CITADEL VILLAGE
913 N. CHELTON RD.
COLORADO SPRINGS, COLORADO
MARKET VALUE -
FEE SIMPLE ESTATE
AS OF MAY 15, 2003
PREPARED FOR:
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
(AIMCO)
C/O LINER YANKELEVITZ SUNSHINE & REGENSTREIF LLP
&
LIEFF CABRASER HEIMANN & BERNSTEIN
ON BEHALF OF NUANES, ET. AL.
[AMERICAN APPRAISAL ASSOCIATES(R) LOGO]
[AMERICAN APPRAISAL ASSOCIATES(R) LOGO]
[AMERICAN APPRAISAL ASSOCIATES(R) LETTERHEAD]
JUNE 28, 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: CITADEL VILLAGE
913 N. CHELTON RD.
COLORADO SPRINGS, EL PASO COUNTY, COLORADO
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 122 units with a
total of 110,125 square feet of rentable area. The improvements were built in
1974. The improvements are situated on 9.28 acres. Overall, the improvements are
in average condition. As of the date of this appraisal, the subject property is
62% 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
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
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 15, 2003 is:
($5,500,000)
Respectfully submitted,
AMERICAN APPRAISAL ASSOCIATES, INC.
-s- Douglas Needham
June 28, 2003 Douglas Needham, MAI
#053272 Managing Principal, Real Estate Group
Colorado State Certified General Real Estate Appraiser
#CG40017035
Report By:
James Newell
AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
TABLE OF CONTENTS
Cover
Letter of Transmittal
Table of Contents
APPRAISAL DATA
Executive Summary ......................................................... 4
Introduction .............................................................. 9
Area Analysis ............................................................. 11
Market Analysis ........................................................... 14
Site Analysis ............................................................. 16
Improvement Analysis ...................................................... 16
Highest and Best Use ...................................................... 17
VALUATION
Valuation Procedure ....................................................... 18
Sales Comparison Approach ................................................. 20
Income Capitalization Approach ............................................ 26
Reconciliation and Conclusion ............................................. 38
ADDENDA
Exhibit A - Photographs of Subject Property
Exhibit B - Summary of Rent Comparables and Photograph of Comparables
Exhibit C - Assumptions and Limiting Conditions
Exhibit D - Certificate of Appraiser
Exhibit E - Qualifications
General Service Conditions
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 4
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
EXECUTIVE SUMMARY
PART ONE - PROPERTY DESCRIPTION
PROPERTY NAME: Citadel Village
LOCATION: 913 N. Chelton Rd.
Colorado Springs, Colorado
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 15, 2003
DATE OF REPORT: June 28, 2003
PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS:
SITE:
Size: 9.28 acres, or 404,237 square feet
Assessor Parcel No.: 7412200058
Floodplain: Community Panel No. 08041C0732F (March 17, 1997)
Flood Zone X, an area outside the floodplain.
Zoning: PUD (Planned Unit Development)
BUILDING:
No. of Units: 122 Units
Total NRA: 110,125 Square Feet
Average Unit Size: 903 Square Feet
Apartment Density: 13.1 units per acre
Year Built: 1974
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 - Jr. 1 Bedroom 520 $ 500 $ 0.96 $ 4,500 $ 54,000
1Br/1Ba 675 $ 600 $ 0.89 $ 30,600 $ 367,200
2Br/1Ba 860 $ 720 $ 0.84 $ 23,040 $ 276,480
3Br/2 1/2Ba - Townhouse 1,450 $1,020 $ 0.70 $ 18,360 $ 220,320
3Br/2 1/2Ba - Sp. 1,450 $1,030 $ 0.71 $ 12,360 $ 148,320
Total $ 88,860 $1,066,320
OCCUPANCY: 62%
ECONOMIC LIFE: 45 Years
EFFECTIVE AGE: 23 Years
REMAINING ECONOMIC LIFE: 22 Years
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
SUBJECT PHOTOGRAPHS AND LOCATION MAP:
SUBJECT PHOTOGRAPHS
[PICTURE] [PICTURE]
EXTERIOR - APARTMENT BUILDING EXTERIOR - OFFICE & LANDSCAPE
AREA MAP
[MAP]
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
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
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
PART TWO - ECONOMIC INDICATORS
INCOME CAPITALIZATION APPROACH
Amount $/Unit
------ ------
DIRECT CAPITALIZATION
Potential Rental Income $1,066,320 $8,740
Effective Gross Income $982,757 $8,055
Operating Expenses $428,558 $3,513 43.6% of EGI
Net Operating Income: $529,799 $4,343
Capitalization Rate 8.75%
DIRECT CAPITALIZATION VALUE $5,600,000 * $45,902 / UNIT
DISCOUNTED CASH FLOW ANALYSIS:
Holding Period 10 years
2002 Economic Vacancy 17%
Stabilized Vacancy & Collection Loss: 13.5%
Lease-up / Stabilization Period 20 months
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 $5,300,000 * $43,443 / UNIT
RECONCILED INCOME CAPITALIZATION VALUE $5,400,000 $44,262 / UNIT
SALES COMPARISON APPROACH
PRICE PER UNIT:
Range of Sales $/Unit (Unadjusted) $38,889 to $85,514
Range of Sales $/Unit (Adjusted) $46,375 to $51,667
VALUE INDICATION - PRICE PER UNIT $5,600,000 * $45,902 / UNIT
EGIM ANALYSIS
Range of EGIMs from Improved Sales 6.23 to 8.50
Selected EGIM for Subject 6.30
Subject's Projected EGI $982,757
EGIM ANALYSIS CONCLUSION $5,700,000 * $46,721 / UNIT
NOI PER UNIT ANALYSIS CONCLUSION $5,800,000 * $47,541 / UNIT
RECONCILED SALES COMPARISON VALUE $5,700,000 $46,721 / 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
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
PART THREE - SUMMARY OF VALUE CONCLUSIONS
SALES COMPARISON APPROACH:
Price Per Unit $5,600,000
NOI Per Unit $5,800,000
EGIM Multiplier $5,700,000
INDICATED VALUE BY SALES COMPARISON $5,700,000 $46,721 / UNIT
INCOME APPROACH:
Direct Capitalization Method: $5,600,000
Discounted Cash Flow Method: $5,300,000
INDICATED VALUE BY THE INCOME APPROACH $5,400,000 $44,262 / UNIT
RECONCILED OVERALL VALUE CONCLUSION: $5,500,000 $45,082 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
INTRODUCTION
IDENTIFICATION OF THE SUBJECT
The subject property is located at 913 N. Chelton Rd., Colorado Springs, El Paso
County, Colorado. Colorado Springs identifies it as 7412200058.
SCOPE OF THE ASSIGNMENT
The property, neighborhood, and comparables were inspected by James Newell on
May 15, 2003. Douglas Needham, MAI has not made a personal inspection of the
subject property. James Newell performed the research, valuation analysis and
wrote the report. Douglas Needham, MAI reviewed the report and concurs with the
value. Douglas Needham, MAI and James Newell 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 15, 2003. The
date of the report is June 28, 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
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
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/IV Associates,
Ltd.. 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
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
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 Colorado Springs, Colorado. 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 - Academy Boulevard
West - North Circle Drive
South - East Platte Ave
North - Palmer Park Boulevard
MAJOR EMPLOYERS
Major employers in the subject's area include Agilent Technologies, WorldCom,
and the United States Air Force. 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
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
NEIGHBORHOOD DEMOGRAPHICS
AREA
----------------------------------------
CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA
- --------------------------- ------------ ------------ ------------ --------
POPULATION TRENDS
Current Population 16,103 117,646 258,206 538,844
5-Year Population 16,564 122,848 273,246 595,713
% Change CY-5Y 2.9% 4.4% 5.8% 10.6%
Annual Change CY-5Y 0.6% 0.9% 1.2% 2.1%
HOUSEHOLDS
Current Households 6,894 48,797 103,391 201,086
5-Year Projected Households 7,127 51,223 110,061 223,226
% Change CY - 5Y 3.4% 5.0% 6.5% 11.0%
Annual Change CY-5Y 0.7% 1.0% 1.3% 2.2%
INCOME TRENDS
Median Household Income $ 27,748 $ 33,960 $ 37,185 $ 50,108
Per Capita Income $ 16,410 $ 18,644 $ 19,447 $ 22,841
Average Household Income $ 38,301 $ 45,068 $ 48,769 $ 61,206
Source: Demographics Now
The subject neighborhood's population is expected to show increases below 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 52.18% 42.31% 38.63% 31.26%
5-Year Projected % Renting 52.19% 41.44% 37.09% 29.31%
% of Households Owning 35.34% 46.42% 50.90% 59.98%
5-Year Projected % Owning 35.79% 47.64% 52.85% 62.54%
Source: Demographics Now
AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
SURROUNDING IMPROVEMENTS
The following uses surround the subject property:
North - Single-family residential
South - Citadel shopping mall
East - Vacant large retail store
West - Single-family residential
CONCLUSIONS
The subject is well located within the city of Colorado Springs. 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
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
MARKET ANALYSIS
The subject property is located in the city of Colorado Springs in El Paso
County. The overall pace of development in the subject's market is more or less
decreasing. Over the last several years there has been ongoing construction in
northern Colorado Springs. The Austin Bluffs Apartment project, located on
Whetstone Drive, is currently under construction and about 65% complete. The
following table illustrates historical vacancy rates for the subject's market.
HISTORICAL VACANCY RATE
Period Region Submarket
- ------ ------ ---------
1999 5.1% 5.4%
2000 3.1% 2.8%
2001 8.9% 4.7%
2002 8.2% 8.2%
{Source: Hendricks & Partners Apartment Update: Rocky Mountain Region}
Occupancy trends in the subject's market are decreasing. Historically speaking,
the subject's submarket has equated the overall market. Due to the large number
of military personnel recently deployed, the Colorado Springs apartment market
has suffered over the last several months. The local market, especially in the
south end of town, will grow with the return of the personnel.
Market rents in the subject's market have been following a decreasing trend. The
following table illustrates historical rental rates for the subject's market.
HISTORICAL AVERAGE RENT
Period Region % Change Submarket % Change
- ------ ------ -------- --------- --------
2001 $ 693 - $ 637 -
2002 $ 642 -7.4% $ 559 -12.2%
The following table illustrates a summary of the subject's competitive set.
AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject
- ------- ---------------------------- ----- ----- ---------- ------------------------------------
R-1 Dove Tree N/A 88% 1980 Approx. 1 mile southeast of subject
R-2 Tanager Meadows N/A 79% 1980 Approx. 2 1/2 miles south of subject
R-3 Parkside 268 90% 1984 1 mile southwest of subject
R-4 The Willows at Printers Park 220 87% 2000 2 miles east of subject
R-5 Courtyard Estates 176 88% 1975 Approx. 1 mile southeast of subject
Subject Citadel Village 122 62% 1974
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
PROPERTY DESCRIPTION
SITE ANALYSIS
Site Area 9.28 acres, or 404,237 square feet
Shape Irregular
Topography Rolling
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 08041C0732F, dated March 17, 1997
Flood Zone Zone X
Zoning PUD, the subject improvements represent a legal
conforming use of the site.
REAL ESTATE TAXES
ASSESSED VALUE - 2002
---------------------------- TAX RATE/ PROPERTY
PARCEL NUMBER LAND BUILDING TOTAL MILL RATE TAXES
- ------------- ------- -------- --------- --------- --------
7412200058 $80,440 $245,910 $ 326,350 $ 0.0654 $ 21,342
IMPROVEMENT ANALYSIS
Year Built 1974
Number of Units 122
Net Rentable Area 110,125 Square Feet
Construction:
Foundation Reinforced concrete slab
Frame Heavy or light wood
Exterior Walls Stucco wall
Roof Composition shingle over a wood truss structure
Project Amenities Amenities at the subject include a swimming pool, sand
volleyball, gym room, inline skating area, laundry room,
and parking area.
Unit Amenities Individual unit amenities include a balcony, fireplace,
cable TV connection, and washer dryer connection.
Appliances available in each unit include a refrigerator,
stove, microwave dishwasher, water heater, garbage
disposal, and oven.
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
Unit Mix:
Unit Area
Unit Type Number of Units (Sq. Ft.)
- ----------------------- --------------- ---------
1Br/1Ba - Jr. 1 Bedroom 9 520
1Br/1Ba 51 675
2Br/1Ba 32 860
3Br/2 1/2Ba - Townhouse 18 1,450
3Br/2 1/2Ba - Sp. 12 1,450
Overall Condition Average
Effective Age 23 years
Economic Life 45 years
Remaining Economic Life 22 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
1974 and consist of a 122-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
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
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
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
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
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
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
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE
DESCRIPTION SUBJECT I - 1 I - 2
- -------------------------------- ------------------------------- --------------------------- --------------------------------
Property Name Citadel Village Cedar Crest Colony Hills
LOCATION:
Address 913 N. Chelton Rd. 2010 Carmel Drive 3950 Patrick Drive
City, State Colorado Springs,Colorado Colorado Springs, Colorado Colorado Springs, Colorado
County El Paso County El Paso County El Paso County
PHYSICAL CHARACTERISTICS:
Net Rentable Area (SF) 110,125 61,104 216,000
Year Built 1974 1968 1985
Number of Units 122 78 216
Unit Mix: Type Total Type Total Type Total
1Br/1Ba - Jr. 1 Bedroom 9 1Br/1Ba 18 2Br/1Ba 216
1Br/1Ba 51 2Br/1Ba 60
2Br/1Ba 32
3Br/2 1/2Ba - Townhouse 18
3Br/2 1/2Ba - Sp.Town 12
Average Unit Size (SF) 903 783 1,000
Land Area (Acre) 9.2800 1.6000 6.6700
Density (Units/Acre) 13.1 48.8 32.4
Parking Ratio (Spaces/Unit) 2.05 1.05 1.62
Parking Type (Gr., Cov., etc.) Open Open Some covered
CONDITION: 0 Fair Good
APPEAL: 0 Fair Good
AMENITIES:
Pool/Spa Yes/No Yes/Yes
Gym Room Yes No
Laundry Room Yes No
Secured Parking No No
Sport Courts No No
OCCUPANCY: 62% 95% 93%
TRANSACTION DATA:
Sale Date January, 2003 July, 2001
Sale Price ($) $3,220,000 $10,500,000
Grantor Cedar Creek Investments, LLC Bigelow Colorado II, LLC
Grantee Stanley & Robin Douglas Colony Hills Colorado Springs
Apts, LLC
Sale Documentation 11028 101636
Verification Buyer's Broker Christina Soliz (Broker)
Telephone Number 303-607-9001 602-912-1700
ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF
Potential Gross Income $536,160 $6,874 $8.77 $1,811,808 $8,388 $8.39
Vacancy/Credit Loss $ 26,808 $ 344 $0.44 $ 126,827 $ 587 $0.59
Effective Gross Income $509,352 $6,530 $8.34 $1,684,981 $7,801 $7.80
Operating Expenses $203,741 $2,612 $3.33 $ 815,269 $3,774 $3.77
Net Operating Income $305,611 $3,918 $5.00 $ 815,712 $3,776 $3.78
NOTES:
PRICE PER UNIT $41,282 $48,611
PRICE PER SQUARE FOOT $ 52.70 $ 48.61
EXPENSE RATIO 40.0% 48.4%
EGIM 6.32 6.23
OVERALL CAP RATE 9.49% 7.77%
Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA
COMPARABLE COMPARABLE COMPARABLE
DESCRIPTION I - 3 I - 4 I - 5
- -------------------------------- -------------------------------- ------------------------------- ------------------------------
Property Name Park Meadows Cheyenne Creek Dakota
LOCATION:
Address 970 Mount Werner Circle 115 W Cheyenne Road 1224 Delaware Drive
City, State Colorado Springs, Colorado Colorado Springs, Colorado Colorado Springs, Colorado
County El Paso County El Paso County El Paso County
PHYSICAL CHARACTERISTICS:
Net Rentable Area (SF) 47,179 107,261 37,332
Year Built 1984 1985 1969
Number of Units 60 107 54
Unit Mix: Type Total Type Total Type Total
2Br/1Ba 60 1Bd Den/1Ba 34 1Br/1Ba 36
2Bd/2Ba 73 2Br/1Ba 18
Average Unit Size (SF) 786 1,002 691
Land Area (Acre) 4.0200 4.4010 2.2100
Density (Units/Acre) 14.9 24.3 24.4
Parking Ratio (Spaces/Unit) 2.00 1.75 1.50
Parking Type (Gr., Cov., etc.) Open 107 covered Open
CONDITION: Average Very Good Fair
APPEAL: Average Very Good Fair
AMENITIES:
Pool/Spa
Gym Room
Laundry Room
Secured Parking
Sport Courts
OCCUPANCY: 90% 94% 85%
TRANSACTION DATA:
Sale Date April, 2002 June, 2002 September, 2002
Sale Price ($) $3,100,000 $9,150,000 $2,100,000
Grantor Park Meadows Apartments, 115 West Cheyenne Road, LLC Raymond Maier
LLC
Grantee Park Meadows Affordable BP Cheyenne Creek Apts, LLC Two South Mosier, LLC
Housing, LLC
Sale Documentation 55416 2100444 163709
Verification Buyer CoStar Realty Information Public Records
Telephone Number 719-447-9300 800-204-5960
ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF
Potential Gross Income $405,000 $ 6,750 $8.58 $1,239,540 $11,584 $11.56 $345,960 $ 6,407 $9.27
Vacancy/Credit Loss $40,500 $ 675 $0.86 $ 74,372 $ 695 $ 0.69 $ 51,894 $ 961 $1.39
Effective Gross Income $364,500 $ 6,075 $7.73 $1,165,168 $10,889 $10.86 $294,066 $ 5,446 $7.88
Operating Expenses $135,011 $ 2,250 $2.86 $ 407,809 $ 3,811 $ 3.80 $117,626 $ 2,178 $3.15
Net Operating Income $229,489 $ 3,825 $4.86 $ 757,359 $ 7,078 $ 7.06 $176,440 $ 3,267 $4.73
NOTES:
PRICE PER UNIT $51,667 $85,514 $38,889
PRICE PER SQUARE FOOT $ 65.71 $ 85.31 $ 56.25
EXPENSE RATIO 37.0% 35.0% 40.0%
EGIM 8.50 7.85 7.14
OVERALL CAP RATE 7.40% 8.28% 8.40%
Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA PRO FORMA
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
IMPROVED SALES MAP
[MAP]
IMPROVED SALES ANALYSIS
The improved sales indicate a sales price range from $38,889 to $85,514 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 $46,375 to $51,667 per unit with a mean or average adjusted price
of $49,446 per unit. The median adjusted price is $50,556 per unit. Based on the
following analysis, we have concluded to a value of $50,000 per unit, which
results in an "as is" value of $5,600,000 (rounded after necessary adjustment,
if any).
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE
DESCRIPTION SUBJECT I - 1 I - 2
- ----------------------------------- -------------------------- ---------------------------- --------------------------
Property Name Citadel Village Cedar Crest Colony Hills
Address 913 N. Chelton Rd. 2010 Carmel Drive 3950 Patrick Drive
City Colorado Springs, Colorado Colorado Springs, Colorado Colorado Springs, Colorado
Sale Date January, 2003 July, 2001
Sale Price ($) $3,220,000 $10,500,000
Net Rentable Area (SF) 110,125 61,104 216,000
Number of Units 122 78 216
Price Per Unit $41,282 $48,611
Year Built 1974 1968 1985
Land Area (Acre) 9.2800 1.6000 6.6700
VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ.
Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0%
Financing Cash To Seller 0% Cash To Seller 0%
Conditions of Sale Arm's Length 0% Arm's Length 0%
Date of Sale (Time) 01-2003 0% 07-2001 6%
VALUE AFTER TRANS. ADJUST. ($/UNIT) $41,282 $51,528
Location Inferior 5% Inferior 5%
Number of Units 122 78 0% 216 0%
Quality / Appeal Good Inferior 5% Superior -10%
Age / Condition 1974 1968 / Fair 5% 1985 / Good -5%
Occupancy at Sale 62% 95% 0% 93% 0%
Amenities Good Inferior 10% Comparable 0%
Average Unit Size (SF) 903 783 0% 1,000 0%
PHYSICAL ADJUSTMENT 25% -10%
FINAL ADJUSTED VALUE ($/UNIT) $51,603 $46,375
COMPARABLE COMPARABLE COMPARABLE
DESCRIPTION I - 3 I - 4 I - 5
- ----------------------------------- -------------------------- -------------------------- --------------------------
Property Name Park Meadows Cheyenne Creek Dakota
Address 970 Mount Werner Circle 115 W Cheyenne Road 1224 Delaware Drive
City Colorado Springs, Colorado Colorado Springs, Colorado Colorado Springs, Colorado
Sale Date April, 2002 June, 2002 September, 2002
Sale Price ($) $3,100,000 $9,150,000 $2,100,000
Net Rentable Area (SF) 47,179 107,261 37,332
Number of Units 60 107 54
Price Per Unit $51,667 $85,514 $38,889
Year Built 1984 1985 1969
Land Area (Acre) 4.0200 4.4010 2.2100
VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ.
Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0%
Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0%
Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0%
Date of Sale (Time) 04-2002 0% 06-2002 0% 09-2002 0%
VALUE AFTER TRANS. ADJUST. ($/UNIT) $51,667 $85,514 $38,889
Location Comparable 0% Superior -10% Comparable 0%
Number of Units 60 5% 107 0% 54 5%
Quality / Appeal Superior -10% Superior -20% Comparable 0%
Age / Condition 1984 / Average 0% 1985 / Very Good -10% 1969 / Fair 10%
Occupancy at Sale 90% 0% 94% 0% 85% 0%
Amenities Inferior 5% Comparable 0% Inferior 10%
Average Unit Size (SF) 786 0% 1,002 -5% 691 5%
PHYSICAL ADJUSTMENT 0% -45% 30%
FINAL ADJUSTED VALUE ($/UNIT) $51,667 $47,033 $50,556
SUMMARY
VALUE RANGE (PER UNIT) $46,375 TO $ 51,667
MEAN (PER UNIT) $49,446
MEDIAN (PER UNIT) $50,556
VALUE CONCLUSION (PER UNIT) $50,000
VALUE OF IMPROVEMENT & MAIN SITE $6,100,000
LESS: LEASE-UP COST -$ 205,000
PV OF CONCESSIONS -$ 253,000
VALUE INDICATED BY SALES COMPARISON APPROACH $5,642,000
ROUNDED $5,600,000
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
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
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 78 $ 3,220,000 9.49% $ 305,611 $ 529,799 1.108 $ 45,755
$ 41,282 $ 3,918 $ 4,343
I-2 216 $10,500,000 7.77% $ 815,712 $ 529,799 1.150 $ 55,899
$ 48,611 $ 3,776 $ 4,343
I-3 60 $ 3,100,000 7.40% $ 229,489 $ 529,799 1.135 $ 58,661
$ 51,667 $ 3,825 $ 4,343
I-4 107 $ 9,150,000 8.28% $ 757,359 $ 529,799 0.614 $ 52,465
$ 85,514 $ 7,078 $ 4,343
I-5 54 $ 2,100,000 8.40% $ 176,440 $ 529,799 1.329 $ 51,686
$ 38,889 $ 3,267 $ 4,343
PRICE/UNIT
Low High Average Median
$45,755 $58,661 $52,893 $52,465
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT
Estimated Price Per Unit $ 51,500
Number of Units 122
Value $6,283,000
Less: Lease-Up Cost -$ 205,000
PV of Concessions -$ 253,000
-----------
Value Based on NOI Analysis $5,825,000
Rounded $5,800,000
The adjusted sales indicate a range of value between $45,755 and $58,661 per
unit, with an average of $52,893 per unit. Based on the subject's competitive
position within the improved sales, a value of $51,500 per unit is estimated.
This indicates an "as is" market value of $5,800,000 (rounded after necessary
adjustment, if any) for the NOI Per Unit Analysis.
EFFECTIVE GROSS INCOME MULTIPLIER (EGIM) ANALYSIS
The effective gross income multiplier (EGIM) is derived by dividing the sales
price by the total effective gross income. The following table illustrates the
EGIMs for the comparable improved sales.
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 25
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
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 78 $ 3,220,000 $ 509,352 $ 203,741 40.00% 6.32
$ 41,282
I-2 216 $10,500,000 $1,684,981 $ 815,269 48.38% 6.23
$ 48,611
I-3 60 $ 3,100,000 $ 364,500 $ 135,011 37.04% 8.50
$ 51,667 43.61%
I-4 107 $ 9,150,000 $1,165,168 $ 407,809 35.00% 7.85
$ 85,514
I-5 54 $ 2,100,000 $ 294,066 $ 117,626 40.00% 7.14
$ 38,889
EGIM
Low High Average Median
- --- ---- ------- ------
6.23 8.50 7.21 7.14
VALUE ANALYSIS BASED ON EGIM's OF COMPARABLE SALES
Estimate EGIM 6.30
Subject EGI $ 982,757
Value $6,191,368
Less: Lease-Up Cost -$ 205,000
PV of Concessions -$ 253,000
-----------
Value Based on EGIM Analysis $5,733,368
Rounded $5,700,000
Value Per Unit $ 46,721
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 43.61% before reserves. The comparable sales
indicate a range of expense ratios from 35.00% to 48.38%, while their EGIMs
range from 6.23 to 8.50. Overall, we conclude to an EGIM of 6.30, which results
in an "as is" value estimate in the EGIM Analysis of $5,700,000.
SALES COMPARISON CONCLUSION
The three valuation methods in the Sales Comparison Approach are shown below.
The overall value via the Sales Comparison Approach is estimated at $5,700,000.
Price Per Unit $5,600,000
NOI Per Unit $5,800,000
EGIM Analysis $5,700,000
Sales Comparison Conclusion $5,700,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
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
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
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 - Jr. 1 Bedroom 520 $ 520 $ 1.00 77.8%
1Br/1Ba 675 $ 602 $ 0.89 60.8%
2Br/1Ba 860 $ 740 $ 0.86 65.6%
3Br/2 1/2Ba - Townhouse 1450 $1,049 $ 0.72 56.7%
3Br/2 1/2Ba - Sp. 1450 $1,049 $ 0.72 56.7%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
RENT ANALYSIS
COMPARABLE RENTS
-----------------------------------------------------------
R-1 R-2 R-3 R-4 R-5
------- ------- ------- ------------- -----------------
The
Willows at
Tanager Printers Courtyard
Dove Tree Meadows Parkside Park Estates
----------------- ------- ------------- -----------------
SUBJECT SUBJECT COMPARISON TO SUBJECT
SUBJECT UNIT ACTUAL ASKING -----------------------------------------------------------
DESCRIPTION TYPE RENT RENT Similar Similar Similar Very Superior Slightly Inferior
- ----------------------- ----------------- ------- ------- ------- ------- ------- ------------- -----------------
Monthly Rent 1Br/1Ba - Jr. 1 $ 520 $ 499 $ 525 $ 525 $ 710 $ 480
Unit Area (SF) BEDROOM 520 520 540 520 637 500
Monthly Rent Per Sq. Ft. $ 1.00 $ 0.96 $ 0.97 $ 1.01 $ 1.11 $ 0.96
Monthly Rent 1Br/1Ba $ 602 $ 599 $ 600 $ 600 $ 650 $ 765
Unit Area (SF) 675 675 720 700 650 726
Monthly Rent Per Sq. Ft. $ 0.89 $ 0.89 $ 0.83 $ 0.86 $ 1.00 $ 1.05
Monthly Rent 2Br/1Ba $ 740 $ 745 $ 720 $ 720 $ 778 $ 935 $ 605
Unit Area (SF) 860 860 970 965 850 987 750
Monthly Rent Per Sq. Ft. $ 0.86 $ 0.87 $ 0.74 $ 0.75 $ 0.91 $ 0.95 $ 0.81
Monthly Rent 3Br/2 1/2Ba - $1,049 $1,069
Unit Area (SF) TOWNHOUSE 1,450 1,450
Monthly Rent Per Sq. Ft. $ 0.72 $ 0.74
Monthly Rent 3Br/2 1/2Ba - Sp. $1,049 $1,099 $1,300
Unit Area (SF) TOWNHOUSE 1,450 1,450 1,288
Monthly Rent Per Sq. Ft. $ 0.72 $ 0.76 $ 1.01
DESCRIPTION MIN MAX MEDIAN AVERAGE
- ----------------------- ------ ------ ------ -------
Monthly Rent $ 480 $ 710 $ 525 $ 560
Unit Area (SF) 500 637 530 549
Monthly Rent Per Sq. Ft. $ 0.96 $ 1.11 $ 0.99 $ 1.01
Monthly Rent $ 600 $ 765 $ 625 $ 654
Unit Area (SF) 650 726 710 699
Monthly Rent Per Sq. Ft. $ 0.83 $ 1.05 $ 0.93 $ 0.94
Monthly Rent $ 605 $ 935 $ 720 $ 752
Unit Area (SF) 750 987 965 904
Monthly Rent Per Sq. Ft. $ 0.74 $ 0.95 $ 0.81 $ 0.83
Monthly Rent
Unit Area (SF)
Monthly Rent Per Sq. Ft.
Monthly Rent $1,300 $1,300 $1,300 $ 1,300
Unit Area (SF) 1,288 1,288 1,288 1,288
Monthly Rent Per Sq. Ft. $ 1.01 $ 1.01 $ 1.01 $ 1.01
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 - Jr. 1 Bedroom 9 520 $ 500 $ 0.96 $ 4,500 $ 54,000
1Br/1Ba 51 675 $ 600 $ 0.89 $ 30,600 $ 367,200
2Br/1Ba 32 860 $ 720 $ 0.84 $ 23,040 $ 276,480
3Br/2 1/2Ba - Townhouse 18 1,450 $ 1,020 $ 0.70 $ 18,360 $ 220,320
3Br/2 1/2Ba - Sp. 12 1,450 $ 1,030 $ 0.71 $ 12,360 $ 148,320
-------- ----------
Total $ 88,860 $1,066,320
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
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
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 $ 1,112,536 $ 9,119 $ 1,168,388 $ 9,577 $ 1,140,538 $ 9,349
Vacancy $ 44,366 $ 364 $ 60,325 $ 494 $ 159,114 $ 1,304
Credit Loss/Concessions $ 8,708 $ 71 $ 27,115 $ 222 $ 38,604 $ 316
----------------------------------------------------------------------------------
Subtotal $ 53,074 $ 435 $ 87,440 $ 717 $ 197,718 $ 1,621
Laundry Income $ 8,717 $ 71 $ 10,745 $ 88 $ 5,999 $ 49
Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Other Misc. Revenue $ 40,746 $ 334 $ 59,107 $ 484 $ 21,157 $ 173
----------------------------------------------------------------------------------
Subtotal Other Income $ 49,463 $ 405 $ 69,852 $ 573 $ 27,156 $ 223
----------------------------------------------------------------------------------
Effective Gross Income $ 1,108,925 $ 9,090 $ 1,150,800 $ 9,433 $ 969,976 $ 7,951
Operating Expenses
Taxes $ 25,318 $ 208 $ 27,429 $ 225 $ 19,143 $ 157
Insurance $ 10,869 $ 89 $ 15,654 $ 128 $ 16,725 $ 137
Utilities $ 75,234 $ 617 $ 86,184 $ 706 $ 83,187 $ 682
Repair & Maintenance $ 27,367 $ 224 $ 26,546 $ 218 $ 29,288 $ 240
Cleaning $ 8,808 $ 72 $ 8,635 $ 71 $ 30,085 $ 247
Landscaping $ 13,512 $ 111 $ 18,477 $ 151 $ 25,860 $ 212
Security $ 3,609 $ 30 $ 2,275 $ 19 $ 1,026 $ 8
Marketing & Leasing $ 40,061 $ 328 $ 45,057 $ 369 $ 37,050 $ 304
General Administrative $ 190,389 $ 1,561 $ 181,256 $ 1,486 $ 111,395 $ 913
Management $ 56,397 $ 462 $ 70,123 $ 575 $ 47,075 $ 386
Miscellaneous ($ 3,035) -$ 25 $ 1,339 $ 11 $ 1,773 $ 15
-----------------------------------------------------------------------------------
Total Operating Expenses $ 448,529 $ 3,676 $ 482,975 $ 3,959 $ 402,607 $ 3,300
Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
----------------------------------------------------------------------------------
Net Income $ 660,396 $ 5,413 $ 667,825 $ 5,474 $ 567,369 $ 4,651
FISCAL YEAR 2003 ANNUALIZED 2003
------------------------- --------------------------
MANAGEMENT BUDGET PROJECTION AAA PROJECTION
------------------------- -------------------------- ---------------------------------
DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT %
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----
Revenues
Rental Income $ 1,107,000 $ 9,074 $ 1,078,752 $ 8,842 $ 1,066,320 $ 8,740 100.0%
Vacancy $ 185,550 $ 1,521 $ 432,796 $ 3,548 $ 122,627 $ 1,005 11.5%
Credit Loss/Concessions $ 0 $ 0 $ 22,304 $ 183 $ 21,326 $ 175 2.0%
-------------------------------------------------------------------------------------------
Subtotal $ 185,550 $ 1,521 $ 455,100 $ 3,730 $ 143,953 $ 1,180 13.5%
Laundry Income $ 12,974 $ 106 $ 5,700 $ 47 $ 11,590 $ 95 1.1%
Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0%
Other Misc. Revenue $ 52,496 $ 430 ($ 9,740) -$ 80 $ 48,800 $ 400 4.6%
-------------------------------------------------------------------------------------------
Subtotal Other Income $ 65,470 $ 537 ($ 4,040) -$ 33 $ 60,390 $ 495 5.7%
-------------------------------------------------------------------------------------------
Effective Gross Income $ 986,920 $ 8,090 $ 619,612 $ 5,079 $ 982,757 $ 8,055 100.0%
Operating Expenses
Taxes $ 23,525 $ 193 $ 25,888 $ 212 $ 23,790 $ 195 2.4%
Insurance $ 18,698 $ 153 $ 17,976 $ 147 $ 18,300 $ 150 1.9%
Utilities $ 81,332 $ 667 $ 63,960 $ 524 $ 81,740 $ 670 8.3%
Repair & Maintenance $ 38,706 $ 317 $ 90,088 $ 738 $ 35,380 $ 290 3.6%
Cleaning $ 0 $ 0 $ 35,052 $ 287 $ 30,500 $ 250 3.1%
Landscaping $ 27,170 $ 223 $ 8,912 $ 73 $ 27,450 $ 225 2.8%
Security $ 0 $ 0 $ 588 $ 5 $ 1,220 $ 10 0.1%
Marketing & Leasing $ 29,440 $ 241 $ 32,488 $ 266 $ 37,210 $ 305 3.8%
General Administrative $ 119,941 $ 983 $ 150,760 $ 1,236 $ 122,000 $ 1,000 12.4%
Management $ 56,476 $ 463 $ 32,060 $ 263 $ 49,138 $ 403 5.0%
Miscellaneous $ 0 $ 0 $ 13,716 $ 112 $ 1,830 $ 15 0.2%
-------------------------------------------------------------------------------------------
Total Operating Expenses $ 395,288 $ 3,240 $ 471,488 $ 3,865 $ 428,558 $ 3,513 43.6%
Reserves $ 0 $ 0 $ 0 $ 0 $ 24,400 $ 200 5.7%
-------------------------------------------------------------------------------------------
Net Income $ 591,632 $ 4,849 $ 148,124 $ 1,214 $ 529,799 $ 4,343 53.9%
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 13.5% based
on the subject's historical performance, as well as the anticipated future
market conditions.
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
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
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
SUMMARY OF OVERALL
CAPITALIZATION RATES
- ----------------------------------------------
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR
- --------- --------- ------ ---------- -----
I-1 Jan-03 95% $ 41,282 9.49%
I-2 Jul-01 93% $ 48,611 7.77%
I-3 Apr-02 90% $ 51,667 7.40%
I-4 Jun-02 94% $ 85,514 8.28%
I-5 Sep-02 85% $ 38,889 8.40%
High 9.49%
Low 7.40%
Average 8.27%
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 $5,300,000. In this instance, the reversion
figure contributes
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
approximately 45% 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
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
DISCOUNTED CASH FLOW ANALYSIS
CITADEL VILLAGE
- -----------------------------------------------------------------------------------------------------------------------
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009
FISCAL YEAR 1 2 3 4 5 6
- ------------------------------------ ---------- ---------- ---------- ---------- ---------- ----------
REVENUE
Base Rent $1,066,320 $1,066,320 $1,076,983 $1,109,293 $1,142,571 $1,176,849
Vacancy $ 325,136 $ 164,525 $ 123,853 $ 127,569 $ 131,396 $ 135,338
Credit Loss $ 21,326 $ 21,326 $ 21,540 $ 22,186 $ 22,851 $ 23,537
Concessions $ 175,680 $ 117,120 $ 0 $ 0 $ 0 $ 0
Subtotal $ 522,143 $ 302,972 $ 145,393 $ 149,755 $ 154,247 $ 158,875
Laundry Income $ 11,590 $ 11,590 $ 11,706 $ 12,057 $ 12,419 $ 12,791
Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Other Misc. Revenue $ 48,800 $ 48,800 $ 49,288 $ 50,767 $ 52,290 $ 53,858
Subtotal Other Income $ 60,390 $ 60,390 $ 60,994 $ 62,824 $ 64,708 $ 66,650
EFFECTIVE GROSS INCOME $ 604,567 $ 823,738 $ 992,584 $1,022,362 $1,053,033 $1,084,624
OPERATING EXPENSES:
Taxes $ 23,790 $ 24,504 $ 25,239 $ 25,996 $ 26,776 $ 27,579
Insurance $ 18,300 $ 18,849 $ 19,414 $ 19,997 $ 20,597 $ 21,215
Utilities $ 81,740 $ 84,192 $ 86,718 $ 89,320 $ 91,999 $ 94,759
Repair & Maintenance $ 35,380 $ 36,441 $ 37,535 $ 38,661 $ 39,821 $ 41,015
Cleaning $ 30,500 $ 31,415 $ 32,357 $ 33,328 $ 34,328 $ 35,358
Landscaping $ 27,450 $ 28,274 $ 29,122 $ 29,995 $ 30,895 $ 31,822
Security $ 1,220 $ 1,257 $ 1,294 $ 1,333 $ 1,373 $ 1,414
Marketing & Leasing $ 37,210 $ 38,326 $ 39,476 $ 40,660 $ 41,880 $ 43,137
General Administrative $ 122,000 $ 125,660 $ 129,430 $ 133,313 $ 137,312 $ 141,431
Management $ 30,228 $ 41,187 $ 49,629 $ 51,118 $ 52,652 $ 54,231
Miscellaneous $ 1,830 $ 1,885 $ 1,941 $ 2,000 $ 2,060 $ 2,121
TOTAL OPERATING EXPENSES $ 409,648 $ 431,990 $ 452,156 $ 465,721 $ 479,692 $ 494,083
Reserves $ 24,400 $ 25,132 $ 25,886 $ 26,663 $ 27,462 $ 28,286
NET OPERATING INCOME $ 170,519 $ 366,617 $ 514,543 $ 529,979 $ 545,878 $ 562,254
Operating Expense Ratio (% of EGI) 67.8% 52.4% 45.6% 45.6% 45.6% 45.6%
Operating Expense Per Unit $ 3,358 $ 3,541 $ 3,706 $ 3,817 $ 3,932 $ 4,050
CITADEL VILLAGE
- ---------------------------------------------------------------------------------------------------------
YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014
FISCAL YEAR 7 8 9 10 11
- ------------------------------------ ---------- ---------- ---------- ---------- ----------
REVENUE
Base Rent $1,212,154 $1,248,519 $1,285,974 $1,324,553 $1,364,290
Vacancy $ 139,398 $ 143,580 $ 147,887 $ 152,324 $ 156,893
Credit Loss $ 24,243 $ 24,970 $ 25,719 $ 26,491 $ 27,286
Concessions $ 0 $ 0 $ 0 $ 0 $ 0
Subtotal $ 163,641 $ 168,550 $ 173,607 $ 178,815 $ 184,179
Laundry Income $ 13,175 $ 13,570 $ 13,977 $ 14,397 $ 14,829
Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0
Other Misc. Revenue $ 55,474 $ 57,138 $ 58,852 $ 60,618 $ 62,437
Subtotal Other Income $ 68,649 $ 70,709 $ 72,830 $ 75,015 $ 77,265
EFFECTIVE GROSS INCOME $1,117,162 $1,150,677 $1,185,198 $1,220,754 $1,257,376
OPERATING EXPENSES:
Taxes $ 28,407 $ 29,259 $ 30,136 $ 31,041 $ 31,972
Insurance $ 21,851 $ 22,507 $ 23,182 $ 23,877 $ 24,594
Utilities $ 97,602 $ 100,530 $ 103,546 $ 106,652 $ 109,852
Repair & Maintenance $ 42,246 $ 43,513 $ 44,818 $ 46,163 $ 47,548
Cleaning $ 36,419 $ 37,511 $ 38,636 $ 39,796 $ 40,989
Landscaping $ 32,777 $ 33,760 $ 34,773 $ 35,816 $ 36,891
Security $ 1,457 $ 1,500 $ 1,545 $ 1,592 $ 1,640
Marketing & Leasing $ 44,431 $ 45,764 $ 47,137 $ 48,551 $ 50,007
General Administrative $ 145,674 $ 150,045 $ 154,546 $ 159,182 $ 163,958
Management $ 55,858 $ 57,534 $ 59,260 $ 61,038 $ 62,869
Miscellaneous $ 2,185 $ 2,251 $ 2,318 $ 2,388 $ 2,459
TOTAL OPERATING EXPENSES $ 508,905 $ 524,173 $ 539,898 $ 556,095 $ 572,778
Reserves $ 29,135 $ 30,009 $ 30,909 $ 31,836 $ 32,792
NET OPERATING INCOME $ 579,122 $ 596,496 $ 614,391 $ 632,822 $ 651,807
Operating Expense Ratio (% of EGI) 45.6% 45.6% 45.6% 45.6% 45.6%
Operating Expense Per Unit $ 4,171 $ 4,296 $ 4,425 $ 4,558 $ 4,695
Estimated Stabilized NOI $529,799 Sales Expense Rate 2.00%
Months to Stabilized 20 Discount Rate 11.25%
Stabilized Occupancy 88.5% Terminal Cap Rate 9.25%
Gross Residual Sale Price $ 7,046,563 Deferred Maintenance $ 0
Less: Sales Expense $ 140,931 Add: Excess Land $ 0
-----------
Net Residual Sale Price $ 6,905,632 Other Adjustments $ 0
----------
PV of Reversion $ 2,377,953 Value Indicated By "DCF" $5,347,864
Add: NPV of NOI $ 2,969,911 Rounded $5,300,000
-----------
PV Total $ 5,347,864
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE
--------------------------------------------------------------
TOTAL VALUE 10.75% 11.00% 11.25% 11.50% 11.75%
- ----------------- ---- ---------- ---------- ---------- ---------- ----------
8.75% $5,677,891 $5,579,737 $5,483,747 $5,389,865 $5,298,038
9.00% $5,604,845 $5,508,320 $5,413,918 $5,321,586 $5,231,272
TERMINAL CAP RATE 9.25% $5,535,748 $5,440,763 $5,347,864 $5,256,998 $5,168,114
9.50% $5,470,287 $5,376,761 $5,285,286 $5,195,809 $5,108,280
9.75% $5,408,183 $5,316,042 $5,225,917 $5,137,758 $5,051,515
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 34
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
INCOME LOSS DURING LEASE-UP
The subject is currently 62% occupied, below our stabilized occupancy
projection. We have estimated a 20-month lease-up period. An adjustment must be
made to bring the subject to a stabilized operating level. To account for this
income loss during lease-up, we have compared the current DCF analysis to an "as
stabilized" DCF analysis assuming the subject's occupancy were stabilized. The
difference in net operating income during the lease-up period is discounted to a
present value figure of $205,000 as shown in the following table.
DESCRIPTION YEAR 1 YEAR 2
- ------------------------------- -------- --------
"As Is" Net Operating Income $170,519 $366,617
Stabilized Net Operating Income $362,903 $406,420
-------- --------
Difference $192,384 $ 39,804
PV of Income Loss During Lease-Up $205,090
Rounded $205,000
--------
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
$253,000 (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.
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 35
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
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 36
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
CITADEL VILLAGE
TOTAL PER SQ. FT. PER UNIT %OF EGI
----------- ---------- -------- -------
REVENUE
Base Rent $ 1,066,320 $ 9.68 $ 8,740
Less: Vacancy & Collection Loss 13.50% $ 143,953 $ 1.31 $ 1,180
Plus: Other Income
Laundry Income $ 11,590 $ 0.11 $ 95 1.18%
Garage Revenue $ 0 $ 0.00 $ 0 0.00%
Other Misc. Revenue $ 48,800 $ 0.44 $ 400 4.97%
Subtotal Other Income $ 60,390 $ 0.55 $ 495 6.14%
EFFECTIVE GROSS INCOME $ 982,757 $ 8.92 $ 8,055
OPERATING EXPENSES:
Taxes $ 23,790 $ 0.22 $ 195 2.42%
Insurance $ 18,300 $ 0.17 $ 150 1.86%
Utilities $ 81,740 $ 0.74 $ 670 8.32%
Repair & Maintenance $ 35,380 $ 0.32 $ 290 3.60%
Cleaning $ 30,500 $ 0.28 $ 250 3.10%
Landscaping $ 27,450 $ 0.25 $ 225 2.79%
Security $ 1,220 $ 0.01 $ 10 0.12%
Marketing & Leasing $ 37,210 $ 0.34 $ 305 3.79%
General Administrative $ 122,000 $ 1.11 $ 1,000 12.41%
Management 5.00% $ 49,138 $ 0.45 $ 403 5.00%
Miscellaneous $ 1,830 $ 0.02 $ 15 0.19%
TOTAL OPERATING EXPENSES $ 428,558 $ 3.89 $ 3,513 43.61%
Reserves $ 24,400 $ 0.22 $ 200 2.48%
NET OPERATING INCOME $ 529,799 $ 4.81 $ 4,343 53.91%
"GOING IN" CAPITALIZATION RATE 8.75%
VALUE INDICATION $ 6,054,845 $ 54.98 $ 49,630
LESS: LEASE-UP COST ($ 205,000)
PV OF CONCESSIONS ($ 253,000)
"AS IS" VALUE INDICATION
(DIRECT CAPITALIZATION APPROACH) $ 5,596,845
ROUNDED $ 5,600,000 $ 50.85 $ 45,902
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 37
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF
- -------- ---------- ---------- ------- ------
8.00% $6,164,487 $6,200,000 $50,820 $56.30
8.25% $5,963,806 $6,000,000 $49,180 $54.48
8.50% $5,774,929 $5,800,000 $47,541 $52.67
8.75% $5,596,845 $5,600,000 $45,902 $50.85
9.00% $5,428,655 $5,400,000 $44,262 $49.04
9.25% $5,269,556 $5,300,000 $43,443 $48.13
9.50% $5,118,831 $5,100,000 $41,803 $46.31
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD
Applying the capitalization rate to our estimated NOI results in an estimated
value of $5,600,000.
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 $5,300,000
Direct Capitalization Method $5,600,000
Giving consideration to the indicated values provided by both techniques, we
have concluded the estimated value by the income capitalization approach to be
$5,400,000.
AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 38
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
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 $ 5,700,000
Income Approach $ 5,400,000
Reconciled Value $ 5,500,000
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 15, 2003 the market value of the fee simple estate in the property is:
$5,500,000
AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
ADDENDA
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
EXHIBIT A
SUBJECT PHOTOGRAPHS
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
SUBJECT PHOTOGRAPHS
[PICTURE] [PICTURE]
EXTERIOR - APARTMENT BUILDING EXTERIOR - OFFICE & LANDSCAPE
[PICTURE] [PICTURE]
INTERIOR - GYM ROOM INTERIOR - APARTMENT UNIT
[PICTURE] [PICTURE]
INTERIOR - APARTMENT UNIT INTERIOR - APARTMENT UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
SUBJECT PHOTOGRAPHS
[PICTURE] [PICTURE]
EXTERIOR - POOL AREA EXTERIOR - PAVED INLINE SKATING AREA
[PICTURE] [PICTURE]
EXTERIOR - APARTMENT BUILDING EXTERIOR - PLAYGROUND AREA
[PICTURE] [PICTURE]
INTERIOR - TYPICAL LAUNDRY ROOM EXTERIOR - LANDSCAPING PICTURE
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
EXHIBIT B
SUMMARY OF RENT COMPARABLES
AND PHOTOGRAPH OF COMPARABLES
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES
COMPARABLE I-1 COMPARABLE I-2
CEDAR CREST COLONY HILLS
2010 Carmel Drive 3950 Patrick Drive
Colorado Springs, Colorado Colorado Springs, Colorado
COMPARABLE I-3 COMPARABLE I-4
PARK MEADOWS CHEYENNE CREEK
970 Mount Werner Circle 115 W Cheyenne Road
Colorado Springs, Colorado Colorado Springs, Colorado
COMPARABLE I-5
DAKOTA
1224 Delaware Drive
Colorado Springs, Colorado
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE
DESCRIPTION SUBJECT R - 1
- ------------------------------------- ------------------------------------------ ------------------------------------------
Property Name Citadel Village Dove Tree
Management Company AIMCO Sevo Miller
LOCATION:
Address 913 N. Chelton Rd. 255 Lionstone Drive
City, State Colorado Springs, Colorado Colorado Springs, Colorado
County El Paso County El Paso County
Proximity to Subject Approx. 1 mile southeast of subject
PHYSICAL CHARACTERISTICS:
Net Rentable Area (SF) 110,125
Year Built 1974 1980
Effective Age 23 20
Building Structure Type
Parking Type (Gr., Cov., etc.) Open Open
Number of Units 122 N/A
Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo.
1 1Br/1Ba - Jr. 1 Bd 520 9 $ 520 1 1Bd/1Ba 540 $525
2 1Br/1Ba 675 51 $ 602 2 1Bd/1Ba 720 $600
3 2Br/1Ba 860 32 $ 740 3 2Bd/2Ba 970 $720
4 3Br/2 1/2Ba - TH 1,450 18 $1,049
5 3Br/2 1/2Ba - Sp. 1,450 12 $1,049
Average Unit Size (SF) 903
Unit Breakdown: Efficiency 2-Bedroom Efficiency 2-Bedroom
1-Bedroom 3-Bedroom 1-Bedroom 3-Bedroom
CONDITION: Good Good
APPEAL: Good Good
AMENITIES:
Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling
X Balcony X Balcony
X Fireplace X Fireplace
X Cable TV Ready X Cable TV Ready
Project Amenities X Swimming Pool X Swimming Pool
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
X 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
X Gym Room X Gym Room
X Inline skating area Inline skating area
OCCUPANCY: 62% 88%
LEASING DATA:
Available Leasing Terms 6-12 month lease 6-12 month leases
Concessions 1 month free and $50-120 off each month $1 move-in, $100 off each month
Pet Deposit $150 per pet $400 for dog and $10/month rent
Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas
X Water X Trash Water Trash
Confirmation Leasing Agent
Telephone Number 719-574-1672
NOTES:
COMPARISON TO SUBJECT: Similar
COMPARABLE COMPARABLE
DESCRIPTION R - 2 R - 3
- ------------------------------------- ------------------------------------------ -------------------------------------------
Property Name Tanager Meadows Parkside
Management Company Sevo Miller Sares-Regis Group
LOCATION:
Address 1432 Sandalwood Drive 2505 East Pikes Peak Avenue
City, State Colorado Springs, Colorado Colorado Springs, Colorado
County El Paso County El Paso County
Proximity to Subject Approx. 2 1/2 miles south of subject 1 mile southwest of subject
PHYSICAL CHARACTERISTICS:
Net Rentable Area (SF)
Year Built 1980 1984
Effective Age 20 15
Building Structure Type
Parking Type (Gr., Cov., etc.) Open Covered and Open
Number of Units N/A 268
Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo.
1 1Bd/1Ba 520 $525 2 1Br/1Ba 650 $650
2 1Bd/1Ba 700 $600 3 2Br/1Ba 800 $760
3 2Bd/2Ba 965 $720 3 2Br/2Ba 900 $795
Average Unit Size (SF)
Unit Breakdown: Efficiency 2-Bedroom Efficiency 2-Bedroom
1-Bedroom 3-Bedroom 1-Bedroom 3-Bedroom
CONDITION: Good Very Good
APPEAL: Good Very Good
AMENITIES:
Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling
X Balcony X Balcony
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 X Basketball Court BBQ Equipment
Volleyball Court Theater Room Volleyball Court Theater Room
Sand Volley Ball Meeting Hall X Sand Volley Ball Meeting Hall
Tennis Court Secured Parking X Tennis Court X Secured Parking
Racquet Ball X Laundry Room Racquet Ball X Laundry Room
Jogging Track Business Office Jogging Track Business Office
X Gym Room X Gym Room
Inline skating area Inline skating area
OCCUPANCY: 79% 90%
LEASING DATA:
Available Leasing Terms 6-12 month leases 6-12 month leases
Concessions $50 off/mo. With 6 mo., $100 off w/ 12 mo. $100-200 off each month with 12 month lease
Pet Deposit $400 for dog and $10/month rent $200 for 1 pet, $300 for 2 pets
Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas
Water Trash X Water X Trash
Confirmation Leasing Agent Leasing agent
Telephone Number 719-570-7117 719-632-2505
NOTES: Management pays for cable TV All units have W/D hookups
1 covered parking per unit
COMPARISON TO SUBJECT: Similar Similar
COMPARABLE COMPARABLE
DESCRIPTION R - 4 R - 5
- ------------------------------------- --------------------------------------------- --------------------------------------------
Property Name The Willows at Printers Park Courtyard Estates
Management Company
LOCATION:
Address 2205 Willow Tree Grove 4370 East Pikes Peak Avenue
City, State Colorado Springs, Colorado Colorado Springs, Colorado
County El Paso County El Paso County
Proximity to Subject 2 miles east of subject Approx. 1 mile southeast of subject
PHYSICAL CHARACTERISTICS:
Net Rentable Area (SF)
Year Built 2000 1975
Effective Age 2 25
Building Structure Type
Parking Type (Gr., Cov., etc.) Garage and Open Open
Number of Units 220 176
Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo.
1 1Bd/1Ba 637 $ 710 1 1Bd/1Ba 500 $480
2 1Bd/1Ba 726 $ 765 3 2Bd/1Ba 750 $605
3 2Bd/1Ba 932 $ 885
3 2Bd/2Ba 1,042 $ 985
5 3Bd/2Ba 1,288 $1,300
Average Unit Size (SF)
Unit Breakdown: Efficiency 2-Bedroom Efficiency 2-Bedroom
1-Bedroom 3-Bedroom 1-Bedroom 3-Bedroom
CONDITION: Average Average
APPEAL: Average Average
AMENITIES:
Unit Amenities Attach. Garage X Vaulted Ceiling Attach. Garage Vaulted Ceiling
X Balcony Balcony
X Fireplace 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 X BBQ Equipment Basketball Court BBQ Equipment
Volleyball Court X Theater Room Volleyball Court Theater Room
Sand Volley Ball X Meeting Hall Sand Volley Ball Meeting Hall
Tennis Court Secured Parking Tennis Court Secured Parking
Racquet Ball Laundry Room Racquet Ball X Laundry Room
Jogging Track X Business Office Jogging Track Business Office
X Gym Room Gym Room
Inline skating area Inline skating area
OCCUPANCY: 87% 88%
LEASING DATA:
Available Leasing Terms 6-12 month leases 6-12 month leases
Concessions 2 mo. free w/13 mo. lease,3 free w/15 mo. Lease $1 deposit, 1 month free,$25-50 off each mo.
Pet Deposit $250 none required
Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas
Water Trash Water Trash
Confirmation Leasing agent Leasing Agent
Telephone Number 719-578-8333 719-597-4949
NOTES: All units have full-size W/D
$40 per month for garage
COMPARISON TO SUBJECT: Very Superior Slightly Inferior
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES
COMPARABLE R-1 COMPARABLE R-2
DOVE TREE TANAGER MEADOWS
255 Lionstone Drive 1432 Sandalwood Drive
Colorado Springs, Colorado Colorado Springs, Colorado
[PICTURE] [PICTURE]
COMPARABLE R-3 COMPARABLE R-4
PARKSIDE THE WILLOWS AT PRINTERS PARK
2505 East Pikes Peak Avenue 2205 Willow Tree Grove
Colorado Springs, Colorado Colorado Springs, Colorado
[PICTURE] [PICTURE]
COMPARABLE R-5
COURTYARD ESTATES
4370 East Pikes Peak Avenue
Colorado Springs, Colorado
[PICTURE]
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
EXHIBIT C
ASSUMPTIONS AND LIMITING CONDITIONS
(3 PAGES)
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
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
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
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
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
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
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
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. James Newell 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- Douglas Needham
------------------------
Douglas Needham, MAI
Managing Principal, Real Estate Group
Colorado State Certified General Real Estate
Appraiser #CG40017035
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
EXHIBIT E
QUALIFICATIONS OF APPRAISER
(2 PAGES)
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
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
AFFILIATIONS Appraisal Institute, MAI Designated Member
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
VALUATION AND Appraisal Institute
SPECIAL COURSES Advanced Income Capitalization
Appraisal Principles
Appraisal Procedures
Basic Income Capitalization
Standards of Professional Practice
AMERICAN APPRAISAL ASSOCIATES, INC.
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
GENERAL SERVICE CONDITIONS
AMERICAN APPRAISAL ASSOCIATES, INC.
CITADEL VILLAGE, COLORADO SPRINGS, COLORADO
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.