RIVER'S EDGE
1741 22ND STREET NE
AUBURN, WASHINGTON
MARKET VALUE -
FEE SIMPLE ESTATE
AS OF MAY 20, 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.
[LOGO OF AMERICAN APPRAISAL ASSOCIATES(R)]
[AMERICAN APPRAISAL ASSOCIATES(R) LETTERHEAD]
JULY 2, 2003
Apartment Investment and Management
Company ("AIMCO") c/o
Mr. Steven A. Velkei, Esq.
Liner Yankelevitz Sunshine & Regenstreif LLP
1100 Glendon Avenue, 14th Floor
Los Angeles, California 90024-3503
Nuanes, et al.( "Plaintiffs ") c/o
Ms. Joy Kruse
Lieff Cabraser Heimann & Bernstein
Embarcadero Center West
275 Battery Street, 30th Floor
San Francisco, California 94111
RE: RIVER'S EDGE
1741 22ND STREET NE
AUBURN, KING COUNTY, WASHINGTON
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 120 units with a
total of 111,660 square feet of rentable area. The improvements were built in
1976. The improvements are situated on 7.73 acres. Overall, the improvements are
in average condition. As of the date of this appraisal, the subject property is
92% 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
RIVER'S EDGE, AUBURN, WASHINGTON
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 20, 2003 is:
($7,500,000)
Respectfully submitted,
AMERICAN APPRAISAL ASSOCIATES, INC.
-S- Douglas Needham
-------------------------------
July 2, 2003 Douglas Needham, MAI
#053272 Managing Principal, Real Estate Group
Washington State Certified General Real
Estate Appraiser #1101111
Report By:
Susan M. Kim
AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3
RIVER'S EDGE, AUBURN, WASHINGTON
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
RIVER'S EDGE, AUBURN, WASHINGTON
EXECUTIVE SUMMARY
PART ONE - PROPERTY DESCRIPTION
PROPERTY NAME: River's Edge
LOCATION: 1741 22nd Street NE
Auburn, Washington
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 20, 2003
DATE OF REPORT: July 2, 2003
PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS:
SITE:
Size: 7.73 acres, or 336,719 square feet
Assessor Parcel No.: 8944130005
Floodplain: Community Panel No. 53033C1254F
(May 16, 1995)
Flood Zone X, an area outside the
floodplain.
Zoning: R4 (Medium to High Density
Apartment District)
BUILDING:
No. of Units: 120 Units
Total NRA: 111,660 Square Feet
Average Unit Size: 931 Square Feet
Apartment Density: 15.5 units per acre
Year Built: 1976
UNIT MIX AND MARKET RENT:
GROSS RENTAL INCOME PROJECTION
Market Rent
Unit Type Square ------------------- Monthly Annual
Feet Per Unit Per SF Income Income
- ----------------------------------------------------------------------------
1Br/1Ba 675 $ 610 $ 0.90 $ 14,640 $ 175,680
2Br/1Ba 975 $ 710 $ 0.73 $ 59,640 $ 715,680
3Br/2Ba 1,130 $ 850 $ 0.75 $ 10,200 $ 122,400
Total $ 84,480 $ 1,013,760
OCCUPANCY: 92%
ECONOMIC LIFE: 45 Years
EFFECTIVE AGE: 20 Years
REMAINING ECONOMIC LIFE: 25 Years
SUBJECT PHOTOGRAPHS AND LOCATION MAP:
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5
RIVER'S EDGE, AUBURN, WASHINGTON
SUBJECT PHOTOGRAPHS
[PHOTOGRAPH] [PHOTOGRAPH]
EXTERIOR - OFFICE EXTERIOR - APARTMENT BUILDING
AREA MAP
[MAP]
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6
RIVER'S EDGE, AUBURN, WASHINGTON
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
RIVER'S EDGE, AUBURN, WASHINGTON
PART TWO - ECONOMIC INDICATORS
INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION Amount $/Unit
- --------------------- ------ ------
Potential Rental Income $1,013,760 $ 8,448
Effective Gross Income $1,008,230 $ 8,402
Operating Expenses $ 386,412 $ 3,220 38.3% of EGI
Net Operating Income: $ 591,819 $ 4,932
Capitalization Rate 8.00%
DIRECT CAPITALIZATION VALUE $7,400,000 * $61,667 / UNIT
DISCOUNTED CASH FLOW ANALYSIS:
Holding Period 10 years
2002 Economic Vacancy 9%
Stabilized Vacancy & Collection Loss: 8.5%
Lease-up / Stabilization Period N/A
Terminal Capitalization Rate 9.00%
Discount Rate 10.50%
Selling Costs 2.00%
Growth Rates:
Income 3.00%
Expenses: 3.00%
DISCOUNTED CASH FLOW VALUE $7,400,000 * $61,667 / UNIT
RECONCILED INCOME CAPITALIZATION VALUE $7,400,000 $61,667 / UNIT
SALES COMPARISON APPROACH
PRICE PER UNIT:
Range of Sales $/Unit (Unadjusted) $56,800 to $69,095
Range of Sales $/Unit (Adjusted) $60,617 to $65,463
VALUE INDICATION - PRICE PER UNIT $7,600,000 * $63,333 / UNIT
EGIM ANALYSIS
Range of EGIMs from Improved Sales 6.92 to 7.71
Selected EGIM for Subject 7.50
Subject's Projected EGI $1,008,230
EGIM ANALYSIS CONCLUSION $7,600,000 * $63,333 / UNIT
NOI PER UNIT ANALYSIS CONCLUSION $7,400,000 * $61,667 / UNIT
RECONCILED SALES COMPARISON VALUE $7,600,000 $63,333 / 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
RIVER'S EDGE, AUBURN, WASHINGTON
PART THREE - SUMMARY OF VALUE CONCLUSIONS
SALES COMPARISON APPROACH:
Price Per Unit $7,600,000
NOI Per Unit $7,400,000
EGIM Multiplier $7,600,000
INDICATED VALUE BY SALES COMPARISON $7,600,000 $63,333 / UNIT
INCOME APPROACH:
Direct Capitalization Method: $7,400,000
Discounted Cash Flow Method: $7,400,000
INDICATED VALUE BY THE INCOME APPROACH $7,400,000 $61,667 / UNIT
RECONCILED OVERALL VALUE CONCLUSION: $7,500,000 $62,500 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9
RIVER'S EDGE, AUBURN, WASHINGTON
INTRODUCTION
IDENTIFICATION OF THE SUBJECT
The subject property is located at 1741 22nd Street NE, Auburn, King County,
Washington. Auburn identifies it as 8944130005.
SCOPE OF THE ASSIGNMENT
The property, neighborhood, and comparables were inspected by Susan M. Kim on
May 20, 2003. Douglas Needham, MAI has not made a personal inspection of the
subject property. Susan M. Kim performed the research, valuation analysis and
wrote the report. Douglas Needham, MAI reviewed the report and concurs with the
value. Douglas Needham, MAI and Susan M. Kim 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 20, 2003. The
date of the report is July 2, 2003.
PURPOSE AND USE OF APPRAISAL
The purpose of the appraisal is to estimate the market value of the fee simple
interest in the subject property. It is understood that the appraisal is
intended to assist the clients in litigation settlement proceedings. The
appraisal was not based on a requested minimum valuation, a specific valuation,
or the approval of a loan.
PROPERTY RIGHTS APPRAISED
We have appraised the Fee Simple Estate in the subject property (as applied in
the Sales & Income Approaches), subject to the existing short-term leases. A Fee
Simple Estate is
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 10
RIVER'S EDGE, AUBURN, WASHINGTON
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 CCP 4. 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
RIVER'S EDGE, AUBURN, WASHINGTON
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 Auburn, Washington. 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 - 104th Avenue SE
West - Auburn Way N
South - SE 320th Street
North - S 227th Street
MAJOR EMPLOYERS
Major employers in the subject's area include Boeing, Microsoft, and various
high-tech/biotech industries. 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
RIVER'S EDGE, AUBURN, WASHINGTON
NEIGHBORHOOD DEMOGRAPHICS
AREA
----------------------------------------
CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA
- ----------------------------------------------------------------------------------
POPULATION TRENDS
Current Population 10,332 56,361 174,331 2,480,018
5-Year Population 10,918 60,923 189,630 2,656,373
% Change CY-5Y 5.7% 8.1% 8.8% 7.1%
Annual Change CY-5Y 1.1% 1.6% 1.8% 1.4%
HOUSEHOLDS
Current Households 4,036 21,304 65,975 991,697
5-Year Projected Households 4,268 22,961 71,796 1,065,406
% Change CY - 5Y 5.7% 7.8% 8.8% 7.4%
Annual Change CY-5Y 1.1% 1.6% 1.8% 1.5%
INCOME TRENDS
Median Household Income $ 42,122 $ 49,363 $ 52,588 $ 63,191
Per Capita Income $ 23,370 $ 21,768 $ 21,951 $ 28,774
Average Household Income $ 58,631 $ 57,565 $ 58,007 $ 71,954
Source: Demographics Now
The subject neighborhood's population is expected to show increases above that
of the region. The immediate market offers inferior income levels as compared to
the broader market.
The following table illustrates the housing statistics in the subject's
immediate area, as well as the MSA region.
HOUSING TRENDS
AREA
----------------------------------------
CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA
- -------------------------------------------------------------------------------
HOUSING TRENDS
% of Households Renting 42.59% 39.26% 39.71% 35.89%
5-Year Projected % Renting 39.77% 38.41% 39.20% 35.51%
% of Households Owning 54.34% 56.97% 55.72% 59.13%
5-Year Projected % Owning 57.25% 58.03% 56.52% 59.78%
Source: Demographics Now
AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13
RIVER'S EDGE, AUBURN, WASHINGTON
SURROUNDING IMPROVEMENTS
The following uses surround the subject property:
North - Green River
South - Single-family homes
East - Single-family homes
West - Single-family homes
CONCLUSIONS
The subject is well located within the city of Auburn. The neighborhood is
characterized as being mostly suburban in nature and is currently in the stable
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
RIVER'S EDGE, AUBURN, WASHINGTON
MARKET ANALYSIS
The subject property is located in the city of Auburn in King County. The
overall pace of development in the subject's market is more or less decreasing.
There is no new construction coming into the market. The overall economic
downturn in the subject's market has limited new construction. The following
table illustrates historical vacancy rates for the subject's market.
HISTORICAL VACANCY RATE
Period Region Submarket
- -----------------------------------------------------------------------------------
Sep-98 4.2% 5.5%
Mar-99 3.7% 3.6%
Sep-99 4.0% 4.7%
Mar-00 3.7% 3.4%
Sep-00 3.5% 4.9%
Mar-01 4.2% 3.9%
Sep-01 5.1% 5.8%
Mar-02 8.2% 8.5%
Sep-02 8.2% 8.2%
Mar-03 7.5% 7.4%
Source: Dupre & Scott Apartment Advisors
Occupancy trends in the subject's market are increasing during the last six
months. Historically speaking, the subject's submarket has equated the overall
market. Since 2001, vacancy rates have increased due to the general slowing in
the economy. Boeing has downsized their current operations and anticipates more
lay-offs in 2003. However, market participants anticipate that occupancy levels
will stabilize by the end of 2003.
Market rents in the subject's market have been following an increasing trend.
The following table illustrates historical rental rates for the subject's
market.
AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15
RIVER'S EDGE, AUBURN, WASHINGTON
HISTORICAL AVERAGE RENT
Period Region % Change Submarket % Change
- -----------------------------------------------------------------------------------------------
Sep-98 $760 - $615 -
Mar-99 $769 1.2% $609 -1.0%
Sep-99 $798 3.8% $636 4.4%
Mar-00 $812 1.8% $643 1.1%
Sep-00 $852 4.9% $676 5.1%
1-Mar $855 0.4% $690 2.1%
1-Sep $884 3.4% $713 3.3%
2-Mar $881 -0.3% $716 0.4%
2-Sep $882 0.1% $711 -0.7%
3-Mar $853 -3.3% $741 4.2%
Source: Dupre & Scott Apartment Advisors
The following table illustrates a summary of the subject's competitive set.
COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject
- -------------------------------------------------------------------------------------------------
R-1 Brittany Park 190 96% 1968 2-miles south of the
subject
R-2 Amberview 157 92% 1990 2-miles south of the
subject
R-3 Auburn Glen 148 96% 1990 Within 5 mile radius
R-4 Clearwater Ridge 142 89% 1990 Within 5-mile radius
R-5 0 0% 0 $0
Subject River's Edge 120 92% 1976
Rental rates have gradually increased over the past year despite the slowing
economy. Concessions and move-in specials are common in the market. However,
occupancy rates are beginning to stabilize and rental rates are increasing.
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16
RIVER'S EDGE, AUBURN, WASHINGTON
PROPERTY DESCRIPTION
SITE ANALYSIS
Site Area 7.73 acres, or 336,719 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 Average
Flood Zone:
Community Panel 53033C1254F, dated May 16, 1995
Flood Zone Zone X
Zoning R4, 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
- --------------------------------------------------------------------------------------------------
8944130005 $1,009,800 $4,146,200 $5,156,000 0.01358 $ 70,015
IMPROVEMENT ANALYSIS
Year Built 1976
Number of Units 120
Net Rentable Area 111,660 Square Feet
Construction:
Foundation Reinforced concrete slab
Frame Heavy or light wood
Exterior Walls Wood or vinyl siding
Roof Composition shingle over a wood truss
structure
Project Amenities Amenities at the subject include a
swimming pool, laundry
room, 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, water
heater, garbage disposal, washer/dryer,
and oven.
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17
RIVER'S EDGE, AUBURN, WASHINGTON
Unit Mix:
Unit Area
Unit Type Number of Units (Sq. Ft.)
- ---------------------------------------
1Br/1Ba 24 675
2Br/1Ba 84 975
3Br/2Ba 12 1,130
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
1976 and consist of a 120-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
RIVER'S EDGE, AUBURN, WASHINGTON
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
RIVER'S EDGE, AUBURN, WASHINGTON
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
RIVER'S EDGE, AUBURN, WASHINGTON
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
RIVER'S EDGE, AUBURN, WASHINGTON
SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE
DESCRIPTION SUBJECT I - 1 I - 2
- ----------------------------------------------------------------------------------------------------
Property Name River's Edge The Pointe Whispering
at Redondo Hills
LOCATION:
Address 1741 22nd 28300 18th 2120 SW
Street NE Avenue South 352nd Street
City, State Auburn, Federal Federal
Washington Way, WA Way, WA
County King King King
PHYSICAL CHARATERISTICS:
Net Rentable Area (SF) 111,660 227,622 112,020
Year Built 1976 1990 1985
Number of Units 120 225 111
Unit Mix: Type Total Type Total Type Total
1Br/1Ba 24 1Br/1Ba 67 1Br/1Ba
2Br/1Ba 84 2Br/2Ba 92 2Br/2Ba 84
3Br/2Ba 12 3Br/2Ba 66 3Br/2Ba 27
Average Unit Size (SF) 931 1,012 1,009
Land Area (Acre) 7.7300 16.6300 8.6100
Density (Units/Acre) 15.5 13.5 12.9
Parking Ratio 0.00 1.92 1.84
(Spaces/Unit)
Parking Type (Gr., Open, Covered Garage, Open, Covered Covered
Cov., etc.)
CONDITION: Average Average Fair
APPEAL: Average Average Fair
AMENITIES:
Pool/Spa Yes/No No/Yes No/No
Gym Room No No No
Laundry Room Yes
Secured Parking No No No
Sport Courts No Yes
Washer/Dryer Connection Yes
OCCUPANCY: 92% 96% 95%
TRANSACTION DATA:
Sale Date January, October,
2003 2002
Sale Price ($) $15,504,500 $7,669,500
Grantor Pointe At Whispering Hills
Redondo 2000 LLC Associates
LLC
Grantee Redondo Whispering
Associates LLC Hills/Bird LLC
Sale Documentation N/A N/A
Verification N/A N/A
Telephone Number
ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF
Potential Gross Income $2,191,380 $9,739 $9.63 $1,064,700 $9,592 $9.50
Vacancy/Credit Loss $ 87,655 $ 390 $0.39 $ 53,235 $ 480 $0.48
---------- ------ ----- ---------- ------ -----
Effective Gross Income $2,103,725 $9,350 $9.24 $1,011,465 $9,112 $9.03
Operating Expenses $ 682,083 $3,031 $3.00 $ 445,045 $4,009 $3.97
---------- ------ ----- ---------- ------ -----
Net Operating Income $1,421,642 $6,318 $6.25 $ 566,420 $5,103 $5.06
---------- ------ ----- ---------- ------ -----
NOTES: None None
PRICE PER UNIT $68,909 $69,095
PRICE PER SQUARE FOOT $ 68.12 $ 68.47
EXPENSE RATIO 32.4% 44.0%
EGIM 7.37 7.58
OVERALL CAP RATE 9.17% 7.39%
======= =======
Cap Rate based on Pro
Forma or Actual
Income? PRO FORMA PRO FORMA
COMPARABLE COMPARABLE
DESCRIPTION I - 3 I - 4
- ---------------------------------------------------------------------------------
Property Name Mallard Pointe Woodtrail
Apartments Apartments
LOCATION:
Address 802 45th 1901 SW
Street NE 320th Street
City, State Auburn, Federal Way,
WA WA
County King King
PHYSICAL CHARATERISTICS:
Net Rentable Area (SF) 164,705 263,133
Year Built 1989 1981
Number of Units 180 300
Unit Mix: Type Total Type Total
1Br/1Ba 60 1Br/1Ba 120
2Br/2Ba 106 2Br/2Ba 160
3Br/2Ba 14 3Br/2Ba 20
Average Unit Size (SF) 915 877
Land Area (Acre) 8.0600 10.3000
Density (Units/Acre) 22.3 29.1
Parking Ratio 1.61 2.14
(Spaces/Unit)
Parking Type (Gr., Garage, Open, Covered Covered
Cov., etc.)
CONDITION: Good Average
APPEAL: Good Average
AMENITIES:
Pool/Spa Yes/Yes Yes/No
Gym Room Yes No
Laundry Room No
Secured Parking No No
Sport Courts
Washer/Dryer Connection Yes
OCCUPANCY: 94% 94%
TRANSACTION DATA:
Sale Date September, August, 2002
2002
Sale Price ($) $11,546,000 $17,040,000
Grantor MP Auburn LLC Woodtrail
Apartments
Grantee SM Mallard LLC & Woodtrail
Victorian Village
Woods
LLC
Sale Documentation N/A N/A
Verification N/A N/A
Telephone Number
ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF
Potential Gross Income $1,774,920 $9,861 $10.78 $2,350,000 $7,833 $8.93
Vacancy/Credit Loss $ 106,495 $ 592 $ 0.65 $ 141,000 $ 470 $0.54
---------- ------ ----- ---------- ------ -----
Effective Gross Income $1,668,425 $9,269 $10.13 $2,209,000 $7,363 $8.39
Operating Expenses $ 654,480 $3,636 $ 3.97 $ 954,000 $3,180 $3.63
---------- ------ ----- ---------- ------ -----
Net Operating Income $1,013,945 $5,633 $ 6.16 $1,255,000 $4,183 $4.77
---------- ------ ----- ---------- ------ -----
NOTES: None None
PRICE PER UNIT $ 64,144 $56,800
PRICE PER SQUARE FOOT $ 70.10 $ 64.76
EXPENSE RATIO 39.2% 43.2%
EGIM 6.92 7.71
OVERALL CAP RATE 8.78% 7.37%
======== ========
Cap Rate based on Pro
Forma or Actual
Income? PRO FORMA PRO FORMA
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22
RIVER'S EDGE, AUBURN, WASHINGTON
IMPROVED SALES MAP
[MAP]
IMPROVED SALES ANALYSIS
The improved sales indicate a sales price range from $56,800 to $69,095 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 $60,617 to $65,463 per unit with a mean or average adjusted price
of $63,499 per unit. The median adjusted price is $63,958 per unit. Based on the
following analysis, we have concluded to a value of $63,000 per unit, which
results in an "as is" value of $7,600,000 (rounded after necessary adjustment,
if any).
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23
RIVER'S EDGE, AUBURN, WASHINGTON
SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE COMPARABLE COMPARABLE
DESCRIPTION SUBJECT I - 1 I - 2 I - 3 I - 4
- -----------------------------------------------------------------------------------------------------------------------------
Property Name River's Edge The Pointe at Whispering Mallard Pointe Woodtrail
Redondo Hills Apartments Apartments
Address 1741 22nd 28300 18th Avenue 2120 SW 352nd 802 45th 1901 SW 320th
Street NE South Street Street NE Street
City Auburn, Federal Way, WA Federal Way, Auburn, WA Federal Way,
Washington WA WA
Sale Date January, 2003 October, 2002 September, August, 2002
2002
Sale Price ($) $15,504,500 $7,669,500 $11,546,000 $17,040,000
Net Rentable Area (SF) 111,660 227,622 112,020 164,705 263,133
Number of Units 120 225 111 180 300
Price Per Unit $68,909 $69,095 $64,144 $56,800
Year Built 1976 1990 1985 1989 1981
Land Area (Acre) 7.7300 16.6300 8.6100 8.0600 10.3000
VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ.
Property Rights Conveyed Fee Simple Fee Simple 0% Fee Simple 0% Fee Simple 0% Fee Simple 0%
Estate Estate Estate Estate Estate
Financing Cash To Seller 0% Cash To Seller 0% Cash To 0% Cash To Seller 0%
Seller
Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Arm's Length 0%
Date of Sale (Time) 01-2003 0% 10-2002 5% 09-2002 5% 08-2002 5%
VALUE AFTER TRANS. ADJUST. $68,909 $72,549 $67,352 $59,640
($/UNIT)
Location Comparable 0% Comparable 0% Comparable 0% Comparable 0%
Number of Units 120 225 5% 111 0% 180 0% 300 5%
Quality / Appeal Average Superior -5% Superior -5% Superior -5% Comparable 0%
Age / Condition 1976 1990 / Average -5% 1985 / Fair -5% 1989 / Good -5% 1981 / Average 0%
Occupancy at Sale 92% 96% 0% 95% 0% 94% 0% 94% 0%
Amenities Good Comparable 0% Comparable 0% Comparable 0% Comparable 0%
Average Unit Size (SF) 931 1,012 0% 1,009 0% 915 0% 877 0%
PHYSICAL ADJUSTMENT -5% -10% -10% 5%
FINAL ADJUSTED VALUE $65,463 $65,294 $60,617 $62,622
($/UNIT)
SUMMARY
VALUE RANGE (PER UNIT) $60,617 TO $65,463
MEAN (PER UNIT) $63,499
MEDIAN (PER UNIT) $63,958
VALUE CONCLUSION (PER UNIT) $63,000
VALUE INDICATED BY SALES COMPARISON APPROACH $7,560,000
ROUNDED $7,600,000
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
RIVER'S EDGE, AUBURN, WASHINGTON
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-1 225 $15,504,500 9.17% $1,421,642 $591,819 0.781 $53,787
$ 68,909 $ 6,318 $ 4,932
I-2 111 $ 7,669,500 7.39% $ 566,420 $591,819 0.966 $66,778
$ 69,095 $ 5,103 $ 4,932
I-3 180 $11,546,000 8.78% $1,013,945 $591,819 0.876 $56,160
$ 64,144 $ 5,633 $ 4,932
I-4 300 $17,040,000 7.37% $1,255,000 $591,819 1.179 $66,963
$ 56,800 $ 4,183 $ 4,932
PRICE/UNIT
Low High Average Median
$53,787 $66,963 $60,922 $61,469
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT
Estimated Price Per Unit $ 62,000
Number of Units 120
----------
Value Based on NOI Analysis $7,440,000
Rounded $7,400,000
The adjusted sales indicate a range of value between $53,787 and $66,963 per
unit, with an average of $60,922 per unit. Based on the subject's competitive
position within the improved sales, a value of $62,000 per unit is estimated.
This indicates an "as is" market value of $7,400,000 (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.
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-1 225 $15,504,500 $2,103,725 $682,083 32.42% 7.37
$ 68,909
I-2 111 $ 7,669,500 $1,011,465 $445,045 44.00% 7.58
$ 69,095 38.33%
I-3 180 $11,546,000 $1,668,425 $654,480 39.23% 6.92
$ 64,144
I-4 300 $17,040,000 $2,209,000 $954,000 43.19% 7.71
$ 56,800
EGIM
Low High Average Median
6.92 7.71 7.40 7.48
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES
Estimate EGIM 7.50
Subject EGI $1,008,230
----------
Value Based on EGIM $7,561,728
Rounded $7,600,000
Value Per Unit $ 63,333
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 25
RIVER'S EDGE, AUBURN, WASHINGTON
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 38.33% before reserves. The comparable sales
indicate a range of expense ratios from 32.42% to 44.00%, while their EGIMs
range from 6.92 to 7.71. Overall, we conclude to an EGIM of 7.50, which results
in an "as is" value estimate in the EGIM Analysis of $7,600,000.
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 $7,600,000.
Price Per Unit $7,600,000
NOI Per Unit $7,400,000
EGIM Analysis $7,600,000
Sales Comparison Conclusion $7,600,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26
RIVER'S EDGE, AUBURN, WASHINGTON
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
RIVER'S EDGE, AUBURN, WASHINGTON
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 675 $ 609 $ 0.90 83.3%
2Br/1Ba 975 $ 710 $ 0.73 92.9%
3Br/2Ba 1130 $ 836 $ 0.74 100.0%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28
RIVER'S EDGE, AUBURN, WASHINGTON
RENT ANALYSIS
COMPARABLE RENTS
---------------------------------------------
R-1 R-2 R-3 R-4 R-5
---------------------------------------------
Brittany Auburn Clearwater
Park Amberview Glen Ridge
---------------------------------------------
SUBJECT SUBJECT SUBJECT COMPARISON TO SUBJECT
UNIT ACTUAL ASKING ---------------------------------------------
DESCRIPTION TYPE RENT RENT Inferior Superior Superior Superior 0 MIN MAX MEDIAN AVERAGE
- --------------------------------------------------------------------------------------------------------------------------
Monthly Rent 1BR/1BA $ 609 $ 659 $ 575 $ 650 $ 675 $ 620 $ 575 $ 675 $ 635 $ 630
Unit Area (SF) 675 675 690 700 701 674 674 701 695 691
Monthly Rent Per $0.90 $ 0.98 $ 0.83 $ 0.93 $ 0.96 $ 0.92 $0.83 $0.96 $0.92 $ 0.91
Sq. Ft.
Monthly Rent 2BR/1BA $ 710 $ 729 $ 701 $ 750 $ 735 $ 677 $ 677 $ 750 $ 718 $ 716
Unit Area (SF) 975 975 908 880 902 910 880 910 905 900
Monthly Rent Per $ 0.73 $ 0.75 $ 0.77 $ 0.85 $ 0.81 $ 0.74 $0.74 $0.85 $0.79 $ 0.80
Sq. Ft.
Monthly Rent 3BR/2BA $ 836 $ 859 $ 900 $ 950 $ 975 $ 850 $ 850 $ 975 $ 925 $ 919
Unit Area (SF) 1,130 1,130 1,340 1,080 1,082 1,098 1,080 1,340 1,090 1,150
Monthly Rent Per
Sq. Ft. $ 0.74 $ 0.76 $ 0.67 $ 0.88 $ 0.90 $ 0.77 $0.67 $0.90 $0.83 $ 0.81
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 24 675 $610 $0.90 $14,640 $ 175,680
2Br/1Ba 84 975 $710 $0.73 $59,640 $ 715,680
3Br/2Ba 12 1,130 $850 $0.75 $10,200 $ 122,400
Total $84,480 $1,013,760
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
RIVER'S EDGE, AUBURN, WASHINGTON
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 $935,894 $ 7,799 $989,275 $ 8,244 $1,015,025 $ 8,459 $1,014,000 $8,450
Vacancy $ 18,929 $ 158 $ 40,089 $ 334 $ 80,317 $ 669 $ 63,500 $ 529
Credit Loss/Concessions $ 14,018 $ 117 $ 72 $ 1 $ 7,485 $ 62 $ 6,750 $ 56
-------- -------- -------- -------- --------- -------- ---------- ------
Subtotal $ 32,947 $ 275 $ 40,161 $ 335 $ 87,802 $ 732 $ 70,250 $ 585
Laundry Income $ 4,855 $ 40 $ 3,732 $ 31 $ 2,646 $ 22 $ 7,212 $ 60
Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Other Misc. Revenue $ 27,794 $ 232 $ 43,354 $ 361 $ 74,575 $ 621 $ 55,080 $ 459
-------- -------- -------- -------- --------- -------- ---------- ------
Subtotal Other Income $ 32,649 $ 272 $ 47,086 $ 392 $ 77,221 $ 644 $ 62,292 $ 519
Effective Gross Income $935,596 $ 7,797 $996,200 $ 8,302 $1,004,444 $ 8,370 $1,006,042 $8,384
Operating Expenses
Taxes $ 55,908 $ 466 $ 53,165 $ 443 $ 52,009 $ 433 $ 51,849 $ 432
Insurance $ 7,844 $ 65 $ 18,865 $ 157 $ 17,361 $ 145 $ 18,701 $ 156
Utilities $ 43,160 $ 360 $ 31,641 $ 264 $ 48,013 $ 400 $ 44,400 $ 370
Repair & Maintenance $ 43,780 $ 365 $ 41,849 $ 349 $ 44,495 $ 371 $ 9,300 $ 78
Cleaning $ 5,324 $ 44 $ 7,069 $ 59 $ 12,716 $ 106 $ 11,800 $ 98
Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 37,800 $ 315
Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Marketing & Leasing $ 10,487 $ 87 $ 9,894 $ 82 $ 20,593 $ 172 $ 21,600 $ 180
General Administrative $104,814 $ 873 $134,355 $ 1,120 $ 110,983 $ 925 $ 117,367 $ 978
Management $ 47,349 $ 395 $ 49,826 $ 415 $ 51,753 $ 431 $ 50,304 $ 419
Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
-------- -------- -------- -------- --------- -------- ---------- ------
Total Operating Expenses $318,666 $ 2,656 $346,664 $ 2,889 $ 357,923 $ 2,983 $ 363,121 $3,026
Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
-------- -------- -------- -------- --------- -------- ---------- ------
Net Income $616,930 $ 5,141 $649,536 $ 5,413 $ 646,521 $ 5,388 $ 642,921 $5,358
ANNUALIZED 2003
-----------------------
PROJECTION AAA PROJECTION
-------------------------------------------------------
DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT %
- ----------------------------------------------------------------------------------
Revenues
Rental Income $1,012,772 $ 8,440 $1,013,760 $ 8,448 100.0%
Vacancy $ 85,540 $ 713 $ 81,101 $ 676 8.0%
Credit Loss/Concessions $ 3,564 $ 30 $ 5,069 $ 42 0.5%
---------- ------- ---------- -------- ----
Subtotal $ 89,104 $ 743 $ 86,170 $ 718 8.5%
Laundry Income $ 2,524 $ 21 $ 2,640 $ 22 0.3%
Garage Revenue $ 0 $ 0 $ 0 $ 0 0.0%
Other Misc. Revenue $ 87,148 $ 726 $ 78,000 $ 650 7.7%
---------- ------- ---------- -------- ----
Subtotal Other Income $ 89,672 $ 747 $ 80,640 $ 672 8.0%
Effective Gross Income $1,013,340 $ 8,445 $1,008,230 $ 8,402 100%
Operating Expenses
Taxes $ 53,636 $ 447 $ 70,800 $ 590 7.0%
Insurance $ 17,312 $ 144 $ 18,000 $ 150 1.8%
Utilities $ 62,196 $ 518 $ 54,000 $ 450 5.4%
Repair & Maintenance $ 37,244 $ 310 $ 42,000 $ 350 4.2%
Cleaning $ 15,268 $ 127 $ 13,200 $ 110 1.3%
Landscaping $ 0 $ 0 $ 0 $ 0 0.0%
Security $ 0 $ 0 $ 0 $ 0 0.0%
Marketing & Leasing $ 23,412 $ 195 $ 21,600 $ 180 2.1%
General Administrative $ 116,372 $ 970 $ 116,400 $ 970 11.5%
Management $ 51,260 $ 427 $ 50,412 $ 420 5.0%
Miscellaneous $ 0 $ 0 $ 0 $ 0 0.0%
---------- ------- ---------- -------- ----
Total Operating Expenses $ 376,700 $ 3,139 $ 386,412 $ 3,220 38.3%
Reserves $ 0 $ 0 $ 30,000 $ 250 7.8%
---------- ------- ---------- -------- ----
Net Income $ 636,640 $ 5,305 $ 591,819 $ 4,932 58.7%
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 8.5% based on
the subject's historical performance, as well as the anticipated future market
conditions.
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30
RIVER'S EDGE, AUBURN, WASHINGTON
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 31
RIVER'S EDGE, AUBURN, WASHINGTON
SUMMARY OF OVERALL
CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR
- ----------------------------------------------------------
I-1 Jan-03 96% $68,909 9.17%
I-2 Oct-02 95% $69,095 7.39%
I-3 Sep-02 94% $64,144 8.78%
I-4 Aug-02 94% $56,800 7.37%
I-5 Jan-00 0% N/A
High 9.17%
Low 7.37%
Average 8.18%
Based on this information, we have concluded the subject's overall
capitalization rate should be 8.00%. 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 9.00%. 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 10.50%.
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 10.50% indicates a value of $7,400,000. In this instance, the reversion
figure contributes
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32
RIVER'S EDGE, AUBURN, WASHINGTON
approximately 43% of the total value. Investors surveyed for this assignment
indicated they would prefer to have the cash flow contribute anywhere from 50%
to 60%. Overall, the blend seems reasonable. The cash flow and pricing matrix
are located on the following pages.
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 33
RIVER'S EDGE, AUBURN, WASHINGTON
DISCOUNTED CASH FLOW ANALYSIS
RIVER'S EDGE
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009
FISCAL YEAR 1 2 3 4 5 6
- ------------------------------------------------------------------------------------------------------------------------
REVENUE
Base Rent $1,013,760 $1,044,173 $1,075,498 $1,107,763 $1,140,996 $1,175,226
Vacancy $ 81,101 $ 83,534 $ 86,040 $ 88,621 $ 91,280 $ 94,018
Credit Loss $ 5,069 $ 5,221 $ 5,377 $ 5,539 $ 5,705 $ 5,876
Concessions $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
---------------------------------------------------------------------------------
Subtotal $ 86,170 $ 88,755 $ 91,417 $ 94,160 $ 96,985 $ 99,894
Laundry Income $ 2,640 $ 2,719 $ 2,801 $ 2,885 $ 2,971 $ 3,060
Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Other Misc. Revenue $ 78,000 $ 80,340 $ 82,750 $ 85,233 $ 87,790 $ 90,423
---------------------------------------------------------------------------------
Subtotal Other Income $ 80,640 $ 83,059 $ 85,551 $ 88,118 $ 90,761 $ 93,484
---------------------------------------------------------------------------------
EFFECTIVE GROSS INCOME $1,008,230 $1,038,477 $1,069,632 $1,101,721 $1,134,772 $1,168,815
OPERATING EXPENSES:
Taxes $ 70,800 $ 72,924 $ 75,112 $ 77,365 $ 79,686 $ 82,077
Insurance $ 18,000 $ 18,540 $ 19,096 $ 19,669 $ 20,259 $ 20,867
Utilities $ 54,000 $ 55,620 $ 57,289 $ 59,007 $ 60,777 $ 62,601
Repair & Maintenance $ 42,000 $ 43,260 $ 44,558 $ 45,895 $ 47,271 $ 48,690
Cleaning $ 13,200 $ 13,596 $ 14,004 $ 14,424 $ 14,857 $ 15,302
Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Marketing & Leasing $ 21,600 $ 22,248 $ 22,915 $ 23,603 $ 24,311 $ 25,040
General Administrative $ 116,400 $ 119,892 $ 123,489 $ 127,193 $ 131,009 $ 134,940
Management $ 50,412 $ 51,924 $ 53,482 $ 55,086 $ 56,739 $ 58,441
Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
---------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES $ 386,412 $ 398,004 $ 409,944 $ 422,242 $ 434,910 $ 447,957
Reserves $ 30,000 $ 30,900 $ 31,827 $ 32,782 $ 33,765 $ 34,778
---------------------------------------------------------------------------------
NET OPERATING INCOME $ 591,819 $ 609,573 $ 627,861 $ 646,696 $ 666,097 $ 686,080
---------------------------------------------------------------------------------
Operating Expense Ratio (% of EGI) 38.3% 38.3% 38.3% 38.3% 38.3% 38.3%
Operating Expense Per Unit $ 3,220 $ 3,317 $ 3,416 $ 3,519 $ 3,624 $ 3,733
YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014
FISCAL YEAR 7 8 9 10 11
- ----------------------------------------------------------------------------------------------------------
REVENUE
Base Rent $1,210,482 $1,246,797 $1,284,201 $1,322,727 $1,362,409
Vacancy $ 96,839 $ 99,744 $ 102,736 $ 105,818 $ 108,993
Credit Loss $ 6,052 $ 6,234 $ 6,421 $ 6,614 $ 6,812
Concessions $ 0 $ 0 $ 0 $ 0 $ 0
-------------------------------------------------------------------
Subtotal $ 102,891 $ 105,978 $ 109,157 $ 112,432 $ 115,805
Laundry Income $ 3,152 $ 3,247 $ 3,344 $ 3,445 $ 3,548
Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0
Other Misc. Revenue $ 93,136 $ 95,930 $ 98,808 $ 101,772 $ 104,825
-------------------------------------------------------------------
Subtotal Other Income $ 96,288 $ 99,177 $ 102,152 $ 105,217 $ 108,373
-------------------------------------------------------------------
EFFECTIVE GROSS INCOME $1,203,880 $1,239,996 $1,277,196 $1,315,512 $1,354,977
OPERATING EXPENSES:
Taxes $ 84,539 $ 87,075 $ 89,687 $ 92,378 $ 95,149
Insurance $ 21,493 $ 22,138 $ 22,802 $ 23,486 $ 24,190
Utilities $ 64,479 $ 66,413 $ 68,406 $ 70,458 $ 72,571
Repair & Maintenance $ 50,150 $ 51,655 $ 53,204 $ 54,800 $ 56,444
Cleaning $ 15,761 $ 16,234 $ 16,721 $ 17,223 $ 17,740
Landscaping $ 0 $ 0 $ 0 $ 0 $ 0
Security $ 0 $ 0 $ 0 $ 0 $ 0
Marketing & Leasing $ 25,792 $ 26,565 $ 27,362 $ 28,183 $ 29,029
General Administrative $ 138,988 $ 143,157 $ 147,452 $ 151,876 $ 156,432
Management $ 60,194 $ 62,000 $ 63,860 $ 65,776 $ 67,749
Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0
-------------------------------------------------------------------
TOTAL OPERATING EXPENSES $ 461,396 $ 475,237 $ 489,495 $ 504,179 $ 519,305
Reserves $ 35,822 $ 36,896 $ 38,003 $ 39,143 $ 40,317
-------------------------------------------------------------------
NET OPERATING INCOME $ 706,663 $ 727,863 $ 749,698 $ 772,189 $ 795,355
-------------------------------------------------------------------
Operating Expense Ratio (% of EGI) 38.3% 38.3% 38.3% 38.3% 38.3%
Operating Expense Per Unit $ 3,845 $ 3,960 $ 4,079 $ 4,201 $ 4,328
Gross Residual Sale Price $8,837,279 Deferred Maintenance $ 0
Estimated Stabilized
NOI $591,819 Sales Expense Rate 2.00% Less: Sales Expense $ 176,746 Add: Excess Land $ 0
---------- ----------
Months to Stabilized 1 Discount Rate 10.50% Net Residual Sale Price $8,660,533 Other Adjustments $ 0
Stabilized Occupancy 92.0% Terminal Cap Rate 9.00% PV of Reversion $3,190,964 Value Indicated By "DCF" $7,439,781
Add: NPV of NOI $4,248,818
---------- Rounded $7,400,000
PV Total $7,439,781
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE
-------------------------------------------------------------------------
TOTAL VALUE 10.00% 10.25% 10.50% 10.75% 11.00%
- --------------------------------------------------------------------------------------------------------
8.50% $7,888,119 $7,756,345 $7,627,485 $7,501,466 $7,378,216
TERMINAL 8.75% $7,787,107 $7,657,600 $7,530,952 $7,407,090 $7,285,944
CAP 9.00% $7,691,707 $7,564,341 $7,439,781 $7,317,957 $7,198,798
RATE 9.25% $7,601,464 $7,476,123 $7,353,539 $7,233,641 $7,116,363
9.50% $7,515,970 $7,392,548 $7,271,836 $7,153,764 $7,038,266
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 34
RIVER'S EDGE, AUBURN, WASHINGTON
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
Concessions have historically not been utilized at the subject property or in
the subject's market. Therefore, no adjustment was included for concessions.
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 8.00% percent is applicable to the
subject. The results of our direct capitalization analysis are as follows:
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 35
RIVER'S EDGE, AUBURN, WASHINGTON
RIVER'S EDGE
TOTAL PER SQ. FT. PER UNIT %OF EGI
- ------------------------------------------------------------------------------------------------
REVENUE
Base Rent $1,013,760 $ 9.08 $ 8,448
Less: Vacancy & Collection Loss 8.50% $ 86,170 $ 0.77 $ 718
Plus: Other Income
Laundry Income $ 2,640 $ 0.02 $ 22 0.26%
Garage Revenue $ 0 $ 0.00 $ 0 0.00%
Other Misc. Revenue $ 78,000 $ 0.70 $ 650 7.74%
-------------------------------------- ------
Subtotal Other Income $ 80,640 $ 0.72 $ 672 8.00%
EFFECTIVE GROSS INCOME $1,008,230 $ 9.03 $ 8,402
OPERATING EXPENSES:
Taxes $ 70,800 $ 0.63 $ 590 7.02%
Insurance $ 18,000 $ 0.16 $ 150 1.79%
Utilities $ 54,000 $ 0.48 $ 450 5.36%
Repair & Maintenance $ 42,000 $ 0.38 $ 350 4.17%
Cleaning $ 13,200 $ 0.12 $ 110 1.31%
Landscaping $ 0 $ 0.00 $ 0 0.00%
Security $ 0 $ 0.00 $ 0 0.00%
Marketing & Leasing $ 21,600 $ 0.19 $ 180 2.14%
General Administrative $ 116,400 $ 1.04 $ 970 11.54%
Management 5.00% $ 50,412 $ 0.45 $ 420 5.00%
Miscellaneous $ 0 $ 0.00 $ 0 0.00%
TOTAL OPERATING EXPENSES $ 386,412 $ 3.46 $ 3,220 38.33%
Reserves $ 30,000 $ 0.27 $ 250 2.98%
---------------------------------------------
NET OPERATING INCOME $ 591,819 $ 5.30 $ 4,932 58.70%
"GOING IN" CAPITALIZATION RATE 8.00%
VALUE INDICATION $7,397,736 $66.25 $61,648
"AS IS" VALUE INDICATION
(DIRECT CAPITALIZATION APPROACH) $7,397,736
ROUNDED $7,400,000 $66.27 $61,667
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 36
RIVER'S EDGE, AUBURN, WASHINGTON
DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF
- ----------------------------------------------------------------------
7.25% $8,163,019 $8,200,000 $68,333 $73.44
7.50% $7,890,918 $7,900,000 $65,833 $70.75
7.75% $7,636,373 $7,600,000 $63,333 $68.06
8.00% $7,397,736 $7,400,000 $61,667 $66.27
8.25% $7,173,562 $7,200,000 $60,000 $64.48
8.50% $6,962,575 $7,000,000 $58,333 $62.69
8.75% $6,763,644 $6,800,000 $56,667 $60.90
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD
Applying the capitalization rate to our estimated NOI results in an estimated
value of $7,400,000.
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 $7,400,000
Direct Capitalization Method $7,400,000
Giving consideration to the indicated values provided by both techniques, we
have concluded the estimated value by the income capitalization approach to be
$7,400,000.
AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 37
RIVER'S EDGE, AUBURN, WASHINGTON
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 $7,600,000
Income Approach $7,400,000
Reconciled Value $7,500,000
The Direct Capitalization Method is considered a reliable indicator of value.
Income and expenses were estimated and projected based on historical operating
statements and market oriented expenses. This method is primarily used by
investors in their underwriting analysis. Furthermore, there was good support
for an overall rate in the Direct Capitalization Method.
The Sales Comparison Approach to value supported the value conclusion by the
Income Approach and was given secondary consideration. Investment-grade,
income-producing properties such as the subject are not typically traded based
on cost. Therefore, the Cost Approach has not been considered in our valuation.
FINAL VALUE - FEE SIMPLE ESTATE
Based on the investigation and premise outlined, it is our opinion that as of
May 20, 2003 the market value of the fee simple estate in the property is:
$7,500,000
AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA
RIVER'S EDGE, AUBURN, WASHINGTON
ADDENDA
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A
RIVER'S EDGE, AUBURN, WASHINGTON
EXHIBIT A
SUBJECT PHOTOGRAPHS
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A
RIVER'S EDGE, AUBURN, WASHINGTON
SUBJECT PHOTOGRAPHS
[PICTURE] [PICTURE]
EXTERIOR - OFFICE EXTERIOR - APARTMENT BUILDING
[PICTURE] [PICTURE]
EXTERIOR - LANDSCAPING EXTERIOR - POOL
[PICTURE] [PICTURE]
EXTERIOR - ENTRANCE EXTERIOR - EASTERLY VIEW OF 22ND STREET NE
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A
RIVER'S EDGE, AUBURN, WASHINGTON
SUBJECT PHOTOGRAPHS
[PICTURE] [PICTURE]
EXTERIOR - EASTERLY VIEW OF 22ND STREET NE INTERIOR - LEASING OFFICE
[PICTURE] [PICTURE]
INTERIOR - LEASING OFFICE INTERIOR - APARTMENT UNIT
[PICTURE] [PICTURE]
INTERIOR - APARTMENT UNIT INTERIOR - APARTMENT UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B
RIVER'S EDGE, AUBURN, WASHINGTON
EXHIBIT B
SUMMARY OF RENT COMPARABLES
AND PHOTOGRAPH OF COMPARABLES
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B
RIVER'S EDGE, AUBURN, WASHINGTON
PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES
COMPARABLE I-1
THE POINTE AT REDONDO
28300 18th Avenue South
Federal Way, WA
[PICTURE]
COMPARABLE I-2
WHISPERING HILLS
2120 SW 352nd Street
Federal Way, WA
[PICTURE]
COMPARABLE I-3
MALLARD POINTE APARTMENTS
802 45th Street NE
Auburn, WA
[PICTURE]
COMPARABLE I-4
WOODTRAIL APARTMENTS
1901 SW 320th Street
Federal Way, WA
[PICTURE]
N/A
[PICTURE]
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B
RIVER'S EDGE, AUBURN, WASHINGTON
SUMMARY OF COMPARABLE RENTAL PROPERTIES
DESCRIPTION SUBJECT COMPARABLE
R - 1
- -----------------------------------------------------------------------------------------------------------------------------
Property Name River's Edge Brittany Park
Management Company AIMCO Reeder
LOCATION:
- -----------------------------------------------------------------------------------------------------------------------------
Address 1741 22nd Street NE 1433 8th Street NE
City, State Auburn, Washington Auburn, WA
County King King
Proximity to Subject 2-miles south of the
subject
PHYSICAL CHARACTERISTICS:
- -----------------------------------------------------------------------------------------------------------------------------
Net Rentable Area (SF) 111,660 152,440
Year Built 1976 1968
Effective Age 20 25
Building Structure Type Wood siding walls; asphalt shingle roof Stucco walls; asphalt shingle roof
Parking Type (Gr., Cov., etc.) Garage, Open Covered Open
Number of Units 120 190
- -----------------------------------------------------------------------------------------------------------------------------
Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo.
1 1Br/1Ba 675 24 $609 1 1BD/1BH 690 104 $575
2 2Br/1Ba 975 84 $710 2 2BD/1BH 900 64 $695
3 3Br/2Ba 1,130 12 $836 2 2BD/1.5BH 940 16 $725
3 3BD/1.5BH 1,340 6 $900
- -----------------------------------------------------------------------------------------------------------------------------
Average Unit Size (SF) 931 802
Unit Breakdown: Efficiency 0% 2-Bedroom 70% Efficiency 0% 2-Bedroom 42%
1-Bedroom 20% 3-Bedroom 10% 1-Bedroom 55% 3-Bedroom 3%
CONDITION: Average Fair
APPEAL: Average Fair
- -----------------------------------------------------------------------------------------------------------------------------
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 X Swimming Pool X Swimming Pool
Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash
Basketball Court BBQ Equipment Basketball Court BBQ Equipment
Volleyball Court Theater Room Volleyball Court Theater Room
Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall
Tennis Court Secured Parking Tennis Court Secured Parking
Racquet Ball X Laundry Room Racquet Ball X Laundry Room
Jogging Track Business Office Jogging Track Business Office
Gym Room X Gym Room
- -----------------------------------------------------------------------------------------------------------------------------
OCCUPANCY: 92% 96%
LEASING DATA:
Available Leasing Terms 6 to 12 Months 6 to 12 Months
Concessions $50-$70 off 1st month rent for 1BD & 2BD 1 Months Free
Pet Deposit $200 $300
Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas
----------------------------------------------------------------------------------------
X Water Trash X Water Trash
Confirmation May 2003, Property Manager May 2003, Property Manager
Telephone Number (253) 735-2125 (253) 939-4846
NOTES: None
Inferior
Comparison to Subject:
DESCRIPTION COMPARABLE COMPARABLE
R - 2 R - 3
- -----------------------------------------------------------------------------------------------------------------------------
Property Name Amberview Auburn Glen
Management Company S-J Management LLC Allied Group,
Inc.
LOCATION:
- -----------------------------------------------------------------------------------------------------------------------------
Address 32115 105th Place SE 1902 A Street SE
City, State Auburn, WA Auburn, WA
County King King
Proximity to Subject 2-miles south of the Within 5 mile radius
subject
PHYSICAL CHARACTERISTICS:
- -----------------------------------------------------------------------------------------------------------------------------
Net Rentable Area (SF) 131,920 126,764
Year Built 1990 1990
Effective Age 10 10
Building Structure Type Wood siding walls; asphalt shingle roof Wood siding walls; asphalt shingle roof
Parking Type (Gr., Cov., etc.) Open, Covered, Garbage Open, Covered
Number of Units 157 148
- -----------------------------------------------------------------------------------------------------------------------------
Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo.
1 1BD/1BH 700 58 $650 1 1BD/1BH 701 48 $675
2 2BD/2BH 880 78 $750 2 2BD/1BH 839 36 $715
3 3BD/2BH 1,080 21 $950 2 2BD/2BH 950 48 $750
3 3BD/2BH 1,082 16 $975
- -----------------------------------------------------------------------------------------------------------------------------
Average Unit Size (SF) 840 857
Unit Breakdown: Efficiency 0% 2-Bedroom 50% Efficiency 0% 2-Bedroom 57%
1-Bedroom 37% 3-Bedroom 13% 1-Bedroom 32% 3-Bedroom 11%
CONDITION: Good Good
APPEAL: Good Good
- -----------------------------------------------------------------------------------------------------------------------------
AMENITIES:
Unit Amenities Attach. Garage X 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
X Spa/Jacuzzi Car Wash X Spa/Jacuzzi Car Wash
Basketball Court BBQ Equipment Basketball Court BBQ Equipment
Volleyball Court Theater Room Volleyball Court Theater Room
Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall
X Tennis Court X Secured Parking Tennis Court Secured Parking
Racquet Ball Laundry Room Racquet Ball Laundry Room
Jogging Track Business Office Jogging Track Business Office
X Gym Room X Gym Room
- -----------------------------------------------------------------------------------------------------------------------------
OCCUPANCY: 92% 96%
LEASING DATA:
Available Leasing Terms 6 to 12 Months 6 to 12 Months
- -----------------------------------------------------------------------------------------------------------------------------
Concessions 1/2 - 1 Months Free 1/2 - 1 Months Free
Pet Deposit $300 $300
Utilities Paid by Tenant: Electric X Natural Gas X Electric X Natural Gas
-------------------------------------------------------------------------------------------
Water Trash X Water Trash
Confirmation May 2003, Leasing Agent May 2003, Property Manager
Telephone Number (253) 735-2007 (253) 939-4449
NOTES: None None
Superior Superior
Comparison to Subject:
DESCRIPTION COMPARABLE COMPARABLE
R - 4 R - 5
- ----------------------------------------------------------------------------------------------------------------------------
Property Name Clearwater Ridge
Management Company Con-Am Management Company
LOCATION:
- ----------------------------------------------------------------------------------------------------------------------------
Address 3702 Auburn Way South
City, State Auburn, WA
County King
Proximity to Subject Within 5-mile radius
PHYSICAL CHARACTERISTICS:
- ----------------------------------------------------------------------------------------------------------------------------
Net Rentable Area (SF) 132,892
Year Built 1990
Effective Age 10
Building Structure Type Wood siding walls; asphalt
shingle roof
Parking Type (Gr., Cov., etc.) Open, Covered
Number of Units 142
- ----------------------------------------------------------------------------------------------------------------------------
Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo.
1 1BD/1BH 674 18 $620
2 2BD/1BH 834 36 $660
2 2BD/2BH 970 46 $690
3 3BD/2BH 1,098 42 $850
- -----------------------------------------------------------------------------------------------------------------------------
Average Unit Size (SF) 936
Unit Breakdown: Efficiency 0% 2-Bedroom 57% Efficiency 2-Bedroom
1-Bedroom 13% 3-Bedroom 30% 1-Bedroom 3-Bedroom
CONDITION: Slightly Superior Slightly Superior
APPEAL: Good Good
- -----------------------------------------------------------------------------------------------------------------------------
AMENITIES:
Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling
X Balcony X W/D Connect. Balcony W/D Connect.
X Fireplace Fireplace
X Cable TV Ready Cable TV Ready
Project Amenities X Swimming Pool Swimming Pool
X Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash
Basketball Court BBQ Equipment Basketball Court BBQ Equipment
Volleyball Court Theater Room Volleyball Court Theater Room
Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall
Tennis Court Secured Parking Tennis Court Secured Parking
Racquet Ball Laundry Room Racquet Ball Laundry Room
Jogging Track Business Office Jogging Track Business Office
X Gym Room Gym Room
- -----------------------------------------------------------------------------------------------------------------------------
OCCUPANCY: 89%
LEASING DATA:
Available Leasing Terms 6 to 12 Months
Concessions 1/2 - 1 Months Free
Pet Deposit $300
Utilities Paid by Tenant: X Electric X Natural Gas Electric Natural Gas
-----------------------------------------------------------------------------------
X Water Trash Water Trash
Confirmation May 2003, Property Manager
Telephone Number (253) 939-8836
NOTES: None
Superior
Comparison to Subject:
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B
RIVER'S EDGE, AUBURN, WASHINGTON
PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES
COMPARABLE R-1
BRITTANY PARK
1433 8th Street NE
Auburn, WA
[PICTURE]
COMPARABLE R-2
AMBERVIEW
32115 105th Place SE
Auburn, WA
[PICTURE]
COMPARABLE R-3
AUBURN GLEN
1902 A Street SE
Auburn, WA
[PICTURE]
COMPARABLE R-4
CLEARWATER RIDGE
3702 Auburn Way South
Auburn, WA
[PICTURE]
COMPARABLE R-5
N/A
[PICTURE]
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C
RIVER'S EDGE, AUBURN, WASHINGTON
EXHIBIT C
ASSUMPTIONS AND LIMITING CONDITIONS
(3 PAGES)
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C
RIVER'S EDGE, AUBURN, WASHINGTON
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
RIVER'S EDGE, AUBURN, WASHINGTON
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
RIVER'S EDGE, AUBURN, WASHINGTON
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
RIVER'S EDGE, AUBURN, WASHINGTON
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. Susan M. Kim
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- Douglas Needham
------------------------------
Douglas Needham, MAI
Managing Principal, Real Estate Group
Washington State Certified General
Real Estate Appraiser #1101111
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E
RIVER'S EDGE, AUBURN, WASHINGTON
EXHIBIT E
QUALIFICATIONS OF APPRAISER
(2 PAGES)
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E
RIVER'S EDGE, AUBURN, WASHINGTON
DOUGLAS A. NEEDHAM, MAI
MANAGING PRINCIPAL, REAL ESTATE ADVISORY GROUP
POSITION Douglas A. Needham is a Managing Principal
for the Irvine Real Estate Advisory Group
of American Appraisal Associates, Inc.
("AAA").
EXPERIENCE
Valuation Mr. Needham has appraised all types of major
commercial real estate including apartments,
hotels/motels, light and heavy industrial
facilities, self-storage facilities, mobile
home parks, offices, retail shopping
centers, service stations, special-use
properties, and vacant land.
Business Mr. Needham joined AAA in 1998. Prior to
joining AAA, he was a senior associate at
Koeppel Tener, a senior analyst at Great
Western Appraisal Group, and an associate
appraiser at R. L. McLaughlin & Associates.
EDUCATION Texas A&M University
Bachelor of Business Administration -
Finance
STATE CERTIFICATIONS State of Arizona, Certified General Real
Estate Appraiser, #30943
State of California, Certified General Real
Estate Appraiser, #AG025443
State of Colorado, Certified General
Appraiser, #CG40017035
State of Oregon, Certified General
Appraiser, #C000686
State of Washington, Certified General
Real Estate Appraiser, #1101111
PROFESSIONAL Appraisal Institute, MAI Designated Member
AFFILIATIONS
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E
RIVER'S EDGE, AUBURN, WASHINGTON
VALUATION AND Appraisal Institute
SPECIAL COURSES Advanced Income Capitalization
Appraisal Principles
Appraisal Procedures
Basic Income Capitalization
Standards of Professional Practice
AMERICAN APPRAISAL ASSOCIATES, INC.
RIVER'S EDGE, AUBURN, WASHINGTON
GENERAL SERVICE CONDITIONS
AMERICAN APPRAISAL ASSOCIATES, INC.
RIVER'S EDGE, AUBURN, WASHINGTON
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.