,729 $ 56,893
Per Capita Income $ 30,853 $ 31,669 $ 32,285 $ 25,151
Average Household Income $ 79,675 $ 81,748 $ 85,343 $ 65,432
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 29.85% 27.41% 26.43% 30.53%
5-Year Projected % Renting 29.73% 27.28% 26.35% 29.34%
% of Households Owning 62.45% 67.51% 68.72% 63.19%
5-Year Projected % Owning 63.28% 68.00% 69.02% 64.65%
Source: Demographics Now
AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13
LAZY HOLLOW, COLUMBIA, MARYLAND
SURROUNDING IMPROVEMENTS
The following uses surround the subject property:
North - Sierra Woods Apts.
South - Long Reach Village Center
East - Bantanna Woods Apts.
West - Vacant wooded land/ Route 175
CONCLUSIONS
The subject is well located within the city of Columbia. 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
LAZY HOLLOW, COLUMBIA, MARYLAND
MARKET ANALYSIS
The subject property is located in the city of Columbia in Howard County. The
overall pace of development in the subject's market is more or less stable.
There has not been any recent construction. However, Bentana Apartment complex
has recently made upgrades to the interior of the units. The following table
illustrates historical vacancy rates for the subject's market.
HISTORICAL VACANCY RATE
Period Region Submarket
- -----------------------------------------
4Q01 3.1% 2.9%
1Q02 3.4% 3.2%
2Q02 3.9% 3.8%
3Q02 4.0% 4.0%
4Q02 4.1% 4.2%
1Q03 4.9% 4.6%
Source: REIS
Occupancy trends in the subject's market are decreasing. Historically speaking,
the subject's submarket has outperformed the overall market. The submarket has
historically enjoyed lower vacancy rates than the region. Columbia enjoys a
great location being between Baltimore and Washington DC and has excellent
roadways which allows for quick transportation to points all over Maryland.
Columbia has also outperformed other areas inside Howard County. The following
chart shows the average asking rents in the Columbia area.
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.
HISTORICAL AVERAGE RENT
Period Region % Change Submarket % Change
- --------------------------------------------------------------------
3Q02 N/A - $956 -
4Q02 N/A N/A $938 -1.9%
1Q03 N/A N/A $977 4.2%
Source: REIS
The following table illustrates a summary of the subject's competitive set.
AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15
LAZY HOLLOW, COLUMBIA, MARYLAND
COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject
- -------------------------------------------------------------------------------------------------------
R-1 Autumn Crest 300 100% 1972 5-miles west of the subject
R-2 Cedar Valley 157 84% 1973 5-miles west of the subject
R-3 Bentana 300 96% 1971 Next to subject
R-4 Hannibal Grove Apartments 293 97% 1969 3-miles west of the subject
Subject Lazy Hollow 178 95% 1978
Growth in rents are expected to remain relatively stable in the next few years,
remaining around 3%. Vacancy rates also are expected to hold steady around the
5% to 6% in the near future.
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16
LAZY HOLLOW, COLUMBIA, MARYLAND
PROPERTY DESCRIPTION
SITE ANALYSIS
Site Area 9.53 acres, or 415,127 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 240044 0034 B, dated December 4, 1986
Flood Zone Zone C
Zoning NT, the subject improvements 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
- --------------------------------------------------------------------------------------------------------------
16-101087 $2,490,700 $6,825,000 $9,315,700 $0.01341 $124,970
IMPROVEMENT ANALYSIS
Year Built 1978
Number of Units 178
Net Rentable Area 176,972 Square Feet
Construction:
Foundation Concrete block wall
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 volleyball
court, playground, barbeque equipment,
business office, and parking area.
Unit Amenities Individual unit amenities include a balcony,
cable TV connection, and washer dryer
connection. Appliances available in each unit
include a refrigerator, stove, dishwasher,
garbage disposal, washer/dryer, and oven.
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17
LAZY HOLLOW, COLUMBIA, MARYLAND
Unit Mix:
Unit Area
Unit Type Number of Units (Sq. Ft.)
- ---------------------------------------------------------
1Br/1Ba-A1 29 820
1Br/1Ba - A2 19 882
2Br/1Ba - B1 48 993
2Br/2Ba - B2 22 1,085
2Br/2Ba - B3 40 1,009
3Bd/2Ba - C1 20 1,227
Overall Condition Average
Effective Age 15 years
Economic Life 45 years
Remaining Economic Life 30 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
1978 and consist of a 178-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
LAZY HOLLOW, COLUMBIA, MARYLAND
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
LAZY HOLLOW, COLUMBIA, MARYLAND
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
LAZY HOLLOW, COLUMBIA, MARYLAND
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
LAZY HOLLOW, COLUMBIA, MARYLAND
SUMMARY OF COMPARABLE SALES -IMPROVED
DESCRIPTION SUBJECT COMPARABLE COMPARABLE
I - 1 I - 2
- -----------------------------------------------------------------------------------------------------------------------------------
Property Name Lazy Hollow Normandy Woods The Reserve
LOCATION:
Address 8782 Cloudleap Court 3207 Wheaton Way 7030 Gentle Shade
City, State Columbia, Maryland Ellicot City, MD Columbia, MD
County Howard Howard Howard
PHYSICAL CHARACTERISTICS:
Net Rentable Area (SF) 176,972 694,430 194,400
Year Built 1978 1973-84 1999
Number of Units 178 858 200
Unit Mix: Type Total Type Total Type Total
1Br/1Ba-A1 29 1Br/1Ba 444 1Br/1Ba 49
1Br/1Ba - A2 19 2Br/1Ba 414 2Br/1Ba 104
2Br/1Ba - B1 48 3Br/2Ba 47
2Br/2Ba - B2 22
2Br/2Ba - B3 40
3Bd/2Ba - C1 20
Average Unit Size (SF) 994 809 972
Land Area (Acre) 9.5300 58.4000 9.5800
Density (Units/Acre) 18.7 14.7 20.9
Parking Ratio (Spaces/Unit) 1.44 N/A 2.25
Parking Type (Gr., Cov., etc.) Garage, Open Covered Open Open
CONDITION: Good Good Good
APPEAL: Average Average Good
AMENITIES:
Pool/Spa No/No Yes/No Yes/No
Gym Room No Yes No
Laundry Room No Yes No
Secured Parking No No No
Sport Courts No Yes Yes
Washer/Dryer Connection Yes Yes Yes
Other
Other
OCCUPANCY: 95% 94% 92%
TRANSACTION DATA:
Sale Date August, 2002 June, 2000
Sale Price ($) $42,550,000 $21,250,000
Grantor Security Mgmt. Gateway Commons LLC
Grantee Charleston Manor II TGM Stonehaven, Inc.
Sale Documentation Book 6344 Page 195 Book 5130 Page 357
Verification Representative of Grantee Buyer
Telephone Number (301) 479-1600 (212) 830-9300
ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF
Potential Gross Income $7,375,894 $8,597 $10.62 $2,500,800 $12,504 $12.86
Vacancy/Credit Loss $ 417,465 $ 487 $ 0.60 $ 200,064 $ 1,000 $ 1.03
Effective Gross Income $6,958,429 $8,110 $10.02 $2,300,736 $11,504 $11.84
Operating Expenses $2,740,066 $3,194 $ 3.95 $ 512,738 $ 2,564 $ 2.64
Net Operating Income $4,218,363 $4,917 $ 6.07 $1,787,998 $ 8,940 $ 9.20
NOTES: This was part of a portfolio Contains a total of 8
transaction. buildings, 7 of which include
apartments.
PRICE PER UNIT $49,592 $106,250
PRICE PER SQUARE FOOT $ 61.27 $ 109.31
EXPENSE RATIO 39.4% 22.3%
EGIM 6.11 9.24
OVERALL CAP RATE 9.91% 8.41%
Cap Rate based on Pro Forma or Actual Income? ACTUAL PRO FORMA
DESCRIPTION COMPARABLE COMPARABLE
I - 3 I - 4
- ---------------------------------------------------------------------------------------------------------
Property Name Apartments @ Kendall Ridge Summit Meadows
LOCATION:
Address 8399 Tamar Drive 8600 Cobblefield
City, State Columbia, MD Columbia, MD
County Howard Howard
PHYSICAL CHARACTERISTICS:
Net Rentable Area (SF) 173,880 186,331
Year Built 1995 1990
Number of Units 184 178
Unit Mix: Type Total Type Total
1Br/1Ba 80 1Br/1Ba 60
2Br/1Ba 26 2Br/1Ba 43
2Br/2Ba 52 2Br/2Ba 60
3Bd/2Ba 26 3Bd/1.75Ba 15
Average Unit Size (SF) 945 1,047
Land Area (Acre) 12.0200 10.8000
Density (Units/Acre) 15.3 16.5
Parking Ratio (Spaces/Unit) 1.15 1.21
Parking Type (Gr., Cov., etc.) Open, Garage Open
CONDITION: Good Good
APPEAL: Very Good Good
AMENITIES:
Pool/Spa Yes/No Yes/No
Gym Room Yes Yes
Laundry Room Yes No
Secured Parking No No
Sport Courts Yes No
Washer/Dryer Connection Yes Yes
Other Playground
Other
OCCUPANCY: 95% 93%
TRANSACTION DATA:
Sale Date July, 2001 November, 2002
Sale Price ($) $19,300,000 $21,050,000
Grantor Archstone Communities Summit Properties Part.
Grantee Cigna Financial Services UDR Maryland Properties
Sale Documentation Book 5606 Page 133 N/A
Verification Confidential Representative of Buyer
Telephone Number (804) 780-2691
ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF
Potential Gross Income $2,528,040 $13,739 $14.54 $2,378,340 $13,361 $12.76
Vacancy/Credit Loss $ 126,402 $ 687 $ 0.73 $ 166,484 $ 935 $ 0.89
Effective Gross Income $2,401,638 $13,052 $13.81 $2,211,856 $12,426 $11.87
Operating Expenses $ 473,796 $ 2,575 $ 2.72 $ 551,800 $ 3,100 $ 2.96
Net Operating Income $1,927,842 $10,477 $11.09 $1,660,056 $ 9,326 $ 8.91
NOTES: Contains 7 total buildings None
and is very appealing in
physical appearance.
PRICE PER UNIT $104,891 $118,258
PRICE PER SQUARE FOOT $ 111.00 $ 112.97
EXPENSE RATIO 19.7% 24.9%
EGIM 8.04 9.52
OVERALL CAP RATE 9.99% 7.89%
Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22
LAZY HOLLOW, COLUMBIA, MARYLAND
IMPROVED SALES MAP
[MAP]
IMPROVED SALES ANALYSIS
The improved sales indicate a sales price range from $49,592 to $118,258 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 $61,296 to $70,955 per unit with a mean or average adjusted price
of $65,442 per unit. The median adjusted price is $64,758 per unit. Based on the
following analysis, we have concluded to a value of $66,000 per unit, which
results in an "as is" value of $11,600,000 (rounded after necessary adjustment,
if any).
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23
LAZY HOLLOW, COLUMBIA, MARYLAND
SALES ADJUSTMENT GRID
DESCRIPTION SUBJECT COMPARABLE COMPARABLE
I - 1 I - 2
- -----------------------------------------------------------------------------------------------------------------------------------
Property Name Lazy Hollow Normandy Woods The Reserve
Address 8782 Cloudleap Court 3207 Wheaton Way 7030 Gentle Shade
City Columbia, Maryland Ellicot City, MD Columbia, MD
Sale Date August, 2002 June, 2000
Sale Price ($) $42,550,000 $21,250,000
Net Rentable Area (SF) 176,972 694,430 194,400
Number of Units 178 858 200
Price Per Unit $49,592 $106,250
Year Built 1978 1973-84 1999
Land Area (Acre) 9.5300 58.4000 9.5800
VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ.
Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0%
Financing Cash To Seller 0% Cash To Seller 0%
Conditions of Sale Arm's Length 0% Arm's Length 0%
Date of Sale (Time) August, 2002 3% June, 2000 10%
VALUE AFTER TRANS. ADJUST. ($/UNIT) $51,080 $116,875
Location Superior -10% Comparable 0%
Number of Units 178 858 30% 200 0%
Quality / Appeal Good Comparable 0% Superior -20%
Age / Condition 1978 1973-84 / Good 0% 1999 / Good -25%
Occupancy at Sale 95% 94% 0% 92% 3%
Amenities Average Superior -5% Comparable 0%
Average Unit Size (SF) 994 809 5% 972 0%
PHYSICAL ADJUSTMENT 20% -42%
FINAL ADJUSTED VALUE ($/UNIT) $61,296 $ 67,788
DESCRIPTION COMPARABLE COMPARABLE
I - 3 I - 4
- -------------------------------------------------------------------------------------------------------
Property Name Apartments @ Kendall Ridge Summit Meadows
Address 8399 Tamar Drive 8600 Cobblefield
City Columbia, MD Columbia, MD
Sale Date July, 2001 November, 2002
Sale Price ($) $19,300,000 $21,050,000
Net Rentable Area (SF) 173,880 186,331
Number of Units 184 178
Price Per Unit $104,891 $118,258
Year Built 1995 1990
Land Area (Acre) 12.0200 10.8000
VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ.
Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0%
Financing Cash To Seller 0% Cash To Seller 0%
Conditions of Sale Arm's Length 0% Arm's Length 0%
Date of Sale (Time) July, 2001 7% November, 2002 0%
VALUE AFTER TRANS. ADJUST. ($/UNIT) $112,234 $118,258
Location Comparable 0% Comparable 0%
Number of Units 184 0% 178 0%
Quality / Appeal Superior -20% Superior -20%
Age / Condition 1995 / Good -20% 1990 / Good -15%
Occupancy at Sale 95% 0% 93% 0%
Amenities Superior -10% Superior -5%
Average Unit Size (SF) 945 5% 1,047 0%
PHYSICAL ADJUSTMENT -45% -40%
FINAL ADJUSTED VALUE ($/UNIT) $ 61,729 $ 70,955
SUMMARY
VALUE RANGE (PER UNIT) $61,296 TO $ 70,955
MEAN (PER UNIT) $65,442
MEDIAN (PER UNIT) $64,758
VALUE CONCLUSION (PER UNIT) $66,000
VALUE OF IMPROVEMENT & MAIN SITE $11,748,000
PV OF CONCESSIONS -$ 178,000
VALUE INDICATED BY SALES COMPARISON APPROACH $11,570,000
ROUNDED $11,600,000
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
LAZY HOLLOW, COLUMBIA, MARYLAND
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-1 858 $42,550,000 9.91% $4,218,363 $1,176,183 1.344 $66,652
$ 49,592 $ 4,917 $ 6,608
I-2 200 $21,250,000 8.41% $1,787,998 $1,176,183 0.739 $78,532
$ 106,250 $ 8,940 $ 6,608
I-3 184 $19,300,000 9.99% $1,927,842 $1,176,183 0.631 $66,152
$ 104,891 $ 10,477 $ 6,608
I-4 178 $21,050,000 7.89% $1,660,056 $1,176,183 0.709 $83,788
$ 118,258 $ 9,326 $ 6,608
PRICE/UNIT
Low High Average Median
$66,152 $83,788 $73,781 $72,592
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT
Estimated Price Per Unit $ 70,000
Number of Units 178
Value $12,460,000
PV of Concessions -$ 178,000
------------
Value Based on NOI Analysis $12,282,000
Rounded $12,300,000
The adjusted sales indicate a range of value between $66,152 and $83,788 per
unit, with an average of $73,781 per unit. Based on the subject's competitive
position within the improved sales, a value of $70,000 per unit is estimated.
This indicates an "as is" market value of $12,300,000 (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
LAZY HOLLOW, COLUMBIA, MARYLAND
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-1 858 $42,550,000 $6,958,429 $2,740,066 39.38% 6.11
$ 49,592
I-2 200 $21,250,000 $2,300,736 $ 512,738 22.29% 9.24
$ 106,250
38.31%
I-3 184 $19,300,000 $2,401,638 $ 473,796 19.73% 8.04
$ 104,891
I-4 178 $21,050,000 $2,211,856 $ 551,800 24.95% 9.52
$ 118,258
EGIM
Low High Average Median
--- ---- ------- ------
6.11 9.52 8.23 8.64
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES
Estimate EGIM 6.50
Subject EGI $ 1,964,205
Value $12,767,331
PV of Concessions -$ 178,000
------------
Value Based on EGIM Analysis $12,589,331
Rounded $12,600,000
Value Per Unit $ 70,787
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 38.31% before reserves. The comparable sales
indicate a range of expense ratios from 19.73% to 39.38%, while their EGIMs
range from 6.11 to 9.52. Overall, we conclude to an EGIM of 6.50, which results
in an "as is" value estimate in the EGIM Analysis of $12,600,000.
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 $12,300,000.
Price Per Unit $ 11,600,000
NOI Per Unit $ 12,300,000
EGIM Analysis $ 12,600,000
Sales Comparison Conclusion $ 12,300,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26
LAZY HOLLOW, COLUMBIA, MARYLAND
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
LAZY HOLLOW, COLUMBIA, MARYLAND
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-A1 820 $ 905 $1.10 96.5%
1Br/1Ba - A2 882 $ 925 $1.05 100.0%
2Br/1Ba - B1 993 $ 965 $0.97 95.8%
2Br/2Ba - B2 1085 $1,009 $0.93 86.4%
2Br/2Ba - B3 1009 $1,039 $1.03 95.0%
3Bd/2Ba - C1 1227 $1,206 $0.98 100.0%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28
LAZY HOLLOW, COLUMBIA, MARYLAND
RENT ANALYSIS
COMPARABLE RENTS
---------------------------------------
R-1 R-2 R-3 R-4
---------------------------------------
Hannibal
Autumn Cedar Grove
Crest Valley Bentana Apartments
---------------------------------------
COMPARISON TO SUBJECT
SUBJECT SUBJECT ---------------------------------------
SUBJECT UNIT ACTUAL ASKING Slightly Slightly
DESCRIPTION TYPE RENT RENT Superior Inferior Similar Similar MIN MAX MEDIAN AVERAGE
- ----------------------------------------------------------------------------------------------------------------------------
Monthly Rent 1Br/1Ba-A1 $ 905 $ 792 $ 899 $ 830 $ 792 $ 899 $ 830 $ 840
Unit Area (SF) 820 820 708 815 725 708 815 725 749
Monthly Rent Per
Sq. Ft. $ 1.10 $ 1.12 $1.10 $ 1.14 $ 1.10 $ 1.14 $ 1.12 $ 1.12
Monthly Rent 1Br/1Ba - A2 $ 925 $ 845 $ 845 $ 845 $ 845 $ 845
Unit Area (SF) 882 882 851 851 851 851 851
Monthly Rent Per
Sq. Ft. $ 1.05 $0.99 $ 0.99 $ 0.99 $ 0.99 $ 0.99
Monthly Rent 2Br/1Ba - B1 $ 965 $ 888 $ 940 $ 950 $ 888 $ 950 $ 940 $ 926
Unit Area (SF) 993 993 904 966 919 904 966 919 930
Monthly Rent Per
Sq. Ft. $ 0.97 $ 0.98 $0.97 $ 1.03 $ 0.97 $ 1.03 $ 0.98 $ 1.00
Monthly Rent 2Br/2Ba - B2 $1,009 $ 930 $1,050 $ 930 $1,050 $ 990 $ 990
Unit Area (SF) 1,085 1,085 1,058 1,056 1,056 1,058 1,057 1,057
Monthly Rent Per
Sq. Ft. $ 0.93 $ 0.88 $ 0.99 $ 0.88 $ 0.99 $ 0.94 $ 0.94
Monthly Rent 2Br/2Ba - B3 $1,039 $ 994 $1,035 $ 994 $1,035 $1,015 $1,015
Unit Area (SF) 1,009 1,009 1,160 966 966 1,160 1,063 1,063
Monthly Rent Per
Sq. Ft. $ 1.03 $ 0.86 $ 1.07 $ 0.86 $ 1.07 $ 0.96 $ 0.96
Monthly Rent 3Bd/2Ba - C1 $1,206 $1,075 $1,344 $1,075 $1,344 $1,210 $1,210
Unit Area (SF) 1,227 1,227 1,250 1,259 1,250 1,259 1,254 1,254
Monthly Rent Per
Sq. Ft. $ 0.98 $ 0.86 $ 1.07 $ 0.86 $ 1.07 $ 0.96 $ 0.96
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-A1 29 820 $ 890 $ 1.09 $ 25,810 $ 309,720
1Br/1Ba - A2 19 882 $ 900 $ 1.02 $ 17,100 $ 205,200
2Br/1Ba - B1 48 993 $ 960 $ 0.97 $ 46,080 $ 552,960
2Br/2Ba - B2 22 1,085 $ 990 $ 0.91 $ 21,780 $ 261,360
2Br/2Ba - B3 40 1,009 $ 1,000 $ 0.99 $ 40,000 $ 480,000
3Bd/2Ba - C1 20 1,227 $ 1,180 $ 0.96 $ 23,600 $ 283,200
-------- ---------- ----------
Total $ 174,370 $2,092,440
========== ==========
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
LAZY HOLLOW, COLUMBIA, MARYLAND
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 $ 1,817,190 $ 10,209 $ 1,993,980 $ 11,202 $ 2,109,029 $ 11,848
Vacancy $ 31,796 $ 179 $ 56,939 $ 320 $ 158,907 $ 893
Credit Loss/Concessions $ 30,229 $ 170 $ 35,233 $ 198 ($ 48,717) -$ 274
---------------------------------------------------------------------------------
Subtotal $ 62,025 $ 348 $ 92,172 $ 518 $ 110,190 $ 619
Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Other Misc. Revenue $ 51,838 $ 291 $ 71,469 $ 402 $ 38,919 $ 219
---------------------------------------------------------------------------------
Subtotal Other Income $ 51,838 $ 291 $ 71,469 $ 402 $ 38,919 $ 219
---------------------------------------------------------------------------------
Effective Gross Income $ 1,807,003 $ 10,152 $ 1,973,277 $ 11,086 $ 2,037,758 $ 11,448
Operating Expenses
Taxes $ 143,921 $ 809 $ 140,641 $ 790 $ 157,507 $ 885
Insurance $ 19,990 $ 112 $ 22,727 $ 128 $ 33,523 $ 188
Utilities $ 96,067 $ 540 $ 144,212 $ 810 $ 150,933 $ 848
Repair & Maintenance $ 21,056 $ 118 $ 17,468 $ 98 $ 13,854 $ 78
Cleaning $ 29,545 $ 166 $ 38,847 $ 218 $ 42,955 $ 241
Landscaping $ 45,307 $ 255 $ 34,387 $ 193 $ 41,076 $ 231
Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Marketing & Leasing $ 27,546 $ 155 $ 16,019 $ 90 $ 22,789 $ 128
General Administrative $ 33,402 $ 188 $ 26,483 $ 149 $ 42,528 $ 239
Management $ 101,175 $ 568 $ 137,917 $ 775 $ 109,286 $ 614
Miscellaneous $ 155,864 $ 876 $ 162,946 $ 915 $ 91,500 $ 514
---------------------------------------------------------------------------------
Total Operating Expenses $ 673,873 $ 3,786 $ 741,647 $ 4,167 $ 705,951 $ 3,966
Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
---------------------------------------------------------------------------------
Net Income $ 1,133,130 $ 6,366 $ 1,231,630 $ 6,919 $ 1,331,807 $ 7,482
FISCAL YEAR 2003 ANNUALIZED 2003
-----------------------------------------------------------------------------------
MANAGEMENT BUDGET PROJECTION AAA PROJECTION
-----------------------------------------------------------------------------------
DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT %
- ---------------------------------------------------------------------------------------------------------------
Revenues
Rental Income $ 2,179,260 $ 12,243 $ 2,197,988 $ 12,348 $ 2,092,440 $ 11,755 100.0%
Vacancy $ 119,364 $ 671 $ 132,480 $ 744 $ 125,546 $ 705 6.0%
Credit Loss/Concessions $ 276 $ 2 $ 88,592 $ 498 $ 41,849 $ 235 2.0%
-----------------------------------------------------------------------------------
Subtotal $ 119,640 $ 672 $ 221,072 $ 1,242 $ 167,395 $ 940 8.0%
Laundry Income $ 12,228 $ 69 $ 0 $ 0 $ 0 $ 0 0.0%
Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0%
Other Misc. Revenue $ 16,488 $ 93 $ 60,360 $ 339 $ 39,160 $ 220 1.9%
-----------------------------------------------------------------------------------
Subtotal Other Income $ 28,716 $ 161 $ 60,360 $ 339 $ 39,160 $ 220 1.9%
-----------------------------------------------------------------------------------
Effective Gross Income $ 2,088,336 $ 11,732 $ 2,037,276 $ 11,445 $ 1,964,205 $ 11,035 100.0%
Operating Expenses
Taxes $ 112,334 $ 631 $ 143,476 $ 806 $ 151,300 $ 850 7.7%
Insurance $ 37,547 $ 211 $ 36,668 $ 206 $ 40,940 $ 230 2.1%
Utilities $ 142,884 $ 803 $ 302,392 $ 1,699 $ 151,300 $ 850 7.7%
Repair & Maintenance $ 14,280 $ 80 $ 61,140 $ 343 $ 15,130 $ 85 0.8%
Cleaning $ 44,004 $ 247 $ 86,120 $ 484 $ 44,500 $ 250 2.3%
Landscaping $ 44,064 $ 248 $ 151,784 $ 853 $ 48,950 $ 275 2.5%
Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0%
Marketing & Leasing $ 25,140 $ 141 $ 20,968 $ 118 $ 26,700 $ 150 1.4%
General Administrative $ 34,980 $ 197 $ 51,068 $ 287 $ 40,050 $ 225 2.0%
Management $ 111,533 $ 627 $ 110,192 $ 619 $ 117,852 $ 662 6.0%
Miscellaneous $ 113,520 $ 638 $ 86,408 $ 485 $ 115,700 $ 650 5.9%
-----------------------------------------------------------------------------------
Total Operating Expenses $ 680,286 $ 3,822 $ 1,050,216 $ 5,900 $ 752,422 $ 4,227 38.3%
Reserves $ 0 $ 0 $ 0 $ 0 $ 35,600 $ 200 4.7%
-----------------------------------------------------------------------------------
Net Income $ 1,408,050 $ 7,910 $ 987,060 $ 5,545 $ 1,176,183 $ 6,608 59.9%
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 8% based on
the subject's historical performance, as well as the anticipated future market
conditions.
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30
LAZY HOLLOW, COLUMBIA, MARYLAND
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
LAZY HOLLOW, COLUMBIA, MARYLAND
SUMMARY OF OVERALL
CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR
- ------------------------------------------------------------
I-1 August, 2002 94% $ 49,592 9.91%
I-2 June, 2000 92% $106,250 8.41%
I-3 July, 2001 95% $104,891 9.99%
I-4 November, 2002 93% $118,258 7.89%
I-5 Jan-00 0% N/A
High 9.99%
Low 7.89%
Average 9.05%
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 11.25%.
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 11.25% indicates a value of $13,700,000. In this instance, the reversion
figure contributes
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32
LAZY HOLLOW, COLUMBIA, MARYLAND
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 APPROACH PAGE 33
LAZY HOLLOW, COLUMBIA, MARYLAND
DISCOUNTED CASH FLOW ANALYSIS
LAZY HOLLOW
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009
FISCAL YEAR 1 2 3 4 5 6
- ---------------------------------------------------------------------------------------------------------------------------
REVENUE
Base Rent $2,092,440 $2,155,213 $2,219,870 $2,286,466 $2,355,060 $2,425,711
Vacancy $ 125,546 $ 129,313 $ 133,192 $ 137,188 $ 141,304 $ 145,543
Credit Loss $ 41,849 $ 43,104 $ 44,397 $ 45,729 $ 47,101 $ 48,514
Concessions $ 139,496 $ 64,656 $ 0 $ 0 $ 0 $ 0
-------------------------------------------------------------------------------------
Subtotal $ 306,891 $ 237,073 $ 177,590 $ 182,917 $ 188,405 $ 194,057
Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Other Misc. Revenue $ 39,160 $ 40,335 $ 41,545 $ 42,791 $ 44,075 $ 45,397
-------------------------------------------------------------------------------------
Subtotal Other Income $ 39,160 $ 40,335 $ 41,545 $ 42,791 $ 44,075 $ 45,397
-------------------------------------------------------------------------------------
EFFECTIVE GROSS INCOME $1,824,709 $1,958,475 $2,083,825 $2,146,340 $2,210,730 $2,277,052
OPERATING EXPENSES:
Taxes $ 151,300 $ 155,839 $ 160,514 $ 165,330 $ 170,289 $ 175,398
Insurance $ 40,940 $ 42,168 $ 43,433 $ 44,736 $ 46,078 $ 47,461
Utilities $ 151,300 $ 155,839 $ 160,514 $ 165,330 $ 170,289 $ 175,398
Repair & Maintenance $ 15,130 $ 15,584 $ 16,051 $ 16,533 $ 17,029 $ 17,540
Cleaning $ 44,500 $ 45,835 $ 47,210 $ 48,626 $ 50,085 $ 51,588
Landscaping $ 48,950 $ 50,419 $ 51,931 $ 53,489 $ 55,094 $ 56,746
Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Marketing & Leasing $ 26,700 $ 27,501 $ 28,326 $ 29,176 $ 30,051 $ 30,953
General Administrative $ 40,050 $ 41,252 $ 42,489 $ 43,764 $ 45,077 $ 46,429
Management $ 109,483 $ 117,508 $ 125,029 $ 128,780 $ 132,644 $ 136,623
Miscellaneous $ 115,700 $ 119,171 $ 122,746 $ 126,429 $ 130,221 $ 134,128
-------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES $ 744,053 $ 771,116 $ 798,245 $ 822,192 $ 846,858 $ 872,264
Reserves $ 35,600 $ 36,668 $ 37,768 $ 38,901 $ 40,068 $ 41,270
-------------------------------------------------------------------------------------
NET OPERATING INCOME $1,045,056 $1,150,691 $1,247,812 $1,285,246 $1,323,804 $1,363,518
Operating Expense Ratio (% of EGI) 40.8% 39.4% 38.3% 38.3% 38.3% 38.3%
Operating Expense Per Unit $ 4,180 $ 4,332 $ 4,485 $ 4,619 $ 4,758 $ 4,900
YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014
FISCAL YEAR 7 8 9 10 11
- ---------------------------------------------------------------------------------------------------------------
REVENUE
Base Rent $2,498,483 $2,573,437 $2,650,640 $2,730,160 $2,812,064
Vacancy $ 149,909 $ 154,406 $ 159,038 $ 163,810 $ 168,724
Credit Loss $ 49,970 $ 51,469 $ 53,013 $ 54,603 $ 56,241
Concessions $ 0 $ 0 $ 0 $ 0 $ 0
----------------------------------------------------------------------
Subtotal $ 199,879 $ 205,875 $ 212,051 $ 218,413 $ 224,965
Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0
Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0
Other Misc. Revenue $ 46,759 $ 48,162 $ 49,607 $ 51,095 $ 52,628
----------------------------------------------------------------------
Subtotal Other Income $ 46,759 $ 48,162 $ 49,607 $ 51,095 $ 52,628
----------------------------------------------------------------------
EFFECTIVE GROSS INCOME $2,345,363 $2,415,724 $2,488,196 $2,562,842 $2,639,727
OPERATING EXPENSES:
Taxes $ 180,660 $ 186,080 $ 191,662 $ 197,412 $ 203,335
Insurance $ 48,885 $ 50,351 $ 51,862 $ 53,417 $ 55,020
Utilities $ 180,660 $ 186,080 $ 191,662 $ 197,412 $ 203,335
Repair & Maintenance $ 18,066 $ 18,608 $ 19,166 $ 19,741 $ 20,333
Cleaning $ 53,135 $ 54,729 $ 56,371 $ 58,062 $ 59,804
Landscaping $ 58,449 $ 60,202 $ 62,008 $ 63,869 $ 65,785
Security $ 0 $ 0 $ 0 $ 0 $ 0
Marketing & Leasing $ 31,881 $ 32,838 $ 33,823 $ 34,837 $ 35,883
General Administrative $ 47,822 $ 49,256 $ 50,734 $ 52,256 $ 53,824
Management $ 140,722 $ 144,943 $ 149,292 $ 153,771 $ 158,384
Miscellaneous $ 138,152 $ 142,296 $ 146,565 $ 150,962 $ 155,491
----------------------------------------------------------------------
TOTAL OPERATING EXPENSES $ 898,432 $ 925,385 $ 953,146 $ 981,740 $1,011,193
Reserves $ 42,508 $ 43,784 $ 45,097 $ 46,450 $ 47,843
----------------------------------------------------------------------
NET OPERATING INCOME $1,404,423 $1,446,556 $1,489,953 $1,534,651 $1,580,691
Operating Expense Ratio (% of EGI) 38.3% 38.3% 38.3% 38.3% 38.3%
Operating Expense Per Unit $ 5,047 $ 5,199 $ 5,355 $ 5,515 $ 5,681
Estimated Stabilized NOI $1,176,183
Months to Stabilized 1
Stabilized Occupancy 94.0%
Sales Expense Rate 2.00%
Discount Rate 11.25%
Terminal Cap Rate 9.25%
Gross Residual Sale Price $17,088,551
Less: Sales Expense $ 341,771
-----------
Net Residual Sale Price $16,746,780
PV of Reversion $ 5,766,750
Add: NPV of NOI $ 7,981,349
-----------
PV Total $13,748,099
Deferred Maintenance $ 0
Add: Excess Land $ 0
Other Adjustments $ 0
-----------
Value Indicated By "DCF" $13,748,099
Rounded $13,700,000
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE
-------------------------------------------------------------------------------
TOTAL VALUE 10.75% 11.00% 11.25% 11.50% 11.75%
- ------------------------------------------------------------------------------------------------------
8.75% $14,552,922 $14,312,645 $14,077,627 $13,847,735 $13,622,840
TERMINAL 9.00% $14,375,778 $14,139,451 $13,908,286 $13,682,153 $13,460,925
CAP 9.25% $14,208,210 $13,975,619 $13,748,099 $13,525,521 $13,307,762
RATE 9.50% $14,049,461 $13,820,410 $13,596,342 $13,377,133 $13,162,660
9.75% $13,898,853 $13,673,160 $13,452,368 $13,236,355 $13,025,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 34
LAZY HOLLOW, COLUMBIA, MARYLAND
INCOME LOSS DURING LEASE-UP
The subject is currently near or at 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
$178,000 (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 APPROACH PAGE 35
LAZY HOLLOW, COLUMBIA, MARYLAND
LAZY HOLLOW
TOTAL PER SQ. FT. PER UNIT %OF EGI
- -----------------------------------------------------------------------------------------------------
REVENUE
Base Rent $ 2,092,440 $ 11.82 $ 11,755
Less: Vacancy & Collection Loss 8.00% $ 167,395 $ 0.95 $ 940
Plus: Other Income
Laundry Income $ 0 $ 0.00 $ 0 0.00%
Garage Revenue $ 0 $ 0.00 $ 0 0.00%
Other Misc. Revenue $ 39,160 $ 0.22 $ 220 1.99%
-----------------------------------------------
Subtotal Other Income $ 39,160 $ 0.22 $ 220 1.99%
EFFECTIVE GROSS INCOME $ 1,964,205 $ 11.10 $ 11,035
OPERATING EXPENSES:
Taxes $ 151,300 $ 0.85 $ 850 7.70%
Insurance $ 40,940 $ 0.23 $ 230 2.08%
Utilities $ 151,300 $ 0.85 $ 850 7.70%
Repair & Maintenance $ 15,130 $ 0.09 $ 85 0.77%
Cleaning $ 44,500 $ 0.25 $ 250 2.27%
Landscaping $ 48,950 $ 0.28 $ 275 2.49%
Security $ 0 $ 0.00 $ 0 0.00%
Marketing & Leasing $ 26,700 $ 0.15 $ 150 1.36%
General Administrative $ 40,050 $ 0.23 $ 225 2.04%
Management 6.00% $ 117,852 $ 0.67 $ 662 6.00%
Miscellaneous $ 115,700 $ 0.65 $ 650 5.89%
TOTAL OPERATING EXPENSES $ 752,422 $ 4.25 $ 4,227 38.31%
Reserves $ 35,600 $ 0.20 $ 200 1.81%
-----------------------------------------------
NET OPERATING INCOME $ 1,176,183 $ 6.65 $ 6,608 59.88%
"GOING IN" CAPITALIZATION RATE 8.75%
VALUE INDICATION $ 13,442,086 $ 75.96 $ 75,517
PV OF CONCESSIONS ($ 178,000)
"AS IS" VALUE INDICATION
(DIRECT CAPITALIZATION APPROACH) $ 13,264,086
ROUNDED $ 13,300,000 $ 75.15 $ 74,719
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 36
LAZY HOLLOW, COLUMBIA, MARYLAND
DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF
- --------------------------------------------------------------------------
8.00% $14,524,281 $14,500,000 $81,461 $81.93
8.25% $14,078,758 $14,100,000 $79,213 $79.67
8.50% $13,659,441 $13,700,000 $76,966 $77.41
8.75% $13,264,086 $13,300,000 $74,719 $75.15
9.00% $12,890,695 $12,900,000 $72,472 $72.89
9.25% $12,537,487 $12,500,000 $70,225 $70.63
9.50% $12,202,869 $12,200,000 $68,539 $68.94
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD
Applying the capitalization rate to our estimated NOI results in an estimated
value of $13,300,000.
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 $13,700,000
Direct Capitalization Method $13,300,000
Giving consideration to the indicated values provided by both techniques, we
have concluded the estimated value by the income capitalization approach to be
$13,600,000.
AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 37
LAZY HOLLOW, COLUMBIA, MARYLAND
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 $ 12,300,000
Income Approach $ 13,600,000
Reconciled Value $ 13,000,000
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
April 25, 2003 the market value of the fee simple estate in the property is:
$13,000,000
AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA
LAZY HOLLOW, COLUMBIA, MARYLAND
ADDENDA
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A
LAZY HOLLOW, COLUMBIA, MARYLAND
EXHIBIT A
SUBJECT PHOTOGRAPHS
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A
LAZY HOLLOW, COLUMBIA, MARYLAND
SUBJECT PHOTOGRAPHS
[PICTURE] [PICTURE]
EXTERIOR - APARTMENT BUILDING EXTERIOR - LANDSCAPE & PARKING
[PICTURE] [PICTURE]
EXTERIOR - APARTMENT BUILDING INTERIOR - APARTMENT UNIT
[PICTURE] [PICTURE]
EXTERIOR - KITCHEN EXTERIOR - ACCESS ROAD
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A
LAZY HOLLOW, COLUMBIA, MARYLAND
SUBJECT PHOTOGRAPHS
[PICTURE] [PICTURE]
EXTERIOR - BEDROOM EXTERIOR - BALCONY
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B
LAZY HOLLOW, COLUMBIA, MARYLAND
EXHIBIT B
SUMMARY OF RENT COMPARABLES
AND PHOTOGRAPH OF COMPARABLES
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B
LAZY HOLLOW, COLUMBIA, MARYLAND
PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES
COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3
NORMANDY WOODS THE RESERVE APARTMENTS @ KENDALL RIDGE
3207 Wheaton Way 7030 Gentle Shade 8399 Tamar Drive
Ellicot City, MD Columbia, MD Columbia, MD
[PICTURE] [PICTURE] [PICTURE]
COMPARABLE I-4
SUMMIT MEADOWS N/A
8600 Cobblefield
Columbia, MD
[PICTURE]
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B
LAZY HOLLOW, COLUMBIA, MARYLAND
SUMMARY OF COMPARABLE RENTAL PROPERTIES
DESCRIPTION SUBJECT COMPARABLE
R - 1
- -----------------------------------------------------------------------------------------------------------------------------------
Property Name Lazy Hollow Autumn Crest
Management Company Aimco Grady Mgmt.
LOCATION:
Address 8782 Cloudleap Court 5664 Stevens Forest Road
City, State Columbia, Maryland Columbia, MD
County Howard Howard
Proximity to Subject 5-miles west of the subject
PHYSICAL CHARACTERISTICS:
Net Rentable Area (SF) 176,972 304,800
Year Built 1978 1972
Effective Age 15 17
Building Structure Type Brick walls; asphalt shingle roof Brick veneer; asphalt shingle roof
Parking Type (Gr., Cov., etc.) Open Open
Number of Units 178 300
Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo.
1 1Br/1Ba-A1 820 29 $ 905 1 1Bd/1Ba 708 60 $ 792
2 1Br/1Ba - A2 882 19 $ 925 3 2Bd/1Ba 904 60 $ 888
3 2Br/1Ba - B1 993 48 $ 965 4 2Bd/1.5Ba 1,058 60 $ 930
4 2Br/2Ba - B2 1,085 22 $1,009 5 2Bd/2Ba 1,160 60 $ 994
5 2Br/2Ba - B3 1,009 40 $1,039 6 3Bd/2Ba 1,250 60 $1,075
6 3Bd/2Ba - C1 1,227 20 $1,206
Average Unit Size (SF) 994 1,016
Unit Breakdown: Efficiency 0% 2-Bedroom 39% Efficiency 0% 2-Bedroom 60%
1-Bedroom 61% 3-Bedroom 0% 1-Bedroom 20% 3-Bedroom 20%
CONDITION: Good Good
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.
Fireplace Fireplace
X Cable TV Ready X Cable TV Ready
Project Amenities Swimming Pool Swimming Pool
Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash
Basketball Court X BBQ Equipment Basketball Court X BBQ Equipment
X Volleyball Court Theater Room Volleyball Court Theater Room
Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall
Tennis Court Secured Parking Tennis Court Secured Parking
Racquet Ball Laundry Room Racquet Ball Laundry Room
Jogging Track X Business Office Jogging Track X Business Office
Gym Room Gym Room
X Playground Playground
OCCUPANCY: 95% 100%
LEASING DATA:
Available Leasing Terms 6 to 15 Months 12 Months
Concessions 1 - 1 1/2 Months Free None
Pet Deposit $300 - $500 $150
Utilities Paid by Tenant: X Electric X Natural Gas Electric X Natural Gas
X Water Trash Water Trash
Confirmation May 1, 2003; Joseph Beard (Property Manager) May 15, 2003; Property Manager
Telephone Number (972 )234-1231 1-866-537-4541
NOTES: There is a $50 charge to have a 6 month lease.
In addition to the pet deposit, the tenant must
pay $15/month for keeping a pet.
COMPARISON TO SUBJECT: Slightly Superior
DESCRIPTION COMPARABLE COMPARABLE
R - 2 R - 3
- ----------------------------------------------------------------------------------------------------------------------------------
Property Name Cedar Valley Bentana
Management Company JMG Realty Realty Management Services
LOCATION:
Address 5458 Harpers Farm Road 8905 Tamar Drive
City, State Columbia, MD Columbia, MD
County Howard Howard
Proximity to Subject 5-miles west of the subject Next to subject
PHYSICAL CHARACTERISTICS:
Net Rentable Area (SF) 151,091 274,275
Year Built 1973 1971
Effective Age 18 16
Building Structure Type Brick walls; asphalt shingle roof Brick & wood siding walls; asphalt shingle roof
Parking Type (Gr., Cov., etc.) Open Open
Number of Units 157 300
Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo.
1 1Bd/1Ba 815 61 $ 899 2 1Bd/1Ba 851 135 $845
4 2Bd/1.5Ba 1,056 96 $1,050 3 2Bd/1Ba 966 165 $940
Average Unit Size (SF) 962 914
Unit Breakdown: Efficiency 0% 2-Bedroom 61% Efficiency 0% 2-Bedroom 55%
1-Bedroom 39% 3-Bedroom 0% 1-Bedroom 45% 3-Bedroom 0%
CONDITION: Good Good
APPEAL: Average Good
AMENITIES:
Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling
X Balcony X W/D Connect. X Balcony W/D Connect.
Fireplace Fireplace
X Cable TV Ready X Cable TV Ready
Project Amenities Swimming Pool X Swimming Pool
Spa/Jacuzzi Car Wash Spa/Jacuzzi X Car Wash
Basketball Court BBQ Equipment Basketball Court BBQ Equipment
Volleyball Court Theater Room X Volleyball Court Theater Room
Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall
Tennis Court Secured Parking X Tennis Court Secured Parking
Racquet Ball Laundry Room Racquet Ball X Laundry Room
Jogging Track Business Office Jogging Track X Business Office
Gym Room Gym Room
X Playground X Playground
OCCUPANCY: 84% 96%
LEASING DATA:
Available Leasing Terms 12 Months 6 to 12 Months
Concessions 1 Month free before May 31, 2003 $30-$40 off of monthly rent
Pet Deposit $300 $250
Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas
Water Trash X Water Trash
Confirmation May 15, 2003; Property Manager May 15, 2003; Sean Property Contact
Telephone Number 1-866-210-5859 1-888-316-0596
NOTES: There is also a $25/month pet fee per month. If you have a pet there is also a $20/month
fee per month.
COMPARISON TO SUBJECT: Slightly Inferior Similar
COMPARABLE
DESCRIPTION R - 4
- -----------------------------------------------------------------------------------
Property Name Hannibal Grove Apartments
Management Company Berkshire Realty Holding, Inc.
LOCATION:
Address 5361 Brook Way
City, State Columbia, MD
County Howard
Proximity to Subject 3-miles west of the subject
PHYSICAL CHARACTERISTICS:
Net Rentable Area (SF) 284,784
Year Built 1969
Effective Age 23
Building Structure Type Stone veneer; asphalt shingle roof
Parking Type (Gr., Cov., etc.) Open
Number of Units 293
Unit Mix: Type Unit Qty. Mo.
1 1Bd/1Ba 725 78 $ 830
3 2Bd/1Ba 919 99 $ 950
5 2Bd/2Ba 966 30 $1,035
6 3Bd/2Ba 1,152 45 $1,165
6 3Bd/2Ba/TH 1,282 34 $1,505
6 4Bd/3Ba/TH 1,835 7 $1,715
Average Unit Size (SF) 972
Unit Breakdown: Efficiency 0% 2-Bedroom 55%
1-Bedroom 29% 3-Bedroom 16%
CONDITION: Average
APPEAL: Average
AMENITIES:
Unit Amenities Attach. Garage Vaulted Ceiling
X Balcony X W/D Connect.
Fireplace
X Cable TV Ready
Project Amenities Swimming Pool
Spa/Jacuzzi Car Wash
Basketball Court BBQ Equipment
Volleyball Court Theater Room
Sand Volley Ball Meeting Hall
Tennis Court Secured Parking
Racquet Ball X Laundry Room
Jogging Track X Business Office
Gym Room
X Playground
OCCUPANCY: 97%
LEASING DATA:
Available Leasing Terms 3 month minimum
Concessions None
Pet Deposit $150 - $200
Utilities Paid by Tenant: X Electric X Natural Gas
X Water Trash
Confirmation May 15, 2003; Toni - Property Contact
Telephone Number 1-866-210-5860
NOTES: The tonwhouse tenants do not pay the water
utility.
COMPARISON TO SUBJECT: Similar
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B
LAZY HOLLOW, COLUMBIA, MARYLAND
PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES
COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3
AUTUMN CREST CEDAR VALLEY BENTANA
5664 Stevens Forest Road 5458 Harpers Farm Road 8905 Tamar Drive
Columbia, MD Columbia, MD Columbia, MD
[PICTURE] [PICTURE] [PICTURE]
COMPARABLE R-4
HANNIBAL GROVE APARTMENTS N/A
5361 Brook Way
Columbia, MD
[PICTURE]
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C
LAZY HOLLOW, COLUMBIA, MARYLAND
EXHIBIT C
ASSUMPTIONS AND LIMITING CONDITIONS
(3 PAGES)
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C
LAZY HOLLOW, COLUMBIA, MARYLAND
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
LAZY HOLLOW, COLUMBIA, MARYLAND
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
LAZY HOLLOW, COLUMBIA, MARYLAND
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
LAZY HOLLOW, COLUMBIA, MARYLAND
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. Jonathan Hackerman
provided significant real property appraisal assistance in the
preparation of this report.
I am currently in compliance with the Appraisal Institutes continuing
education requirements.
-s- Brian Johnson
------------------------------
Brian Johnson, MAI
Managing Principal, Real Estate Group
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E
LAZY HOLLOW, COLUMBIA, MARYLAND
EXHIBIT E
QUALIFICATIONS OF APPRAISER
(2 PAGES)
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E
LAZY HOLLOW, COLUMBIA, MARYLAND
F. BRIAN JOHNSON, MAI
MANAGING PRINCIPAL, REAL ESTATE ADVISORY GROUP
POSITION F. Brian Johnson is the Managing Principal of
the New York Real Estate Advisory Group of
American Appraisal Associates, Inc. ("AAA").
EXPERIENCE
Valuation Mr. Johnson has completed appraisals for
securitization and pension funds/insurance
industries. Analyses he has performed involve
various types of investment-grade real estate
throughout the continental United States
including apartments, cooperatives, hotels,
industrial and research and development
parks, office buildings, regional shopping
centers, and undeveloped acreage.
Additional experience includes the valuation
of existing and proposed investment-grade
real estate, market and feasibility studies
and offering memorandums for debt placement,
equity investments and acquisitions, and
disposition analysis.
Court Mr. Johnson is qualified as an expert witness
for the New Jersey Supreme Court.
Business Mr. Johnson joined AAA in 1998 and was
promoted to his current position in 1999.
Prior to joining AAA, Mr. Johnson was a
Senior Vice President at Koeppel Tener Real
Estate Services and a Vice President at L. W.
Ellwood & Co.
EDUCATION Fairleigh Dickinson
Bachelor of Science - Finance
STATE CERTIFICATIONS State of New Jersey, General Appraiser,
#42RG00158300
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E
COLONY OF SPRINGDALE, SPRINGDALE, OHIO
PROFESSIONAL Appraisal Institute, MAI Designated Member
AFFILIATIONS
VALUATION AND Several courses are completed on an annual basis as part of
SPECIAL COURSES the continuing education requirements of the Appraisal
Institute. In addition, Mr. Johnson attends real estate and
financial industry-related conferences and seminars.
PUBLICATIONS "Operational Items to Consider When Appraising a Regional
Mall," Appraisal Journal, 1991
AMERICAN APPRAISAL ASSOCIATES, EXHIBIT E
LAZY HOLLOW, COLUMBIA,
PROFESSIONAL
AFFILIATIONS
VALUATION AND
SPECIAL COURSES
PUBLICATIONS Appraisal Journal, 1991
AMERICAN APPRAISAL ASSOCIATES, INC.
LAZY HOLLOW, COLUMBIA, MARYLAND
GENERAL SERVICE CONDITIONS
AMERICAN APPRAISAL ASSOCIATES, INC.
LAZY HOLLOW, COLUMBIA, MARYLAND
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.