CEDAR RIM APARTMENTS
7926 110TH AVENUE SE
NEW CASTLE, WASHINGTON
MARKET VALUE -
FEE SIMPLE ESTATE
AS OF MAY 21, 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]
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: CEDAR RIM APARTMENTS
7926 110TH AVENUE SE
NEW CASTLE, 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 104 units with a
total of 109,200 square feet of rentable area. The improvements were built in
1980. The improvements are situated on 4.37 acres. Overall, the improvements are
in average condition. As of the date of this appraisal, the subject property is
74% 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
CEDAR RIM APARTMENTS, NEW CASTLE, 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 21, 2003 is:
($6,800,000)
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
CEDAR RIM APARTMENTS, NEW CASTLE, 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 .......................................... 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
CEDAR RIM APARTMENTS, NEW CASTLE, WASHINGTON
EXECUTIVE SUMMARY
PART ONE - PROPERTY DESCRIPTION
PROPERTY NAME: Cedar Rim Apartments
LOCATION: 7926 110th Avenue SE
New Castle, 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 21, 2003
DATE OF REPORT: July 2, 2003
PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS:
SITE:
Size: 4.37 acres, or 190,357 square feet
Assessor Parcel No.: 3343300800
Floodplain: Community Panel No. 53033C0675F (November 8,
1999)
Flood Zone X, an area outside the floodplain.
Zoning: R-24 (Medium to High Density Apartment District)
BUILDING:
No. of Units: 104 Units
Total NRA: 109,200 Square Feet
Average Unit Size: 1,050 Square Feet
Apartment Density: 23.8 units per acre
Year Built: 1980
UNIT MIX AND MARKET RENT:
GROSS RENTAL INCOME PROJECTION
- --------------------------------------------------------------------------
Market Rent
Square -------------------- Monthly Annual
Unit Type Feet Per Unit Per SF Income Income
- --------------------------------------------------------------------------
2Br/1Ba 1,050 $910 $0.87 $ 4,550 $ 54,600
2Br/2Ba 1,050 $920 $0.88 $91,080 $1,092,960
Total $95,630 $1,147,560
OCCUPANCY: 74%
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
CEDAR RIM APARTMENTS, NEW CASTLE, WASHINGTON
SUBJECT PHOTOGRAPHS
[PICTURE] [PICTURE]
EXTERIOR - APARTMENT BUILDING EXTERIOR - APARTMENT BUILDING
AREA MAP
[MAP]
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6
CEDAR RIM APARTMENTS, NEW CASTLE, 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
CEDAR RIM APARTMENTS, NEW CASTLE, WASHINGTON
PART TWO - ECONOMIC INDICATORS
INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION Amount $/Unit
- -------------------------------------- ------------------ --------------
Potential Rental Income $1,147,560 $11,034
Effective Gross Income $1,053,604 $10,131
Operating Expenses $479,496 $4,611 45.5% of EGI
Net Operating Income: $548,108 $5,270
Capitalization Rate 8.00%
DIRECT CAPITALIZATION VALUE $6,600,000 * $63,462 / UNIT
DISCOUNTED CASH FLOW ANALYSIS:
Holding Period 10 years
2002 Economic Vacancy 18%
Stabilized Vacancy & Collection Loss: 10%
Lease-up / Stabilization Period 24 months
Terminal Capitalization Rate 8.50%
Discount Rate 10.50%
Selling Costs 2.00%
Growth Rates:
Income 3.00%
Expenses: 3.00%
DISCOUNTED CASH FLOW VALUE $6,900,000 * $66,346 / UNIT
RECONCILED INCOME CAPITALIZATION VALUE $6,800,000 $65,385 / UNIT
SALES COMPARISON APPROACH
PRICE PER UNIT:
Range of Sales $/Unit (Unadjusted) $63,162 to $96,500
Range of Sales $/Unit (Adjusted) $63,162 to $69,169
VALUE INDICATION - PRICE PER UNIT $6,700,000 * $64,423 / UNIT
EGIM ANALYSIS
Range of EGIMs from Improved Sales 6.55 to 8.12
Selected EGIM for Subject 6.65
Subject's Projected EGI $1,053,604
EGIM ANALYSIS CONCLUSION $6,800,000 * $65,385 / UNIT
NOI PER UNIT ANALYSIS CONCLUSION $6,600,000 * $63,462 / UNIT
RECONCILED SALES COMPARISON VALUE $6,700,000 $64,423 / 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
CEDAR RIM APARTMENTS, NEW CASTLE, WASHINGTON
PART THREE - SUMMARY OF VALUE CONCLUSIONS
SALES COMPARISON APPROACH:
Price Per Unit $6,700,000
NOI Per Unit $6,600,000
EGIM Multiplier $6,800,000
INDICATED VALUE BY SALES COMPARISON $6,700,000 $64,423 / UNIT
INCOME APPROACH:
Direct Capitalization Method: $6,600,000
Discounted Cash Flow Method: $6,900,000
INDICATED VALUE BY THE INCOME APPROACH $6,800,000 $65,385 / UNIT
RECONCILED OVERALL VALUE CONCLUSION: $6,800,000 $65,385 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9
CEDAR RIM APARTMENTS, NEW CASTLE, WASHINGTON
INTRODUCTION
IDENTIFICATION OF THE SUBJECT
The subject property is located at 7926 110th Avenue SE, New Castle, King
County, Washington. New Castle identifies it as 3343300800.
SCOPE OF THE ASSIGNMENT
The property, neighborhood, and comparables were inspected by Susan M. Kim on
May 21, 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 21, 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
CEDAR RIM APARTMENTS, NEW CASTLE, 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 CCIP 3. 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
CEDAR RIM APARTMENTS, NEW CASTLE, 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 New Castle, 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 - 116th Avenue SE
West - Interstate 405
South - NE 31st Street
North - NE 48th Street
MAJOR EMPLOYERS
Major employers in the subject's area include Boeing, Microsoft, and other
various high-tech and biotech firms. 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
CEDAR RIM APARTMENTS, NEW CASTLE, WASHINGTON
NEIGHBORHOOD DEMOGRAPHICS
AREA
------------------------------------------
CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA
- --------------------------------------------------------------------------------------
POPULATION TRENDS
Current Population 5,736 66,165 209,673 2,480,018
5-Year Population 6,135 69,675 221,146 2,656,373
% Change CY-5Y 7.0% 5.3% 5.5% 7.1%
Annual Change CY-5Y 1.4% 1.1% 1.1% 1.4%
HOUSEHOLDS
Current Households 2,378 25,818 81,161 991,697
5-Year Projected Households 2,578 27,378 85,951 1,065,406
% Change CY - 5Y 8.4% 6.0% 5.9% 7.4%
Annual Change CY-5Y 1.7% 1.2% 1.2% 1.5%
INCOME TRENDS
Median Household Income $ 98,554 $ 84,340 $ 68,735 $ 63,191
Per Capita Income $ 38,311 $ 39,548 $ 32,310 $ 28,774
Average Household Income $ 94,553 $ 101,321 $ 83,324 $ 71,954
Source: Demographics Now
The subject neighborhood's population is expected to show increases below that
of the region. The immediate market offers superior income levels as compared to
the broader market.
The following table illustrates the housing statistics in the subject's
immediate area, as well as the MSA region.
HOUSING TRENDS
AREA
----------------------------------------------
CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA
- ---------------------------------------------------------------------------------------
HOUSING TRENDS
% of Households Renting 18.90% 24.91% 31.73% 35.89%
5-Year Projected % Renting 19.80% 25.79% 31.81% 35.51%
% of Households Owning 78.44% 71.60% 63.73% 59.13%
5-Year Projected % Owning 77.67% 70.88% 63.89% 59.78%
Source: Demographics Now
AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13
CEDAR RIM APARTMENTS, NEW CASTLE, WASHINGTON
SURROUNDING IMPROVEMENTS
The following uses surround the subject property:
North - Retail
South - Residential
East - Residential
West - I-405
CONCLUSIONS
The subject is well located within the city of New Castle. 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
CEDAR RIM APARTMENTS, NEW CASTLE, WASHINGTON
MARKET ANALYSIS
The subject property is located in the city of New Castle in King County. The
overall pace of development in the subject's market is more or less stable.
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% 4.9%
Mar-99 3.7% 4.0%
Sep-99 4.0% 4.0%
Mar-00 3.7% 4.2%
Sep-00 3.5% 3.3%
Mar-01 4.2% 4.8%
Sep-01 5.1% 4.5%
Mar-02 8.2% 6.7%
Sep-03 8.2% 8.9%
Mar-03 7.5% 8.4%
Source: Dupre & Scott Apartment Advisors
Occupancy trends in the subject's market are increasing. Historically speaking,
the subject's submarket has underperformed 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 a decreasing trend. The
following table illustrates historical rental rates for the subject's market.
AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15
CEDAR RIM APARTMENTS, NEW CASTLE, WASHINGTON
HISTORICAL AVERAGE RENT
- -----------------------------------------------------
Period Region % Change Submarket % Change
- -----------------------------------------------------
Sep-98 $ 760 - $ 895 -
Mar-99 $ 769 1.2% $ 896 0.1%
Sep-99 $ 798 3.8% $ 954 6.5%
Mar-00 $ 812 1.8% $ 948 -0.6%
Sep-00 $ 852 4.9% $ 1,002 5.7%
Mar-01 $ 855 0.4% $ 997 -0.5%
Sep-01 $ 884 3.4% $ 1,012 1.5%
Mar-02 $ 881 -0.3% $ 1,025 1.3%
Sep-02 $ 882 0.1% $ 1,059 3.3%
Mar-03 $ 853 -3.3% $ 963 -9.1%
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 Marina Landing 186 99% 1987 5-miles south of subject
R-2 Newport Crossing 192 94% 1990 5 miles east of subject
R-3 Lexington Heights 252 96% 1999 7 miles south of subject
R-4 Pinnacle Lake Washington 180 99% 2002 Within 5-mile radius
Subject Cedar Rim Apartments 104 74% 1980
Rental rates have decreased over the past year due to the general slowing of the
economy. Concessions and move-in specials are common in the market. However,
occupancy rates are beginning to stabilize and rents are beginning to stabilize.
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16
CEDAR RIM APARTMENTS, NEW CASTLE, WASHINGTON
PROPERTY DESCRIPTION
SITE ANALYSIS
Site Area 4.37 acres, or 190,357 square feet
Shape Generally rectangular
Topography Moderate slope
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 53033C0675F, dated November 8, 1999
Flood Zone Zone X
Zoning R-24, 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
- ----------------------------------------------------------------------------------------
3343300800 $1,560,000 $6,478,000 $8,038,000 0.01073 $ 86,223
IMPROVEMENT ANALYSIS
Year Built 1980
Number of Units 104
Net Rentable Area 109,200 Square Feet
Construction:
Foundation Reinforced concrete slab
Frame Heavy or light wood
Exterior Walls Brick or masonry
Roof Composition shingle over a wood truss structure
Project Amenities Amenities at the subject include a swimming pool,
spa/jacuzzi, and parking area.
Unit Amenities Individual unit amenities include a balcony, and
washer dryer connection. Appliances available in
each unit include a refrigerator, stove,
dishwasher, water heater, garbage disposal,
washer/dryer, and oven.
Unit Mix:
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17
CEDAR RIM APARTMENTS, NEW CASTLE, WASHINGTON
Unit Area
Unit Type Number of Units (Sq. Ft.)
- ---------------------------------------------------------
2Br/1Ba 5 1,050
2Br/2Ba 99 1,050
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
1980 and consist of a 104-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
CEDAR RIM APARTMENTS, NEW CASTLE, 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
CEDAR RIM APARTMENTS, NEW CASTLE, 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
CEDAR RIM APARTMENTS, NEW CASTLE, 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
CEDAR RIM APARTMENTS, NEW CASTLE, WASHINGTON
SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE
DESCRIPTION SUBJECT I - 1 I - 2
- -------------------------------------------------------------------------------------------------------------------
Property Name Cedar Rim Apartments Lake Fenwick Estates Highland Green
LOCATION:
Address 7926 110th Avenue SE 24849 45th Avenue S 10105 SE 236th Street
City, State New Castle, Washington Kent, WA Kent, WA
County King King King
PHYSICAL CHARATERISTICS:
Net Rentable Area (SF) 109,200 202,104 90,539
Year Built 1980 1988 1991
Number of Units 104 216 96
Unit Mix: Type Total Type Total Type Total
2Br/1Ba 5 1Br/1Ba 48 1Br/1Ba 6
2Br/2Ba 99 2Br/2Ba 138 2Br/2Ba 84
3Br/2Ba 30 3Br/2Ba 6
Average Unit Size (SF) 1,050 936 943
Land Area (Acre) 4.3700 14.1300 5.1000
Density (Units/Acre) 23.8 15.3 18.8
Parking Ratio (Spaces/Unit) 0.00 Adequate 1.96
Parking Type (Gr., Cov., etc.) Open Open, Covered Open, Covered
CONDITION: Average Average Average
APPEAL: Average Average Average
AMENITIES:
Pool/Spa Yes/Yes Yes/Yes Yes/No
Gym Room No Yes
Laundry Room No
Secured Parking No No
Sport Courts No No
Washer/Dryer Connection Yes
OCCUPANCY: 74% 92% 90%
TRANSACTION DATA:
Sale Date March, 2003 October, 2002
Sale Price ($) $13,643,016 $6,324,000
Grantor D. Shafran Investments Liberty Estates
Grantee Meridian Ridge N/A
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 $1,949,429 $9,025 $9.65 $1,073,424 $11,182 $11.86
Vacancy/Credit Loss $ 154,590 $ 716 $0.76 $ 107,342 $ 1,118 $ 1.19
Effective Gross Income $1,794,839 $8,309 $8.88 $ 966,082 $10,063 $10.67
Operating Expenses $ 775,444 $3,590 $3.84 $ 393,600 $ 4,100 $ 4.35
Net Operating Income $1,019,395 $4,719 $5.04 $ 572,482 $ 5,963 $ 6.32
NOTES: None None
PRICE PER UNIT $63,162 $65,875
PRICE PER SQUARE FOOT $ 67.50 $ 69.85
EXPENSE RATIO 43.2% 40.7%
EGIM 7.60 6.55
OVERALL CAP RATE 7.47% 9.05%
Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA
COMPARABLE COMPARABLE
DESCRIPTION I - 3 I - 4
- -----------------------------------------------------------------------------------------------------------
Property Name The Overlook at Lakemont Carlton Place
LOCATION:
Address 5305 Laakemont Blvd Se 3615 147th Place NE
City, State Bellevue, WA Bellevue, WA
County King King
PHYSICAL CHARATERISTICS:
Net Rentable Area (SF) 446,923 170,706
Year Built 1992 1977
Number of Units 400 209
Unit Mix: Type Total Type Total
1Br/1Ba 65 Studio 1
2Br/2Ba 234 1Br/1Ba 138
3Br/2Ba 101 2Br/2Ba 70
Average Unit Size (SF) 1,117 817
Land Area (Acre) 27.5800 9.4800
Density (Units/Acre) 14.5 22.0
Parking Ratio (Spaces/Unit) 2.08 2.57
Parking Type (Gr., Cov., etc.) Garage, Open, Covered Open, Covered
CONDITION: Good Average
APPEAL: Good Average
AMENITIES:
Pool/Spa Yes/Yes Yes/Yes
Gym Room Yes Yes
Laundry Room
Secured Parking Yes
Sport Courts Yes
Washer/Dryer Connection
OCCUPANCY: 95% 95%
TRANSACTION DATA:
Sale Date July, 2002 May, 2002
Sale Price ($) $38,600,000 $17,075,000
Grantor Trammel Crow Residential Calrton Place Associates
Grantee Drever Multifamily Carton-Bellevue
Opportunity
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 $5,638,748 $14,097 $12.62 $2,213,760 $10,592 $12.97
Vacancy/Credit Loss $ 281,937 $ 705 $ 0.63 $ 110,688 $ 530 $ 0.65
Effective Gross Income $5,356,811 $13,392 $11.99 $2,103,072 $10,063 $12.32
Operating Expenses $1,671,301 $ 4,178 $ 3.74 $ 731,500 $ 3,500 $ 4.29
Net Operating Income $3,685,510 $ 9,214 $ 8.25 $1,371,572 $ 6,563 $ 8.03
NOTES: None None
PRICE PER UNIT $96,500 $81,699
PRICE PER SQUARE FOOT $ 86.37 $100.03
EXPENSE RATIO 31.2% 34.8%
EGIM 7.21 8.12
OVERALL CAP RATE 9.55% 8.03%
Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22
CEDAR RIM APARTMENTS, NEW CASTLE, WASHINGTON
IMPROVED SALES MAP
[MAP]
IMPROVED SALES ANALYSIS
The improved sales indicate a sales price range from $63,162 to $96,500 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 $63,162 to $69,169 per unit with a mean or average adjusted price
of $66,705 per unit. The median adjusted price is $67,244 per unit. Based on the
following analysis, we have concluded to a value of $66,000 per unit, which
results in an "as is" value of $6,700,000 (rounded after necessary adjustment,
if any).
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23
CEDAR RIM APARTMENTS, NEW CASTLE, WASHINGTON
SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE
DESCRIPTION SUBJECT I - 1 I - 2
- ---------------------------------------------------------------------------------------------------------------
Property Name Cedar Rim Apartments Lake Fenwick Estates Highland Green
Address 7926 110th Avenue SE 24849 45th Avenue S 10105 SE 236th Street
City New Castle, Washington Kent, WA Kent, WA
Sale Date March, 2003 October, 2002
Sale Price ($) $13,643,016 $6,324,000
Net Rentable Area (SF) 109,200 202,104 90,539
Number of Units 104 216 96
Price Per Unit $63,162 $65,875
Year Built 1980 1988 1991
Land Area (Acre) 4.3700 14.1300 5.1000
VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ.
Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0%
Financing Cash To Seller 0% Cash To Seller 0%
Conditions of Sale Arm's Length 0% Arm's Length 0%
Date of Sale (Time) 03-2003 0% 10-2002 0%
VALUE AFTER TRANS. ADJUST. ($/UNIT) $63,162 $65,875
Location Inferior 10% Inferior 10%
Number of Units 104 216 5% 96 0%
Quality / Appeal Average Superior -5% Inferior 5%
Age / Condition 1980 1988 / Average -5% 1991 / Average -5%
Occupancy at Sale 74% 92% -5% 90% -5%
Amenities Average Superior -5% Superior -5%
Average Unit Size (SF) 1,050 936 5% 943 5%
PHYSICAL ADJUSTMENT 0% 5%
FINAL ADJUSTED VALUE ($/UNIT) $63,162 $69,169
COMPARABLE COMPARABLE
DESCRIPTION I - 3 I - 4
- ---------------------------------------------------------------------------------------
Property Name The Overlook at Lakemont Carlton Place
Address 5305 Laakemont Blvd Se 3615 147th Place NE
City Bellevue, WA Bellevue, WA
Sale Date July, 2002 May, 2002
Sale Price ($) $38,600,000 $17,075,000
Net Rentable Area (SF) 446,923 170,706
Number of Units 400 209
Price Per Unit $96,500 $81,699
Year Built 1992 1977
Land Area (Acre) 27.5800 9.4800
VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ.
Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0%
Financing Cash To Seller 0% Cash To Seller 0%
Conditions of Sale Arm's Length 0% Arm's Length 0%
Date of Sale (Time) 07-2002 5% 05-2002 5%
VALUE AFTER TRANS. ADJUST. ($/UNIT) $101,325 $85,783
Location Superior -10% Superior -10%
Number of Units 400 10% 209 5%
Quality / Appeal Superior -10% Superior -5%
Age / Condition 1992 / Good -5% 1977 /Average 0%
Occupancy at Sale 95% -10% 95% -10%
Amenities Superior -10% Superior -5%
Average Unit Size (SF) 1,117 0% 817 5%
PHYSICAL ADJUSTMENT -35% -20%
FINAL ADJUSTED VALUE ($/UNIT) $65,861 $68,627
SUMMARY
VALUE RANGE (PER UNIT) $63,162 TO $69,169
MEAN (PER UNIT) $66,705
MEDIAN (PER UNIT) $67,244
VALUE CONCLUSION (PER UNIT) $66,000
VALUE OF IMPROVEMENT & MAIN SITE $6,864,000
LESS: LEASE-UP COST -$ 181,000
PV OF CONCESSIONS -$ 29,000
VALUE INDICATED BY SALES COMPARISON APPROACH $6,654,000
ROUNDED $6,700,000
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
CEDAR RIM APARTMENTS, NEW CASTLE, WASHINGTON
NOI PER UNIT COMPARISON
COMPARABLE NO. OF SALE PRICE NOI/ SUBJECT NOI ADJUSTMENT INDICATED
NO. UNITS PRICE/UNIT OAR NOI/UNIT SUBJ. NOI/UNIT FACTOR VALUE/UNIT
- -------------------------------------------------------------------------------------------------
I-1 216 $13,643,016 7.47% $1,019,395 $548,108 1.117 $70,534
$ 63,162 $ 4,719 $ 5,270
I-2 96 $ 6,324,000 9.05% $ 572,482 $548,108 0.884 $58,219
$ 65,875 $ 5,963 $ 5,270
I-3 400 $38,600,000 9.55% $3,685,510 $548,108 0.572 $55,198
$ 96,500 $ 9,214 $ 5,270
I-4 209 $17,075,000 8.03% $1,371,572 $548,108 0.803 $65,611
$ 81,699 $ 6,563 $ 5,270
PRICE/UNIT
- -------------------------------------------------
Low High Average Median
- ------- ------- ------- -------
$55,198 $70,534 $62,390 $61,915
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT
- ------------------------------------------------------
Estimated Price Per Unit $ 65,000
Number of Units 104
Value $6,760,000
Less: Lease-Up Cost -$ 181,000
PV of Concessions -$ 29,000
----------
Value Based on NOI Analysis $6,550,000
Rounded $6,600,000
The adjusted sales indicate a range of value between $55,198 and $70,534 per
unit, with an average of $62,390 per unit. Based on the subject's competitive
position within the improved sales, a value of $65,000 per unit is estimated.
This indicates an "as is" market value of $6,600,000 (rounded after necessary
adjustment, if any) for the NOI Per Unit Analysis.
EFFECTIVE GROSS INCOME MULTIPLIER (EGIM) ANALYSIS
The effective gross income multiplier (EGIM) is derived by dividing the sales
price by the total effective gross income. The following table illustrates the
EGIMs for the comparable improved sales.
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 25
CEDAR RIM APARTMENTS, NEW CASTLE, WASHINGTON
EFFECTIVE GROSS INCOME MULTIPLIER COMPARISON
COMPARABLE NO. OF SALE PRICE EFFECTIVE OPERATING SUBJECT
NO. UNITS PRICE/UNIT GROSS INCOME EXPENSE OER PROJECTED OER EGIM
- -----------------------------------------------------------------------------------------------
I-1 216 $13,643,016 $1,794,839 $ 775,444 43.20% 7.60
$ 63,162
I-2 96 $ 6,324,000 $ 966,082 $ 393,600 40.74% 6.55
$ 65,875 45.51%
I-3 400 $38,600,000 $5,356,811 $1,671,301 31.20% 7.21
$ 96,500
I-4 209 $17,075,000 $2,103,072 $ 731,500 34.78% 8.12
$ 81,699
EGIM
- -------------------------------------------------
Low High Average Median
- ---- ---- ------- ------
6.55 8.12 7.37 7.40
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES
- ------------------------------------------------------
Estimate EGIM 6.65
Subject EGI $1,053,604
Value $7,006,467
Less: Lease-Up Cost -$ 181,000
PV of Concessions -$ 29,000
-----------
Value Based on EGIM Analysis $6,796,467
Rounded $6,800,000
Value Per Unit $ 65,385
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 45.51% before reserves. The comparable sales
indicate a range of expense ratios from 31.20% to 43.20%, while their EGIMs
range from 6.55 to 8.12. Overall, we conclude to an EGIM of 6.65, which results
in an "as is" value estimate in the EGIM Analysis of $6,800,000.
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 $6,700,000.
Price Per Unit $6,700,000
NOI Per Unit $6,600,000
EGIM Analysis $6,800,000
Sales Comparison Conclusion $6,700,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26
CEDAR RIM APARTMENTS, NEW CASTLE,
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
CEDAR RIM APARTMENTS, NEW CASTLE,
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
- ----------------------------------------------------------------------------
2Br/1Ba 1050 $949 $0.90 80.0%
2Br/2Ba 1050 $936 $0.89 73.7%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28
CEDAR RIM APARTMENTS, NEW CASTLE,
WASHINGTON
RENT ANALYSIS
COMPARABLE RENTS
-----------------------------------------
R-1 R-2 R-3 R-4
-----------------------------------------
Pinnacle
Marina Newport Lexington Lake
Landing Crossing Heights Washington
-----------------------------------------
COMPARISON TO SUBJECT
SUBJECT SUBJECT -----------------------------------------
SUBJECT UNIT ACTUAL ASKING Slightly Slightly
DESCRIPTION TYPE RENT RENT Superior Superior Superior Superior MIN MAX MEDIAN AVERAGE
- ----------------------------------------------------------------------------------------------------------------------------------
Monthly Rent 2Br/1Ba $ 949 $ 949 $ 915 $ 925 $1,025 $ 915 $1,025 $ 925 $ 955
Unit Area (SF) 1,050 1,050 889 913 926 889 926 913 909
Monthly Rent Per Sq. Ft. $ 0.90 $ 0.90 $1.03 $1.01 $ 1.11 $1.01 $ 1.11 $ 1.03 $ 1.05
Monthly Rent 2Br/2Ba $ 936 $ 949 $ 935 $ 907 $1,110 $1,182 $ 907 $1,182 $1,023 $1,033
Unit Area (SF) 1,050 1,050 975 933 990 1,220 933 1,220 983 1,030
Monthly Rent Per Sq. Ft. $ 0.89 $ 0.90 $0.96 $0.97 $ 1.12 $ 0.97 $0.96 $ 1.12 $ 0.97 $ 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
- ----------------------------------------------------------------------------------------
2Br/1Ba 5 1,050 $910 $0.87 $ 4,550 $ 54,600
2Br/2Ba 99 1,050 $920 $0.88 $91,080 $1,092,960
Total $95,630 $1,147,560
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
CEDAR RIM APARTMENTS, NEW CASTLE,
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 $1,187,319 $11,417 $1,239,745 $11,921 $1,149,321 $11,051 $1,150,000 $11,058
Vacancy $ 83,368 $ 802 $ 122,709 $ 1,180 $ 147,986 $ 1,423 $ 80,000 $ 769
Credit Loss/Concessions $ 3,519 $ 34 $ 54,527 $ 524 $ 62,445 $ 600 $ 44,500 $ 428
Subtotal $ 86,887 $ 835 $ 177,236 $ 1,704 $ 210,431 $ 2,023 $ 124,500 $ 1,197
Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 1,020 $ 10
Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Other Misc. Revenue $ 24,906 $ 239 $ 59,640 $ 573 $ 22,978 $ 221 $ 16,248 $ 156
Subtotal Other Income $ 24,906 $ 239 $ 59,640 $ 573 $ 22,978 $ 221 $ 17,268 $ 166
Effective Gross Income $1,125,338 $10,821 $1,122,149 $10,790 $ 961,868 $ 9,249 $1,042,768 $10,027
Operating Expenses
Taxes $ 81,834 $ 787 $ 95,611 $ 919 $ 92,400 $ 888 $ 96,264 $ 926
Insurance $ 13,726 $ 132 $ 15,647 $ 150 $ 18,573 $ 179 $ 20,846 $ 200
Utilities $ 73,282 $ 705 $ 75,161 $ 723 $ 96,121 $ 924 $ 88,800 $ 854
Repair & Maintenance $ 13,382 $ 129 $ 19,607 $ 189 $ 18,263 $ 176 $ 17,300 $ 166
Cleaning $ 17,306 $ 166 $ 21,643 $ 208 $ 29,050 $ 279 $ 28,000 $ 269
Landscaping $ 32,474 $ 312 $ 37,058 $ 356 $ 46,199 $ 444 $ 41,000 $ 394
Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Marketing & Leasing $ 16,498 $ 159 $ 18,726 $ 180 $ 25,964 $ 250 $ 23,400 $ 225
General Administrative $ 94,129 $ 905 $ 123,120 $ 1,184 $ 105,303 $ 1,013 $ 102,428 $ 985
Management $ 57,253 $ 551 $ 59,196 $ 569 $ 55,463 $ 533 $ 53,841 $ 518
Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Total Operating Expenses $ 399,884 $ 3,845 $ 465,769 $ 4,479 $ 487,336 $ 4,686 $ 471,879 $ 4,537
Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Net Income $ 725,454 $ 6,976 $ 656,380 $ 6,311 $ 474,532 $ 4,563 $ 570,889 $ 5,489
ANNUALIZED 2003
---------------------
PROJECTION AAA PROJECTION
--------------------- ----------------------------
DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT %
- --------------------------------------------------------------------------------
Revenues
Rental Income $1,147,980 $11,038 $1,147,560 $11,034 100.0%
Vacancy $ 326,968 $ 3,144 $ 91,805 $ 883 8.0%
Credit Loss/Concessions $ 11,480 $ 110 $ 22,951 $ 221 2.0%
Subtotal $ 338,448 $ 3,254 $ 114,756 $ 1,103 10.0%
Laundry Income $ 0 $ 0 $ 0 $ 0 0.0%
Garage Revenue $ 0 $ 0 $ 0 $ 0 0.0%
Other Misc. Revenue ($ 5,428) -$ 52 $ 20,800 $ 200 1.8%
Subtotal Other Income ($ 5,428) -$ 52 $ 20,800 $ 200 1.8%
Effective Gross Income $ 804,104 $ 7,732 $1,053,604 $10,131 100.0%
Operating Expenses
Taxes $ 98,956 $ 952 $ 86,216 $ 829 8.2%
Insurance $ 19,820 $ 191 $ 20,800 $ 200 2.0%
Utilities $ 163,480 $ 1,572 $ 104,000 $ 1,000 9.9%
Repair & Maintenance $ 2,144 $ 21 $ 18,200 $ 175 1.7%
Cleaning $ 12,340 $ 119 $ 28,600 $ 275 2.7%
Landscaping $ 19,968 $ 192 $ 41,600 $ 400 3.9%
Security $ 0 $ 0 $ 0 $ 0 0.0%
Marketing & Leasing $ 14,308 $ 138 $ 23,400 $ 225 2.2%
General Administrative $ 50,980 $ 490 $ 104,000 $ 1,000 9.9%
Management $ 29,420 $ 283 $ 52,680 $ 507 5.0%
Miscellaneous $ 0 $ 0 $ 0 $ 0 0.0%
Total Operating Expenses $ 411,416 $ 3,956 $ 479,496 $ 4,611 45.5%
Reserves $ 0 $ 0 $ 26,000 $ 250 5.4%
Net Income $ 392,688 $ 3,776 $ 548,108 $ 5,270 52.0%
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 10% based on
the subject's historical performance, as well as the anticipated future market
conditions.
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30
CEDAR RIM APARTMENTS, NEW CASTLE,
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
CEDAR RIM APARTMENTS, NEW CASTLE,
WASHINGTON
SUMMARY OF OVERALL
CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR
- ----------------------------------------------------------
I-1 Mar-03 92% $63,162 7.47%
I-2 Oct-02 90% $65,875 9.05%
I-3 Jul-02 95% $96,500 9.55%
I-4 May-02 95% $81,699 8.03%
I-5 Jan-00 0% N/A
High 9.55%
Low 7.47%
Average 8.53%
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 8.50%. 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 $6,900,000. In this instance, the reversion
figure contributes
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32
CEDAR RIM APARTMENTS, NEW CASTLE,
WASHINGTON
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 CAPITALIZATION APPROACH PAGE 33
CEDAR RIM APARTMENTS, NEW CASTLE, WASHINGTON
DISCOUNTED CASH FLOW ANALYSIS
CEDAR RIM APARTMENTS
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009
FISCAL YEAR 1 2 3 4 5 6
----------- ------------ ------------ ------------ ------------ ------------ ------------
REVENUE
Base Rent $ 1,147,560 $ 1,181,987 $ 1,217,446 $ 1,253,970 $ 1,291,589 $ 1,330,337
Vacancy $ 250,689 $ 152,058 $ 97,396 $ 100,318 $ 103,327 $ 106,427
Credit Loss $ 22,951 $ 23,640 $ 24,349 $ 25,079 $ 25,832 $ 26,607
Concessions $ 16,848 $ 16,848 $ 0 $ 0 $ 0 $ 0
------------ ------------ ------------ ------------ ------------ ------------
Subtotal $ 290,488 $ 192,546 $ 121,745 $ 125,397 $ 129,159 $ 133,034
Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Other Misc. Revenue $ 20,800 $ 21,424 $ 22,067 $ 22,729 $ 23,411 $ 24,113
------------ ------------ ------------ ------------ ------------ ------------
Subtotal Other Income $ 20,800 $ 21,424 $ 22,067 $ 22,729 $ 23,411 $ 24,113
------------ ------------ ------------ ------------ ------------ ------------
EFFECTIVE GROSS INCOME $ 877,872 $ 1,010,865 $ 1,117,768 $ 1,151,302 $ 1,185,841 $ 1,221,416
OPERATING EXPENSES:
Taxes $ 86,216 $ 88,802 $ 91,467 $ 94,211 $ 97,037 $ 99,948
Insurance $ 20,800 $ 21,424 $ 22,067 $ 22,729 $ 23,411 $ 24,113
Utilities $ 104,000 $ 107,120 $ 110,334 $ 113,644 $ 117,053 $ 120,565
Repair & Maintenance $ 18,200 $ 18,746 $ 19,308 $ 19,888 $ 20,484 $ 21,099
Cleaning $ 28,600 $ 29,458 $ 30,342 $ 31,252 $ 32,190 $ 33,155
Landscaping $ 41,600 $ 42,848 $ 44,133 $ 45,457 $ 46,821 $ 48,226
Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Marketing & Leasing $ 23,400 $ 24,102 $ 24,825 $ 25,570 $ 26,337 $ 27,127
General Administrative $ 104,000 $ 107,120 $ 110,334 $ 113,644 $ 117,053 $ 120,565
Management $ 43,894 $ 50,543 $ 55,888 $ 57,565 $ 59,292 $ 61,071
Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
------------ ------------ ------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES $ 470,710 $ 490,164 $ 508,698 $ 523,958 $ 539,677 $ 555,868
Reserves $ 26,000 $ 26,780 $ 27,583 $ 28,411 $ 29,263 $ 30,141
------------ ------------ ------------ ------------ ------------ ------------
NET OPERATING INCOME $ 381,162 $ 493,921 $ 581,488 $ 598,932 $ 616,900 $ 635,407
============ ============ ============ ============ ============ ============
Operating Expense Ratio (% of EGI) 53.6% 48.5% 45.5% 45.5% 45.5% 45.5%
Operating Expense Per Unit $ 4,526 $ 4,713 $ 4,891 $ 5,038 $ 5,189 $ 5,345
============ ============ ============ ============ ============ ============
YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014
FISCAL YEAR 7 8 9 10 11
----------- ------------ ------------ ------------ ------------ ------------
REVENUE
Base Rent $ 1,370,247 $ 1,411,354 $ 1,453,695 $ 1,497,306 $ 1,542,225
Vacancy $ 109,620 $ 112,908 $ 116,296 $ 119,784 $ 123,378
Credit Loss $ 27,405 $ 28,227 $ 29,074 $ 29,946 $ 30,844
Concessions $ 0 $ 0 $ 0 $ 0 $ 0
------------ ------------ ------------ ------------ ------------
Subtotal $ 137,025 $ 141,135 $ 145,369 $ 149,731 $ 154,222
Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0
Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0
Other Misc. Revenue $ 24,836 $ 25,581 $ 26,349 $ 27,139 $ 27,953
------------ ------------ ------------ ------------ ------------
Subtotal Other Income $ 24,836 $ 25,581 $ 26,349 $ 27,139 $ 27,953
------------ ------------ ------------ ------------ ------------
EFFECTIVE GROSS INCOME $ 1,258,058 $ 1,295,800 $ 1,334,674 $ 1,374,714 $ 1,415,956
OPERATING EXPENSES:
Taxes $ 102,946 $ 106,035 $ 109,216 $ 112,492 $ 115,867
Insurance $ 24,836 $ 25,581 $ 26,349 $ 27,139 $ 27,953
Utilities $ 124,181 $ 127,907 $ 131,744 $ 135,696 $ 139,767
Repair & Maintenance $ 21,732 $ 22,384 $ 23,055 $ 23,747 $ 24,459
Cleaning $ 34,150 $ 35,174 $ 36,230 $ 37,317 $ 38,436
Landscaping $ 49,673 $ 51,163 $ 52,698 $ 54,279 $ 55,907
Security $ 0 $ 0 $ 0 $ 0 $ 0
Marketing & Leasing $ 27,941 $ 28,779 $ 29,642 $ 30,532 $ 31,448
General Administrative $ 124,181 $ 127,907 $ 131,744 $ 135,696 $ 139,767
Management $ 62,903 $ 64,790 $ 66,734 $ 68,736 $ 70,798
Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0
------------ ------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES $ 572,544 $ 589,720 $ 607,411 $ 625,634 $ 644,403
Reserves $ 31,045 $ 31,977 $ 32,936 $ 33,924 $ 34,942
------------ ------------ ------------ ------------ ------------
NET OPERATING INCOME $ 654,469 $ 674,103 $ 694,327 $ 715,156 $ 736,611
============ ============ ============ ============ ============
Operating Expense Ratio (% of EGI) 45.5% 45.5% 45.5% 45.5% 45.5%
Operating Expense Per Unit $ 5,505 $ 5,670 $ 5,840 $ 6,016 $ 6,196
============ ============ ============ ============ ============
Gross Residual Sale Price $8,666,012 Deferred Maintenance $ 0
Estimated Stabilized NOI $548,108 Sales Expense Rate 2.00% Less: Sales Expense $ 173,320 Add: Excess Land $ 0
----------
Months to Stabilized 24 Discount Rate 10.50% Net Residual Sale Price $8,492,692 Other Adjustments $ 0
----------
Stabilized Occupancy 92.0% Terminal Cap Rate 8.50% PV of Reversion $3,129,123 Value Indicated By
Add: NPV of NOI $3,726,078 "DCF" $6,855,201
----------
PV Total $6,855,201 Rounded $6,900,000
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE
-------------------------------------------------------------------------
TOTAL VALUE 10.00% 10.25% 10.50% 10.75% 11.00%
- ----------------- ---------- ---------- ---------- ---------- ----------
TERMINAL CAP RATE
8.00% $7,300,015 $7,173,988 $7,050,771 $6,930,291 $6,812,480
8.25% $7,194,593 $7,070,932 $6,950,023 $6,831,794 $6,716,179
8.50% $7,095,371 $6,973,938 $6,855,201 $6,739,091 $6,625,543
8.75% $7,001,820 $6,882,486 $6,765,797 $6,651,686 $6,540,086
9.00% $6,913,466 $6,796,115 $6,681,361 $6,569,136 $6,459,377
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 34
CEDAR RIM APARTMENTS, NEW CASTLE, WASHINGTON
INCOME LOSS DURING LEASE-UP
The subject is currently 74% occupied, below our stabilized occupancy
projection. We have estimated a 24-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 $181,000 as shown in the following table.
DESCRIPTION YEAR 1 YEAR 2
----------- ------ ------
"As Is" Net Operating Income $381,162 $493,921
Stabilized Net Operating Income $532,102 $548,545
-------- --------
Difference $150,940 $ 54,624
PV of Income Loss During Lease-Up $181,334
--------
Rounded $181,000
========
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
$29,000 (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 CAPITALIZATION APPROACH PAGE 35
CEDAR RIM APARTMENTS, NEW CASTLE, WASHINGTON
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 36
CEDAR RIM APARTMENTS, NEW CASTLE, WASHINGTON
CEDAR RIM APARTMENTS
TOTAL PER SQ. FT. PER UNIT %OF EGI
----- ----------- -------- -------
REVENUE
Base Rent $1,147,560 $10.51 $11,034
Less: Vacancy & Collection Loss 10.00% $ 114,756 $ 1.05 $ 1,103
Plus: Other Income
Laundry Income $ 0 $ 0.00 $ 0 0.00%
Garage Revenue $ 0 $ 0.00 $ 0 0.00%
Other Misc. Revenue $ 20,800 $ 0.19 $ 200 1.97%
---------- ------ ------- -----
Subtotal Other Income $ 20,800 $ 0.19 $ 200 1.97%
EFFECTIVE GROSS INCOME $1,053,604 $ 9.65 $10,131
OPERATING EXPENSES:
Taxes $ 86,216 $ 0.79 $ 829 8.18%
Insurance $ 20,800 $ 0.19 $ 200 1.97%
Utilities $ 104,000 $ 0.95 $ 1,000 9.87%
Repair & Maintenance $ 18,200 $ 0.17 $ 175 1.73%
Cleaning $ 28,600 $ 0.26 $ 275 2.71%
Landscaping $ 41,600 $ 0.38 $ 400 3.95%
Security $ 0 $ 0.00 $ 0 0.00%
Marketing & Leasing $ 23,400 $ 0.21 $ 225 2.22%
General Administrative $ 104,000 $ 0.95 $ 1,000 9.87%
Management 5.00% $ 52,680 $ 0.48 $ 507 5.00%
Miscellaneous $ 0 $ 0.00 $ 0 0.00%
TOTAL OPERATING EXPENSES $ 479,496 $ 4.39 $ 4,611 45.51%
Reserves $ 26,000 $ 0.24 $ 250 2.47%
---------- ------ ------- -----
NET OPERATING INCOME $ 548,108 $ 5.02 $ 5,270 52.02%
========== ====== ======= =====
"GOING IN" CAPITALIZATION RATE 8.00%
VALUE INDICATION $6,851,348 $62.74 $65,878
LESS: LEASE-UP COST ($ 181,000)
PV OF CONCESSIONS ($ 29,000)
"AS IS" VALUE INDICATION
(DIRECT CAPITALIZATION APPROACH) $6,641,348
ROUNDED $6,600,000 $60.44 $63,462
========== ====== =======
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 37
CEDAR RIM APARTMENTS, NEW CASTLE, WASHINGTON
DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF
- -------- ----- ------- ------ ----
7.25% $7,350,108 $7,400,000 $71,154 $67.77
7.50% $7,098,104 $7,100,000 $68,269 $65.02
7.75% $6,862,359 $6,900,000 $66,346 $63.19
8.00% $6,641,348 $6,600,000 $63,462 $60.44
8.25% $6,433,731 $6,400,000 $61,538 $58.61
8.50% $6,238,327 $6,200,000 $59,615 $56.78
8.75% $6,054,089 $6,100,000 $58,654 $55.86
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD
Applying the capitalization rate to our estimated NOI results in an estimated
value of $6,600,000.
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 $6,900,000
Direct Capitalization Method $6,600,000
Giving consideration to the indicated values provided by both techniques, we
have concluded the estimated value by the income capitalization approach to be
$6,800,000.
AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 38
CEDAR RIM APARTMENTS, NEW CASTLE, 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 $6,700,000
Income Approach $6,800,000
Reconciled Value $6,800,000
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 21, 2003 the market value of the fee simple estate in the property is:
$6,800,000
AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA
CEDAR RIM APARTMENTS, NEW CASTLE, WASHINGTON
ADDENDA
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A
CEDAR RIM APARTMENTS, NEW CASTLE, WASHINGTON
EXHIBIT A
SUBJECT PHOTOGRAPHS
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A
CEDAR RIM APARTMENTS, NEW CASTLE, WASHINGTON
SUBJECT PHOTOGRAPHS
[EXTERIOR - APARTMENT BUILDING PICTURE] [EXTERIOR - APARTMENT BUILDING PICTURE]
[EXTERIOR - LEASING OFFICE PICTURE] [EXTERIOR - PARKING PICTURE]
[EXTERIOR - DRIVEWAY ENTRANCE PICTURE] [EXTERIOR - STREET SCENE PICTURE]
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A
CEDAR RIM APARTMENTS, NEW CASTLE, WASHINGTON
SUBJECT PHOTOGRAPHS
[EXTERIOR - SWIMMING POOL PICTURE] [INTERIOR - APARTMENT UNIT PICTURE]
[INTERIOR - APARTMENT UNIT PICTURE] [INTERIOR - APARTMENT UNIT PICTURE]
[INTERIOR - LEASING OFFICE PICTURE] [INTERIOR - LEASING OFFICE PICTURE]
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B
CEDAR RIM APARTMENTS, NEW CASTLE, WASHINGTON
EXHIBIT B
SUMMARY OF RENT COMPARABLES
AND PHOTOGRAPH OF COMPARABLES
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B
CEDAR RIM APARTMENTS, NEW CASTLE, WASHINGTON
PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES
COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3
LAKE FENWICK ESTATES HIGHLAND GREEN THE OVERLOOK AT LAKEMONT
24849 45th Avenue S 10105 SE 236th Street 5305 Laakemont Blvd Se
Kent, WA Kent, WA Bellevue, WA
[PICTURE] [PICTURE] [PICTURE]
COMPARABLE I-4
CARLTON PLACE
3615 147th Place NE
Bellevue, WA
[PICTURE] N/A
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B
CEDAR RIM APARTMENTS, NEW CASTLE, WASHINGTON
SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE
DESCRIPTION SUBJECT R - 1
----------- ------- ----------
Property Name Cedar Rim Apartments Marina Landing
Management Company AIMCO HSC Real Estate, Inc.
LOCATION:
Address 7926 110th Avenue SE 1300 N. 20th Street
City, State New Castle, Washington Renton, WA
County King King
Proximity to Subject 5-miles south of subject
PHYSICAL CHARATERISTICS:
Net Rentable Area (SF) 109,200 148,029
Year Built 1980 1987
Effective Age 20 15
Building Structure Type Wood siding walls; asphalt shingle roof Wood siding walls; asphalt shingle roof
Parking Type (Gr., Cov., etc.) Open Open, Covered
Number of Units 104 186
Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo.
1 2Br/1Ba 1,050 5 $949 1BD/1BH 650 93 $755
2 2Br/2Ba 1,050 99 $936 1 2BD/1BH 889 36 $915
2 2BD/2BH 975 57 $935
Average Unit Size (SF) 1,050 796
Unit Breakdown: Efficiency 0% 2-Bedroom 100% Efficiency 0% 2-Bedroom 50%
1-Bedroom 0% 3-Bedroom 0% 1-Bedroom 50% 3-Bedroom 0%
CONDITION: Average Average
APPEAL: Average Average
AMENITIES:
Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling
X Balcony X W/D Connect. X Balcony X W/D Connect.
Fireplace X Fireplace
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
Tennis Court Secured Parking Tennis Court Secured Parking
Racquet Ball Laundry Room Racquet Ball Laundry Room
Jogging Track Business Office Jogging Track X Business Office
Gym Room X Gym Room
OCCUPANCY: 74% 99%
LEASING DATA:
Available Leasing Terms 6 to 12 Months 6 to 12 Months
Concessions $150 to $190 off 1st months rent None
Pet Deposit N/A
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 (425) 271-1356 (425)-255-0212
NOTES: None
COMPARISON TO SUBJECT: Slightly Superior
COMPARABLE COMPARABLE
DESCRIPTION R - 2 R - 3
----------- ---------- ----------
Property Name Newport Crossing Lexington Heights
Management Company Archstone Metric Realty
LOCATION:
Address 7311 Coal Creek Parkway SE 300 Vuemont Place NE
City, State Newcastle, WA Renton, WA
County King King
Proximity to Subject 5 miles east of subject 7 miles south of subject
PHYSICAL CHARATERISTICS:
Net Rentable Area (SF) 158,880 242,122
Year Built 1990 1999
Effective Age 10 3
Building Structure Type Wood siding walls; asphalt shingle roof Wood siding walls; asphalt shingle roof
Parking Type (Gr., Cov., etc.) Open, Covered Garage, open, Covered
Number of Units 192 252
Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo.
1BD/1BH 669 24 $ 730 1BD/1BH 743 74 $ 890
1BD/1BH 693 72 $ 750 1 2BD/1BH 926 42 $1,025
1 2BD/1BH 884 12 $ 875 2 2BD/2BH 990 73 $1,110
1 2BD/1BH 928 24 $ 950 3BD/2BH 1,206 63 $1,280
2 2BD/2BH 908 12 $ 890
2 2BD/2BH 930 24 $ 900
2 2BD/2BH 971 10 $ 945
3BD/2BH 1,223 14 $1,280
Average Unit Size (SF) 828 961
Unit Breakdown: Efficiency 0% 2-Bedroom 43% Efficiency 0% 2-Bedroom 46%
1-Bedroom 50% 3-Bedroom 7% 1-Bedroom 29% 3-Bedroom 25%
CONDITION: Good Very Good
APPEAL: Good Very Good
AMENITIES:
Unit Amenities Attach. Garage Vaulted Ceiling X Attach. Garage X 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 X 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 X Business Office
X Gym Room X Gym Room
OCCUPANCY: 94% 96%
LEASING DATA:
Available Leasing Terms 6 to 12 Months 6 to 12 Months
Concessions None $200 off 2/2 & 3/2 units
Pet Deposit N/A $200
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 Manger
Telephone Number (425)-228-7368 (425) - 228-8888
NOTES: None None
COMPARISON TO SUBJECT: Slightly Superior Superior
COMPARABLE
DESCRIPTION R - 4
----------- ----------
Property Name Pinnacle Lake Washington
Management Company BRE Properties
LOCATION:
Address 1400 Lake Washington Blvd. North
City, State Renton, WA
County King
Proximity to Subject Within 5-mile radius
PHYSICAL CHARATERISTICS:
Net Rentable Area (SF) 190,908
Year Built 2002
Effective Age 1
Building Structure Type Wood siding walls; asphalt shingle roof
Parking Type (Gr., Cov., etc.) Garage, Open, Covered
Number of Units 180
Unit Mix: Type Unit Qty. Mo.
1BD/1BH 828 88 $ 810
2 2BD/2BH 1,166 16 $1,175
2 2BD/2BH 1,215 48 $1,140
2 2BD/2BH 1,233 8 $1,335
2 2BD/2BH 1,305 12 $1,255
3BD/2BH 1,943 8 $2,090
Average Unit Size (SF) 1,061
Unit Breakdown: Efficiency 0% 2-Bedroom 47%
1-Bedroom 49% 3-Bedroom 4%
CONDITION: Slightly Superior
APPEAL: Good
AMENITIES:
Unit Amenities X Attach. Garage X Vaulted Ceiling
X Balcony X W/D Connect.
X Fireplace
X Cable TV Ready
Project Amenities X Swimming Pool
X Spa/Jacuzzi Car Wash
X Basketball Court BBQ Equipment
Volleyball Court Theater Room
Sand Volley Ball Meeting Hall
Tennis Court Secured Parking
Racquet Ball Laundry Room
Jogging Track X Business Office
X Gym Room
OCCUPANCY: 99%
LEASING DATA:
Available Leasing Terms 6 to 12 Months
Concessions None
Pet Deposit N/A
Utilities Paid by Tenant: X Electric X Natural Gas
X Water Trash
Confirmation May 2003, Property Manager
Telephone Number (425) 204-0400
NOTES: None
COMPARISON TO SUBJECT: Superior
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B
CEDAR RIM APARTMENTS, NEW CASTLE, WASHINGTON
PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES
COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3
MARINA LANDING NEWPORT CROSSING LEXINGTON HEIGHTS
1300 N. 20th Street 7311 Coal Creek Parkway SE 300 Vuemont Place NE
Renton, WA Newcastle, WA Renton, WA
[PICTURE] [PICTURE] [PICTURE]
COMPARABLE R-4
PINNACLE LAKE WASHINGTON
1400 Lake Washington Blvd. North
Renton, WA
[PICTURE] N/A
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C
CEDAR RIM APARTMENTS, NEW CASTLE, WASHINGTON
EXHIBIT C
ASSUMPTIONS AND LIMITING CONDITIONS
(3 PAGES)
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C
CEDAR RIM APARTMENTS, NEW CASTLE, 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
CEDAR RIM APARTMENTS, NEW CASTLE, 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
CEDAR RIM APARTMENTS, NEW CASTLE, 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
CEDAR RIM APARTMENTS, NEW CASTLE, 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
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Douglas Needham, MAI
Managing Principal, Real Estate Group
Washington State Certified General Real Estate
Appraiser #1101111
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E
CEDAR RIM APARTMENTS, NEW CASTLE, WASHINGTON
EXHIBIT E
QUALIFICATIONS OF APPRAISER
(2 PAGES)
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E
CEDAR RIM APARTMENTS, NEW CASTLE, 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 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
CEDAR RIM APARTMENTS, NEW CASTLE, WASHINGTON
VALUATION AND Appraisal Institute
Advanced Income Capitalization
SPECIAL COURSES Appraisal Principles
Appraisal Procedures
Basic Income Capitalization
Standards of Professional Practice
AMERICAN APPRAISAL ASSOCIATES, INC.
CEDAR RIM APARTMENTS, NEW CASTLE, WASHINGTON
GENERAL SERVICE CONDITIONS
AMERICAN APPRAISAL ASSOCIATES, INC.
CEDAR RIM APARTMENTS, NEW CASTLE, 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.