HUNTINGTON ATHLETIC CLUB
2408 DUCK POND CIRCLE
MORRISVILLE, NORTH CAROLINA
MARKET VALUE -
FEE SIMPLE ESTATE
AS OF MAY 12, 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 30, 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: HUNTINGTON ATHLETIC CLUB
2408 DUCK POND CIRCLE
MORRISVILLE, WAKE COUNTY, NORTH CAROLINA
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 212 units with a
total of 206,208 square feet of rentable area. The improvements were built in
1985. The improvements are situated on 22.48 acres. Overall, the improvements
are in average condition. As of the date of this appraisal, the subject property
is 95% occupied.
It is our understanding the appraisal will be used by the clients to assist the
San Mateo Superior Court in the settlement of litigation between the above
mentioned clients. The appraisal is intended to conform to the Uniform Standards
of Professional Appraisal Practice ("USPAP") as promulgated by the Appraisal
Standards Board of the Appraisal Foundation and the Code of Professional Ethics
and Standards of Professional Practice of the Appraisal Institute. The appraisal
is presented in a summary report, and the Departure Provision of USPAP has not
been invoked in this appraisal. It is entirely inappropriate to use this value
conclusion or the report for any purpose other than the one stated.
AMERICAN APPRAISAL ASSOCIATES, INC. LETTER OF TRANSMITTAL PAGE 2
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
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 12, 2003 is:
($9,400,000)
Respectfully submitted,
AMERICAN APPRAISAL ASSOCIATES, INC.
-s- Frank Fehribach
------------------------------------
June 30, 2003 Frank Fehribach, MAI
#053272 Managing Principal, Real Estate Group
North Carolina Temporary Practice Permit #2578
Report By:
Jimmy Pat James, MAI
North Carolina Temporary Practice Permit #2603
Assisted By:
J. Chad Walker
AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
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
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
EXECUTIVE SUMMARY
PART ONE - PROPERTY DESCRIPTION
PROPERTY NAME: Huntington Athletic Club
LOCATION: 2408 Duck Pond Circle
Morrisville, North Carolina
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 12, 2003
DATE OF REPORT: June 30, 2003
PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS:
SITE:
Size: 22.48 acres, or 979,229 square feet
Assessor Parcel No.: 745700672
Floodplain: Community Panel No. 37183C0291E
(March 3, 1992) Flood Zone X, an area
outside the floodplain.
Zoning: RM (Residential Multi-family)
BUILDING:
No. of Units: 212 Units
Total NRA: 206,208 Square Feet
Average Unit Size: 973 Square Feet
Apartment Density: 9.4 units per acre
Year Built: 1985
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 - Type 1 712 $499 $ 0.70 $ 11,976 $ 143,712
1Br/1Ba - Type 2 764 $509 $ 0.67 $ 12,216 $ 146,592
1Br/1Ba - Type 3 777 $569 $ 0.73 $ 20,484 $ 245,808
1Br/1Ba - Type 4 810 $589 $ 0.73 $ 9,424 $ 113,088
2Br/1Ba 1,003 $669 $ 0.67 $ 10,704 $ 128,448
2Br/1.5Ba 1,036 $689 $ 0.67 $ 15,158 $ 181,896
2Br/2Ba - Type 1 1,075 $739 $ 0.69 $ 14,780 $ 177,360
2Br/2.5Ba 1,296 $799 $ 0.62 $ 1,598 $ 19,176
2Br/2Ba - Type 2 1,166 $769 $ 0.66 $ 15,380 $ 184,560
3Br/2Ba - Type 1 1,295 $809 $ 0.62 $ 12,944 $ 155,328
3Br/2Ba - Type 2 1,430 $949 $ 0.66 $ 15,184 $ 182,208
Total $139,848 $1,678,176
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
OCCUPANCY: 95%
ECONOMIC LIFE: 45 Years
EFFECTIVE AGE: 15 Years
REMAINING ECONOMIC LIFE: 30 Years
SUBJECT PHOTOGRAPHS AND LOCATION MAP:
SUBJECT PHOTOGRAPHS
[EXTERIOR - PROPERTY SIGN PICTURE] [EXTERIOR - OFFICE/ATHLETIC FACILITY PICTURE]
AREA MAP
[MAP]
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
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
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
PART TWO - ECONOMIC INDICATORS
INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION Amount $/Unit
- --------------------- ------ ------
Potential Rental Income $1,678,176 $7,916
Effective Gross Income $1,611,762 $7,603
Operating Expenses $ 736,728 $3,475 45.7% of EGI
Net Operating Income: $ 822,034 $3,878
Capitalization Rate 8.75%
DIRECT CAPITALIZATION VALUE $9,400,000 * $44,340 / UNIT
DISCOUNTED CASH FLOW ANALYSIS:
Holding Period 10 years
2002 Economic Vacancy 10%
Stabilized Vacancy & Collection Loss: 8%
Lease-up / Stabilization Period N/A
Terminal Capitalization Rate 9.00%
Discount Rate 10.50%
Selling Costs 3.00%
Growth Rates:
Income 3.00%
Expenses: 3.00%
DISCOUNTED CASH FLOW VALUE $9,400,000 * $44,340 / UNIT
RECONCILED INCOME CAPITALIZATION VALUE $9,400,000 $44,340 / UNIT
SALES COMPARISON APPROACH
PRICE PER UNIT:
Range of Sales $/Unit (Unadjusted) $61,500 to $79,058
Range of Sales $/Unit (Adjusted) $42,766 to $47,435
VALUE INDICATION - PRICE PER UNIT $9,700,000 * $45,755 / UNIT
EGIM ANALYSIS
Range of EGIMs from Improved Sales 6.73 to 7.54
Selected EGIM for Subject 6.00
Subject's Projected EGI $ 1,611,762
EGIM ANALYSIS CONCLUSION $ 9,600,000 * $45,283 / UNIT
NOI PER UNIT ANALYSIS CONCLUSION $ 9,500,000 * $44,811 / UNIT
RECONCILED SALES COMPARISON VALUE $ 9,600,000 $45,283 / 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
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
PART THREE - SUMMARY OF VALUE CONCLUSIONS
SALES COMPARISON APPROACH:
Price Per Unit $9,700,000
NOI Per Unit $9,500,000
EGIM Multiplier $9,600,000
INDICATED VALUE BY SALES COMPARISON $9,600,000 $45,283 / UNIT
INCOME APPROACH:
Direct Capitalization Method: $9,400,000
Discounted Cash Flow Method: $9,400,000
INDICATED VALUE BY THE INCOME APPROACH $9,400,000 $44,340 / UNIT
RECONCILED OVERALL VALUE CONCLUSION: $9,400,000 $44,340 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
INTRODUCTION
IDENTIFICATION OF THE SUBJECT
The subject property is located at 2408 Duck Pond Circle, Morrisville, Wake
County, North Carolina. Morrisville identifies it as 745700672.
SCOPE OF THE ASSIGNMENT
The property, neighborhood, and comparables were inspected by J. Chad Walker on
May 12, 2003. Jimmy Pat James, MAI and Frank Fehribach, MAI have not made a
personal inspection of the subject property. J. Chad Walker assisted Jimmy Pat
James, MAI in the research, valuation analysis and writing the report. Frank
Fehribach, MAI reviewed the report and concurs with the value. Frank Fehribach,
MAI, Jimmy Pat James, MAI and J. Chad Walker 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 12, 2003. The
date of the report is June 30, 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 &
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 10
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
Income Approaches), subject to the existing short-term leases. A Fee Simple
Estate is 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 Integrated Resources
National Property Investors 8. 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
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
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 Morrisville, North Carolina. 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 - Chapel Hill Road
West - State Route 55
South - High House Road
North - Morrisville Carpenters Road
MAJOR EMPLOYERS
Major employers in the subject's area include MCI Telecommunications; Nortel;
Cisco Systems; IBM; State of North Carolina; Wake County Public School; North
Carolina State University; Wake County: and the City of Raleigh. 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
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
NEIGHBORHOOD DEMOGRAPHICS
AREA
------------------------------------------
CATEGORY 1-Mi. RADIUS 3-Mi. RADIUS 5-Mi. RADIUS MSA
- --------------------------------------------------------------------------------------
POPULATION TRENDS
Current Population 7,202 39,173 90,922 1,249,659
5-Year Population 9,379 51,429 112,101 1,408,794
% Change CY-5Y 30.2% 31.3% 23.3% 12.7%
Annual Change CY-5Y 6.0% 6.3% 4.7% 2.5%
HOUSEHOLDS
Current Households 2,834 14,173 34,609 484,776
5-Year Projected Households 3,634 18,363 42,124 545,189
% Change CY - 5Y 28.2% 29.6% 21.7% 12.5%
Annual Change CY-5Y 5.6% 5.9% 4.3% 2.5%
INCOME TRENDS
Median Household Income $ 101,325 $ 104,015 $ 92,776 $ 55,832
Per Capita Income $ 42,269 $ 37,557 $ 34,204 $ 25,814
Average Household Income $ 110,431 $ 102,556 $ 90,117 $ 66,544
Source: Demographics Now
The subject neighborhood's population is expected to show increases above that
of the region. The immediate market offers superior income levels as compared to
the broader market.
The following table illustrates the housing statistics in the subject's
immediate area, as well as the MSA region.
HOUSING TRENDS
AREA
------------------------------------------
CATEGORY 1-Mi. RADIUS 3-Mi. RADIUS 5-Mi. RADIUS MSA
- ---------------------------------------------------------------------------------
HOUSING TRENDS
% of Households Renting 31.91% 27.93% 29.72% 33.18%
5-Year Projected % Renting 30.84% 27.80% 29.25% 32.28%
% of Households Owning 63.31% 69.76% 67.51% 61.69%
5-Year Projected % Owning 65.07% 70.24% 68.21% 63.00%
Source: Demographics Now
AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
SURROUNDING IMPROVEMENTS
The following uses surround the subject property:
North - Redevelopment for parks and recreation
South - Morrisville Community Center
East - Single-family residential subdivision
West - Apartments
CONCLUSIONS
The subject is well located within the city of Morrisville. 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
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
MARKET ANALYSIS
The subject property is located in the city of Morrisville in Wake County. The
overall pace of development in the subject's market is more or less stable. Reed
Development has begun construction on a 156-unit complex at Village Green and
Lake Wheeler Road. The following table illustrates historical vacancy rates for
the subject's market.
HISTORICAL VACANCY RATE
Period Region Submarket
- ------------------------------
1Q01 8.1% 8.6%
3Q01 9.6% 10.4%
1Q02 12.5% 15.0%
3Q02 12.0% 9.8%
1Q03 12.6% 10.5%
Source:REAL DATA Real Estate Information Services Apartment Index 1Q03
Occupancy trends in the subject's market are decreasing. Historically speaking,
the subject's submarket has outperformed the overall market. The Raleigh-Durham
apartment as a whole is reporting a high vacancy rate of 12.6% for 1Q03. Vacancy
rates in the Triangle (Raleigh, Durham, Chapel Hill) area have steadily been
rising since 1996, according to REAL DATA Real Estate Information Services
Apartment Index 1Q03. In contrast, the Raleigh-Southwest Submarket is posting
vacancy rates of 10.5%. This submarket is the second largest in the Triangle and
includes the rapidly growing areas of Cary, Morrisville and Apex.
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
- ------------------------------------------------------
1Q01 $746 - $ 830 -
3Q01 $763 2.3% $ 840 1.2%
1Q02 $764 0.1% $ 826 -1.7%
3Q02 $761 -0.4% $ 817 -1.1%
1Q03 $758 -0.4% $ 803 -1.7%
The following table illustrates a summary of the subject's competitive set.
AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject
- ----------------------------------------------------------------------------------------------------
R-1 Archstone @ Preston 388 96% 2000 1.5 miles east of the subject
R-2 Cross Timbers 253 88% 1999 0.15 miles west of the subject
R-3 Legends @ Preston 382 97% 2000 0.75 mile northeast of the subject
R-4 Crabtree Crossing 208 75% 1999 1 mile northeast of the subject
R-5 Treybrooke 200 89% 1989 1.25 miles north of the subject
Subject Huntington Athletic Club 212 95% 1985
The Raleigh-Southwest submarket, as well as the Triangle as a whole, has
experienced declining apartment rental rates over the past two years. This is
due in part to the economic slowdown of the national economy and low interest
rates currently being offered. As of 1Q03, the average rental rate for the
Southwest submarket was $803, which is $45 above the Region at $758. However,
rates are currently stabilizing and remain at these levels in the short-term. As
the national economy improves so should contract rental rates.
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
PROPERTY DESCRIPTION
SITE ANALYSIS
Site Area 22.48 acres, or 979,229 square feet
Shape Irregular
Topography Level
Utilities All necessary utilities are available to the site.
Soil Conditions Stable
Easements Affecting Site None other than typical utility easements
Overall Site Appeal Good
Flood Zone:
Community Panel 37183C0291E, dated March 3, 1992
Flood Zone Zone X
Zoning RM, 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
- ------------------------------------------------------------------------------
745700672 $1,696,000 $10,463,711 $12,159,711 0.01069 $129,971
IMPROVEMENT ANALYSIS
Year Built 1985
Number of Units 212
Net Rentable Area 206,208 Square Feet
Construction:
Foundation Reinforced concrete slab
Frame Heavy or light wood
Exterior Walls Wood or vinyl siding
Roof Composition shingle over a wood truss structure
Project Amenities Amenities at the subject include a swimming pool,
spa/jacuzzi, basketball court, sand volleyball,
tennis court, gym room, and parking area.
Unit Amenities Individual unit amenities include a garage,
balcony, fireplace, cable TV connection and washer
dryer connection. Appliances available each unit
include a refrigerator, stove, dishwasher, water
heater, garbage disposal, washer/dryer, and oven.
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
Unit Mix:
Unit Area
Unit Type Number of Units (Sq. Ft.)
- ----------------------------------------------
1Br/1Ba - Type 1 24 712
1Br/1Ba - Type 2 24 764
1Br/1Ba - Type 3 36 777
1Br/1Ba - Type 4 16 810
2Br/1Ba 16 1,003
2Br/1.5Ba 22 1,036
2Br/2Ba - Type 1 20 1,075
2Br/2.5Ba 2 1,296
2Br/2Ba - Type 2 20 1,166
3Br/2Ba - Type 1 16 1,295
3Br/2Ba - Type 2 16 1,430
Overall Condition Average
Effective Age 15 years
Economic Life 45 years
Remaining Economic Life 30 years
Deferred Maintenance None
HIGHEST AND BEST USE ANALYSIS
In accordance with the definition of highest and best use, an analysis of the
site relating to its legal uses, physical possibilities, and financial
feasibility is appropriate. The highest and best use as vacant is to hold for
future multi-family development. The subject improvements were constructed in
1985 and consist of a 212-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
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
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
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
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
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
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
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE
DESCRIPTION SUBJECT I - 1 I - 2
- -------------------------------------------------------------------------------------------------------------------------------
Property Name Huntington Athletic Club Westover Hills Cottages of Stonehenge
LOCATION:
Address 2408 Duck Pond Circle 10 Westover Hills Drive 7600 Falcon Rest Circle
City, State Morrisville, North Carolina Cary, North Carolina Raleigh, North Carolina
County Wake Wake Wake
PHYSICAL CHARACTERISTICS:
Net Rentable Area (SF) 206,208 277,838 235,400
Year Built 1985 1995 1986
Number of Units 212 288 188
Unit Mix: Type Total Type Total Type Total
1Br/1Ba - Type 1 24 1Br/1Ba - Type 1 52 2Br/2.5Ba 139
1Br/1Ba - Type 2 24 1Br/1Ba - Type 2 36 3Br/2.5Ba 49
1Br/1Ba - Type 3 36 1Br/1Ba - Type 3 20
1Br/1Ba - Type 4 16 1Br/1Ba - Type 4 24
2Br/1Ba 16 2Br/2Ba - Type 1 54
2Br/1.5Ba 22 2Br/2Ba - Type 2 20
2Br/2Ba - Type 1 20 2Br/2Ba - Type 3 52
2Br/2.5Ba 2 3Br/2Ba 30
2Br/2Ba - Type 2 20
3Br/2Ba - Type 1 16
3Br/2Ba - Type 2 16
Average Unit Size (SF) 973 965 1,252
Land Area (Acre) 22.4800 32.7000 19.5100
Density (Units/Acre) 9.4 8.8 9.6
Parking Ratio (Spaces/Unit) 2.31 N/A N/A
Parking Type (Gr., Cov., etc.) Open Open Open
CONDITION: Average Good Good
APPEAL: Average Good Good
AMENITIES:
Pool/Spa Yes/Yes Yes/Yes Yes/Yes
Gym Room Yes Yes Yes
Laundry Room No No Yes
Secured Parking No No No
Sport Courts No Yes Yes
Washer/Dryer Connection Yes Yes Yes
Private Pond Yes No No
Other
OCCUPANCY: 95% 98% 91%
TRANSACTION DATA:
Sale Date July, 2002 July, 2002
Sale Price ($) $20,000,000 $13,400,000
Grantor SC Westover Hills Inc. Daniel Mid-Atlantic Properties II
Grantee Rayman Associates Saginaw Sterling Apartments LLC
LTD Partnership
Sale Documentation Book 8939, Page 2303 Book 9505, Page 0045
Verification Wake County Records Wake County Records
Telephone Number
ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF
---------- ------- ------ ---------- ------- -----
Potential Gross Income $3,030,480 $10,523 $10.91 $1,953,497 $10,391 $8.30
Vacancy/Credit Loss $ 60,610 $ 210 $ 0.22 $ 175,815 $ 935 $0.75
---------- ------- ------ ---------- ------- -----
Effective Gross Income $2,969,870 $10,312 $10.69 $1,777,682 $ 9,456 $7.55
Operating Expenses $1,187,948 $ 4,125 $ 4.28 $ 797,443 $ 4,242 $3.39
---------- ------- ------ ---------- ------- -----
Net Operating Income $1,781,922 $ 6,187 $ 6.41 $ 980,239 $ 5,214 $4.16
---------- ------- ------ ---------- ------- -----
NOTES: None None
PRICE PER UNIT $69,444 $71,277
PRICE PER SQUARE FOOT $ 71.98 $ 56.92
EXPENSE RATIO 40.0% 44.9%
EGIM 6.73 7.54
OVERALL CAP RATE 8.91% 7.32%
Cap Rate based on Pro Forma or Actual Income? PRO FORMA ACTUAL
COMPARABLE COMPARABLE COMPARABLE
DESCRIPTION I - 3 I - 4 I - 5
- -----------------------------------------------------------------------------------------------------------------------------
Property Name Treybrooke Legends @ Preston Marquis @ Preston
LOCATION:
Address 201 Treybrooke Drive 1000 Stony Court Circle 2500 Grove Club Lane
City, State Raleigh, North Carolina Morrisville, North Carolina Cary, North Carolina
County Wake Wake Wake
PHYSICAL CHARACTERISTICS:
Net Rentable Area (SF) 228,000 373,528 272,959
Year Built 1989 2000 1996
Number of Units 200 382 292
Unit Mix: Type Total Type Total Type Total
1Br/1Ba 40 1Br/1Ba - Type 1 60 1Br/1Ba - Type 1 36
2Br/1.5Ba 40 1Br/1Ba - Type 2 60 1Br/1Ba - Type 2 72
2Br/2Ba 80 1Br/1Ba - Type 3 6 1Br/1Ba - Type 3 11
3Br/2.5Ba 40 1Br/1Ba - Type 4 12 1Br/1Ba - Type 4 11
2Br/2Ba - Type 1 50 2Br/2Ba - Type 1 60
2Br/2Ba - Type 2 54 2Br/2Ba - Type 2 60
2Br/2Ba - Type 3 50 2Br/2Ba - Type 3 12
3Br/2Ba - Type 1 18 2Br/2Ba - Type 4 12
3Br/2Ba - Type 2 12 2Br/2Ba - Type 5 6
3Br/2Ba 12
Average Unit Size (SF) 1,140 978 935
Land Area (Acre) 20.2000 32.1100 24.5700
Density (Units/Acre) 9.9 11.9 11.9
Parking Ratio (Spaces/Unit) N/A N/A N/A
Parking Type (Gr., Cov., etc.) Open Open Open
CONDITION: Good Very Good Good
APPEAL: Good Good Good
AMENITIES:
Pool/Spa Yes/No Yes/Yes Yes/Yes
Gym Room Yes Yes Yes
Laundry Room Yes No No
Secured Parking Yes Yes Yes
Sport Courts No No Yes
Washer/Dryer Connection Yes Yes Yes
Private Pond No No No
Other
OCCUPANCY: 92% 95% 87%
TRANSACTION DATA:
Sale Date April, 2001 March, 2001 December, 2000
Sale Price ($) $12,300,000 $30,200,000 $21,756,000
Grantor Richard M. Drew Legends at Preston LLC New York Life Insurance Company
Grantee Treybrooke Associates LTD ERP Operating Limited FG 92 Deerwood LLC
Partnership Partnership
Sale Documentation Book 8875, Page 2226 Book 8848, Page 0118 Book 8768, Page 1633
Verification Wake County Records Wake County Records Wake County Records
Telephone Number
ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF
---------- ------ ----- ---------- ------- ------ ---------- ------- ------
Potential Gross Income $1,937,760 $9,689 $8.50 $4,571,520 $11,967 $12.24 $3,072,042 $10,521 $11.25
Vacancy/Credit Loss $ 155,021 $ 775 $0.68 $ 228,576 $ 598 $ 0.61 $ 180,781 $ 619 $ 0.66
---------- ------ ----- ---------- ------- ------ ---------- ------- ------
Effective Gross Income $1,782,739 $8,914 $7.82 $4,342,944 $11,369 $11.63 $2,891,261 $ 9,902 $10.59
Operating Expenses $ 713,096 $3,565 $3.13 $1,737,178 $ 4,548 $ 4.65 $ 993,851 $ 3,404 $ 3.64
---------- ------ ----- ---------- ------- ------ ---------- ------- ------
Net Operating Income $1,069,643 $5,348 $4.69 $2,605,766 $ 6,821 $ 6.98 $1,897,410 $ 6,498 $ 6.95
---------- ------ ----- ---------- ------- ------ ---------- ------- ------
NOTES: None None None
PRICE PER UNIT $61,500 $79,058 $74,507
PRICE PER SQUARE FOOT $ 53.95 $ 80.85 $ 79.70
EXPENSE RATIO 40.0% 40.0% 34.4%
EGIM 6.90 6.95 7.52
OVERALL CAP RATE 8.70% 8.63% 8.72%
Cap Rate based on Pro Forma or
Actual Income? PRO FORMA PRO FORMA ACTUAL
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
IMPROVED SALES MAP
[MAP]
IMPROVED SALES ANALYSIS
The improved sales indicate a sales price range from $61,500 to $79,058 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 $42,766 to $47,435 per unit with a mean or average adjusted price
of $44,619 per unit. The median adjusted price is $44,704 per unit. Based on the
following analysis, we have concluded to a value of $46,000 per unit, which
results in an "as is" value of $9,700,000 (rounded after necessary adjustment,
if any).
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE
DESCRIPTION SUBJECT I - 1 I - 2
- ------------------------------------------------------------------------------------------------------------------------------------
Property Name Huntington Athletic Club Westover Hills Cottages of Stonehenge
Address 2408 Duck Pond Circle 10 Westover Hills Drive 7600 Falcon Rest Circle
City Morrisville, North Carolina Cary, North Carolina Raleigh, North Carolina
Sale Date July, 2002 July, 2002
Sale Price ($) $20,000,000 $13,400,000
Net Rentable Area (SF) 206,208 277,838 235,400
Number of Units 212 288 188
Price Per Unit $69,444 $71,277
Year Built 1985 1995 1986
Land Area (Acre) 22.4800 32.7000 19.5100
VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ.
Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0%
Financing Cash To Seller 0% Cash To Seller 0%
Conditions of Sale Arm's Length 0% Arm's Length 0%
Date of Sale (Time) 07-2002 0% 07-2002 0%
VALUE AFTER TRANS. ADJUST. ($/UNIT) $69,444 $71,277
Location Comparable 0% Superior -20%
Number of Units 212 288 0% 188 0%
Quality / Appeal Good Superior -15% Superior -10%
Age / Condition 1985 1995 / Good -20% 1986 / Good -5%
Occupancy at Sale 95% 98% 0% 91% 0%
Amenities Good Comparable 0% Comparable 0%
Average Unit Size (SF) 973 965 0% 1,252 -5%
PHYSICAL ADJUSTMENT -35% -40%
FINAL ADJUSTED VALUE ($/UNIT) $45,139 $42,766
COMPARABLE COMPARABLE COMPARABLE
DESCRIPTION I - 3 I - 4 I - 5
- ----------------------------------------------------------------------------------------------------------------------------
Property Name Treybrooke Legends @ Preston Marquis @ Preston
Address 201 Treybrooke Drive 1000 Stony Court Circle 2500 Grove Club Lane
City Raleigh, North Carolina Morrisville, North Carolina Cary, North Carolina
Sale Date April, 2001 March, 2001 December, 2000
Sale Price ($) $12,300,000 $30,200,000 $21,756,000
Net Rentable Area (SF) 228,000 373,528 272,959
Number of Units 200 382 292
Price Per Unit $61,500 $79,058 $74,507
Year Built 1989 2000 1996
Land Area (Acre) 20.2000 32.1100 24.5700
VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ.
Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0%
Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0%
Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0%
Date of Sale (Time) 04-2001 0% 03-2001 0% 12-2000 0%
VALUE AFTER TRANS. ADJUST. ($/UNIT) $61,500 $79,058 $74,507
Location Superior -15% Superior -5% Superior -10%
Number of Units 200 0% 382 5% 292 0%
Quality / Appeal Superior -5% Superior -15% Superior -15%
Age / Condition 1989 / Good -5% 2000 / Very Good -25% 1996 / Good -20%
Occupancy at Sale 92% 0% 95% 0% 87% 5%
Amenities Comparable 0% Comparable 0% Comparable 0%
Average Unit Size (SF) 1,140 -5% 978 0% 935 0%
PHYSICAL ADJUSTMENT -30% -40% -40%
FINAL ADJUSTED VALUE ($/UNIT) $43,050 $47,435 $44,704
SUMMARY
VALUE RANGE (PER UNIT) $42,766 TO $ 47,435
MEAN (PER UNIT) $44,619
MEDIAN (PER UNIT) $44,704
VALUE CONCLUSION (PER UNIT) $46,000
VALUE OF IMPROVEMENT & MAIN SITE $9,752,000
PV OF CONCESSIONS -$ 37,000
VALUE INDICATED BY SALES COMPARISON APPROACH $9,715,000
ROUNDED $9,700,000
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
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
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-1 288 $20,000,000 8.91% $1,781,922 $822,034 0.627 $ 43,521
$ 69,444 $ 6,187 $ 3,878
I-2 188 $13,400,000 7.32% $ 980,239 $822,034 0.744 $ 53,006
$ 71,277 $ 5,214 $ 3,878
I-3 200 $12,300,000 8.70% $1,069,643 $822,034 0.725 $ 44,588
$ 61,500 $ 5,348 $ 3,878
I-4 382 $30,200,000 8.63% $2,605,766 $822,034 0.568 $ 44,939
$ 79,058 $ 6,821 $ 3,878
I-5 292 $21,756,000 8.72% $1,897,410 $822,034 0.597 $ 44,460
$ 74,507 $ 6,498 $ 3,878
PRICE/UNIT
Low High Average Median
--- ---- ------- ------
$43,521 $53,006 $46,103 $44,588
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT
Estimated Price Per Unit $ 45,000
----------
Number of Units 212
Value $9,540,000
PV of Concessions -$ 37,000
----------
Value Based on NOI Analysis $9,503,000
Rounded $9,500,000
The adjusted sales indicate a range of value between $43,521 and $53,006 per
unit, with an average of $46,103 per unit. Based on the subject's competitive
position within the improved sales, a value of $45,000 per unit is estimated.
This indicates an "as is" market value of $9,500,000 (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
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
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-1 288 $20,000,000 $2,969,870 $1,187,948 40.00% 6.73
$ 69,444
I-2 188 $13,400,000 $1,777,682 $ 797,443 44.86% 7.54
$ 71,277
I-3 200 $12,300,000 $1,782,739 $ 713,096 40.00% 45.71% 6.90
$ 61,500
I-4 382 $30,200,000 $4,342,944 $1,737,178 40.00% 6.95
$ 79,058
I-5 292 $21,756,000 $2,891,261 $ 993,851 34.37% 7.52
$ 74,507
EGIM
Low High Average Median
- --- ---- ------- ------
6.73 7.54 7.13 6.95
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES
Estimate EGIM 6.00
----------
Subject EGI $1,611,762
Value $9,670,572
PV of Concessions -$ 37,000
----------
Value Based on EGIM Analysis $9,633,572
Rounded $9,600,000
Value Per Unit $ 45,283
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 45.71% before reserves. The comparable sales
indicate a range of expense ratios from 34.37% to 44.86%, while their EGIMs
range from 6.73 to 7.54. Overall, we conclude to an EGIM of 6.00, which results
in an "as is" value estimate in the EGIM Analysis of $9,600,000.
SALES COMPARISON CONCLUSION
The three valuation methods in the Sales Comparison Approach are shown below.
The overall value via the Sales Comparison Approach is estimated at $9,600,000.
Price Per Unit $9,700,000
NOI Per Unit $9,500,000
EGIM Analysis $9,600,000
Sales Comparison Conclusion $9,600,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
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
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
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 - Type 1 712 $468 $ 0.66 100.0%
1Br/1Ba - Type 2 764 $498 $ 0.65 95.8%
1Br/1Ba - Type 3 777 $527 $ 0.68 94.4%
1Br/1Ba - Type 4 810 $570 $ 0.70 93.8%
2Br/1Ba 1003 $606 $ 0.60 100.0%
2Br/1.5Ba 1036 $678 $ 0.65 100.0%
2Br/2Ba - Type 1 1075 $673 $ 0.63 85.0%
2Br/2.5Ba 1296 $769 $ 0.59 100.0%
2Br/2Ba - Type 2 1166 $712 $ 0.61 95.0%
3Br/2Ba - Type 1 1295 $719 $ 0.56 93.8%
3Br/2Ba - Type 2 1430 $937 $ 0.66 93.8%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
RENT ANALYSIS
COMPARABLE RENTS
--------------------------------------------------------
R-1 R-2 R-3 R-4 R-5
--------------------------------------------------------
Archstone Cross Legends @ Crabtree
@ Preston Timbers Preston Crossing Treybrooke
--------------------------------------------------------
COMPARISON TO SUBJECT
SUBJECT SUBJECT --------------------------------------------------------
SUBJECT UNIT ACTUAL ASKING Slightly
DESCRIPTION TYPE RENT RENT Superior Superior Superior Superior Superior
- --------------------------------------------------------------------------------------------------------------------------
Monthly Rent 1Br/1Ba - TYPE 1 $ 468 $ 459 $ 585 $ 599 $ 655
Unit Area (SF) 712 712 720 769 700
Monthly Rent Per Sq. Ft. $ 0.66 $ 0.64 $ 0.81 $ 0.78 $ 0.94
Monthly Rent 1Br/1Ba - TYPE 2 $ 498 $ 499 $ 744
Unit Area (SF) 764 764 892
Monthly Rent Per Sq. Ft. $ 0.65 $ 0.65 $ 0.83
Monthly Rent 1Br/1Ba - TYPE 3 $ 527 $ 549 $ 655
Unit Area (SF) 777 777 790
Monthly Rent Per Sq. Ft. $ 0.68 $ 0.71 $ 0.83
Monthly Rent 1Br/1Ba - TYPE 4 $ 570 $ 569 $ 755 $ 697
Unit Area (SF) 810 810 875 920
Monthly Rent Per Sq. Ft. $ 0.70 $ 0.70 $ 0.86 $ 0.76
Monthly Rent 2Br/1Ba $ 606 $ 639
Unit Area (SF) 1,003 1,003
Monthly Rent Per Sq. Ft. $ 0.60 $ 0.64
Monthly Rent 2Br/1.5Ba $ 678 $ 669 $ 822 $ 820 $ 835
Unit Area (SF) 1,036 1,036 1,143 1,150 1,100
Monthly Rent Per Sq. Ft. $ 0.65 $ 0.65 $ 0.72 $ 0.71 $ 0.76
Monthly Rent 2Br/2Ba - TYPE 1 $ 673 $ 719 $ 780 $ 870 $ 792 $ 730 $ 805
Unit Area (SF) 1,075 1,075 1,050 1,115 1,155 1,074 1,100
Monthly Rent Per Sq. Ft. $ 0.63 $ 0.67 $ 0.74 $ 0.78 $ 0.69 $ 0.68 $ 0.73
Monthly Rent 2Br/2.5Ba $ 769 $ 769 $ 945
Unit Area (SF) 1,296 1,296 1,294
Monthly Rent Per Sq. Ft. $ 0.59 $ 0.59 $ 0.73
Monthly Rent 2Br/2Ba - TYPE 2 $ 712 $ 759 $ 935 $ 845
Unit Area (SF) 1,166 1,166 1,239 1,154
Monthly Rent Per Sq. Ft. $ 0.61 $ 0.65 $ 0.75 $ 0.73
Monthly Rent 3Br/2Ba - TYPE 1 $ 719 $ 769 $ 890 $ 1,017
Unit Area (SF) 1,295 1,295 1,226 1,466
Monthly Rent Per Sq. Ft. $ 0.56 $ 0.59 $ 0.73 $ 0.69
Monthly Rent 3Br/2Ba - TYPE 2 $ 937 $ 939 $1,150 $ 1,004 $ 990
Unit Area (SF) 1,430 1,430 1,417 1,467 1,508
Monthly Rent Per Sq. Ft. $ 0.66 $ 0.66 $ 0.81 $ 0.68 $ 0.66
DESCRIPTION MIN MAX MEDIAN AVERAGE
- ---------------------------------------------------------------
Monthly Rent $ 585 $ 655 $ 599 $ 613
Unit Area (SF) 700 769 720 730
Monthly Rent Per Sq. Ft. $ 0.78 $ 0.94 $ 0.81 $ 0.84
Monthly Rent $ 744 $ 744 $ 744 $ 744
Unit Area (SF) 892 892 892 892
Monthly Rent Per Sq. Ft. $ 0.83 $ 0.83 $ 0.83 $ 0.83
Monthly Rent $ 655 $ 655 $ 655 $ 655
Unit Area (SF) 790 790 790 790
Monthly Rent Per Sq. Ft. $ 0.83 $ 0.83 $ 0.83 $ 0.83
Monthly Rent $ 697 $ 755 $ 726 $ 726
Unit Area (SF) 875 920 898 898
Monthly Rent Per Sq. Ft. $ 0.76 $ 0.86 $ 0.81 $ 0.81
Monthly Rent
Unit Area (SF)
Monthly Rent Per Sq. Ft.
Monthly Rent $ 820 $ 835 $ 822 $ 826
Unit Area (SF) 1,100 1,150 1,143 1,131
Monthly Rent Per Sq. Ft. $ 0.71 $ 0.76 $ 0.72 $ 0.73
Monthly Rent $ 730 $ 870 $ 792 $ 795
Unit Area (SF) 1,050 1,155 1,100 1,099
Monthly Rent Per Sq. Ft. $ 0.68 $ 0.78 $ 0.73 $ 0.72
Monthly Rent $ 945 $ 945 $ 945 $ 945
Unit Area (SF) 1,294 1,294 1,294 1,294
Monthly Rent Per Sq. Ft. $ 0.73 $ 0.73 $ 0.73 $ 0.73
Monthly Rent $ 845 $ 935 $ 890 $ 890
Unit Area (SF) 1,154 1,239 1,197 1,197
Monthly Rent Per Sq. Ft. $ 0.73 $ 0.75 $ 0.74 $ 0.74
Monthly Rent $ 890 $ 1,017 $ 954 $ 954
Unit Area (SF) 1,226 1,466 1,346 1,346
Monthly Rent Per Sq. Ft. $ 0.69 $ 0.73 $ 0.71 $ 0.71
Monthly Rent $ 990 $ 1,150 $1,004 $ 1,048
Unit Area (SF) 1,417 1,508 1,467 1,464
Monthly Rent Per Sq. Ft. $ 0.66 $ 0.81 $ 0.68 $ 0.72
CONCLUDED MARKET RENTAL RATES AND TERMS
Based on this analysis above, the subject's concluded market rental rates and
gross rental income is calculated as follows:
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 29
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
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 - Type 1 24 712 $499 $0.70 $ 11,976 $ 143,712
1Br/1Ba - Type 2 24 764 $509 $0.67 $ 12,216 $ 146,592
1Br/1Ba - Type 3 36 777 $569 $0.73 $ 20,484 $ 245,808
1Br/1Ba - Type 4 16 810 $589 $0.73 $ 9,424 $ 113,088
2Br/1Ba 16 1,003 $669 $0.67 $ 10,704 $ 128,448
2Br/1.5Ba 22 1,036 $689 $0.67 $ 15,158 $ 181,896
2Br/2Ba - Type 1 20 1,075 $739 $0.69 $ 14,780 $ 177,360
2Br/2.5Ba 2 1,296 $799 $0.62 $ 1,598 $ 19,176
2Br/2Ba - Type 2 20 1,166 $769 $0.66 $ 15,380 $ 184,560
3Br/2Ba - Type 1 16 1,295 $809 $0.62 $ 12,944 $ 155,328
3Br/2Ba - Type 2 16 1,430 $949 $0.66 $ 15,184 $ 182,208
------------------------------
Total $139,848 $1,678,176
PRO FORMA ANALYSIS
For purposes of this appraisal, we were provided with income and expense data
for the subject property. A summary of this data is presented on the following
page.
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
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 $1,999,205 $ 9,430 $1,941,362 $ 9,157 $1,730,801 $ 8,164 $1,662,505 $ 7,842
Vacancy $ 237,062 $ 1,118 $ 153,753 $ 725 $ 146,925 $ 693 $ 101,399 $ 478
Credit Loss/Concessions $ 72,578 $ 342 $ 61,306 $ 289 $ 31,934 $ 151 $ 19,992 $ 94
-----------------------------------------------------------------------------------------------------
Subtotal $ 309,640 $ 1,461 $ 215,059 $ 1,014 $ 178,859 $ 844 $ 121,391 $ 573
Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 8,028 $ 38
Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Other Misc. Revenue $ 92,922 $ 438 $ 67,930 $ 320 $ 62,539 $ 295 $ 47,052 $ 222
-----------------------------------------------------------------------------------------------------
Subtotal Other Income $ 92,922 $ 438 $ 67,930 $ 320 $ 62,539 $ 295 $ 55,080 $ 260
-----------------------------------------------------------------------------------------------------
Effective Gross Income $1,782,487 $ 8,408 $1,794,233 $ 8,463 $1,614,481 $ 7,615 $1,596,194 $ 7,529
Operating Expenses
Taxes $ 102,435 $ 483 $ 62,394 $ 294 $ 197,827 $ 933 $ 150,974 $ 712
Insurance $ 60,960 $ 288 $ 39,303 $ 185 $ 41,626 $ 196 $ 39,734 $ 187
Utilities $ 69,080 $ 326 $ 70,857 $ 334 $ 66,756 $ 315 $ 46,800 $ 221
Repair & Maintenance $ 169,160 $ 798 $ 135,682 $ 640 $ 112,145 $ 529 $ 98,688 $ 466
Cleaning $ 265 $ 1 $ 0 $ 0 $ 100 $ 0 $ 0 $ 0
Landscaping $ 37,053 $ 175 $ 34,206 $ 161 $ 39,876 $ 188 $ 75,732 $ 357
Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Marketing & Leasing $ 59,896 $ 283 $ 39,456 $ 186 $ 39,655 $ 187 $ 42,000 $ 198
General Administrative $ 226,611 $ 1,069 $ 274,116 $ 1,293 $ 232,297 $ 1,096 $ 295,548 $ 1,394
Management $ 92,332 $ 436 $ 85,512 $ 403 $ 82,964 $ 391 $ 83,688 $ 395
Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
-----------------------------------------------------------------------------------------------------
Total Operating Expenses $ 817,792 $ 3,858 $ 741,526 $ 3,498 $ 813,246 $ 3,836 $ 833,164 $ 3,930
Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
-----------------------------------------------------------------------------------------------------
Net Income $ 964,695 $ 4,550 $1,052,707 $ 4,966 $ 801,235 $ 3,779 $ 763,030 $ 3,599
ANNUALIZED 2003
----------------------
PROJECTION AAA PROJECTION
----------------------------------------------------------
DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT %
- ----------------------------------------------------------------------------------------
Revenues
Rental Income $1,619,696 $ 7,640 $1,678,176 $ 7,916 100.0%
Vacancy $ 112,500 $ 531 $ 109,081 $ 515 6.5%
Credit Loss/Concessions $ 29,444 $ 139 $ 25,173 $ 119 1.5%
---------------------------------------------------------
Subtotal $ 141,944 $ 670 $ 134,254 $ 633 8.0%
Laundry Income $ 0 $ 0 $ 4,240 $ 20 0.3%
Garage Revenue $ 0 $ 0 $ 0 $ 0 0.0%
Other Misc. Revenue $ 50,696 $ 239 $ 63,600 $ 300 3.8%
---------------------------------------------------------
Subtotal Other Income $ 50,696 $ 239 $ 67,840 $ 320 4.0%
---------------------------------------------------------
Effective Gross Income $1,528,448 $ 7,210 $1,611,762 $ 7,603 100.0%
Operating Expenses
Taxes $ 150,692 $ 711 $ 130,380 $ 615 8.1%
Insurance $ 80,964 $ 382 $ 38,160 $ 180 2.4%
Utilities $ 66,652 $ 314 $ 63,600 $ 300 3.9%
Repair & Maintenance $ 109,156 $ 515 $ 100,700 $ 475 6.2%
Cleaning $ 0 $ 0 $ 0 $ 0 0.0%
Landscaping $ 49,512 $ 234 $ 42,400 $ 200 2.6%
Security $ 0 $ 0 $ 0 $ 0 0.0%
Marketing & Leasing $ 43,848 $ 207 $ 42,400 $ 200 2.6%
General Administrative $ 249,216 $ 1,176 $ 238,500 $ 1,125 14.8%
Management $ 78,684 $ 371 $ 80,588 $ 380 5.0%
Miscellaneous $ 0 $ 0 $ 0 $ 0 0.0%
---------------------------------------------------------
Total Operating Expenses $ 828,724 $ 3,909 $ 736,728 $ 3,475 45.7%
Reserves $ 0 $ 0 $ 53,000 $ 250 7.2%
---------------------------------------------------------
Net Income $ 699,724 $ 3,301 $ 822,034 $ 3,878 51.0%
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 8% based on
the subject's historical performance, as well as the anticipated future market
conditions.
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 31
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
RESERVES FOR REPLACEMENT
"Reserves for replacements" is a contingency account allocated to the expenses
of the property to provide for replacement of short-lived items and for
unforeseen necessary capital expenditures. We have utilized the Korpacz Real
Estate Investor Survey of the national apartment market, which reports a range
of replacement reserves between $150 and $400 per unit. For purposes of this
analysis, we have included an allowance of $250 per unit for reserves for
replacement.
CAPITAL EXPENDITURES
Capital expenditures represent expenses for immediate repair or replacement of
items that have average to long lives. Based on our inspection of the property
as well as discussions with property management personnel, there are no major
items remaining in need of repair or replacement that would require an expense
beyond our reserves for replacement. Therefore an allowance of $250 per unit
should be satisfactory in our reserves for replacement to cover future capital
expenditures.
DISCOUNTED CASH FLOW ANALYSIS
As the subject is a multi-tenant income property, the Discounted Cash Flow
Method is considered appropriate. This method is especially meaningful in that
it isolates the timing of the annual cash flows and discounts them, along with
the expected equity reversion, to a present value. The present value of the cash
flow is added to the present value of the reversion, resulting in a total
property value.
INVESTMENT CRITERIA
Appropriate investment criteria will be derived for the subject based upon
analysis of comparable sales and a survey of real estate investors. The
following table summarizes the findings of Korpacz National Investor Survey for
the most recent period.
KORPACZ NATIONAL INVESTOR SURVEY
1ST QUARTER 2003
NATIONAL APARTMENT MARKET
CAPITALIZATION RATES
--------------------------------------------------------------
GOING-IN TERMINAL
--------------------------------------------------------------
LOW HIGH LOW HIGH
--------------------------------------------------------------
RANGE 6.00% 10.00% 7.00% 10.00%
AVERAGE 8.14% 8.47%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
SUMMARY OF OVERALL
CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR
- -----------------------------------------------------
I-1 Jul-02 98% $69,444 8.91%
I-2 Jul-02 91% $71,277 7.32%
I-3 Apr-01 92% $61,500 8.70%
I-4 Mar-01 95% $79,058 8.63%
I-5 Dec-00 87% $74,507 8.72%
High 8.91%
Low 7.32%
Average 8.45%
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 9.00%. Finally, the subject's discount rate
or yield rate is estimated based on the previous investor survey and an
examination of returns available on alternative investments in the market. Based
on this analysis, the subject's discount rate is estimated to be 10.50%.
HOLDING PERIOD
The survey of investors indicates that most investors are completing either
10-year cash flows or extending the analysis to the end of the lease if it is
more than 10-years. A 10-year period has been used in the analysis of the
subject with the eleventh year stabilized NOI used to determine the reversion.
SELLING COSTS
Sales of similar size properties are typically accomplished with the aid of a
broker and will also incur legal and other transaction related cost. Based on
our survey of brokers and a review of institutional investor projections, an
allowance of 3.00% of the sale amount is applied.
DISCOUNTED CASH FLOW CONCLUSION
Discounting the annual cash flows and the equity reversion at the selected rate
of 10.50% indicates a value of $9,400,000. In this instance, the reversion
figure contributes
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 33
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
approximately 43% of the total value. Investors surveyed for this assignment
indicated they would prefer to have the cash flow contribute anywhere from 50%
to 60%. Overall, the blend seems reasonable. The cash flow and pricing matrix
are located on the following pages.
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 34
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
DISCOUNTED CASH FLOW ANALYSIS
HUNTINGTON ATHLETIC CLUB
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009
FISCAL YEAR 1 2 3 4 5 6
- -----------------------------------------------------------------------------------------------------------------------
REVENUE
Base Rent $1,678,176 $1,678,176 $1,711,740 $1,745,974 $1,798,354 $1,852,304
Vacancy $ 109,081 $ 109,081 $ 111,263 $ 113,488 $ 116,893 $ 120,400
Credit Loss $ 25,173 $ 25,173 $ 25,676 $ 26,190 $ 26,975 $ 27,785
Concessions $ 25,173 $ 16,782 $ 0 $ 0 $ 0 $ 0
--------------------------------------------------------------------------------
Subtotal $ 159,427 $ 151,036 $ 136,939 $ 139,678 $ 143,868 $ 148,184
Laundry Income $ 4,240 $ 4,240 $ 4,325 $ 4,411 $ 4,544 $ 4,680
Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Other Misc. Revenue $ 63,600 $ 63,600 $ 64,872 $ 66,169 $ 68,155 $ 70,199
--------------------------------------------------------------------------------
Subtotal Other Income $ 67,840 $ 67,840 $ 69,197 $ 70,581 $ 72,698 $ 74,879
--------------------------------------------------------------------------------
EFFECTIVE GROSS INCOME $1,586,589 $1,594,980 $1,643,997 $1,676,877 $1,727,183 $1,778,999
OPERATING EXPENSES:
Taxes $ 130,380 $ 134,291 $ 138,320 $ 142,470 $ 146,744 $ 151,146
Insurance $ 38,160 $ 39,305 $ 40,484 $ 41,698 $ 42,949 $ 44,238
Utilities $ 63,600 $ 65,508 $ 67,473 $ 69,497 $ 71,582 $ 73,730
Repair & Maintenance $ 100,700 $ 103,721 $ 106,833 $ 110,038 $ 113,339 $ 116,739
Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Landscaping $ 42,400 $ 43,672 $ 44,982 $ 46,332 $ 47,722 $ 49,153
Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Marketing & Leasing $ 42,400 $ 43,672 $ 44,982 $ 46,332 $ 47,722 $ 49,153
General Administrative $ 238,500 $ 245,655 $ 253,025 $ 260,615 $ 268,434 $ 276,487
Management $ 79,329 $ 79,749 $ 82,200 $ 83,844 $ 86,359 $ 88,950
Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
--------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES $ 735,469 $ 755,573 $ 778,299 $ 800,826 $ 824,851 $ 849,596
Reserves $ 53,000 $ 54,590 $ 56,228 $ 57,915 $ 59,652 $ 61,442
--------------------------------------------------------------------------------
NET OPERATING INCOME $ 798,120 $ 784,817 $ 809,471 $ 818,137 $ 842,681 $ 867,961
Operating Expense Ratio (% of EGI) 46.4% 47.4% 47.3% 47.8% 47.8% 47.8%
Operating Expense Per Unit $ 3,469 $ 3,564 $ 3,671 $ 3,777 $ 3,891 $ 4,008
YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014
FISCAL YEAR 7 8 9 10 11
- ---------------------------------------------------------------------------------------------------------
REVENUE
Base Rent $1,907,873 $1,965,109 $2,024,063 $2,084,785 $2,147,328
Vacancy $ 124,012 $ 127,732 $ 131,564 $ 135,511 $ 139,576
Credit Loss $ 28,618 $ 29,477 $ 30,361 $ 31,272 $ 32,210
Concessions $ 0 $ 0 $ 0 $ 0 $ 0
------------------------------------------------------------------
Subtotal $ 152,630 $ 157,209 $ 161,925 $ 166,783 $ 171,786
Laundry Income $ 4,820 $ 4,965 $ 5,114 $ 5,267 $ 5,425
Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0
Other Misc. Revenue $ 72,305 $ 74,474 $ 76,709 $ 79,010 $ 81,380
------------------------------------------------------------------
Subtotal Other Income $ 77,125 $ 79,439 $ 81,822 $ 84,277 $ 86,805
------------------------------------------------------------------
EFFECTIVE GROSS INCOME $1,832,369 $1,887,340 $1,943,960 $2,002,279 $2,062,347
OPERATING EXPENSES:
Taxes $ 155,681 $ 160,351 $ 165,161 $ 170,116 $ 175,220
Insurance $ 45,565 $ 46,932 $ 48,340 $ 49,790 $ 51,284
Utilities $ 75,942 $ 78,220 $ 80,567 $ 82,984 $ 85,473
Repair & Maintenance $ 120,241 $ 123,848 $ 127,564 $ 131,391 $ 135,332
Cleaning $ 0 $ 0 $ 0 $ 0 $ 0
Landscaping $ 50,628 $ 52,147 $ 53,711 $ 55,322 $ 56,982
Security $ 0 $ 0 $ 0 $ 0 $ 0
Marketing & Leasing $ 50,628 $ 52,147 $ 53,711 $ 55,322 $ 56,982
General Administrative $ 284,781 $ 293,325 $ 302,125 $ 311,188 $ 320,524
Management $ 91,618 $ 94,367 $ 97,198 $ 100,114 $ 103,117
Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0
------------------------------------------------------------------
TOTAL OPERATING EXPENSES $ 875,084 $ 901,336 $ 928,377 $ 956,228 $ 984,915
Reserves $ 63,285 $ 65,183 $ 67,139 $ 69,153 $ 71,228
------------------------------------------------------------------
NET OPERATING INCOME $ 894,000 $ 920,820 $ 948,445 $ 976,898 $1,006,205
Operating Expense Ratio (% of EGI) 47.8% 47.8% 47.8% 47.8% 47.8%
Operating Expense Per Unit $ 4,128 $ 4,252 $ 4,379 $ 4,511 $ 4,646
Estimated Stabilized NOI $822,034 Sales Expense Rate 3.00%
Months to Stabilized 1 Discount Rate 10.50%
Stabilized Occupancy 93.5% Terminal Cap Rate 9.00%
Gross Residual Sale Price $11,180,057 Deferred Maintenance $ 0
Less: Sales Expense $ 335,402 Add: Excess Land $ 0
-----------
Net Residual Sale Price $10,844,655 Other Adjustments $ 0
PV of Reversion $ 3,995,701 Value Indicated By "DCF" $9,438,014
----------
Add: NPV of NOI $ 5,442,313 Rounded $9,400,000
-----------
PV Total $ 9,438,014
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE
------------------------------------------------------------------------
TOTAL VALUE 10.00% 10.25% 10.50% 10.75% 11.00%
- ------------------------------------------------------------------------------------------------------
8.50% $10,001,220 $9,835,305 $9,673,055 $9,514,376 $9,359,177
8.75% $ 9,874,733 $9,711,658 $9,552,177 $9,396,198 $9,243,634
TERMINAL CAP RATE 9.00% $ 9,755,274 $9,594,880 $9,438,014 $9,284,587 $9,134,511
9.25% $ 9,642,271 $9,484,414 $9,330,022 $9,179,008 $9,031,286
9.50% $ 9,535,217 $9,379,762 $9,227,714 $9,078,986 $8,933,494
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 35
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
INCOME LOSS DURING LEASE-UP
The subject is currently near or at a stabilized condition. Therefore, there is
no income loss during lease-up at the subject property.
CONCESSIONS
Due to softness in the market, concessions have been utilized at the subject
property and within the market. Based on our discussions with the subject's
property manager and those at competing properties, these concessions are
expected to continue in the near term until the market returns to a stabilized
level. Concessions have been included as a line item deduction within the
discounted cash flow analysis. The present value of these concessions equates to
$37,000 (rounded). This amount has been deducted from the Direct Capitalization
analysis, as well as the Sales Comparison Approach value.
DIRECT CAPITALIZATION METHOD
After having projected the income and expenses for the property, the next step
in the valuation process is to capitalize the net income into an estimate of
value. The selected overall capitalization rate ("OAR") covers both return on
and return of capital. It is the overall rate of return an investor expects.
After considering the market transactions and the investor surveys, we
previously conclude that an overall rate of 8.75% percent is applicable to the
subject. The results of our direct capitalization analysis are as follows:
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 36
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
HUNTINGTON ATHLETIC CLUB
TOTAL PER SQ. FT. PER UNIT %OF EGI
- --------------------------------------------------------------------------------------------------------
REVENUE
Base Rent $ 1,678,176 $ 8.14 $ 7,916
Less: Vacancy & Collection Loss 8.00% $ 134,254 $ 0.65 $ 633
Plus: Other Income
Laundry Income $ 4,240 $ 0.02 $ 20 0.26%
Garage Revenue $ 0 $ 0.00 $ 0 0.00%
Other Misc. Revenue $ 63,600 $ 0.31 $ 300 3.95%
-----------------------------------------------
Subtotal Other Income $ 67,840 $ 0.33 $ 320 4.21%
EFFECTIVE GROSS INCOME $ 1,611,762 $ 7.82 $ 7,603
OPERATING EXPENSES:
Taxes $ 130,380 $ 0.63 $ 615 8.09%
Insurance $ 38,160 $ 0.19 $ 180 2.37%
Utilities $ 63,600 $ 0.31 $ 300 3.95%
Repair & Maintenance $ 100,700 $ 0.49 $ 475 6.25%
Cleaning $ 0 $ 0.00 $ 0 0.00%
Landscaping $ 42,400 $ 0.21 $ 200 2.63%
Security $ 0 $ 0.00 $ 0 0.00%
Marketing & Leasing $ 42,400 $ 0.21 $ 200 2.63%
General Administrative $ 238,500 $ 1.16 $ 1,125 14.80%
Management 5.00% $ 80,588 $ 0.39 $ 380 5.00%
Miscellaneous $ 0 $ 0.00 $ 0 0.00%
TOTAL OPERATING EXPENSES $ 736,728 $ 3.57 $ 3,475 45.71%
Reserves $ 53,000 $ 0.26 $ 250 3.29%
-----------------------------------------------
NET OPERATING INCOME $ 822,034 $ 3.99 $ 3,878 51.00%
"GOING IN" CAPITALIZATION RATE 8.75%
VALUE INDICATION $ 9,394,672 $ 45.56 $ 44,314
PV OF CONCESSIONS ($ 37,000)
"AS IS" VALUE INDICATION
(DIRECT CAPITALIZATION APPROACH) $ 9,357,672
ROUNDED $ 9,400,000 $ 45.59 $ 44,340
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 37
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF
- -------------------------------------------------------------
8.00% $10,238,423 $10,200,000 $48,113 $49.46
8.25% $ 9,927,046 $ 9,900,000 $46,698 $48.01
8.50% $ 9,633,986 $ 9,600,000 $45,283 $46.55
8.75% $ 9,357,672 $ 9,400,000 $44,340 $45.59
9.00% $ 9,096,709 $ 9,100,000 $42,925 $44.13
9.25% $ 8,849,852 $ 8,800,000 $41,509 $42.68
9.50% $ 8,615,988 $ 8,600,000 $40,566 $41.71
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD
Applying the capitalization rate to our estimated NOI results in an estimated
value of $9,400,000.
CORRELATION AND CONCLUSION BY THE INCOME APPROACH
The two methods used to estimate the market value of the subject property by the
income approach resulted in the following indications of value:
Discounted Cash Flow Analysis $9,400,000
Direct Capitalization Method $9,400,000
Giving consideration to the indicated values provided by both techniques, we
have concluded the estimated value by the income capitalization approach to be
$9,400,000.
AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 38
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
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 $9,600,000
Income Approach $9,400,000
Reconciled Value $9,400,000
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 12, 2003 the market value of the fee simple estate in the property is:
$9,400,000
AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
ADDENDA
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
EXHIBIT A
SUBJECT PHOTOGRAPHS
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
SUBJECT PHOTOGRAPHS
[EXTERIOR - PROPERTY SIGN PICTURE] [EXTERIOR - OFFICE/ATHLETIC FACILITY PICTURE]
[INERIOR - OFFICE PICTURE] [EXTERIOR - APARTMENT UNIT PICTURE]
[EXTERIOR - APARTMENT UNIT PICTURE] [EXTERIOR - APARTMENT UNIT PICTURE]
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
SUBJECT PHOTOGRAPHS
[INTERIOR - APARTMENT UNIT PICTURE] [INTERIOR - TYPICAL KITCHEN PICTURE]
[EXTERIOR - TENNIS COURT PICTURE] [EXTERIOR - SWIMMING POOL PICTURE]
[INTERIOR - FITNESS FACILITY PICTURE] [EXTERIOR - PRIVATE POND PICTURE]
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
EXHIBIT B
SUMMARY OF RENT COMPARABLES
AND PHOTOGRAPH OF COMPARABLES
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES
COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3
WESTOVER HILLS COTTAGES OF STONEHENGE TREYBROOKE
10 Westover Hills Drive 7600 Falcon Rest Circle 201 Treybrooke Drive
Cary, North Carolina Raleigh, North Carolina Raleigh, North Carolina
[PICTURE] [PICTURE] [PICTURE]
COMPARABLE I-4 COMPARABLE I-5
LEGENDS @ PRESTON MARQUIS @ PRESTON
1000 Stony Court Circle 2500 Grove Club Lane
Morrisville, North Carolina Cary, North Carolina
[PICTURE] [PICTURE]
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE
DESCRIPTION SUBJECT R - 1
----------- ------- -----
Property Name Huntington Athletic Club Archstone @ Preston
Management Company AIMCO Archstone
LOCATION:
Address 2408 Duck Pond Circle 1100 Cameron Chase Drive
City, State Morrisville, North Carolina Morrisville, North Carolina
County Wake Wake
Proximity to Subject 1.5 miles east of the subject
PHYSICAL CHARACTERISTICS:
Net Rentable Area (SF) 206,208 363,664
Year Built 1985 2000
Effective Age 15 3
Building Structure Type Brick & wood siding walls; Wood/vinyl siding walls;
composition shingle roof composition shingle roof
Parking Type (Gr., Cov., etc.) Open Open/Garage
Number of Units 212 388
Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo.
1 1Br/1Ba - Type 1 712 24 $468 1 1BD/1BH 720 156 $585
2 1Br/1Ba - Type 2 764 24 $498 7 2BD/2BH 1,050 188 $780
3 1Br/1Ba - Type 3 777 36 $527 10 3BD/2BH 1,226 44 $890
4 1Br/1Ba - Type 4 810 16 $570
5 2Br/1Ba 1,003 16 $606
6 2Br/1.5Ba 1,036 22 $678
7 2Br/2Ba - Type 1 1,075 20 $673
8 2Br/2.5Ba 1,296 2 $769
9 2Br/2Ba - Type 2 1,166 20 $712
10 3Br/2Ba - Type 1 1,295 16 $719
11 3Br/2Ba - Type 2 1,430 16 $937
Average Unit Size (SF) 973 937
Unit Breakdown: Efficiency 0% 2-Bedroom 39% Efficiency 0% 2-Bedroom 49%
1-Bedroom 61% 3-Bedroom 0% 1-Bedroom 40% 3-Bedroom 11%
CONDITION: Average Very Good
APPEAL: Average Good
AMENITIES:
Unit Amenities X Attach. Garage Vaulted Ceiling X Attach. Garage Vaulted Ceiling
X Balcony X W/D Connect. X Balcony X W/D Connect.
X Fireplace Fireplace
X Cable TV Ready X Cable TV Ready
Project Amenities X Swimming Pool X Swimming Pool
X Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash
X 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
X Tennis Court Secured Parking Tennis Court Secured Parking
Racquet Ball Laundry Room Racquet Ball X Laundry Room
Jogging Track Business Office Jogging Track Business Office
X Gym Room X Gym Room
OCCUPANCY: 95% 96%
LEASING DATA:
Available Leasing Terms 6 to 15 Months 3 to 12 Months
Concessions $100 off 1st months rent with a 12-month lease Reduced rents ($100)
Pet Deposit $200 $250 to $450
Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas
Water Trash X Water X Trash
Confirmation Holly Pattee -Property Manager Gloria Durham
Telephone Number 919-481-2000 919-465-1800
NOTES: None
COMPARISON TO SUBJECT: Superior
COMPARABLE COMPARABLE
DESCRIPTION R - 2 R - 3
----------- ----- -----
Property Name Cross Timbers Legends @ Preston
Management Company Drucker & Faulk LLC Equity Residential
LOCATION:
Address 900 Golden Horseshoe Circle 1000 Stony Creek Court
City, State Morrisville, North Carolina Morrisville, North Carolina
County Wake Wake
Proximity to Subject 0.15 miles west of the subject 0.75 mile northeast of the subject
PHYSICAL CHARACTERISTICS:
Net Rentable Area (SF) 413,609 373,528
Year Built 1999 2000
Effective Age 4 3
Building Structure Type Wood/vinyl siding walls; Wood/vinyl siding walls;
composition shingle roof composition shingle roof
Parking Type (Gr., Cov., etc.) Open Open/Garage/Covered
Number of Units 253 382
Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo.
4 1BD/1BH - Type 1 875 86 $ 755 1 1BD/1BH - Type 1 769 60 $ 599
7 2BD/2BH - Type 1 1,115 40 $ 870 2 1BD/1BH - Type 2 892 60 $ 744
8 2BD/2BH - Type 2 1,294 44 $ 945 4 1BD/1BH - Type 3 918 66 $ 689
9 2BD/2.5BH - Type 1 1,239 50 $ 935 4 1BD/1BH - Type 4 931 12 $ 744
2BD/2.5BH - Type 2 1,525 5 $1,140 6 2BD/2BH - Type 1 1,143 50 $ 822
11 3BD/2BH 1,417 28 $1,150 7 2BD/2BH - Type 2 1,155 54 $ 792
0 2BD/2BH - Type 3 1,337 50 $ 869
10 3BD/2BH - Type 1 1,466 18 $1,017
11 3BD/2BH - Type 1 1,467 12 $1,004
Average Unit Size (SF) 1,131 1,052
Unit Breakdown: Efficiency 0% 2-Bedroom 55% Efficiency 0% 2-Bedroom 38%
1-Bedroom 34% 3-Bedroom 11% 1-Bedroom 52% 3-Bedroom 8%
CONDITION: Very 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.
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
Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall
X Tennis Court Secured Parking X 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: 88% 97%
LEASING DATA:
Available Leasing Terms 3 to 12 Months 6 to 12 Months
Concessions Reduced rents ($100) Reduced rents ($125)
Pet Deposit $250 $300
Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas
Water Trash X Water Trash
Confirmation Leasing Agent Mary Gibbs
Telephone Number 919-462-0046 919-468-1110
NOTES: None None
COMPARISON TO SUBJECT: Superior Superior
COMPARABLE COMPARABLE
DESCRIPTION R - 4 R - 5
----------- ----- -----
Property Name Crabtree Crossing Treybrooke
Management Company Palms Associates Madison Apartment Group
LOCATION:
Address 100 Walnut Forest Lane 201 Treybrooke Drive
City, State Morrisville, North Carolina Morrisville, North Carolina
County Wake Wake
Proximity to Subject 1 mile northeast of the subject 1.25 miles north of the subject
PHYSICAL CHARACTERISTICS:
Net Rentable Area (SF) 366,538 228,000
Year Built 1999 1989
Effective Age 4 14
Building Structure Type Wood/vinyl siding walls; Brick & wood/vinyl siding walls;
composition shingle roof asphalt shingle roof
Parking Type (Gr., Cov., etc.) Open/Garage Open
Number of Units 208 200
Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo.
3 1BD/1BH 790 44 $655 1 1BD/1BH 700 40 $ 655
6 2BD/1.5BH 1,150 26 $820 6 2BD/1.5BH 1,100 40 $ 835
7 2BD/2BH 1,074 72 $730 7 2BD/2BH 1,100 80 $ 805
9 2BD/2.5BH 1,154 35 $845 3BD/2.5BH 1,700 40 $1,095
11 3BD/2.5BH 1,508 31 $990
Average Unit Size (SF) 1,102 1,140
Unit Breakdown: Efficiency 0% 2-Bedroom 64% Efficiency 0% 2-Bedroom 60%
1-Bedroom 21% 3-Bedroom 14% 1-Bedroom 20% 3-Bedroom 20%
CONDITION: Average Average
APPEAL: Average Average
AMENITIES:
Unit Amenities X Attach. Garage X Vaulted Ceiling Attach. Garage X Vaulted Ceiling
X Balcony X W/D Connect. X Balcony X W/D Connect.
Fireplace X Fireplace
X Cable TV Ready X Cable TV Ready
Project Amenities X Swimming Pool X Swimming Pool
Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash
Basketball Court BBQ Equipment X Basketball Court X BBQ Equipment
Volleyball Court Theater Room Volleyball Court Theater Room
Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall
Tennis Court Secured Parking X Tennis Court Secured Parking
Racquet Ball X Laundry Room Racquet Ball Laundry Room
Jogging Track Business Office Jogging Track Business Office
X Gym Room X Gym Room
OCCUPANCY: 75% 89%
LEASING DATA:
Available Leasing Terms 6 to 15 Months 3 to 24 Months
Concessions One months free on a 12 month lease Reduced rent $100 to $125 off
Pet Deposit $250 $250
Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas
Water Trash X Water Trash
Confirmation Michelle Harris Pam Young
Telephone Number 919-380-9595 919-467-7171
NOTES: None None
COMPARISON TO SUBJECT: Superior Slightly Superior
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES
COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3
ARCHSTONE @ PRESTON CROSS TIMBERS LEGENDS @ PRESTON
1100 Cameron Chase Drive 900 Golden Horseshoe Circle 1000 Stony Creek Court
Morrisville, Morrisville, Morrisville,
North Carolina North Carolina North Carolina
[PICTURE] [PICTURE] [PICTURE]
COMPARABLE R-4 COMPARABLE R-5
CRABTREE CROSSING TREYBROOKE
100 Walnut Forest Lane 201 Treybrooke Drive
Morrisville, North Carolina Morrisville, North Carolina
[PICTURE] [PICTURE]
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
EXHIBIT C
ASSUMPTIONS AND LIMITING CONDITIONS
(3 PAGES)
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
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
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
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
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
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
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
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. Jimmy Pat James, MAI
and J. Chad Walker provided significant real property appraisal
assistance in the preparation of this report.
I am currently in compliance with the Appraisal Institute's continuing
education requirements.
-s- Frank Fehribach
-----------------------
Frank Fehribach, MAI
Managing Principal, Real Estate Group
North Carolina Temporary Practice Permit
#2578
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
EXHIBIT E
QUALIFICATIONS OF APPRAISER
(2 PAGES)
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
FRANK A. FEHRIBACH, MAI
MANAGING PRINCIPAL, REAL ESTATE GROUP
POSITION Frank A. Fehribach is a Managing Principal for the
Dallas Real Estate Group of American Appraisal
Associates, Inc. ("AAA").
EXPERIENCE
Valuation Mr. Fehribach has experience in valuations for resort
hotels; Class A office buildings; Class A multifamily
complexes; industrial buildings and distribution
warehousing; multitract mixed-use vacant land; regional
malls; residential subdivision development; and
special-purpose properties such as athletic clubs, golf
courses, manufacturing facilities, nursing homes, and
medical buildings. Consulting assignments include
development and feasibility studies, economic model
creation and maintenance, and market studies.
Mr. Fehribach also has been involved in overseeing
appraisal and consulting assignments in Mexico and
South America.
Business Mr. Fehribach joined AAA as an engagement director in
1998. He was promoted to his current position in 1999.
Prior to that, he was a manager at Arthur Andersen LLP.
Mr. Fehribach has been in the business of real estate
appraisal for over ten years.
EDUCATION University of Texas - Arlington
Master of Science - Real Estate
University of Dallas
Master of Business Administration - Industrial
Management
Bachelor of Arts - Economics
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
STATE CERTIFICATIONS State of Arizona, Certified General Real Estate
Appraiser,
#30828
State of Arkansas, State Certified General Appraiser,
#CG1387N
State of Colorado, Certified General Appraiser,
#CG40000445
State of Georgia, Certified General Real Property
Appraiser,
#218487
State of Michigan, Certified General Appraiser,
#1201008081
State of Texas, Real Estate Salesman License, #407158
(Inactive)
State of Texas, State Certified General Real Estate
Appraiser,
#TX-1323954-G
PROFESSIONAL Appraisal Institute, MAI Designated Member
AFFILIATIONS Candidate Member of the CCIM Institute pursuing Certified
Commercial Investment Member (CCIM) designation
PUBLICATIONS "An Analysis of the Determinants of Industrial Property
-authored with Dr. Ronald C. Rutherford and
Dr. Mark Eakin, The Journal of Real Estate Research, Vol.
8, No. 3, Summer 1993, p. 365.
AMERICAN APPRAISAL ASSOCIATES, INC.
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
GENERAL SERVICE CONDITIONS
AMERICAN APPRAISAL ASSOCIATES, INC.
HUNTINGTON ATHLETIC CLUB, MORRISVILLE, NORTH CAROLINA
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.