THE DUNES APARTMENT HOMES
201 HARBOUR CITY PARKWAY
INDIAN HARBOUR BEACH, FLORIDA
MARKET VALUE -
FEE SIMPLE ESTATE
AS OF DECEMBER 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) LETTERHEAD]
DECEMBER 23, 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: THE DUNES APARTMENT HOMES
201 HARBOUR CITY PARKWAY
INDIAN HARBOUR BEACH, BREVARD COUNTY, FLORIDA
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 200 units with a
total of 171,654 square feet of rentable area. The improvements were built in
1964. The improvements are situated on 7.09 acres. Overall, the improvements are
in average condition. As of the date of this appraisal, the subject property is
94% 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
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
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 December 12, 2003 is:
($6,800,000)
Respectfully submitted,
AMERICAN APPRAISAL ASSOCIATES, INC.
/s/ Edward Zenkovich
December 23, 2003 Edward Zenkovich, ASA
#053272 Managing Principal, Real Estate Group
State of Florida, Certified General
Appraiser, #0001259
Assisted By:
Kim Cook
AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
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.............................................................. 15
Improvement Analysis ...................................................... 15
Highest and Best Use ...................................................... 16
VALUATION
Valuation Procedure........................................................ 17
Sales Comparison Approach.................................................. 19
Income Capitalization Approach ............................................ 25
Reconciliation and Conclusion ............................................. 36
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
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
EXECUTIVE SUMMARY
PART ONE - PROPERTY DESCRIPTION
PROPERTY NAME: The Dunes Apartment Homes
LOCATION: 201 Harbour City Parkway
Indian Harbour Beach, Florida
INTENDED USE OF ASSIGNMENT: Court Settlement
PURPOSE OF APPRAISAL: "As Is" Market Value of the Fee Simple Estate
INTEREST APPRAISED: Fee Simple
DATE OF VALUE: December 12, 2003
DATE OF REPORT: December 23, 2003
PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS:
SITE:
Size: 7.09 acres, or 308,840 square feet
Assessor Parcel No.: 27-37-14-01-00003
Floodplain: Community Panel No. 12009C 0464E (April 1, 2001)
Flood Zone X, an area outside the floodplain.
Zoning: R-3 (Multifamily)
BUILDING:
No. of Units: 200 Units
Total NRA: 171,654 Square Feet
Average Unit Size: 858 Square Feet
Apartment Density: 28.2 units per acre
Year Built: 1964
UNIT MIX AND MARKET RENT:
GROSS RENTAL INCOME PROJECTION
Market Rent
Square ----------------- Monthly Annual
Unit Type Feet Per Unit Per SF Income Income
- ----------------------------------------------------------------------
1Bdrm/1Ba-1A10 669 $ 530 $ 0.79 $ 44,520 $ 534,240
2Bdrm/1Ba-2A10 938 $ 650 $ 0.69 $ 52,650 $ 631,800
2Bdrm/1.5Ba-2A150 968 $ 675 $ 0.70 $ 4,725 $ 56,700
3Bdrm/2Ba - 3A20 1,168 $ 750 $ 0.64 $ 21,000 $ 252,000
-------- ----------
Total $122,895 $1,474,740
======== ==========
OCCUPANCY: 94%
ECONOMIC LIFE: 45 Years
EFFECTIVE AGE: 20 Years
REMAINING ECONOMIC LIFE: 25 Years
SUBJECT PHOTOGRAPHS AND LOCATION MAP:
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
SUBJECT PHOTOGRAPHS
[PICTURE] [PICTURE]
EXTERIOR - APARTMENT BUILDING - EXTERIOR - APARTMENT BUILDING
LEASING OFFICE
AREA MAP
[MAP]
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
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
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
PART TWO - ECONOMIC INDICATORS
INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION Amount $/Unit
--------------------- ------ ------
Potential Rental Income $1,474,740 $7,374
Effective Gross Income $1,461,761 $7,309
Operating Expenses $795,288 $3,976 54.4% of EGI
Net Operating Income: $616,473 $3,082
Capitalization Rate 9.00%
DIRECT CAPITALIZATION VALUE $6,800,000 * $34,000 / UNIT
DISCOUNTED CASH FLOW ANALYSIS:
Holding Period 10 years
2002 Economic Vacancy 11%
Stabilized Vacancy & Collection Loss: 8%
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 $6,800,000 * $34,000 / UNIT
RECONCILED INCOME CAPITALIZATION VALUE $6,800,000 $34,000 / UNIT
SALES COMPARISON APPROACH
PRICE PER UNIT:
Range of Sales $/Unit (Unadjusted) $21,749 to $32,787
Range of Sales $/Unit (Adjusted) $26,950 to $40,984
VALUE INDICATION - PRICE PER UNIT $6,600,000 * $33,000 / UNIT
EGIM ANALYSIS
Range of EGIMs from Improved Sales 4.42 to 5.58
Selected EGIM for Subject 4.75
Subject's Projected EGI $1,461,761
EGIM ANALYSIS CONCLUSION $6,900,000 * $34,500 / UNIT
NOI PER UNIT ANALYSIS CONCLUSION $6,800,000 * $34,000 / UNIT
RECONCILED SALES COMPARISON VALUE $6,700,000 $33,500 / 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
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
PART THREE - SUMMARY OF VALUE CONCLUSIONS
SALES COMPARISON APPROACH:
Price Per Unit $ 6,600,000
NOI Per Unit $ 6,800,000
EGIM Multiplier $ 6,900,000
INDICATED VALUE BY SALES COMPARISON $ 6,700,000 $33,500 / UNIT
INCOME APPROACH:
Direct Capitalization Method: $ 6,800,000
Discounted Cash Flow Method: $ 6,800,000
INDICATED VALUE BY THE INCOME APPROACH $ 6,800,000 $34,000 / UNIT
RECONCILED OVERALL VALUE CONCLUSION: $ 6,800,000 $34,000 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
INTRODUCTION
IDENTIFICATION OF THE SUBJECT
The subject property is located at 201 Harbour City Parkway, Indian Harbour
Beach, Brevard County, Florida. Indian Harbour Beach identifies it as
27-37-14-01-00003.
SCOPE OF THE ASSIGNMENT
The property, neighborhood, and comparables were inspected by Kim Cook on
December 12, 2003. Edward Zenkovich, ASA has not made a personal inspection of
the subject property. Kim Cook assisted Edward Zenkovich, ASA in the research,
valuation analysis and writing the report. Both, Edward Zenkovich, ASA and Kim
Cook 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 December 12, 2003.
The date of the report is December 23, 2003.
PURPOSE AND USE OF APPRAISAL
The purpose of the appraisal is to estimate the market value of the fee simple
interest in the subject property. It is understood that the appraisal is
intended to assist the clients in litigation settlement proceedings. The
appraisal was not based on a requested minimum valuation, a specific valuation,
or the approval of a loan.
PROPERTY RIGHTS APPRAISED
We have appraised the Fee Simple Estate in the subject property (as applied in
the Sales & Income Approaches), subject to the existing short-term leases. A Fee
Simple Estate is defined in The Dictionary of Real Estate Appraisal, 3rd ed.
(Chicago: Appraisal Institute,
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 10
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
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 Consolidated Capital
Equity Partners. 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
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
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 Indian Harbour Beach, Florida. Overall, the
neighborhood is characterized as a suburban setting with the predominant land
use being commercial retail. The subject's neighborhood is generally defined by
the following boundaries.
NEIGHBORHOOD BOUNDARIES
East - SR A1A
West - Patrick Drive (State Road 513)
South - Eau Gallie Boulevard (State Road 518)
North - State Road 3 (Banana River Drive)
MAJOR EMPLOYERS
Major employers in the subject's area include School Board of Brevard County,
United Space Alliance, Health First, Patrick Air Force Base, Harris Corporation,
Space Gateway Support, Publix, Brevard County Board of County Commissioners,
Wal-Mart, Wuesthoff Health Systems. 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
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
NEIGHBORHOOD DEMOGRAPHICS
AREA
------------------------------------------------
CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA
- -------------------------------------------------------------------------------------------------------
POPULATION TRENDS
Current Population 24,426 121,187 230,503 1,721,904
5-Year Population 26,001 129,066 245,725 1,921,950
% Change CY-5Y 6.4% 6.5% 6.6% 11.6%
Annual Change CY-5Y 1.3% 1.3% 1.3% 2.3%
HOUSEHOLDS
Current Households 10,125 48,206 94,791 655,258
5-Year Projected Households 10,754 51,041 100,505 731,362
% Change CY - 5Y 6.2% 5.9% 6.0% 11.6%
Annual Change CY-5Y 1.2% 1.2% 1.2% 2.3%
INCOME TRENDS
Median Household Income $ 32,016 $ 35,441 $ 37,406 $ 40,114
Per Capita Income $ 17,041 $ 18,768 $ 21,478 $ 21,799
Average Household Income $ 41,464 $ 47,148 $ 52,290 $ 57,283
Source: Demographics Now
The subject neighborhood's population is expected to show increases below that
of the region. The immediate market offers inferior income levels as compared to
the broader market.
The following table illustrates the housing statistics in the subject's
immediate area, as well as the MSA region.
HOUSING TRENDS
AREA
------------------------------------------------
CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA
- -------------------------------------------------------------------------------------------------------
HOUSING TRENDS
% of Households Renting 48.44% 39.16% 39.13% 30.55%
5-Year Projected % Renting 47.20% 38.67% 38.65% 30.11%
% of Households Owning 39.21% 52.00% 53.05% 60.90%
5-Year Projected % Owning 40.51% 52.59% 53.74% 61.87%
Source: Demographics Now
AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
SURROUNDING IMPROVEMENTS
The following uses surround the subject property:
North - Residential
South - Commercial
East - Residential/Commercial and a vacant tract
West - Residential/Commercial
CONCLUSIONS
The subject is well located within the city of Indian Harbour Beach. 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
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
MARKET ANALYSIS
The subject property is located in the city of Indian Harbour Beach in Brevard
County. The overall pace of development in the subject's market is more or less
stable. There has been no new construction in the subject's immediate market in
the last three years. In the larger market area, delivery of new units has
declined from 4,700 units in 2003 to 2,500 units for 2004. The following table
illustrates historical vacancy rates for the subject's market.
HISTORICAL VACANCY RATE
Period Region Submarket
- ------------------------------------------------------
YE 2002 8.9% N/A
YE 2003 9.4% N/A
2004 (Estimate) 9.0% N/A
Source: Marcus and Millichap Apartment Research Report
Occupancy trends in the subject's market are stable. As vacancies are declining
in this market, the frequency of concessions should decline.
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
- ---------------------------------------------------------------------------------
YE 2002 $740 - N/A -
YE 2003 $750 1.4% N/A -
2004 (Est) $765 2.0% N/A -
Source: Marcus and Millichap, Apartment Research Report
The following table illustrates a summary of the subject's competitive set.
COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject
- --------------------------------------------------------------------------------------------------------------
R-1 Shore View 135 97% 1962 5 miles N of the subject
R-2 Brittany Apartments Unk. 95% 1982 0.5 miles east of the subject
R-3 Rivercrest Apartments Unk. 98% 1985 4.5 miles NW of the subject
Subject The Dunes Apartment Homes 200 94% 1964
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 15
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
PROPERTY DESCRIPTION
SITE ANALYSIS
Site Area 7.09 acres, or 308,840 square feet
Shape Generally rectangular
Topography Level
Utilities All necessary utilities are available to the site.
Soil Conditions Stable
Easements Affecting Site None other than typical utility easements
Overall Site Appeal Good
Flood Zone:
Community Panel 12009C 0464E, dated April 1, 2001
Flood Zone Zone X
Zoning R-3, 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
- -----------------------------------------------------------------------------------------------
27-37-14-01- $1,000,000 $4,800,000 $5,800,000 0.02441 $141,572
00003
IMPROVEMENT ANALYSIS
Year Built 1964
Number of Units 200
Net Rentable Area 171,654 Square Feet
Construction:
Foundation Reinforced concrete slab
Frame Reinforced brick or masonry
Exterior Walls Concrete block
Roof Built-up asphalt with or without gravel over a
wood truss structure
Project Amenities Amenities at the subject include a swimming pool,
meeting hall, laundry room, business office, and
parking area.
Unit Amenities Individual unit amenities include a garage,
balcony, cable TV connection, vaulted ceiling,
and washer dryer connection. Appliances available
in each unit include a
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
refrigerator, stove, dishwasher, water heater, garbage
disposal, and oven.
Unit Mix:
Unit Area
Unit Type Number of Units (Sq. Ft.)
- -----------------------------------------------------
1Bdrm/1Ba-1A10 84 669
2Bdrm/1Ba-2A10 81 938
2Bdrm/1.5Ba-2A150 7 968
3Bdrm/2Ba - 3A20 28 1,168
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
1964 and consist of a 200-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 17
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
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 18
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
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 19
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
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 20
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
SUMMARY OF COMPARABLE SALES-IMPROVED
COMPARABLE COMPARABLE
DESCRIPTION SUBJECT I - 1 I - 2
- -----------------------------------------------------------------------------------------------------------------------------
Property Name The Dunes Apartment Homes Bottlebrush Apartments Morningside Apartments
LOCATION:
Address 201 Harbour City Parkway 1600 Bottlebrush Dr. NE 1187-1193 S. Park Ave
City, State Indian Harbour Beach, Florida Palm Bay, Florida Titusville, Florida
County Brevard Brevard County Brevard County
PHYSICAL CHARACTERISTICS:
Net Rentable Area (SF) 171,654 26,526 115,440
Year Built 1964 1977 1982
Number of Units 200 50 183
Unit Mix: Type Total Type Total Type Total
1 Bdrm/1Ba-1A10 84 Studio 18 Studio 7
2 Bdrm/1Ba-2A10 81 1 Bedroom 22 1 Bedroom 140
2 Bdrm/1.5Ba-2A150 7 2 Bedroom 10 2 Bedroom 34
3 Bdrm/2Ba-3A20 28 3 Bedroom 2
Average Unit Size (SF) 858 531 631
Land Area (Acre) 7.0900 2.5000 11.5200
Density (Units/Acre) 28.2 20.0 15.9
Parking Ratio (Spaces/Unit) 2.36
Parking Type (Gr., Cov., etc.) Open parking lot Surface Surface
CONDITION: Average Average Average
APPEAL: Average Fair Average
AMENITIES:
Pool/Spa Yes/No Yes/No No/No
Gym Room No No No
Laundry Room Yes Yes Yes
Secured Parking No No No
Sport Courts Yes No No
OCCUPANCY: 94% 95% 95%
TRANSACTION DATA:
Sale Date September, 2003 February, 2003
Sale Price ($) $1,375,000 $3,980,000
Grantor S.E. Residential East Morningside Apartments II,
Ltd
Grantee Bottlebrush Apartments, Inc. SE Residential Central
Associates
Sale Documentation Bk 5064 Pg 2364 Bk 4835 Pg 2265
Verification Broker, Marcus & Millichap Seller's Broker
Telephone Number
ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF
Potential Gross Income $259,320 $5,186 $9.78 $949,540 $5,189 $8.23
Vacancy/Credit Loss $ 12,966 $ 259 $0.49 $ 48,477 $ 265 $0.42
Effective Gross Income $246,354 $4,927 $9.29 $901,063 $4,924 $7.81
Operating Expenses $140,000 $2,800 $5.28 $585,600 $3,200 $5.07
Net Operating Income $106,354 $2,127 $4.01 $315,463 $1,724 $2.73
NOTES: Single-story apartment Single-story apartment
complex complex
PRICE PER UNIT $27,500 $21,749
PRICE PER SQUARE FOOT $ 51.84 $ 34.48
EXPENSE RATIO 56.8% 65.0%
EGIM 5.58 4.42
OVERALL CAP RATE 7.73% 7.93%
Cap Rate based on Pro Forma or Actual Income? UNKNOWN PRO FORMA
COMPARABLE COMPARABLE COMPARABLE
DESCRIPTION I - 3 I - 4 I - 5
- -------------------------------------------------------------------------------------------------------------------------
Property Name Royal Oak Colony Suncoast Townhomes Rockledge Villas
LOCATION:
Address 3645 Barna Avenue 325 East University 1525 Fiske Road
City, State Titusville, Florida Melbourne, Florida Rockledge, Florida
County Brevard County Brevard County Brevard County
PHYSICAL CHARACTERISTICS:
Net Rentable Area (SF) 178,901 142,224 102,428
Year Built 1968 1980 1963
Number of Units 183 150 93
Unit Mix: Type Total Type Total Type Total
1 Bedroom N/A 1 Bedroom 29 1 Bedroom 39
2 Bedroom N/A 2 Bedroom 121 2 Bedroom 47
3 Bedroom N/A 3 Bedroom 7
3 Bedroom N/A
Average Unit Size (SF) 978 948 1,101
Land Area (Acre) 11.5000 8.0000 6.1300
Density (Units/Acre) 15.9 18.8 15.2
Parking Ratio (Spaces/Unit) 0.00 0.00
Parking Type (Gr., Cov., etc.) Surface Surface Surface
CONDITION: Average Average Fair
APPEAL: Fair Fair Fair
AMENITIES:
Pool/Spa Yes/No Yes/No Yes/No
Gym Room No No No
Laundry Room No Yes No
Secured Parking No No No
Sport Courts Yes No No
OCCUPANCY: N/A 90% 85%
TRANSACTION DATA:
Sale Date July, 2002 November, 2002 September, 2002
Sale Price ($) $6,000,000 $3,850,000 $2,650,000
Grantor Royal Oak Colony Associates CJC, Inc. Robert Wigor
Grantee SPM, Inc. Atlantic Melbourne Gene Berman
Sale Documentation NA NA Bk 4705 Pg 1080
Verification Seller's Broker Broker, Marcus & Millichap Broker, Marcus & Millichap
Telephone Number
ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF
Potential Gross Income $ 0 $ 0 $0.00 $823,500 $5,490 $5.79 $629,700 $6,771 $6.15
Vacancy/Credit Loss $ 0 $ 0 $0.00 $ 82,350 $ 549 $0.58 $ 94,455 $1,016 $0.92
Effective Gross Income $ 0 $ 0 $0.00 $741,150 $4,941 $5.21 $535,245 $5,755 $5.23
Operating Expenses $ 0 $ 0 $0.00 $291,083 $1,941 $2.05 $279,000 $3,000 $2.72
Net Operating Income $540,000 $2,951 $3.02 $450,067 $3,000 $3.16 $256,245 $2,755 $2.50
NOTES: Single-story apartment Broker reported that
complex property sold w/ deferred
maintenance but sale price
was not credited for DM.
PRICE PER UNIT $32,787 $25,667 $28,495
PRICE PER SQUARE FOOT $ 33.54 $ 27.07 $ 25.87
EXPENSE RATIO N/A 39.3% 52.1%
EGIM N/A 5.19 4.95
OVERALL CAP RATE 9.00% 11.69% 9.67%
Cap Rate based on Pro Forma or PRO FORMA PRO FORMA PRO FORMA
Actual Income?
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 21
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
IMPROVED SALES MAP
[MAP]
IMPROVED SALES ANALYSIS
The improved sales indicate a sales price range from $21,749 to $32,787 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 $26,950 to $40,984 per unit with a mean or average adjusted price
of $33,645 per unit. The median adjusted price is $31,344 per unit. Based on the
following analysis, we have concluded to a value of $33,000 per unit, which
results in an "as is" value of $6,600,000 (rounded after necessary adjustment,
if any).
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE
DESCRIPTION SUBJECT I - 1 I - 2
- ---------------------------------------------------------------------------------------------------------------------------------
Property Name The Dunes Apartment Homes Bottlebrush Apartments Morningside Apartments
Address 201 Harbour City Parkway 1600 Bottlebrush Dr. NE 1187-1193 S. Park Ave
City Indian Harbour Beach, Florida Palm Bay, Florida Titusville, Florida
Sale Date September, 2003 February, 2003
Sale Price ($) $1,375,000 $3,980,000
Net Rentable Area (SF) 171,654 26,526 115,440
Number of Units 200 50 183
Price Per Unit $27,500 $21,749
Year Built 1964 1977 1982
Land Area (Acre) 7.0900 2.5000 11.5200
VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ.
Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0%
Financing Cash To Seller 0% Cash To Seller 0%
Conditions of Sale Arm's Length 0% Arm's Length 0%
Date of Sale (Time) 09-2003 0% 02-2003 0%
VALUE AFTER TRANS. ADJUST. ($/UNIT) $27,500 $21,749
Location Inferior 25% Inferior 25%
Number of Units 200 50 -20% 183 0%
Quality / Appeal Average Inferior 20% Inferior 20%
Age / Condition 1964 1977 / Average -15% 1982 / Average -20%
Occupancy at Sale 94% 95% 0% 95% 0%
Amenities Average Inferior 15% Inferior 15%
Average Unit Size (SF) 858 531 15% 631 0%
- ------------------------------------------------------------------------------------------------------------------------------
PHYSICAL ADJUSTMENT 40% 40%
- ------------------------------------------------------------------------------------------------------------------------------
FINAL ADJUSTED VALUE ($/UNIT) $38,500 $30,448
- ------------------------------------------------------------------------------------------------------------------------------
COMPARABLE COMPARABLE COMPARABLE
DESCRIPTION I - 3 I - 4 I - 5
- -------------------------------------------------------------------------------------------------------------------------------
Property Name Royal Oak Colony Suncoast Townhomes Rockledge Villas
Address 3645 Barna Avenue 325 East University 1525 Fiske Road
City Titusville, Florida Melbourne, Florida Rockledge, Florida
Sale Date July, 2002 November, 2002 September, 2002
Sale Price ($) $6,000,000 $3,850,000 $2,650,000
Net Rentable Area (SF) 178,901 142,224 102,428
Number of Units 183 150 93
Price Per Unit $32,787 $25,667 $28,495
Year Built 1968 1980 1963
Land Area (Acre) 11.5000 8.0000 6.1300
VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ.
Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0%
Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0%
Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0%
Date of Sale (Time) 07-2002 0% 11-2002 0% 09-2002 0%
VALUE AFTER TRANS. ADJUST. ($/UNIT) $32,787 $25,667 $28,495
Location Inferior 25% Inferior 25% Inferior 25%
Number of Units 183 0% 150 -5% 93 -15%
Quality / Appeal Comparable 0% Comparable 0% Comparable 0%
Age / Condition 1968 / Average 0% 1980 / Average -20% 1963 / Fair 0%
Occupancy at Sale N/A 0% 90% 5% 85% 10%
Amenities Comparable 0% Comparable 0% Comparable 0%
Average Unit Size (SF) 978 0% 948 0% 1,101 -10%
- -----------------------------------------------------------------------------------------------------------------------------
PHYSICAL ADJUSTMENT 25% 5% 10%
- -----------------------------------------------------------------------------------------------------------------------------
FINAL ADJUSTED VALUE ($/UNIT) $40,984 $26,950 $31,344
- -----------------------------------------------------------------------------------------------------------------------------
SUMMARY
VALUE RANGE (PER UNIT) $26,950 TO $40,984
MEAN (PER UNIT) $33,645
MEDIAN (PER UNIT) $31,344
VALUE CONCLUSION (PER UNIT) $33,000
VALUE INDICATED BY SALES COMPARISON APPROACH $6,600,000
ROUNDED $6,600,000
NET OPERATING INCOME (NOI) ANALYSIS
We have also conducted a net operating income (NOI) comparison analysis. The NOI
effectively takes into account the various physical, location, and operating
aspects of the sale. When the subject's NOI is compared to the sale NOI, a
percent adjustment can be arrived at. The following table illustrates this
analysis.
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
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 50 $1,375,000 7.73% $106,354 $616,473 1.449 $39,850
$ 27,500 $ 2,127 $ 3,082
I-2 183 $3,980,000 7.93% $315,463 $616,473 1.788 $38,888
$ 21,749 $ 1,724 $ 3,082
I-3 183 $6,000,000 9.00% $540,000 $616,473 1.045 $34,248
$ 32,787 $ 2,951 $ 3,082
I-4 150 $3,850,000 11.69% $450,067 $616,473 1.027 $26,367
$ 25,667 $ 3,000 $ 3,082
I-5 93 $2,650,000 9.67% $256,245 $616,473 1.119 $31,877
$ 28,495 $ 2,755 $ 3,082
PRICE/UNIT
Low High Average Median
$26,367 $39,850 $34,246 $34,248
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT
Estimated Price Per Unit $ 34,000
Number of Units 200
----------
Value Based on NOI Analysis $6,800,000
Rounded $6,800,000
The adjusted sales indicate a range of value between $26,367 and $39,850 per
unit, with an average of $34,246 per unit. Based on the subject's competitive
position within the improved sales, a value of $34,000 per unit is estimated.
This indicates an "as is" market value of $6,800,000 (rounded after necessary
adjustment, if any) for the NOI Per Unit Analysis.
EFFECTIVE GROSS INCOME MULTIPLIER (EGIM) ANALYSIS
The effective gross income multiplier (EGIM) is derived by dividing the sales
price by the total effective gross income. The following table illustrates the
EGIMs for the comparable improved sales.
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 50 $1,375,000 $246,354 $140,000 56.83% 5.58
$ 27,500
I-2 183 $3,980,000 $901,063 $585,600 64.99% 4.42
$ 21,749
I-3 183 $6,000,000
$ 32,787
I-4 150 $3,850,000 $741,150 $291,083 39.27% 5.19
$ 25,667
I-5 93 $2,650,000 $535,245 $279,000 52.13% 4.95
$ 28,495
EGIM
Low High Average Median
4.42 5.58 5.04 5.07
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES
Estimate EGIM 4.75
Subject EGI $1,461,761
----------
Value Based on EGIM Analysis $6,943,364
Rounded $6,900,000
Value Per Unit $ 34,500
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 24
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
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 54.41% before reserves. The comparable sales
indicate a range of expense ratios from 39.27% to 64.99%, while their EGIMs
range from 4.42 to 5.58. Overall, we conclude to an EGIM of 4.75, which results
in an "as is" value estimate in the EGIM Analysis of $6,900,000.
SALES COMPARISON CONCLUSION
The three valuation methods in the Sales Comparison Approach are shown below.
The overall value via the Sales Comparison Approach is estimated at $6,700,000.
Price Per Unit $6,600,000
NOI Per Unit $6,800,000
EGIM Analysis $6,900,000
Sales Comparison Conclusion $6,700,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 25
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
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 26
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
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
- ---------------------------------------------------------------
1Bdrm/1Ba-1A10 669 $524 $0.78 95.2%
2Bdrm/1Ba-2A10 938 $639 $0.68 93.8%
2Bdrm/1.5Ba-2A150 968 $662 $0.68 85.7%
3Bdrm/2Ba - 3A20 1168 $735 $0.63 89.3%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 27
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
RENT ANALYSIS
COMPARABLE RENTS
----------------------------------
R-1 R-2 R-3
----------------------------------
Brittany Rivercrest
Shore View Apartments Apartments
----------------------------------
SUBJECT SUBJECT COMPARISON TO SUBJECT
SUBJECT UNIT ACTUAL ASKING ----------------------------------
DESCRIPTION TYPE RENT RENT Similar Superior Superior MIN MAX MEDIAN AVERAGE
- ----------------------------------------------------------------------------------------------------------------------------------
Monthly Rent 1Bdrm/1Ba-1A10 $ 524 $ 570 $ 558 $ 559 $ 558 $ 559 $ 559 $ 559
Unit Area (SF) 669 669 710 800 710 800 755 755
Monthly Rent Per Sq. Ft. $ 0.78 $ 0.85 $ 0.79 $ 0.70 $ 0.70 $ 0.79 $ 0.74 $ 0.74
Monthly Rent 2Bdrm/1Ba-2A10 $ 639 $ 720 $ 685 $ 794 $ 679 $ 679 $ 794 $ 685 $ 719
Unit Area (SF) 938 938 950 1,136 1,100 950 1,136 1,100 1,062
Monthly Rent Per Sq. Ft. $ 0.68 $ 0.77 $ 0.72 $ 0.70 $ 0.62 $ 0.62 $ 0.72 $ 0.70 $ 0.68
Monthly Rent 2Bdrm/1.5Ba-2A150 $ 662 $ 700 $ 694 $ 804 $ 699 $ 694 $ 804 $ 699 $ 732
Unit Area (SF) 968 968 1,000 1,196 1,200 1,000 1,200 1,196 1,132
Monthly Rent Per Sq. Ft. $ 0.68 $ 0.72 $ 0.69 $ 0.67 $ 0.58 $ 0.58 $ 0.69 $ 0.67 $ 0.65
Monthly Rent 3Bdrm/2Ba - 3A20 $ 735 $ 800 $ 979 $ 979 $ 979 $ 979 $ 979
Unit Area (SF) 1,168 1,168 1,436 1,436 1,436 1,436 1,436
Monthly Rent Per Sq. Ft. $ 0.63 $ 0.68 $ 0.68 $ 0.68 $ 0.68 $ 0.68 $ 0.68
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
- -----------------------------------------------------------------------------------------
1Bdrm/1Ba-1A10 84 669 $530 $0.79 $ 44,520 $ 534,240
2Bdrm/1Ba-2A10 81 938 $650 $0.69 $ 52,650 $ 631,800
2Bdrm/1.5Ba-2A150 7 968 $675 $0.70 $ 4,725 $ 56,700
3Bdrm/2Ba - 3A20 28 1,168 $750 $0.64 $ 21,000 $ 252,000
-------- ----------
Total $122,895 $1,474,740
======== ==========
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 28
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
SUMMARY OF HISTORICAL INCOME & EXPENSES
FISCAL YEAR 2001 FISCAL YEAR 2002 FISCAL YEAR 2003
------------------------ ------------------------ ------------------------
ACTUAL ACTUAL MANAGEMENT BUDGET
------------------------ ------------------------ ------------------------
DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT
- -------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Revenues
Rental Income $1,449,333 $ 7,247 $1,503,247 $ 7,516 $1,528,184 $ 7,641
Vacancy $ 63,518 $ 318 $ 120,980 $ 605 $ 76,869 $ 384
Credit Loss/Concessions $ 34,813 $ 174 $ 48,935 $ 245 $ 24,000 $ 120
---------- ---------- ---------- ---------- ---------- ----------
Subtotal $ 98,331 $ 492 $ 169,915 $ 850 $ 100,869 $ 504
Laundry Income $ 8,538 $ 43 $ 18,054 $ 90 $ 21,996 $ 110
Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Other Misc. Revenue $ 119,868 $ 599 $ 107,750 $ 539 $ 66,024 $ 330
---------- ---------- ---------- ---------- ---------- ----------
Subtotal Other Income $ 128,406 $ 642 $ 125,804 $ 629 $ 88,020 $ 440
---------- ---------- ---------- ---------- ---------- ----------
Effective Gross Income $1,479,408 $ 7,397 $1,459,136 $ 7,296 $1,515,335 $ 7,577
Operating Expenses
Taxes $ 109,639 $ 548 $ 132,674 $ 663 $ 136,256 $ 681
Insurance $ 66,855 $ 334 $ 45,653 $ 228 $ 43,420 $ 217
Utilities $ 139,940 $ 700 $ 129,394 $ 647 $ 108,468 $ 542
Repair & Maintenance $ 108,494 $ 542 $ 111,949 $ 560 $ 119,196 $ 596
Cleaning $ 18,747 $ 94 $ 23,763 $ 119 $ 0 $ 0
Landscaping $ 15,856 $ 79 $ 26,211 $ 131 $ 57,744 $ 289
Security $ 3,225 $ 16 $ 3,897 $ 19 $ 0 $ 0
Marketing & Leasing $ 26,480 $ 132 $ 22,221 $ 111 $ 26,988 $ 135
General Administrative $ 258,304 $ 1,292 $ 168,259 $ 841 $ 188,061 $ 940
Management $ 80,229 $ 401 $ 70,855 $ 354 $ 75,002 $ 375
Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
---------- ---------- ---------- ---------- ---------- ----------
Total Operating Expenses $ 827,769 $ 4,139 $ 734,876 $ 3,674 $ 755,135 $ 3,776
Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
---------- ---------- ---------- ---------- ---------- ----------
Net Income $ 651,639 $ 3,258 $ 724,260 $ 3,621 $ 760,200 $ 3,801
ANNUALIZED 2003
------------------------
ACTUAL AAA PROJECTION
------------------------ ----------------------------------
DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT %
- -------------------------- ---------- ---------- ---------- ---------- -----
Revenues
Rental Income $1,530,876 $ 7,654 $1,474,740 $ 7,374 100.0%
Vacancy $ 150,417 $ 752 $ 88,484 $ 442 6.0%
Credit Loss/Concessions $ 66,371 $ 332 $ 29,495 $ 147 2.0%
---------- ---------- ---------- ---------- -----
Subtotal $ 216,788 $ 1,084 $ 117,979 $ 590 8.0%
Laundry Income $ 26,127 $ 131 $ 20,000 $ 100 1.4%
Garage Revenue $ 0 $ 0 $ 0 0.0%
Other Misc. Revenue $ 97,363 $ 487 $ 85,000 $ 425 5.8%
---------- ---------- ---------- ---------- -----
Subtotal Other Income $ 123,489 $ 617 $ 105,000 $ 525 7.1%
---------- ---------- ---------- ---------- -----
Effective Gross Income $1,437,577 $ 7,188 $1,461,761 $ 7,309 100.0%
Operating Expenses
Taxes $ 131,383 $ 657 $ 141,572 $ 708 9.7%
Insurance $ 43,791 $ 219 $ 46,000 $ 230 3.1%
Utilities $ 152,485 $ 762 $ 133,000 $ 665 9.1%
Repair & Maintenance $ 125,687 $ 628 $ 120,000 $ 600 8.2%
Cleaning $ 9,677 $ 48 $ 23,000 $ 115 1.6%
Landscaping $ 24,340 $ 122 $ 35,000 $ 175 2.4%
Security $ 3,600 $ 18 $ 3,600 $ 18 0.2%
Marketing & Leasing $ 33,248 $ 166 $ 30,000 $ 150 2.1%
General Administrative $ 194,128 $ 971 $ 190,000 $ 950 13.0%
Management $ 73,547 $ 368 $ 73,088 $ 365 5.0%
Miscellaneous $ 0 $ 0 $ 0 $ 0 0.0%
---------- ---------- ---------- ---------- -----
Total Operating Expenses $ 791,885 $ 3,959 $ 795,288 $ 3,976 54.4%
Reserves $ 0 $ 0 $ 50,000 $ 250 3.4%
---------- ---------- ---------- ---------- -----
Net Income $ 645,692 $ 3,228 $ 616,473 $ 3,082 42.2%
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.
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 29
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
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.
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.
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
KORPACZ NATIONAL INVESTOR SURVEY
3RD QUARTER 2003
NATIONAL APARTMENT MARKET
CAPITALIZATION RATES
--------------------------------------------
GOING-IN TERMINAL
--------------------------------------------
LOW HIGH LOW HIGH
--------------------------------------------
RANGE 5.50% 9.50% 6.00% 10.00%
AVERAGE 7.61% 8.14%
SUMMARY OF OVERALL
CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR
- ----------------------------------------------------------------------
I-1 Sep-03 95% $27,500 7.73%
I-2 Feb-03 95% $21,749 7.93%
I-3 Jul-02 N/A $32,787 9.00%
I-4 Nov-02 90% $25,667 11.69%
I-5 Sep-02 85% $28,495 9.67%
High 11.69%
Low 7.73%
Average 9.20%
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
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 31
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
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 $6,800,000. In this instance, the reversion
figure contributes approximately 40% 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 32
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
DISCOUNTED CASH FLOW ANALYSIS
THE DUNES APARTMENT HOMES
YEAR JAN-2004 JAN-2005 JAN-2006 JAN-2007 JAN-2008 JAN-2009
FISCAL YEAR 1 2 3 4 5 6
- ---------------------------------------------------------------------------------------------------------------------------------
REVENUE
Base Rent $1,474,740 $1,504,235 $1,534,319 $1,580,349 $1,627,760 $1,676,592
Vacancy $ 88,484 $ 90,254 $ 92,059 $ 94,821 $ 97,666 $ 100,596
Credit Loss $ 29,495 $ 30,085 $ 30,686 $ 31,607 $ 32,555 $ 33,532
Concessions $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
-------------------------------------------------------------------------------------
Subtotal $ 117,979 $ 120,339 $ 122,746 $ 126,428 $ 130,221 $ 134,127
Laundry Income $ 20,000 $ 20,400 $ 20,808 $ 21,432 $ 22,075 $ 22,737
Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Other Misc. Revenue $ 85,000 $ 86,700 $ 88,434 $ 91,087 $ 93,820 $ 96,634
-------------------------------------------------------------------------------------
Subtotal Other Income $ 105,000 $ 107,100 $ 109,242 $ 112,519 $ 115,895 $ 119,372
-------------------------------------------------------------------------------------
EFFECTIVE GROSS INCOME $1,461,761 $1,490,996 $1,520,816 $1,566,440 $1,613,434 $1,661,837
OPERATING EXPENSES:
Taxes $ 141,600 $ 145,848 $ 150,223 $ 154,730 $ 159,372 $ 164,153
Insurance $ 46,000 $ 47,380 $ 48,801 $ 50,265 $ 51,773 $ 53,327
Utilities $ 133,000 $ 136,990 $ 141,100 $ 145,333 $ 149,693 $ 154,183
Repair & Maintenance $ 120,000 $ 123,600 $ 127,308 $ 131,127 $ 135,061 $ 139,113
Cleaning $ 23,000 $ 23,690 $ 24,401 $ 25,133 $ 25,887 $ 26,663
Landscaping $ 35,000 $ 36,050 $ 37,132 $ 38,245 $ 39,393 $ 40,575
Security $ 3,600 $ 3,708 $ 3,819 $ 3,934 $ 4,052 $ 4,173
Marketing & Leasing $ 30,000 $ 30,900 $ 31,827 $ 32,782 $ 33,765 $ 34,778
General Administrative $ 190,000 $ 195,700 $ 201,571 $ 207,618 $ 213,847 $ 220,262
Management $ 73,088 $ 74,550 $ 76,041 $ 78,322 $ 80,672 $ 83,092
Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
-------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES $ 795,288 $ 818,416 $ 842,223 $ 867,489 $ 893,514 $ 920,320
Reserves $ 50,000 $ 51,500 $ 53,045 $ 54,636 $ 56,275 $ 57,964
-------------------------------------------------------------------------------------
NET OPERATING INCOME $ 616,473 $ 621,080 $ 625,548 $ 644,315 $ 663,644 $ 683,553
Operating Expense Ratio (% of EGI) 54.4% 54.9% 55.4% 55.4% 55.4% 55.4%
Operating Expense Per Unit $ 3,976 $ 4,092 $ 4,211 $ 4,337 $ 4,468 $ 4,602
YEAR JAN-2010 JAN-2011 JAN-2012 JAN-2013 JAN-2014
FISCAL YEAR 7 8 9 10 11
- ----------------------------------------------------------------------------------------------------------------
REVENUE
Base Rent $1,726,890 $1,778,697 $1,832,058 $1,887,019 $1,943,630
Vacancy $ 103,613 $ 106,722 $ 109,923 $ 113,221 $ 116,618
Credit Loss $ 34,538 $ 35,574 $ 36,641 $ 37,740 $ 38,873
Concessions $ 0 $ 0 $ 0 $ 0 $ 0
----------------------------------------------------------------------
Subtotal $ 138,151 $ 142,296 $ 146,565 $ 150,962 $ 155,490
Laundry Income $ 23,420 $ 24,122 $ 24,846 $ 25,591 $ 26,359
Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0
Other Misc. Revenue $ 99,533 $ 102,519 $ 105,595 $ 108,763 $ 112,026
----------------------------------------------------------------------
Subtotal Other Income $ 122,953 $ 126,641 $ 130,441 $ 134,354 $ 138,384
----------------------------------------------------------------------
EFFECTIVE GROSS INCOME $1,711,692 $1,763,042 $1,815,934 $1,870,412 $1,926,524
OPERATING EXPENSES:
Taxes $ 169,078 $ 174,150 $ 179,375 $ 184,756 $ 190,299
Insurance $ 54,926 $ 56,574 $ 58,271 $ 60,020 $ 61,820
Utilities $ 158,809 $ 163,573 $ 168,480 $ 173,535 $ 178,741
Repair & Maintenance $ 143,286 $ 147,585 $ 152,012 $ 156,573 $ 161,270
Cleaning $ 27,463 $ 28,287 $ 29,136 $ 30,010 $ 30,910
Landscaping $ 41,792 $ 43,046 $ 44,337 $ 45,667 $ 47,037
Security $ 4,299 $ 4,428 $ 4,560 $ 4,697 $ 4,838
Marketing & Leasing $ 35,822 $ 36,896 $ 38,003 $ 39,143 $ 40,317
General Administrative $ 226,870 $ 233,676 $ 240,686 $ 247,907 $ 255,344
Management $ 85,585 $ 88,152 $ 90,797 $ 93,521 $ 96,326
Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0
----------------------------------------------------------------------
TOTAL OPERATING EXPENSES $ 947,929 $ 976,367 $1,005,658 $1,035,828 $1,066,903
Reserves $ 59,703 $ 61,494 $ 63,339 $ 65,239 $ 67,196
----------------------------------------------------------------------
NET OPERATING INCOME $ 704,060 $ 725,182 $ 746,937 $ 769,345 $ 792,426
Operating Expense Ratio (% of EGI) 55.4% 55.4% 55.4% 55.4% 55.4%
Operating Expense Per Unit $ 4,740 $ 4,882 $ 5,028 $ 5,179 $ 5,335
Estimated Stabilized NOI $616,473 Sales Expense Rate 2.00%
Months to Stabilized 0 Discount Rate 11.50%
Stabilized Occupancy 94.0% Terminal Cap Rate 9.50%
"DCF" VALUE ANALYSIS
Gross Residual Sale Price $8,341,323 Deferred Maintenance $ 0
Less: Sales Expense $ 166,826 Add: Excess Land $ 0
----------
Net Residual Sale Price $8,174,497 Other Adjustments $ 0
----------
PV of Reversion $2,752,405 Value Indicated By "DCF" $6,824,762
Add: NPV of NOI $4,072,357 Rounded $6,800,000
----------
PV Total $6,824,762
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE
----------------------------------------------------------
TOTAL VALUE 11.00% 11.25% 11.50% 11.75% 12.00%
- --------------------------- ---------- ---------- ---------- ---------- ----------
9.00% $7,207,620 $7,091,384 $6,977,673 $6,866,424 $6,757,573
9.25% $7,125,488 $7,011,080 $6,899,151 $6,789,641 $6,682,487
TERMINAL CAP RATE 9.50% $7,047,679 $6,935,002 $6,824,762 $6,716,899 $6,611,353
9.75% $6,973,860 $6,862,825 $6,754,187 $6,647,887 $6,543,866
10.00% $6,903,732 $6,794,257 $6,687,142 $6,582,326 $6,479,754
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 33
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
INCOME LOSS DURING LEASE-UP
The subject is currently near or at stabilized condition. Therefore, there is no
income loss during lease-up at the subject property.
CONCESSIONS
Concessions have historically not been utilized a the subject property or in the
subject's market. Therefore, no adjustment was included for concessions.
DIRECT CAPITALIZATION METHOD
After having projected the income and expenses for the property, the next step
in the valuation process is to capitalize the net income into an estimate of
value. The selected overall capitalization rate ("OAR") covers both return on
and return of capital. It is the overall rate of return an investor expects.
After considering the market transactions and the investor surveys, we
previously conclude that an overall rate of 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 34
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
THE DUNES APARTMENT HOMES
TOTAL PER SQ. FT. PER UNIT %OF EGI
- --------------------------------------------------------------------------------------------
REVENUE
Base Rent $1,474,740 $ 8.59 $ 7,374
Less: Vacancy & Collection Loss 8.00% $ 117,979 $ 0.69 $ 590
Plus: Other Income $ 100 1.37%
Laundry Income $ 20,000 $ 0.12 $ 0 0.00%
Garage Revenue $ 0 $ 0.00 $ 425 5.81%
Other Misc. Revenue $ 85,000 $ 0.50 $ 525 7.18%
-------------------------------------------
Subtotal Other Income $ 105,000 $ 0.61
EFFECTIVE GROSS INCOME $1,461,761 $ 8.52 $ 7,309
OPERATING EXPENSES:
Taxes $ 141,600 $ 0.82 $ 708 9.69%
Insurance $ 46,000 $ 0.27 $ 230 3.15%
Utilities $ 133,000 $ 0.77 $ 665 9.10%
Repair & Maintenance $ 120,000 $ 0.70 $ 600 8.21%
Cleaning $ 23,000 $ 0.13 $ 115 1.57%
Landscaping $ 35,000 $ 0.20 $ 175 2.39%
Security $ 3,600 $ 0.02 $ 18 0.25%
Marketing & Leasing $ 30,000 $ 0.17 $ 150 2.05%
General Administrative $ 190,000 $ 1.11 $ 950 13.00%
Management 5.00% $ 73,088 $ 0.43 $ 365 5.00%
Miscellaneous $ 0 $ 0.00 $ 0 0.00%
TOTAL OPERATING EXPENSES $ 795,288 $ 4.63 $ 3,976 54.41%
Reserves $ 50,000 $ 0.29 $ 250 3.42%
-------------------------------------------
NET OPERATING INCOME $ 616,473 $ 3.59 $ 3,082 42.17%
"GOING IN" CAPITALIZATION RATE 9.00%
VALUE INDICATION $6,849,697 $39.90 $34,248
"AS IS" VALUE INDICATION
(DIRECT CAPITALIZATION APPROACH) $6,849,697
ROUNDED $6,800,000 $39.61 $34,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 35
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF
- ---------------------------------------------------------------------------
8.25% $7,472,397 $7,500,000 $37,500 $43.69
8.50% $7,252,621 $7,300,000 $36,500 $42.53
8.75% $7,045,403 $7,000,000 $35,000 $40.78
9.00% $6,849,697 $6,800,000 $34,000 $39.61
9.25% $6,664,570 $6,700,000 $33,500 $39.03
9.50% $6,489,187 $6,500,000 $32,500 $37.87
9.75% $6,322,798 $6,300,000 $31,500 $36.70
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD
Applying the capitalization rate to our estimated NOI results in an estimated
value of $6,800,000.
CORRELATION AND CONCLUSION BY THE INCOME APPROACH
The two methods used to estimate the market value of the subject property by the
income approach resulted in the following indications of value:
Discounted Cash Flow Analysis $6,800,000
Direct Capitalization Method $6,800,000
Giving consideration to the indicated values provided by both techniques, we
have concluded the estimated value by the income capitalization approach to be
$6,800,000.
AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 36
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
RECONCILIATION AND CONCLUSION
This appraisal was made to express an opinion as of the Market Value of the fee
simple estate in the property.
AS IS MARKET VALUE OF THE FEE SIMPLE ESTATE
Cost Approach Not Utilized
Sales Comparison Approach $6,700,000
Income Approach $6,800,000
Reconciled Value $6,800,000
The Income 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
December 12, 2003 the market value of the fee simple estate in the property is:
$6,800,000
AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
ADDENDA
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
EXHIBIT A
SUBJECT PHOTOGRAPHS
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
SUBJECT PHOTOGRAPHS
[PICTURE] [PICTURE]
EXTERIOR - APARTMENT BUILDING - LEASING OFFICE EXTERIOR - APARTMENT BUILDING
[PICTURE] [PICTURE]
EXTERIOR - POOL INTERIOR - TYPICAL HALLWAY
[PICTURE] [PICTURE]
INTERIOR - LIVING AREA IN MODEL UNIT INTERIOR - CLUBHOUSE
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
SUBJECT PHOTOGRAPHS
[PICTURE] [PICTURE]
INTERIOR - MODEL UNIT BEDROOM INTERIOR - KITCHEN IN VACANT UNIT
[PICTURE] [PICTURE]
LAUNDRY ROOM INTERIOR - LIVING ROOM OF VACANT UNIT
[PICTURE]
BUILDING EXTERIOR - COURTYARD VIEW
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
EXHIBIT B
SUMMARY OF RENT COMPARABLES
AND PHOTOGRAPH OF COMPARABLES
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES
COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3
BOTTLEBRUSH APARTMENTS MORNINGSIDE APARTMENTS ROYAL OAK COLONY
1600 Bottlebrush Dr. NE 1187-1193 S. Park Ave 3645 Barna Avenue
Palm Bay, Florida Titusville, Florida Titusville, Florida
[PICTURE] [PICTURE] [PICTURE]
COMPARABLE I-4 COMPARABLE I-5
SUNCOAST TOWNHOMES ROCKLEDGE VILLAS
325 East University 1525 Fiske Road
Melbourne, Florida Rockledge, Florida
[PICTURE] [PICTURE]
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE
DESCRIPTION SUBJECT R - 1
- ------------------------------------------------------------------------------------------------------------------------
Property Name The Dunes Apartment Homes Shore View
Management Company AIMCO Epoch Management
LOCATION:
Address 201 Harbour City Parkway 50 Berkeley Street
City, State Indian Harbour Beach, Florida Satellite Beach, FL
County Brevard Brevard
Proximity to Subject 5 miles N of the subject
PHYSICAL CHARACTERISTICS:
Net Rentable Area (SF) 171,654 N/A
Year Built 1964 1962
Effective Age 35 35
Building Structure Type Two-story block Two-story block
Parking Type (Gr., Cov., etc) None None
Number of Units 200 135
Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo.
1 1Bdrm/1Ba-1A10 669 84 $524 1 Studio 600 $535
2 2Bdrm/1Ba-2A10 938 81 $639 1 Studio 680 $545
3 2Bdrm/1.5Ba-2A150 968 7 $662 1 1Bdrm/1Ba 850 $594
4 3Bdrm/2Ba - 3A20 1,168 28 $735 2 2Bdrm/1Ba 950 $685
3 2Bdrm/1Ba 1,000 $694
Average Unit Size (SF) 858
Unit Breakdown: Efficiency 2-Bedroom Efficiency 2-Bedroom
1-Bedroom 3-Bedroom 1-Bedroom 3-Bedroom
CONDITION: Average Average
APPEAL: Average Average
AMENITIES:
Unit Amenities X Attach. Garage X 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 Car Wash Spa/Jacuzzi Car Wash
Basketball Court BBQ Equipment X Basketball Court BBQ Equipment
Volleyball Court Theater Room Volleyball Court Theater Room
Sand Volley Ball X Meeting Hall Sand Volley Ball X 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: 94% 97%
LEASING DATA:
Available Leasing Terms 7 to 12 months
Concessions 1 month
Pet Deposit $200 deposit, $200 non-refundable pet fee
Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas
X Water Trash X Water Trash
Confirmation Leasing Agent
Telephone Number 1-866-802-6319
NOTES: This property is located off A1A,
opposite the beach.
COMPARISON TO SUBJECT: Similar
COMPARABLE COMPARABLE
DESCRIPTION R - 2 R - 3
- ----------------------------------------------------------------------------------------------------------------------------
Property Name Brittany Apartments Rivercrest Apartments
Management Company Northland Investments Wilder Richman Management
LOCATION:
Address 1874 Brittany Drive 3320 Rivercrest Drive
City, State Indialantic, FL Melbourne, FL
County Brevard Brevard
Proximity to Subject 0.5 miles east of the subject 4.5 miles NW of the subject
PHYSICAL CHARACTERISTICS:
Net Rentable Area (SF) N/A N/A
Year Built 1982 1985
Effective Age 20 18
Building Structure Type Siding Siding
Parking Type (Gr., Cov., etc) None None
Number of Units Unk. Unk.
Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo.
2 2Bdrm/1Ba 1,136 $794 1 1Bdrm/1Ba 800 $559
3 2Bdrm/2Ba 1,196 $804 2 2Bdrm/2Ba 1,100 $679
4 3Bdrm/2Ba 1,436 $979 3 2Bdrm/2Ba 1,200 $699
Average Unit Size (SF)
Unit Breakdown: Efficiency 2-Bedroom Efficiency 2-Bedroom
1-Bedroom 3-Bedroom 1-Bedroom 3-Bedroom
CONDITION: Good Good
APPEAL: Good Good
AMENITIES:
Unit Amenities Attach. Garage X Vaulted Ceiling Attach. Garage X Vaulted Ceiling
X Balcony X X Balcony X
Fireplace Fireplace
X Cable TV Ready X Cable TV Ready
Project Amenities X Swimming Pool X Swimming Pool
X Spa/Jacuzzi X Car Wash Spa/Jacuzzi X Car Wash
Basketball Court BBQ Equipment X Basketball Court BBQ Equipment
Volleyball Court Theater Room Volleyball Court Theater Room
X Sand Volley Ball X Meeting Hall Sand Volley Ball X Meeting Hall
X Tennis Court Secured Parking X Tennis Court Secured Parking
Racquet Ball Laundry Room Racquet Ball Laundry Room
Jogging Track X Business Office Jogging Track X Business Office
X Gym Room X Gym Room
X
OCCUPANCY: 95% 98%
LEASING DATA:
Available Leasing Terms 3 to 12 months 7 to 12 mo.
Concessions NA NA
Pet Deposit $200 deposit, $200 non-refundable pet fee $150 deposit; $150 non-refundable pet fee
Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas
X Water Trash X Water Trash
Confirmation Leasing Agent Leasing Agent
Telephone Number 1-866-788-5923 1-866-802-2451
NOTES:
COMPARISON TO SUBJECT: Superior Superior
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES
COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3
SHORE VIEW BRITTANY APARTMENTS RIVERCREST APARTMENTS
50 Berkeley Street 1874 Brittany Drive 3320 Rivercrest Drive
Satellite Beach, FL Indialantic, FL Melbourne, FL
[PICTURE] [PICTURE] [PICTURE]
N/A N/A
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
EXHIBIT C
ASSUMPTIONS AND LIMITING CONDITIONS
(3 PAGES)
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
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
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
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
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
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 Appraisal Institute 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
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
EXHIBIT D
CERTIFICATE OF APPRAISER
(1 PAGE)
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
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 Uniform Standards of
Professional Appraisal Practice and the Principles of Appraisal
Practice and Code of Ethics of the American Society of Appraisers.
The analysis, opinions, and conclusions were developed, and this report
has been prepared, in conformity with the Uniform Standards of
Professional Appraisal Practice.
I personally did not inspect the subject property. Kim Cook provided
significant real property appraisal assistance in the preparation of
this report.
The American Society of Appraisers has a mandatory recertification
program for all of its senior members. I am in compliance with the
requirements of that program.
/s/ Edward Zenkovich
----------------------------------------------
Edward Zenkovich, ASA
Managing Principal, Real Estate Group
State of Florida, Certified General Appraiser,
#0001259
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
EXHIBIT E
QUALIFICATIONS OF APPRAISER
(2 PAGES)
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
EDWARD J. ZENKOVICH, ASA
SENIOR VICE PRESIDENT AND MANAGING PRINCIPAL,
REAL ESTATE GROUP
POSITION Edward J. Zenkovich serves as Senior Vice President and
Managing Principal of the Atlanta Real Estate Group of
American Appraisal Associates, Inc. ("AAA").
EXPERIENCE
Valuation In the Public Sector Services Group of AAA, Mr.
Zenkovich assisted clients with the establishment of fixed
asset records for insurance, property control, and property
accounting purposes for the appraisal of buildings, land
improvements, and machinery and equipment. Mr.
Zenkovich was also responsible for the planning and
management of large multiple-location engagements.
In the Real Estate Valuation Group, Mr. Zenkovich completed
valuations of various types of real estate including
commercial, investment, manufacturing, retail, and
warehouse properties.
As a member of the Real Estate Group, Mr. Zenkovich
specialized in the valuation of investment real estate.
Property interests he has appraised include fee simple,
leased fee, and leasehold. He has completed appraisals for
financial reporting, financing, litigation support,
portfolio valuation, purchase, purchase price allocation,
and sale. Specific properties he has appraised include
apartments, hotels, land developments, nursing homes,
office buildings, regional and community shopping centers,
and warehouses. He has additional appraisal experience in
heavy industrial property valuations, as well as investment
portfolios for major institutional clients.
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
Court Mr. Zenkovich is a qualified expert witness of the U.S.
Bankruptcy Court, Western District.
Business Mr. Zenkovich joined AAA in 1980 as an assistant
appraiser in the Public Sector Services Group,
advancing to staff appraiser the following year. In
1985, he transferred to the Real Estate Valuation Group
and was promoted to senior appraiser in 1988. Mr.
Zenkovich was appointed area manager of the Real Estate
Group's Tampa, Florida, office and was promoted to
principal in 1994. He was named a Vice President of AAA
in 1995 and a Managing Principal in 1997. From 2001 to
2003, Mr. Zenkovich was the national director of AAA's
Real Estate Group. He currently serves as Managing
Principal of the Real Estate Group in Atlanta, Georgia.
EDUCATION University of Wisconsin - Milwaukee
Bachelor of Business Administration - Real Estate and
Urban
Development
STATE CERTIFICATIONS State of Colorado, Certified General Appraiser,
#CG01325475
State of Florida, Certified General Appraiser,
#RZ0001259
State of Florida, Licensed Real Estate Broker,
#BK0468540
State of Georgia, Certified General Real Property
Appraiser,
#005263
State of Minnesota, Certified General Real Property
Appraiser,
#4003673
PROFESSIONAL American Society of Appraisers, Accredited Senior
AFFILIATIONS Appraiser
ASA Designation - Urban Real Property
Institute of Property Taxation, Candidate
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
VALUATION AND American Society of Appraisers
SPECIAL COURSES Introduction to Business Valuation, Part One
Appraisal Institute
Basic Valuation Procedures
Capitalization Theory and Techniques, Parts A and B
Case Studies in Real Estate Valuation
Real Estate Appraisal Principles
Standards of Professional Practice, Parts A and B
Valuation Analysis and Report Writing
AMERICAN APPRAISAL ASSOCIATES, INC.
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
GENERAL SERVICE CONDITIONS
AMERICAN APPRAISAL ASSOCIATES, INC.
THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA
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.