WINDSOR HILLS APARTMENTS
ASCOT LANE
BLACKSBURG, VIRGINIA
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]
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: WINDSOR HILLS APARTMENTS
ASCOT LANE
BLACKSBURG, MONTGOMERY COUNTY, VIRGINIA
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 300 units with a
total of 270,855 square feet of rentable area. The improvements were built in
1970. The improvements are situated on 24.35 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
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
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:
($12,800,000)
Respectfully submitted,
AMERICAN APPRAISAL ASSOCIATES, INC.
-s- Frank Fehribach
----------------------------------
July 2, 2003 Frank Fehribach, MAI
#053272 Managing Principal, Real Estate Group
Virginia Temporary Certified General
Real Estate
Appraiser #4001 007252
Report By:
Brian Johnson, MAI
Virginia Temporary Certification Pending
Assisted By:
Jonathan Hackerman
AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
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
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
EXECUTIVE SUMMARY
PART ONE - PROPERTY DESCRIPTION
PROPERTY NAME: Windsor Hills Apartments
LOCATION: Ascot Lane
Blacksburg, Virginia
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: July 2, 2003
PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS:
SITE:
Size: 24.35 acres, or 1,060,686 square feet
Assessor Parcel No.: 3035-13950
Floodplain: Community Panel No. 510100-0007 B
(May 15, 1980) Flood Zone C, an area
outside the floodplain.
Zoning: RM-48 (Medium Density Multi-Unit
Residential)
BUILDING:
No. of Units: 300 Units
Total NRA: 270,855 Square Feet
Average Unit Size: 903 Square Feet
Apartment Density: 12.3 units per acre
Year Built: 1970
UNIT MIX AND MARKET RENT:
GROSS RENTAL INCOME PROJECTION
Market Rent
Square ----------- Monthly Annual
Unit Type Feet Per Unit Per SF Income Income
- --------------------------------------------------------------
1A10 736 $ 490 $ 0.67 $ 25,480 $ 305,760
1B10 836 $ 520 $ 0.62 $ 13,520 $ 162,240
2A10 946 $ 590 $ 0.62 $ 66,670 $ 800,040
2B10 1,046 $ 600 $ 0.57 $ 23,400 $ 280,800
3A15 1,114 $ 700 $ 0.63 $ 24,500 $ 294,000
3B15 1,214 $ 790 $ 0.65 $ 7,900 $ 94,800
EA10 481 $ 480 $ 1.00 $ 12,000 $ 144,000
- --------------------------------------------------------------
Total $173,470 $2,081,640
==============================================================
OCCUPANCY: 95%
ECONOMIC LIFE: 45 YEARS
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
EFFECTIVE AGE: 20 Years
REMAINING ECONOMIC LIFE: 25 Years
SUBJECT PHOTOGRAPHS AND LOCATION MAP:
SUBJECT PHOTOGRAPHS
[EXTERIOR - APARTMENT BUILDING PICTURE]
[EXTERIOR - LANDSCAPE, APT. BUILDING & PARKING PICTURE]
[AREA MAP]
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
[NEIGHBORHOOD 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
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
PART TWO - ECONOMIC INDICATORS
Amount $/Unit
------ ------
INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION
Potential Rental Income $ 2,081,640 $ 6,939
Effective Gross Income $ 2,029,292 $ 6,764
Operating Expenses $ 836,465 $ 2,788 41.2% of EGI
Net Operating Income: $ 1,132,828 $ 3,776
Capitalization Rate 9.00%
DIRECT CAPITALIZATION VALUE $ 12,600,000* $42,000 / UNIT
DISCOUNTED CASH FLOW ANALYSIS:
Holding Period 10 years
2002 Economic Vacancy 10%
Stabilized Vacancy & Collection Loss: 9%
Lease-up / Stabilization Period N/A
Terminal Capitalization Rate 9.50%
Discount Rate 11.50%
Selling Costs 2.00%
Growth Rates:
Income 3.00%
Expenses: 3.00%
DISCOUNTED CASH FLOW VALUE $ 13,000,000* $43,333 / UNIT
RECONCILED INCOME CAPITALIZATION VALUE $ 12,800,000 $42,667 / UNIT
SALES COMPARISON APPROACH
PRICE PER UNIT:
Range of Sales $/Unit (Unadjusted) $31,071 to $50,000
Range of Sales $/Unit (Adjusted) $31,786 to $42,328
VALUE INDICATION - PRICE PER UNIT $ 11,400,000* $38,000 / UNIT
EGIM ANALYSIS
Range of EGIMs from Improved Sales 5.27 to 6.23
Selected EGIM for Subject 5.90
Subject's Projected EGI $ 2,029,292
EGIM ANALYSIS CONCLUSION $ 12,000,000* $40,000 / UNIT
NOI PER UNIT ANALYSIS CONCLUSION $ 12,600,000* $42,000 / UNIT
RECONCILED SALES COMPARISON VALUE $ 12,000,000 $40,000 / 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
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
PART THREE - SUMMARY OF VALUE CONCLUSIONS
SALES COMPARISON APPROACH:
Price Per Unit $ 11,400,000
NOI Per Unit $ 12,600,000
EGIM Multiplier $ 12,000,000
INDICATED VALUE BY SALES COMPARISON $ 12,000,000 $40,000 / UNIT
INCOME APPROACH:
Direct Capitalization Method: $ 12,600,000
Discounted Cash Flow Method: $ 13,000,000
INDICATED VALUE BY THE INCOME APPROACH $ 12,800,000 $42,667 / UNIT
RECONCILED OVERALL VALUE CONCLUSION: $ 12,800,000 $42,667 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
INTRODUCTION
IDENTIFICATION OF THE SUBJECT
The subject property is located at Ascot Lane, Blacksburg, Montgomery County,
Virginia. Blacksburg identifies it as 3035-13950.
SCOPE OF THE ASSIGNMENT
The property, neighborhood, and comparables were inspected by Jonathan Hackerman
on May 12, 2003. Brian Johnson, MAI and Frank Fehribach, MAI have not made a
personal inspection of the subject property. Jonathan Hackerman assisted Brian
Johnson, MAI in the research, valuation analysis and writing the report. Frank
Fehribach, MAI reviewed the report and concurs with the value. Frank Fehribach,
MAI, Brian Johnson, MAI, and Jonathan Hackerman have extensive experience in
appraising similar properties and meet the USPAP competency provision.
The scope of this investigation comprises the inspection of the property and the
collection, verification, and analysis of general and specific data pertinent to
the subject property. We have researched current improved sales and leases of
similar properties, analyzing them as to their comparability, and adjusting them
accordingly. We completed the Sales Comparison and Income Capitalization
Approaches to value. From these approaches to value, a concluded overall value
was made.
DATE OF VALUE AND REPORT
This appraisal was made to express the opinion of value as of May 12, 2003. The
date of the report is July 2, 2003.
PURPOSE AND USE OF APPRAISAL
The purpose of the appraisal is to estimate the market value of the fee simple
interest in the subject property. It is understood that the appraisal is
intended to assist the clients in litigation settlement proceedings. The
appraisal was not based on a requested minimum valuation, a specific valuation,
or the approval of a loan.
PROPERTY RIGHTS APPRAISED
We have appraised the Fee Simple Estate in the subject property (as applied in
the Sales &
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 10
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
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 Windsor Hills LP. 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
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
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 Blacksburg, Virginia. Overall, the
neighborhood is characterized as a suburban setting with the predominant land
use being single family dwellings. The subject's neighborhood is generally
defined by the following boundaries.
NEIGHBORHOOD BOUNDARIES
East - Route 723
West - Route 460
South - Virginia Tech
North - Route 815
MAJOR EMPLOYERS
Major employers in the subject's area include Virginia Tech, Federal-Mogul
Corp., Litton Poly-Scientific, Wolferine Gasket and Electo-Tech Corp. Virginia
Tech employs approximately 37% of the labor market. 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
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
NEIGHBORHOOD DEMOGRAPHICS
AREA
------------------------------------------
CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA
- ------------------------------------------------------------------------------------
POPULATION TRENDS
Current Population 9,291 33,774 45,850 237,283
5-Year Population 10,759 35,769 48,297 241,504
% Change CY-5Y 15.8% 5.9% 5.3% 1.8%
Annual Change CY-5Y 3.2% 1.2% 1.1% 0.4%
HOUSEHOLDS
Current Households 3,317 10,728 15,963 99,848
5-Year Projected Households 3,800 12,010 17,513 103,684
% Change CY - 5Y 14.6% 12.0% 9.7% 3.8%
Annual Change CY-5Y 2.9% 2.4% 1.9% 0.8%
INCOME TRENDS
Median Household Income $ 16,391 $ 22,624 $ 22,597 $ 37,185
Per Capita Income $ 12,219 $ 14,004 $ 15,127 $ 22,098
Average Household Income $ 33,390 $ 44,346 $ 43,385 $ 52,514
Source: Demographics Now
The subject neighborhood's population is expected to show increases above that
of the region. The immediate market offers inferior income levels as compared to
the broader market.
The following table illustrates the housing statistics in the subject's
immediate area, as well as the MSA region.
HOUSING TRENDS
AREA
------------------------------------------
CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA
- ------------------------------------------------------------------------------------
HOUSING TRENDS
% of Households Renting 72.52% 60.74% 60.64% 29.34%
5-Year Projected % Renting 73.45% 62.11% 61.41% 29.05%
% of Households Owning 23.18% 34.16% 33.79% 64.45%
5-Year Projected % Owning 22.79% 33.36% 33.53% 65.02%
Source: Demographics Now
AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
SURROUNDING IMPROVEMENTS
The following uses surround the subject property:
North - Vacant land
South - Single Family Dwelling
East - Single Family Dwelling
West - Single Family Dwelling
CONCLUSIONS
The subject is well located within the city of Blacksburg. The neighborhood is
characterized as being mostly suburban in nature and is currently in the growth
stage of development. The economic outlook for the neighborhood is judged to be
favorable with a good economic base.
AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 14
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
MARKET ANALYSIS
The subject property is located in the city of Blacksburg in Montgomery County.
The overall pace of development in the subject's market is more or less stable.
Foxridge Apartments started construction in 1973 and made its last add-on in
2000. Knollwood and Maple represent recent construction as they were built in
1999 and 2001, respectively. Maple Ridge consists of town homes, which are not
necessarily comparable to the subject. Knollwood is newer but close in proximity
to the subject. The following table illustrates historical vacancy rates for the
subject's market.
HISTORICAL VACANCY RATE
Period Region Submarket
- --------------------------------
1Q99 4.6% 5.1%
1Q00 3.8% 3.7%
1Q01 4.0% 4.3%
1Q02 7.0% 6.6%
1Q03 10.3% 10.2%
Source: Carolina Real Data (Roanoke Market)
Occupancy trends in the subject's market are declining. Historically speaking,
the subject's submarket has equated the overall market. There is no new
construction, which will keep the occupancy rates at a high level. Also the
large number of students, both undergraduate and graduate needing housing bode
well for the local Blacksburg market.
Market rents in the subject's market have been following an increasing trend.
The following table illustrates historical rental rates for the subject's
market.
HISTORICAL AVERAGE RENT
Period Region % Change Submarket % Change
- -------------------------------------------------
1Q99 $500 - $ 468 -
1Q00 $517 3.4% $ 481 2.8%
1Q01 $535 3.5% $ 499 3.7%
1Q02 $565 5.6% $ 511 2.4%
1Q03 $577 2.1% $ 535 4.7%
Source: Carolina Real Data (Roanoke Market)
The following table illustrates a summary of the subject's competitive set.
AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject
- ---------------------------------------------------------------------------------------------
R-1 Chasewood Downs 276 95% 1966 2 miles west of the subject
R-2 Oakbridge Apartments 198 100% 1964 2 miles west of the subject
R-3 Terrace View Apartments 808 95% 1975-1992 2 miles west of subject
Subject Windsor Hills Apartments 300 95% 1970
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
PROPERTY DESCRIPTION
SITE ANALYSIS
Site Area 24.35 acres, or 1,060,686 square feet
Shape Rectangular
Topography Level to slope
Utilities All necessary utilities are available to the site.
Soil Conditions Stable
Easements Affecting Site None other than typical utility easements
Overall Site Appeal Average
Flood Zone:
Community Panel 510100-0007 B, dated May 15, 1980
Flood Zone Zone C
Zoning RM-48, the subject improvements represent a legal
conforming use of the site.
REAL ESTATE TAXES
ASSESSED VALUE - 2003
-------------------------------------- TAX RATE / PROPERTY
PARCEL NUMBER LAND BUILDING TOTAL MILL RATE TAXES
- ------------------------------------------------------------------------------
3035-13950 $1,217,500 $14,163,900 $15,381,400 0.00640 $98,440
IMPROVEMENT ANALYSIS
Year Built 1970
Number of Units 300
Net Rentable Area 270,855 Square Feet
Construction:
Foundation Reinforced concrete slab
Frame Heavy or light wood
Exterior Walls Brick or masonry
Roof Composition shingle over a wood truss structure
Project Amenities Amenities at the subject include a swimming pool,
sand volleyball, gym room, car wash, barbeque
equipment, meeting hall, laundry room, business
office, and parking area.
Unit Amenities Individual unit amenities include a balcony, cable
TV connection, and washer dryer connection.
Appliances available in each unit include
a refrigerator, stove, dishwasher, water heater,
garbage disposal, and oven.
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
Unit Mix:
Unit Area
Unit Type Number of Units (Sq. Ft.)
- --------------------------------------
1A10 52 736
1B10 26 836
2A10 113 946
2B10 39 1,046
3A15 35 1,114
3B15 10 1,214
EA10 25 481
Overall Condition Average
Effective Age 20 years
Economic Life 45 years
Remaining Economic Life 25 years
Deferred Maintenance None
HIGHEST AND BEST USE ANALYSIS
In accordance with the definition of highest and best use, an analysis of the
site relating to its legal uses, physical possibilities, and financial
feasibility is appropriate. The highest and best use as vacant is to hold for
future multi-family development. The subject improvements were constructed in
1970 and consist of a 300-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
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
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
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
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
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
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
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE
DESCRIPTION SUBJECT I - 1 I - 2
- -----------------------------------------------------------------------------------------------------------------------------
Property Name Windsor Hills Apartments Summit @ Roanoke Cinnamon Ridge Apartments
LOCATION:
Address Ascot Lane 4500 Franklin Way 5143 Overland Drive
City, State Blacksburg, Virginia Roanoke, VA Roanoke, VA
County Montgomery Roanoke Roanoke
PHYSICAL CHARATERISTICS:
Net Rentable Area (SF) 270,855 215,188 118,318
Year Built 1970 1988 1976
Number of Units 300 250 140
Unit Mix: Type Total Type Total Type Total
1A10 52 1Br/1Ba 92 1Br/1Ba 20
1B10 26 2Br/1Ba 8 2Br/1Ba 63
2A10 113 2Br/2Ba 126 3Br/1.5Ba 7
2B10 39 3Br/2Ba 24 2Br/1.5Ba 39
3A15 35 Efficiency 11
3B15 10
EA10 25
Average Unit Size (SF) 903 861 845
Land Area (Acre) 24.3500 32.2300 10.3290
Density (Units/Acre) 12.3 7.8 13.6
Parking Ratio (Spaces/Unit) 1.49 N/A 1.66
Parking Type (Gr., Cov., etc.) Open Open Open
CONDITION: Good Good Good
APPEAL: Average Average Average
AMENITIES:
Pool/Spa Yes/No Yes/No Yes/No
Gym Room Yes Yes No
Laundry Room Yes No No
Secured Parking No No No
Sport Courts Yes Yes Yes
Washer/Dryer Connection No Yes Yes
OCCUPANCY: 95% 93% 99%
TRANSACTION DATA:
Sale Date October, 2002 July, 2000
Sale Price ($) $12,500,000 $4,350,000
Grantor Gray Property 1101, LLC Charan Industries
Grantee Colonial Court Apartments Cinnamon Ridge Apts.
Sale Documentation N/A Book 1665 Page 1147
Verification Area Appraiser Grantor
Telephone Number
ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF
- ------------------------------------------------------------------------------------------------------------------------------
Potential Gross Income $2,184,672 $ 8,739 $10.15 N/A
Vacancy/Credit Loss $ 174,774 $ 699 $ 0.81 N/A
--------------------------------------------------------------
Effective Gross Income $2,009,898 $ 8,040 $ 9.34 $795,827 $ 5,684 $6.73
Operating Expenses $ 800,000 $ 3,200 $ 3.72 $428,664 $ 3,062 $3.62
--------------------------------------------------------------
Net Operating Income $1,209,898 $ 4,840 $ 5.62 $367,163 $ 2,623 $3.10
- ------------------------------------------------------------------------------------------------------------------------------
NOTES:
PRICE PER UNIT $50,000 $31,071
PRICE PER SQUARE FOOT $ 58.09 $ 36.77
EXPENSE RATIO 39.8% 53.9%
EGIM 6.22 5.47
OVERALL CAP RATE 9.68% 8.44%
Cap Rate based on Pro Forma or Actual Income? ACTUAL PRO FORMA
COMPARABLE COMPARABLE
DESCRIPTION I - 3 I - 4
- --------------------------------------------------------------------------------------------------
Property Name Craig Manor Apartments Buck Run Apartments
LOCATION:
Address 128 Rutledge Drive 4689 Buck Run Square
City, State Salem, VA Roanoke, VA
County Roanoke Roanoke
PHYSICAL CHARATERISTICS:
Net Rentable Area (SF) 95,090 90,816
Year Built 1973 1990
Number of Units 108 96
Unit Mix: Type Total Type Total
1Br/1Ba 12 1Br/1Ba 13
2Br/1Ba 50 2Br/1Ba 35
2Br/2Ba 10 2Br/2Ba 36
3Bd/2Ba 36 3Bd/1.75Ba 12
Average Unit Size (SF) 880 946
Land Area (Acre) 5.5330 6.2400
Density (Units/Acre) 19.5 15.4
Parking Ratio (Spaces/Unit) N/A N/A
Parking Type (Gr., Cov., etc.) Open Open
CONDITION: Average Good
APPEAL: Average Average
AMENITIES:
Pool/Spa Yes/No Yes/No
Gym Room No No
Laundry Room Yes No
Secured Parking No No
Sport Courts No No
Washer/Dryer Connection Yes Yes
OCCUPANCY: 90% 94%
TRANSACTION DATA:
Sale Date November, 2000 March, 2002
Sale Price ($) $3,450,000 $4,300,000
Grantor United Dominion Realty Trust Timberline Condominium Assoc.
Grantee Craig Manor Assoc., LLC Sherwood Properties of VA
Sale Documentation Book 338 Page 337 N/A
Verification Area Appraiser Representative of Buyer
Telephone Number
ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF
- --------------------------------------------------------------------------------------------------
Potential Gross Income N/A $734,000 $ 7,646 $8.08
Vacancy/Credit Loss N/A $ 44,000 $ 458 $0.48
----------------------------------------------------------
Effective Gross Income $655,000 $ 6,065 $6.89 $690,000 $ 7,188 $7.60
Operating Expenses $340,000 $ 3,148 $3.58 $300,000 $ 3,125 $3.30
----------------------------------------------------------
Net Operating Income $315,000 $ 2,917 $3.31 $390,000 $ 4,063 $4.29
- --------------------------------------------------------------------------------------------------
NOTES:
PRICE PER UNIT $31,944 $44,792
PRICE PER SQUARE FOOT $ 36.28 $ 47.35
EXPENSE RATIO 51.9% 43.5%
EGIM 5.27 6.23
OVERALL CAP RATE 9.13% 9.07%
Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
IMPROVED SALES MAP
[MAP]
IMPROVED SALES ANALYSIS
The improved sales indicate a sales price range from $31,071 to $50,000 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 $31,786 to $42,328 per unit with a mean or average adjusted price
of $36,389 per unit. The median adjusted price is $35,721 per unit. Based on the
following analysis, we have concluded to a value of $38,000 per unit, which
results in an "as is" value of $11,400,000 (rounded after necessary adjustment,
if any).
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE
DESCRIPTION SUBJECT I - 1 I - 2
- ---------------------------------------------------------------------------------------------------------------------
Property Name Windsor Hills Apartments Summit @ Roanoke Cinnamon Ridge Apartments
Address Ascot Lane 4500 Franklin Way 5143 Overland Drive
City Blacksburg, Virginia Roanoke, VA Roanoke, VA
Sale Date October, 2002 July, 2000
Sale Price ($) $12,500,000 $4,350,000
Net Rentable Area (SF) 270,855 215,188 118,318
Number of Units 300 250 140
Price Per Unit $50,000 $31,071
Year Built 1970 1988 1976
Land Area (Acre) 24.3500 32.2300 10.3290
VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ.
Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0%
Financing Cash To Seller 0% Cash To Seller 0%
Conditions of Sale Arm's Length 0% Arm's Length 0%
Date of Sale (Time) October, 2002 3% July, 2000 10%
VALUE AFTER TRANS. ADJUST. ($/UNIT) $51,500 $34,179
Location Superior -5% Superior -5%
Number of Units 300 250 -3% 140 -7%
Quality / Appeal Good Superior -10% Comparable 0%
Age / Condition 1970 1988 / Good -5% 1976 / Good 0%
Occupancy at Sale 95% 93% 0% 99% 0%
Amenities Good Comparable 0% Inferior 5%
Average Unit Size (SF) 903 861 0% 845 0%
PHYSICAL ADJUSTMENT -23% -7%
FINAL ADJUSTED VALUE ($/UNIT) $39,655 $31,786
COMPARABLE COMPARABLE
DESCRIPTION I - 3 I - 4
- -------------------------------------------------------------------------------------------
Property Name Craig Manor Apartments Buck Run Apartments
Address 128 Rutledge Drive 4689 Buck Run Square
City Salem, VA Roanoke, VA
Sale Date November, 2000 March, 2002
Sale Price ($) $3,450,000 $4,300,000
Net Rentable Area (SF) 95,090 90,816
Number of Units 108 96
Price Per Unit $31,944 $44,792
Year Built 1973 1990
Land Area (Acre) 5.5330 6.2400
VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ.
Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0%
Financing Cash To Seller 0% Cash To Seller 0%
Conditions of Sale Arm's Length 0% Arm's Length 0%
Date of Sale (Time) November, 2000 7% March, 2002 5%
VALUE AFTER TRANS. ADJUST. ($/UNIT) $34,181 $47,031
Location Superior -5% Superior -5%
Number of Units 108 -10% 96 -10%
Quality / Appeal Comparable 0% Comparable 0%
Age / Condition 1973 / Average 0% 1990 / Good -5%
Occupancy at Sale 90% 3% 94% 0%
Amenities Inferior 5% Inferior 5%
Average Unit Size (SF) 880 0% 946 5%
PHYSICAL ADJUSTMENT -7% -10%
FINAL ADJUSTED VALUE ($/UNIT) $31,788 $42,328
SUMMARY
VALUE RANGE (PER UNIT) $31,786 TO $42,328
MEAN (PER UNIT) $36,389
MEDIAN (PER UNIT) $35,721
VALUE CONCLUSION (PER UNIT) $38,000
VALUE OF IMPROVEMENT & MAIN SITE $11,400,000
PV OF CONCESSIONS -$ 19,000
VALUE INDICATED BY SALES COMPARISON APPROACH $11,381,000
ROUNDED $11,400,000
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
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
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-1 250 $12,500,000 9.68% $1,209,898 $1,132,828 0.780 $ 39,013
$ 50,000 $ 4,840 $ 3,776
I-2 140 $ 4,350,000 8.44% $ 367,163 $1,132,828 1.440 $ 44,738
$ 31,071 $ 2,623 $ 3,776
I-3 108 $ 3,450,000 9.13% $ 315,000 $1,132,828 1.295 $ 41,357
$ 31,944 $ 2,917 $ 3,776
I-4 96 $ 4,300,000 9.07% $ 390,000 $1,132,828 0.929 $ 41,634
$ 44,792 $ 4,063 $ 3,776
PRICE/UNIT
Low High Average Median
$39,013 $44,738 $41,685 $41,496
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT
Estimated Price Per Unit $ 42,000
-----------
Number of Units 300
Value $12,600,000
PV of Concessions -$ 19,000
-----------
Value Based on NOI Analysis $12,581,000
Rounded $12,600,000
The adjusted sales indicate a range of value between $39,013 and $44,738 per
unit, with an average of $41,685 per unit. Based on the subject's competitive
position within the improved sales, a value of $42,000 per unit is estimated.
This indicates an "as is" market value of $12,600,000 (rounded after necessary
adjustment, if any) for the NOI Per Unit Analysis.
EFFECTIVE GROSS INCOME MULTIPLIER (EGIM) ANALYSIS
The effective gross income multiplier (EGIM) is derived by dividing the sales
price by the total effective gross income. The following table illustrates the
EGIMs for the comparable improved sales.
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 25
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
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-1 250 $12,500,000 $2,009,898 $ 800,000 39.80% 6.22
$ 50,000
I-2 140 $ 4,350,000 $ 795,827 $ 428,664 53.86% 5.47
$ 31,071 41.22%
I-3 108 $ 3,450,000 $ 655,000 $ 340,000 51.91% 5.27
$ 31,944
I-4 96 $ 4,300,000 $ 690,000 $ 300,000 43.48% 6.23
$ 44,792
EGIM
Low High Average Median
5.27 6.23 5.80 5.84
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES
Estimate EGIM 5.90
-----------
Subject EGI $ 2,029,292
Value $11,972,825
PV of Concessions -$ 19,000
-----------
Value Based on EGIM Analysis $11,953,825
Rounded $12,000,000
Value Per Unit $ 40,000
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 41.22% before reserves. The comparable sales
indicate a range of expense ratios from 39.80% to 53.86%, while their EGIMs
range from 5.27 to 6.23. Overall, we conclude to an EGIM of 5.90, which results
in an "as is" value estimate in the EGIM Analysis of $12,000,000.
SALES COMPARISON CONCLUSION
The three valuation methods in the Sales Comparison Approach are shown below.
The overall value via the Sales Comparison Approach is estimated at $12,000,000.
Price Per Unit $11,400,000
NOI Per Unit $12,600,000
EGIM Analysis $12,000,000
Sales Comparison Conclusion $12,000,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
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
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
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
- --------------------------------------------------
1A10 736 $ 502 $ 0.68 100.0%
1B10 836 $ 535 $ 0.64 89.0%
2A10 946 $ 602 $ 0.64 92.9%
2B10 1046 $ 619 $ 0.59 89.7%
3A15 1114 $ 715 $ 0.64 97.1%
3B15 1214 $ 811 $ 0.67 100.0%
EA10 481 $ 494 $ 1.03 100.0%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
RENT ANALYSIS
COMPARABLE RENTS
------------------------------------------------
R-1 R-2 R-3
------------------------------------------------
Terrace
Chasewood Oakbridge View
Downs Apartments Apartments
------------------------------------------------
SUBJECT SUBJECT COMPARISON TO SUBJECT
SUBJECT UNIT ACTUAL ASKING ------------------------------------------------
DESCRIPTION TYPE RENT RENT Slightly Superior Slightly Inferior Similar
- ----------------------------------------------------------------------------------------------------------
Monthly Rent 1A10 $ 502 $ 793 $ 505 $ 500 $ 545
Unit Area (SF) 736 736 571 500 600
Monthly Rent Per Sq. Ft. $ 0.68 $ 1.08 $ 0.88 $ 1.00 $0.91
-
Monthly Rent 1B10 $ 535 $ 798 $ 580
Unit Area (SF) 836 836 635
Monthly Rent Per Sq. Ft. $ 0.64 $ 0.95 $0.91
Monthly Rent 2A10 $ 602 $ 868 $ 610 $ 600 $ 640
Unit Area (SF) 946 946 846 650 678
Monthly Rent Per Sq. Ft. $ 0.64 $ 0.92 $ 0.72 $ 0.92 $0.94
Monthly Rent 2B10 $ 619 $ 973 $ 640 $ 675
Unit Area (SF) 1,046 1,046 660 725
Monthly Rent Per Sq. Ft. $ 0.59 $ 0.93 $ 0.97 $0.93
Monthly Rent 3A15 $ 715 $ 968 $ 765 $ 743
Unit Area (SF) 1 ,114 1,114 1,010 862
Monthly Rent Per Sq. Ft. $ 0.64 $ 0.87 $ 0.76 $0.86
Monthly Rent 3B15 $ 811 $ 1,055 $ 813
Unit Area (SF) 1,214 1,214 962
Monthly Rent Per Sq. Ft. $ 0.67 $ 0.87 $0.85
Monthly Rent EA10 $ 494 $ 360
Unit Area (SF) 481 481 302
Monthly Rent Per Sq. Ft. $ 1.03 $ 1.19
DESCRIPTION MIN MAX MEDIAN AVERAGE
- ---------------------------------------------------------
Monthly Rent $ 500 $ 545 $ 505 $ 517
Unit Area (SF) 500 600 571 557
Monthly Rent Per Sq. Ft. $ 0.88 $ 1.00 $ 0.91 $0.93
Monthly Rent $ 580 $ 580 $ 580 $ 580
Unit Area (SF) 635 635 635 635
Monthly Rent Per Sq. Ft. $ 0.91 $ 0.91 $ 0.91 $0.91
Monthly Rent $ 600 $ 640 $ 610 $ 617
Unit Area (SF) 650 846 678 725
Monthly Rent Per Sq. Ft. $ 0.72 $ 0.94 $ 0.92 $0.86
Monthly Rent $ 640 $ 675 $ 658 $ 658
Unit Area (SF) 660 725 693 693
Monthly Rent Per Sq. Ft. $ 0.93 $ 0.97 $ 0.95 $0.95
Monthly Rent $ 743 $ 765 $ 754 $ 754
Unit Area (SF) 862 1,010 936 936
Monthly Rent Per Sq. Ft. $ 0.76 $ 0.86 $ 0.81 $0.81
Monthly Rent $ 813 $ 813 $ 813 $ 813
Unit Area (SF) 962 962 962 962
Monthly Rent Per Sq. Ft. $ 0.85 $ 0.85 $ 0.85 $0.85
Monthly Rent $ 360 $ 360 $ 360 $ 360
Unit Area (SF) 302 302 302 302
Monthly Rent Per Sq. Ft. $ 1.19 $ 1.19 $ 1.19 $1.19
CONCLUDED MARKET RENTAL RATES AND TERMS
Based on this analysis above, the subject's concluded market rental rates and
gross rental income is calculated as follows:
GROSS RENTAL INCOME PROJECTION
Market Rent
Unit Area ----------------- Monthly Annual
Unit Type Number of Units (Sq. Ft.) Per Unit Per SF Income Income
- ------------------------------------------------------------------------------------
1A10 52 736 $ 490 $ 0.67 $ 25,480 $ 305,760
1B10 26 836 $ 520 $ 0.62 $ 13,520 $ 162,240
2A10 113 946 $ 590 $ 0.62 $ 66,670 $ 800,040
2B10 39 1,046 $ 600 $ 0.57 $ 23,400 $ 280,800
3A15 35 1,114 $ 700 $ 0.63 $ 24,500 $ 294,000
3B15 10 1,214 $ 790 $ 0.65 $ 7,900 $ 94,800
EA10 25 481 $ 480 $ 1.00 $ 12,000 $ 144,000
---------- ----------
Total $ 173,470 $2,081,640
========== ==========
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 29
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
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
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
SUMMARY OF HISTORICAL INCOME & EXPENSES
FISCAL YEAR 2000 FISCAL YEAR 2001 FISCAL YEAR 2002
---------------------- ---------------------- ----------------------
ACTUAL ACTUAL ACTUAL
---------------------- ---------------------- ----------------------
DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT
- ----------------------------------------------------------------------------------------------------------
Revenues
Rental Income $2,022,142 $ 6,740 $2,092,337 $ 6,974 $2,155,432 $ 7,185
Vacancy $ 106,224 $ 354 $ 121,996 $ 407 $ 194,861 $ 650
Credit Loss/Concessions $ 27,641 $ 92 $ 27,126 $ 90 $ 23,782 $ 79
------------------------------------------------------------------------
Subtotal $ 133,865 $ 446 $ 149,122 $ 497 $ 218,643 $ 729
Laundry Income $ 26,180 $ 87 $ 24,181 $ 81 $ 34,158 $ 114
Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Other Misc. Revenue $ 70,923 $ 236 $ 72,929 $ 243 $ 102,156 $ 341
------------------------------------------------------------------------
Subtotal Other Income $ 97,103 $ 324 $ 97,110 $ 324 $ 136,314 $ 454
------------------------------------------------------------------------
Effective Gross Income $1,985,380 $ 6,618 $2,040,325 $ 6,801 $2,073,103 $ 6,910
Operating Expenses
Taxes $ 91,900 $ 306 $ 98,391 $ 328 $ 105,877 $ 353
Insurance $ 15,459 $ 52 $ 18,325 $ 61 $ 30,182 $ 101
Utilities $ 122,416 $ 408 $ 142,840 $ 476 $ 130,902 $ 436
Repair & Maintenance $ 47,439 $ 158 $ 63,037 $ 210 $ 30,993 $ 103
Cleaning $ 73,525 $ 245 $ 78,497 $ 262 $ 81,245 $ 271
Landscaping $ 107,055 $ 357 $ 100,470 $ 335 $ 99,580 $ 332
Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Marketing & Leasing $ 12,299 $ 41 $ 14,226 $ 47 $ 14,763 $ 49
General Administrative $ 36,055 $ 120 $ 27,206 $ 91 $ 31,438 $ 105
Management $ 101,419 $ 338 $ 107,867 $ 360 $ 105,150 $ 351
Miscellaneous $ 186,787 $ 623 $ 237,390 $ 791 $ 228,052 $ 760
------------------------------------------------------------------------
Total Operating Expenses $ 794,354 $ 2,648 $ 888,249 $ 2,961 $ 858,182 $ 2,861
Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
------------------------------------------------------------------------
Net Income $1,191,026 $ 3,970 $1,152,076 $ 3,840 $1,214,921 $ 4,050
------------------------------------------------------------------------
FISCAL YEAR 2003 ANNUALIZED 2003
---------------------- ---------------------
MANAGEMENT BUDGET PROJECTION AAA PROJECTION
---------------------- --------------------- -----------------------------
DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT %
- ----------------------------------------------------------------------------------------------------------------
Revenues
Rental Income $2,196,812 $ 7,323 $2,175,484 $ 7,252 $2,081,640 $ 6,939 100.0%
Vacancy $ 187,753 $ 626 $ 151,724 $ 506 $ 156,123 $ 520 7.5%
Credit Loss/Concessions $ 25,758 $ 86 $ 24,884 $ 83 $ 31,225 $ 104 1.5%
------------------------------------------------------------------------------
Subtotal $ 213,511 $ 712 $ 176,608 $ 589 $ 187,348 $ 624 9.0%
Laundry Income $ 14,112 $ 47 $ 41,964 $ 140 $ 30,000 $ 100 1.4%
Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0%
Other Misc. Revenue $ 94,777 $ 316 $ 142,240 $ 474 $ 105,000 $ 350 5.0%
------------------------------------------------------------------------------
Subtotal Other Income $ 108,889 $ 363 $ 184,204 $ 614 $ 135,000 $ 450 6.5%
------------------------------------------------------------------------------
Effective Gross Income $2,092,190 $ 6,974 $2,183,080 $ 7,277 $2,029,292 $ 6,764 100.0%
Operating Expenses
Taxes $ 101,068 $ 337 $ 101,232 $ 337 $ 102,000 $ 340 5.0%
Insurance $ 34,103 $ 114 $ 32,596 $ 109 $ 33,000 $ 110 1.6%
Utilities $ 128,817 $ 429 $ 147,656 $ 492 $ 127,500 $ 425 6.3%
Repair & Maintenance $ 37,487 $ 125 $ 32,612 $ 109 $ 33,000 $ 110 1.6%
Cleaning $ 84,961 $ 283 $ 33,464 $ 112 $ 75,000 $ 250 3.7%
Landscaping $ 112,234 $ 374 $ 98,928 $ 330 $ 102,000 $ 340 5.0%
Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0%
Marketing & Leasing $ 15,165 $ 51 $ 22,292 $ 74 $ 15,000 $ 50 0.7%
General Administrative $ 30,044 $ 100 $ 31,292 $ 104 $ 30,000 $ 100 1.5%
Management $ 97,284 $ 324 $ 107,648 $ 359 $ 101,465 $ 338 5.0%
Miscellaneous $ 207,998 $ 693 $ 182,952 $ 610 $ 217,500 $ 725 10.7%
------------------------------------------------------------------------------
Total Operating Expenses $ 849,161 $ 2,831 $ 790,672 $ 2,636 $ 836,465 $ 2,788 41.2%
Reserves $ 0 $ 0 $ 0 $ 0 $ 60,000 $ 200 7.2%
------------------------------------------------------------------------------
Net Income $1,243,029 $ 4,143 $1,392,408 $ 4,641 $1,132,828 $ 3,776 55.8%
------------------------------------------------------------------------------
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 9% based on
the subject's historical performance, as well as the anticipated future market
conditions.
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 31
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
RESERVES FOR REPLACEMENT
"Reserves for replacements" is a contingency account allocated to the expenses
of the property to provide for replacement of short-lived items and for
unforeseen necessary capital expenditures. We have utilized the Korpacz Real
Estate Investor Survey of the national apartment market, which reports a range
of replacement reserves between $150 and $400 per unit. For purposes of this
analysis, we have included an allowance of $200 per unit for reserves for
replacement.
CAPITAL EXPENDITURES
Capital expenditures represent expenses for immediate repair or replacement of
items that have average to long lives. Based on our inspection of the property
as well as discussions with property management personnel, there are no major
items remaining in need of repair or replacement that would require an expense
beyond our reserves for replacement. Therefore an allowance of $200 per unit
should be satisfactory in our reserves for replacement to cover future capital
expenditures.
DISCOUNTED CASH FLOW ANALYSIS
As the subject is a multi-tenant income property, the Discounted Cash Flow
Method is considered appropriate. This method is especially meaningful in that
it isolates the timing of the annual cash flows and discounts them, along with
the expected equity reversion, to a present value. The present value of the cash
flow is added to the present value of the reversion, resulting in a total
property value.
INVESTMENT CRITERIA
Appropriate investment criteria will be derived for the subject based upon
analysis of comparable sales and a survey of real estate investors. The
following table summarizes the findings of Korpacz National Investor Survey for
the most recent period.
KORPACZ NATIONAL INVESTOR SURVEY
1ST QUARTER 2003
NATIONAL APARTMENT MARKET
CAPITALIZATION RATES
------------------------------------------------
GOING-IN TERMINAL
------------------------------------------------
LOW HIGH LOW HIGH
- ------------------------------------------------------------
RANGE 6.00% 10.00% 7.00% 10.00%
AVERAGE 8.14% 8.47%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
SUMMARY OF OVERALL
CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR
- --------------------------------------------------------
I-1 October, 2002 93% $ 50,000 9.68%
I-2 July, 2000 99% $ 31,071 8.44%
I-3 November, 2000 90% $ 31,944 9.13%
I-4 March, 2002 94% $ 44,792 9.07%
I-5 Jan-00 0% N/A
----------------
High 9.68%
----------------
Low 8.44%
----------------
Average 9.08%
Based on this information, we have concluded the subject's overall
capitalization rate should be 9.00%. The terminal capitalization rate is applied
to the net operating income estimated for the year following the end of the
holding period. Based on the concluded overall capitalization rate, the age of
the property and the surveyed information, we have concluded the subject's
terminal capitalization rate to be 9.50%. Finally, the subject's discount rate
or yield rate is estimated based on the previous investor survey and an
examination of returns available on alternative investments in the market. Based
on this analysis, the subject's discount rate is estimated to be 11.50%.
HOLDING PERIOD
The survey of investors indicates that most investors are completing either
10-year cash flows or extending the analysis to the end of the lease if it is
more than 10-years. A 10-year period has been used in the analysis of the
subject with the eleventh year stabilized NOI used to determine the reversion.
SELLING COSTS
Sales of similar size properties are typically accomplished with the aid of a
broker and will also incur legal and other transaction related cost. Based on
our survey of brokers and a review of institutional investor projections, an
allowance of 2.00% of the sale amount is applied.
DISCOUNTED CASH FLOW CONCLUSION
Discounting the annual cash flows and the equity reversion at the selected rate
of 11.50% indicates a value of $13,000,000. In this instance, the reversion
figure contributes
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 33
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
approximately 41% 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
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
DISCOUNTED CASH FLOW ANALYSIS
WINDSOR HILLS APARTMENTS
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009
FISCAL YEAR 1 2 3 4 5 6
- ------------------------------------------------------------------------------------------------------------------------
REVENUE
Base Rent $2,081,640 $2,144,089 $2,208,412 $2,274,664 $2,342,904 $2,413,191
Vacancy $ 156,123 $ 160,807 $ 165,631 $ 170,600 $ 175,718 $ 180,989
Credit Loss $ 31,225 $ 32,161 $ 33,126 $ 34,120 $ 35,144 $ 36,198
Concessions $ 20,816 $ 0 $ 0 $ 0 $ 0 $ 0
--------------------------------------------------------------------------------
Subtotal $ 208,164 $ 192,968 $ 198,757 $ 204,720 $ 210,861 $ 217,187
Laundry Income $ 30,000 $ 30,900 $ 31,827 $ 32,782 $ 33,765 $ 34,778
Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Other Misc. Revenue $ 105,000 $ 108,150 $ 111,395 $ 114,736 $ 118,178 $ 121,724
--------------------------------------------------------------------------------
Subtotal Other Income $ 135,000 $ 139,050 $ 143,222 $ 147,518 $ 151,944 $ 156,502
--------------------------------------------------------------------------------
EFFECTIVE GROSS INCOME $2,008,476 $2,090,171 $2,152,876 $2,217,463 $2,283,986 $2,352,506
OPERATING EXPENSES:
Taxes $ 102,000 $ 105,060 $ 108,212 $ 111,458 $ 114,802 $ 118,246
Insurance $ 33,000 $ 33,990 $ 35,010 $ 36,060 $ 37,142 $ 38,256
Utilities $ 127,500 $ 131,325 $ 135,265 $ 139,323 $ 143,502 $ 147,807
Repair & Maintenance $ 33,000 $ 33,990 $ 35,010 $ 36,060 $ 37,142 $ 38,256
Cleaning $ 75,000 $ 77,250 $ 79,568 $ 81,955 $ 84,413 $ 86,946
Landscaping $ 102,000 $ 105,060 $ 108,212 $ 111,458 $ 114,802 $ 118,246
Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Marketing & Leasing $ 15,000 $ 15,450 $ 15,914 $ 16,391 $ 16,883 $ 17,389
General Administrative $ 30,000 $ 30,900 $ 31,827 $ 32,782 $ 33,765 $ 34,778
Management $ 100,424 $ 104,509 $ 107,644 $ 110,873 $ 114,199 $ 117,625
Miscellaneous $ 217,500 $ 224,025 $ 230,746 $ 237,668 $ 244,798 $ 252,142
--------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES $ 835,424 $ 861,559 $ 887,405 $ 914,027 $ 941,448 $ 969,692
Reserves $ 60,000 $ 61,800 $ 63,654 $ 65,564 $ 67,531 $ 69,556
--------------------------------------------------------------------------------
NET OPERATING INCOME $1,113,052 $1,166,813 $1,201,817 $1,237,872 $1,275,008 $1,313,258
Operating Expense Ratio (% of EGI) 41.6% 41.2% 41.2% 41.2% 41.2% 41.2%
Operating Expense Per Unit $ 2,785 $ 2,872 $ 2,958 $ 3,047 $ 3,138 $ 3,232
YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014
FISCAL YEAR 7 8 9 10 11
- ----------------------------------------------------------------------------------------------------------
REVENUE
Base Rent $2,485,587 $2,560,155 $2,636,959 $2,716,068 $2,797,550
Vacancy $ 186,419 $ 192,012 $ 197,772 $ 203,705 $ 209,816
Credit Loss $ 37,284 $ 38,402 $ 39,554 $ 40,741 $ 41,963
Concessions $ 0 $ 0 $ 0 $ 0 $ 0
------------------------------------------------------------------
Subtotal $ 223,703 $ 230,414 $ 237,326 $ 244,446 $ 251,780
Laundry Income $ 35,822 $ 36,896 $ 38,003 $ 39,143 $ 40,317
Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0
Other Misc. Revenue $ 125,375 $ 129,137 $ 133,011 $ 137,001 $ 141,111
------------------------------------------------------------------
Subtotal Other Income $ 161,197 $ 166,033 $ 171,014 $ 176,144 $ 181,429
------------------------------------------------------------------
EFFECTIVE GROSS INCOME $2,423,081 $2,495,774 $2,570,647 $2,647,766 $2,727,199
OPERATING EXPENSES:
Taxes $ 121,793 $ 125,447 $ 129,211 $ 133,087 $ 137,079
Insurance $ 39,404 $ 40,586 $ 41,803 $ 43,058 $ 44,349
Utilities $ 152,242 $ 156,809 $ 161,513 $ 166,359 $ 171,349
Repair & Maintenance $ 39,404 $ 40,586 $ 41,803 $ 43,058 $ 44,349
Cleaning $ 89,554 $ 92,241 $ 95,008 $ 97,858 $ 100,794
Landscaping $ 121,793 $ 125,447 $ 129,211 $ 133,087 $ 137,079
Security $ 0 $ 0 $ 0 $ 0 $ 0
Marketing & Leasing $ 17,911 $ 18,448 $ 19,002 $ 19,572 $ 20,159
General Administrative $ 35,822 $ 36,896 $ 38,003 $ 39,143 $ 40,317
Management $ 121,154 $ 124,789 $ 128,532 $ 132,388 $ 136,360
Miscellaneous $ 259,706 $ 267,498 $ 275,522 $ 283,788 $ 292,302
------------------------------------------------------------------
TOTAL OPERATING EXPENSES $ 998,783 $1,028,746 $1,059,608 $1,091,397 $1,124,139
Reserves $ 71,643 $ 73,792 $ 76,006 $ 78,286 $ 80,635
------------------------------------------------------------------
NET OPERATING INCOME $1,352,656 $1,393,235 $1,435,032 $1,478,083 $1,522,426
Operating Expense Ratio (% of EGI) 41.2% 41.2% 41.2% 41.2% 41.2%
Operating Expense Per Unit $ 3,329 $ 3,429 $ 3,532 $ 3,638 $ 3,747
Gross Residual Sale Price $16,025,535 Deferred
Maintenance $ 0
Estimated Stabilized NOI $1,132,828 Sales Expense Rate 2.00% Less: Sales Expense $ 320,511 Add: Excess Land $ 0
-----------
Months to Stabilized 1 Discount Rate 11.50% Net Residual Sale Price $15,705,024 Other Adjustments $ 0
-----------
Stabilized Occupancy 92.5% Terminal Cap Rate 9.50% PV of Reversion $ 5,287,982 Value Indicated By $13,026,660
"DCF"
Add: NPV of NOI $ 7,738,679
-----------
PV Total $13,026,660 Rounded $13,000,000
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE
-------------------------------------------------------------------
TOTAL VALUE 11.00% 11.25% 11.50% 11.75% 12.00%
- ------------------------------------------------------------------------------------------------
TERMINAL CAP RATE 9.00% $13,761,735 $13,538,662 $13,320,437 $13,106,940 $12,898,051
9.25% $13,603,941 $13,384,379 $13,169,579 $12,959,422 $12,753,793
9.50% $13,454,453 $13,238,216 $13,026,660 $12,819,669 $12,617,129
9.75% $13,312,631 $13,099,549 $12,891,071 $12,687,083 $12,487,472
10.00% $13,177,900 $12,967,815 $12,762,261 $12,561,126 $12,364,299
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 35
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
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
$19,000 (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 9.00% percent is applicable to the
subject. The results of our direct capitalization analysis are as follows:
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 36
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
WINDSOR HILLS APARTMENTS
TOTAL PER SQ. FT. PER UNIT %OF EGI
- -----------------------------------------------------------------------------------------------------
REVENUE
Base Rent $ 2,081,640 $ 7.69 $ 6,939
Less: Vacancy & Collection Loss 9.00% $ 187,348 $ 0.69 $ 624
Plus: Other Income
Laundry Income $ 30,000 $ 0.11 $ 100 1.48%
Garage Revenue $ 0 $ 0.00 $ 0 0.00%
Other Misc. Revenue $ 105,000 $ 0.39 $ 350 5.17%
----------------------------------------------------
Subtotal Other Income $ 135,000 $ 0.50 $ 450 6.65%
EFFECTIVE GROSS INCOME $ 2,029,292 $ 7.49 $ 6,764
OPERATING EXPENSES:
Taxes $ 102,000 $ 0.38 $ 340 5.03%
Insurance $ 33,000 $ 0.12 $ 110 1.63%
Utilities $ 127,500 $ 0.47 $ 425 6.28%
Repair & Maintenance $ 33,000 $ 0.12 $ 110 1.63%
Cleaning $ 75,000 $ 0.28 $ 250 3.70%
Landscaping $ 102,000 $ 0.38 $ 340 5.03%
Security $ 0 $ 0.00 $ 0 0.00%
Marketing & Leasing $ 15,000 $ 0.06 $ 50 0.74%
General Administrative $ 30,000 $ 0.11 $ 100 1.48%
Management 5.00% $ 101,465 $ 0.37 $ 338 5.00%
Miscellaneous $ 217,500 $ 0.80 $ 725 10.72%
TOTAL OPERATING EXPENSES $ 836,465 $ 3.09 $ 2,788 41.22%
Reserves $ 60,000 $ 0.22 $ 200 2.96%
----------------------------------------------------
NET OPERATING INCOME $ 1,132,828 $ 4.18 $ 3,776 55.82%
"GOING IN" CAPITALIZATION RATE 9.00%
VALUE INDICATION $ 12,586,975 $ 46.47 $ 41,957
PV OF CONCESSIONS ($ 19,000)
"AS IS" VALUE INDICATION
(DIRECT CAPITALIZATION APPROACH) $ 12,567,975
ROUNDED $ 12,600,000 $ 46.52 $ 42,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 37
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF
- -----------------------------------------------------------
8.25% $13,712,246 $13,700,000 $45,667 $50.58
8.50% $13,308,386 $13,300,000 $44,333 $49.10
8.75% $12,927,603 $12,900,000 $43,000 $47.63
9.00% $12,567,975 $12,600,000 $42,000 $46.52
9.25% $12,227,787 $12,200,000 $40,667 $45.04
9.50% $11,905,503 $11,900,000 $39,667 $43.93
9.75% $11,599,746 $11,600,000 $38,667 $42.83
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD
Applying the capitalization rate to our estimated NOI results in an estimated
value of $12,600,000.
CORRELATION AND CONCLUSION BY THE INCOME APPROACH
The two methods used to estimate the market value of the subject property by the
income approach resulted in the following indications of value:
Discounted Cash Flow Analysis $13,000,000
Direct Capitalization Method $12,600,000
Giving consideration to the indicated values provided by both techniques, we
have concluded the estimated value by the income capitalization approach to be
$12,800,000.
AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 38
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
RECONCILIATION AND CONCLUSION
This appraisal was made to express an opinion as of the Market Value of the fee
simple estate in the property.
AS IS MARKET VALUE OF THE FEE SIMPLE ESTATE
Cost Approach Not Utilized
Sales Comparison Approach $12,000,000
Income Approach $12,800,000
Reconciled Value $12,800,000
The Direct Capitalization Method is considered a reliable indicator of value.
Income and expenses were estimated and projected based on historical operating
statements and market oriented expenses. This method is primarily used by
investors in their underwriting analysis. Furthermore, there was good support
for an overall rate in the Direct Capitalization Method.
The Sales Comparison Approach to value supported the value conclusion by the
Income Approach and was given secondary consideration. Investment-grade,
income-producing properties such as the subject are not typically traded based
on cost. Therefore, the Cost Approach has not been considered in our valuation.
FINAL VALUE - FEE SIMPLE ESTATE
Based on the investigation and premise outlined, it is our opinion that as of
May 12, 2003 the market value of the fee simple estate in the property is:
$12,800,000
AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
ADDENDA
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
EXHIBIT A
SUBJECT PHOTOGRAPHS
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
SUBJECT PHOTOGRAPHS
[EXTERIOR - APARTMENT BUILDING PICTURE]
[EXTERIOR - LANDSCAPE, APT. BUILDING & PARKING PICTURE]
[EXTERIOR - INTERIOR ROADWAY PICTURE]
[EXTERIOR - LANDSCAPING AND APRTMENT PICTURE]
[EXTERIOR - CAR WASH AREA]
[EXTERIOR - POOL AND BUSINESS OFFICE PICTURE]
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
SUBJECT PHOTOGRAPHS
[INTERIOR - LIVING ROOM PICTURE] [INTERIOR - KITCHEN PICTURE]
[INTERIOR - BEDROOM PICTURE] [INTERIOR -FITNESS CENTER PICTURE]
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
EXHIBIT B
SUMMARY OF RENT COMPARABLES
AND PHOTOGRAPH OF COMPARABLES
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES
COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3
SUMMIT @ ROANOKE CINNAMON RIDGE APARTMENTS CRAIG MANOR APARTMENTS
4500 Franklin Way 5143 Overland Drive 128 Rutledge Drive
Roanoke, VA Roanoke, VA Salem, VA
[PICTURE] [PICTURE] [PICTURE]
COMPARABLE I-4
BUCK RUN APARTMENTS
4689 Buck Run Square
Roanoke, VA
[PICTURE]
N/A N/A
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
COMPARABLE
DESCRIPTION SUBJECT R - 1
- ------------------------------------------------------------------------------------------------------------------------------------
Property Name Windsor Hills Apartments Chasewood Downs
Management Company Aimco Chase Mgmt.
LOCATION:
Address Ascot Lane 706 Appalachian Drive
City, State Blacksburg, Virginia Blacksburg, VA
County Montgomery Montgomery
Proximity to Subject 2 miles west of the subject
PHYSICAL CHARATERISTICS:
Net Rentable Area (SF) 270,855 174,078
Year Built 1970 1966
Effective Age 20 23
Building Structure Type Brick walls; asphalt shingle roof Brick veneer; asphalt shingle roof
Parking Type (Gr., Cov., etc.) Open Open
Number of Units 300 276
Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo.
1 1A10 736 52 $502 1 1Bd/1Ba 571 72 $505
2 1B10 836 26 $535 3 2Bd/1Ba 846 180 $610
3 2A10 946 113 $602 5 3Bd/2Ba 1,010 18 $765
4 2B10 1,046 39 $619 7 Efficiency 302 6 $360
5 3A15 1,114 35 $715
6 3B15 1,214 10 $811
7 EA10 481 25 $494
Average Unit Size (SF) 903 773
Unit Breakdown: Efficiency 8% 2-Bedroom 51% Efficiency 2% 2-Bedroom 65%
1-Bedroom 26% 3-Bedroom 15% 1-Bedroom 26% 3-Bedroom 7%
CONDITION: Good Good
APPEAL: Average Good
AMENITIES:
Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling
X Balcony X Balcony
Fireplace Fireplace
X Cable TV Ready X Cable TV Ready
Project Amenities X Swimming Pool X Swimming Pool
Spa/Jacuzzi X Car Wash Spa/Jacuzzi Car Wash
Basketball Court X BBQ Equipment X Basketball Court BBQ Equipment
Volleyball Court Theater Room X Volleyball Court Theater Room
X Sand Volley Ball X Meeting Hall Sand Volley Ball Meeting Hall
Tennis Court Secured Parking Tennis Court Secured Parking
Racquet Ball X Laundry Room Racquet Ball X Laundry Room
Jogging Track X Business Office Jogging Track X Business Office
X Gym Room Gym Room
OCCUPANCY: 95% 95%
LEASING DATA:
Available Leasing Terms 10 to 12 months 12 months
Concessions 1 bdrm/den & 2 bdrm/den at reduced rent Negotiable
Pet Deposit $150 plus $25/month $200 plus $15/month
Utilities Paid by Tenant: X Electric Natural Gas Electric Natural Gas
X Water X Trash X Water X Trash
Confirmation May 12, 2003; Eric - Property Manager May 12 2003; Property Manager
Telephone Number (540) 552-1515 (540) 552-3122
NOTES:
Slightly Superior
COMPARISON TO SUBJECT:
COMPARABLE COMPARABLE
DESCRIPTION R - 2 R - 3
- ------------------------------------------------------------------------------------------------------------------------------------
Property Name Oakbridge Apartments Terrace View Apartments
Management Company Chase Mgmt. Stonemark
LOCATION:
Address 829 Orchard Street 6800 Terrace View
City, State Blacksburg, VA Blacksburg, VA
County Montgomery Montgomery
Proximity to Subject 2 miles west of the subject 2 miles west of subject
PHYSICAL CHARATERISTICS:
Net Rentable Area (SF) 123,490 713,920
Year Built 1964 1975-1992
Effective Age 25 15
Building Structure Type Brick and wood walls; asphalt shingle roof Brick veneer, shingle roof
Parking Type (Gr., Cov., etc.) Open Open
Number of Units 198 808
Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo.
1 1Bd/1Ba 500 35 $500 1 1Bd/1Ba 600 174 $545
3 2Bd/1Ba 650 159 $600 2 1Bd/1Ba 635 55 $580
4 2Bd/1Ba 660 4 $640 3 2Bd/1Ba 678 332 $640
4 2Bd/1Ba 725 54 $675
5 3Bd/2Ba 862 162 $743
6 3Bd/2Ba 962 31 $813
Average Unit Size (SF) 624 709
Unit Breakdown: Efficiency 0% 2-Bedroom 82% Efficiency 0% 2-Bedroom 48%
1-Bedroom 18% 3-Bedroom 0% 1-Bedroom 28% 3-Bedroom 24%
CONDITION: Good Good
APPEAL: Average Good
AMENITIES:
Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling
Balcony Balcony X
Fireplace Fireplace
X Cable TV Ready X Cable TV Ready
Project Amenities X Swimming Pool X Swimming Pool
Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash
X Basketball Court BBQ Equipment X Basketball Court BBQ Equipment
X Volleyball Court Theater Room X Volleyball Court Theater Room
Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall
Tennis Court Secured Parking Tennis Court Secured Parking
Racquet Ball X Laundry Room Racquet Ball X Laundry Room
Jogging Track X Business Office Jogging Track X Business Office
Gym Room Gym Room
OCCUPANCY: 100% 95%
LEASING DATA:
Available Leasing Terms 12 months 12 months
Concessions None Reduced rents on vacants
Pet Deposit $200 plus $15/month $200 plus $20/month
Utilities Paid by Tenant: Electric Natural Gas Electric Natural Gas
X Water X Trash X Water X Trash
Confirmation May 12 2003; Property Manager May 12 2003; Property Contact
Telephone Number (540) 552-4001 (540) 552-2996
NOTES:
Slightly Inferior Similar
COMPARISON TO SUBJECT:
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES
COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3
CHASEWOOD DOWNS OAKBRIDGE APARTMENTS TERRACE VIEW APARTMENTS
706 Appalachian Drive 829 Orchard Street 6800 Terrace View
Blacksburg, VA Blacksburg, VA Blacksburg, VA
[PICTURE] [PICTURE] [PICTURE]
[PICTURE] [PICTURE]
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
EXHIBIT C
ASSUMPTIONS AND LIMITING CONDITIONS
(3 PAGES)
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
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
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
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
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
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
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
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. Brian Johnson, MAI
and Jonathan Hackerman 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
Virginia Temporary Certified General Real
Estate Appraiser #4001 007252
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
EXHIBIT E
QUALIFICATIONS OF APPRAISER
(2 PAGES)
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
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
STATE State of Arizona
CERTIFICATIONS 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
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
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 Valuation," Co-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.
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
GENERAL SERVICE CONDITIONS
AMERICAN APPRAISAL ASSOCIATES, INC.
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
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.