CANYON CREST
5754 S LOWELL WAY (5757 S. KING STREET)
LITTLETON, COLORADO
MARKET VALUE -
FEE SIMPLE ESTATE
AS OF MAY 13, 2003
PREPARED FOR:
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
(AIMCO)
C/O LINER YANKELEVITZ SUNSHINE & REGENSTREIF LLP
&
LIEFF CABRASER HEIMANN & BERNSTEIN
ON BEHALF OF NUANES, ET. AL.
[AMERICAN APPRAISAL ASSOCIATES(R) LOGO]
[AMERICAN APPRAISAL ASSOCIATES(R) LOGO]
[AMERICAN APPRAISAL ASSOCIATES(R) LETTERHEAD]
JUNE 27, 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: CANYON CREST
5754 S LOWELL WAY (5757 S. KING STREET)
LITTLETON, ARAPAHOE COUNTY, COLORADO
In accordance with your authorization, we have completed the appraisal of the
above-referenced property. This complete appraisal is intended to report our
analysis and conclusions in a summary format.
The subject property consists of an apartment project having 90 units with a
total of 92,212 square feet of rentable area. The improvements were built in
1970. The improvements are situated on 3.536 acres. Overall, the improvements
are in good condition. As of the date of this appraisal, the subject property is
92% 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
CANYON CREST, LITTLETON, COLORADO
The opinions expressed in this appraisal cover letter can only be completely
understood by reading the narrative report, addenda, and other data, which is
attached. The appraisal is subject to the attached general assumptions and
limiting conditions and general service conditions.
As a result of our investigation, it is our opinion that the fee simple market
value of the subject, effective May 13, 2003 is:
($4,800,000)
Respectfully submitted,
AMERICAN APPRAISAL ASSOCIATES, INC.
-s- Douglas Needham
June 27, 2003 Douglas Needham, MAI
#053272 Managing Principal, Real Estate Group
Colorado State Certified General Real Estate Appraiser
#CG40017035
Report By:
James Newell
AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3
CANYON CREST, LITTLETON, COLORADO
TABLE OF CONTENTS
Cover
Letter of Transmittal
Table of Contents
APPRAISAL DATA
Executive Summary..................................................... 4
Introduction.......................................................... 9
Area Analysis......................................................... 11
Market Analysis....................................................... 14
Site Analysis......................................................... 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
CANYON CREST, LITTLETON, COLORADO
EXECUTIVE SUMMARY
PART ONE - PROPERTY DESCRIPTION
PROPERTY NAME: Canyon Crest
LOCATION: 5754 S Lowell Way (5757 S. King Street)
Littleton, Colorado
INTENDED USE OF ASSIGNMENT: Court Settlement
PURPOSE OF APPRAISAL: "As Is" Market Value of the Fee Simple Estate
INTEREST APPRAISED: Fee Simple Estate
DATE OF VALUE: May 13, 2003
DATE OF REPORT: June 27, 2003
PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS:
SITE:
Size: 3.536 acres, or 154,028 square feet
Assessor Parcel No.: 2077-18-4-15-091
Floodplain: Community Panel No. 0800170005D (September 29,
1989)
Flood Zone X, an area outside the floodplain.
Zoning: PDR (Planned Development - Residential)
BUILDING:
No. of Units: 90 Units
Total NRA: 92,212 Square Feet
Average Unit Size: 1,025 Square Feet
Apartment Density: 25.5 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
- ------------------------------------------------------------------------
1Bd/1Ba 640 $ 645 $ 1.01 $ 19,350 $232,200
2Bd/1.5Ba 851 $ 740 $ 0.87 $ 22,200 $266,400
2Bd/1.5Ba Townhouse 1,467 $ 1,050 $ 0.72 $ 23,100 $277,200
3Bd/2.5Ba Townhouse 1,901 $ 1,170 $ 0.62 $ 9,360 $112,320
-------- --------
Total $ 74,010 $888,120
======== ========
OCCUPANCY: 92%
ECONOMIC LIFE: 45 Years
EFFECTIVE AGE: 20 Years
REMAINING ECONOMIC LIFE: 25 Years
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5
CANYON CREST, LITTLETON, COLORADO
SUBJECT PHOTOGRAPHS AND LOCATION MAP:
SUBJECT PHOTOGRAPHS
[EXTERIOR - APARTMENT BUILDING PICTURE] [EXTERIOR - APARTMENT BUILDING PICTURE]
AREA MAP
[MAP]
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6
CANYON CREST, LITTLETON, COLORADO
NEIGHBORHOOD MAP
[MAP]
HIGHEST AND BEST USE:
As Vacant: Hold for future multi-family development
As Improved: Continuation as its current use
METHOD OF VALUATION: In this instance, the Sales Comparison and Income
Approaches to value were utilized.
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 7
CANYON CREST, LITTLETON, COLORADO
PART TWO - ECONOMIC INDICATORS
Amount $/Unit
------ ------
INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION
Potential Rental Income $888,120 $9,868
Effective Gross Income $820,874 $9,121
Operating Expenses $288,094 $3,201 35.1% of EGI
Net Operating Income: $514,780 $5,720
Capitalization Rate 10.50%
DIRECT CAPITALIZATION VALUE $4,800,000 * $53,333 / UNIT
DISCOUNTED CASH FLOW ANALYSIS:
Holding Period 10 years
2002 Economic Vacancy 11%
Stabilized Vacancy & Collection Loss: 14%
Lease-up / Stabilization Period N/A
Terminal Capitalization Rate 11.00%
Discount Rate 13.00%
Selling Costs 2.00%
Growth Rates:
Income 3.00%
Expenses: 3.00%
DISCOUNTED CASH FLOW VALUE $4,700,000 * $52,222 / UNIT
RECONCILED INCOME CAPITALIZATION VALUE $4,800,000 $53,333 / UNIT
SALES COMPARISON APPROACH
PRICE PER UNIT:
Range of Sales $/Unit (Unadjusted) $42,786 to $68,500
Range of Sales $/Unit (Adjusted) $53,265 to $58,225
VALUE INDICATION - PRICE PER UNIT $5,000,000 * $55,556 / UNIT
EGIM ANALYSIS
Range of EGIMs from Improved Sales 5.01 to 7.64
Selected EGIM for Subject 5.80
Subject's Projected EGI $820,874
EGIM ANALYSIS CONCLUSION $4,700,000 * $52,222 / UNIT
NOI PER UNIT ANALYSIS CONCLUSION $4,900,000 * $54,444 / UNIT
RECONCILED SALES COMPARISON VALUE $4,900,000 $54,444 / 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
CANYON CREST, LITTLETON, COLORADO
PART THREE - SUMMARY OF VALUE CONCLUSIONS
SALES COMPARISON APPROACH:
Price Per Unit $5,000,000
NOI Per Unit $4,900,000
EGIM Multiplier $4,700,000
INDICATED VALUE BY SALES COMPARISON $4,900,000 $54,444 / UNIT
INCOME APPROACH:
Direct Capitalization Method: $4,800,000
Discounted Cash Flow Method: $4,700,000
INDICATED VALUE BY THE INCOME APPROACH $4,800,000 $53,333 / UNIT
RECONCILED OVERALL VALUE CONCLUSION: $4,800,000 $53,333 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9
CANYON CREST, LITTLETON, COLORADO
INTRODUCTION
IDENTIFICATION OF THE SUBJECT
The subject property is located at 5754 S Lowell Way (5757 S. King Street),
Littleton, Arapahoe County, Colorado. Littleton identifies it as
2077-18-4-15-091.
SCOPE OF THE ASSIGNMENT
The property, neighborhood, and comparables were inspected by James Newell on
May 13, 2003. Douglas Needham, MAI has not made a personal inspection of the
subject property. James Newell performed the research, valuation analysis and
wrote the report. Douglas Needham, MAI reviewed the report and concurs with the
value. Both Douglas Needham, MAI and James Newell have extensive experience in
appraising similar properties and meet the USPAP competency provision.
The scope of this investigation comprises the inspection of the property and the
collection, verification, and analysis of general and specific data pertinent to
the subject property. We have researched current improved sales and leases of
similar properties, analyzing them as to their comparability, and adjusting them
accordingly. We completed the Sales Comparison and Income Capitalization
Approaches to value. From these approaches to value, a concluded overall value
was made.
DATE OF VALUE AND REPORT
This appraisal was made to express the opinion of value as of May 13, 2003. The
date of the report is June 27, 2003.
PURPOSE AND USE OF APPRAISAL
The purpose of the appraisal is to estimate the market value of the fee simple
interest in the subject property. It is understood that the appraisal is
intended to assist the clients in litigation settlement proceedings. The
appraisal was not based on a requested minimum valuation, a specific valuation,
or the approval of a loan.
PROPERTY RIGHTS APPRAISED
We have appraised the Fee Simple Estate in the subject property (as applied in
the Sales & Income Approaches), subject to the existing short-term leases. A Fee
Simple Estate is
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 10
CANYON CREST, LITTLETON, COLORADO
defined in The Dictionary of Real Estate Appraisal, 3rd ed. (Chicago: Appraisal
Institute, 1993), as:
"Absolute ownership unencumbered by any other interest or estate,
subject only to the limitations imposed by the governmental powers of
taxation, eminent domain, police power, and escheat."
MARKETING/EXPOSURE PERIOD
MARKETING PERIOD: 6 to 12 months
EXPOSURE PERIOD: 6 to 12 months
HISTORY OF THE PROPERTY
Ownership in the subject property is currently vested in Consolidated Capital
Equity Partners/Two. 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
CANYON CREST, LITTLETON, COLORADO
AREA / NEIGHBORHOOD ANALYSIS
NEIGHBORHOOD ANALYSIS
A neighborhood is a group of complementary land uses. The function of the
neighborhood analysis is to describe the immediate surrounding environs. The
subject is located in the city of Littleton, Colorado. Overall, the neighborhood
is characterized as a suburban setting with the predominant land use being
residential. The subject's neighborhood is generally defined by the following
boundaries.
NEIGHBORHOOD BOUNDARIES
East - South Federal Boulevard
West - South Sheridan Boulevard
South - West Bowles Avenue
North - West Berry Avenue
MAJOR EMPLOYERS
The property is located in the Denver Metropolitan area, within which there are
many large employers. 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
CANYON CREST, LITTLETON, COLORADO
NEIGHBORHOOD DEMOGRAPHICS
AREA
-----------------------------------------------
CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA
- -----------------------------------------------------------------------------------------------
POPULATION TRENDS
Current Population 9,517 87,266 268,685 2,198,122
5-Year Population 10,229 93,144 288,227 2,428,641
% Change CY-5Y 7.5% 6.7% 7.3% 10.5%
Annual Change CY-5Y 1.5% 1.3% 1.5% 2.1%
HOUSEHOLDS
Current Households 4,429 35,985 106,515 858,219
5-Year Projected Households 4,923 38,851 115,098 942,278
% Change CY - 5Y 11.2% 8.0% 8.1% 9.8%
Annual Change CY-5Y 2.2% 1.6% 1.6% 2.0%
INCOME TRENDS
Median Household Income $ 53,694 $ 62,698 $ 66,522 $ 60,438
Per Capita Income $ 34,904 $ 29,548 $ 29,459 $ 27,463
Average Household Income $ 75,976 $ 71,598 $ 74,264 $ 70,339
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 32.25% 29.11% 26.26% 30.19%
5-Year Projected % Renting 29.25% 27.74% 25.16% 28.87%
% of Households Owning 63.60% 64.78% 67.73% 61.93%
5-Year Projected % Owning 66.96% 66.55% 69.15% 63.83%
Source: Demographics Now
AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13
CANYON CREST, LITTLETON, COLORADO
SURROUNDING IMPROVEMENTS
The following uses surround the subject property:
North - Single-family housing
South - Rollerskating rink and multiple retail uses
East - Single-family housing
West - Industrial machine shop
CONCLUSIONS
The subject is well located within the city of Littleton. 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
CANYON CREST, LITTLETON, COLORADO
MARKET ANALYSIS
The subject property is located in the city of Littleton in Arapahoe County. The
overall pace of development in the subject's market is more or less stable.
There are no new projects currently under construction or recently completed in
the subject's neighborhood at this time. The following table illustrates
historical vacancy rates for the subject's market.
HISTORICAL VACANCY RATE
Period Region Submarket
- --------------------------------------------------------------
2002 7.8% 8.1%
2001 6.2% 5.9%
Source: Hendricks & Partners: Midsize Apartment Update, Denver
Occupancy trends in the subject's market are decreasing. Historically speaking,
the subject's submarket has underperformed the overall market. Vacancy rates in
the southern edges of metropolitan Denver have increased due to the
affordability of apartments closer to the central business districts of Denver.
This will continue until rates begin to rise and force residents to find more
affordable housing choices.
Market rents in the subject's market have been following increasing trend. The
following table illustrates historical rental rates for the subject's market.
HISTORICAL AVERAGE RENT
Period Region % Change Submarket % Change
- -----------------------------------------------------------------------------------
2001 $682 - $622 -
2002 $681 -0.1% $626 0.6%
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 Falcon Run 94 90% 1975 2 miles north of subject
R-2 Columbine Meadows 277 82% 1999 4 miles southwest of subject
R-3 Chateau Lynwood 56 93% 1970 1.5 east of the subject
R-4 Golden Nugget 204 90% 1970 Approx. 2 miles north of subject
R-5 Riverside 248 88% 1987 Approx. 2 miles north of subject
Subject Canyon Crest 90 92% 1970
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 15
CANYON CREST, LITTLETON, COLORADO
PROPERTY DESCRIPTION
SITE ANALYSIS
Site Area 3.536 acres, or 154,028 square feet
Shape Irregular
Topography Level
Utilities All necessary utilities are available to the site.
Soil Conditions Stable
Easements Affecting Site None other than typical utility easements
Overall Site Appeal Poor
Flood Zone:
Community Panel 0800170005D; 08005C0435J, dated September 29, 1989;
August 16, 1995
Flood Zone Zone X; X
Zoning PDR, the subject improvements represent a legal
conforming use of the site.
REAL ESTATE TAXES
ASSESSED VALUE - 2002
------------------------------ TAX RATE/ PROPERTY
PARCEL NUMBER LAND BUILDING TOTAL MILL RATE TAXES
- -------------------------------------------------------------------------
2077-18-4-15-091 $166,760 $203,820 $370,580 $0.07447 $27,596
IMPROVEMENT ANALYSIS
Year Built 1970
Number of Units 90
Net Rentable Area 92,212 Square Feet
Construction:
Foundation Reinforced concrete slab
Frame Composite concrete or brick and steel
Exterior Walls Brick or masonry
Roof Built-up asphalt with or without gravel over a wood
truss structure
Project Amenities Amenities at the subject include swimming pool,
spa/jacuzzi, laundry room, and parking area.
Unit Amenities Individual unit amenities include a baleony, cable TV
connection, and washer dryer connection. Appliances
available in each unit include a refrigerator, stove,
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16
CANYON CREST, LITTLETON, COLORADO
dishwasher, garbage disposal, and oven.
Unit Mix:
Unit Area
Unit Type Number of Units (Sq. Ft.)
- ---------------------------------------------------
1Bd/1Ba 30 640
2Bd/1.5Ba 30 851
2Bd/1.5Ba Townhouse 22 1,467
3Bd/2.5Ba Townhouse 8 1,901
Overall Condition Good
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 90-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
CANYON CREST, LITTLETON, COLORADO
THE VALUATION PROCEDURE
There are three traditional approaches, which can be employed in establishing
the market value of the subject property. These approaches and their
applicability to the valuation of the subject are summarized as follows:
THE COST APPROACH
The application of the Cost Approach is based on the principle of substitution.
This principle may be stated as follows: no one is justified in paying more for
a property than that amount by which he or she can obtain, by purchase of a site
and construction of a building, without undue delay, a property of equal
desirability and utility. In the case of a new building, no deficiencies in the
building should exist.
In the case of income-producing real estate, the cost of construction plays a
minor and relatively insignificant role in determining market value. The Cost
Approach is typically only a reliable indicator of value for: (a) new
properties; (b) special use properties; and (c) where the cost of reproducing
the improvements is easily and accurately quantified and there is no economic
obsolescence. In all instances, the issue of an appropriate entrepreneurial
profit - the reward for undertaking the risk of construction, remains a highly
subjective factor especially in a market lacking significant speculative
development.
THE SALES COMPARISON APPROACH
The Sales Comparison Approach is an estimate of value based upon a process of
comparing recent sales of similar properties in the surrounding or competing
areas to the subject property. Inherent in this approach is the principle of
substitution.
The application of this approach consists of comparing the subject property with
similar properties of the same general type, which have been sold recently or
currently are available for sale in competing areas. This comparative process
involves judgment as to the similarity of the subject property and the
comparable sale with respect to many value factors such as location, contract
rent levels, quality of construction, reputation and prestige, age and
condition, among others. The estimated value through this approach represents
the probable price at which a willing seller would sell the subject property to
a willing and knowledgeable buyer as of the date of value.
AMERICAN APPRAISAL ASSOCIATES, INC. VALUATION PROCEDURE PAGE 18
CANYON CREST, LITTLETON, COLORADO
THE INCOME CAPITALIZATION APPROACH
The theory of the Income Capitalization Approach is based on the premise that
present value is the value of the cash flow and reversionary value the property
will produce over a reasonable holding (ownership) period.
The Discounted Cash Flow Analysis will convert equity cash flows (including cash
flows and equity reversion) into a present value utilizing an internal rate of
return (or discount rate). The Internal Rate of Return (IRR) will be derived
from a comparison of alternate investments, a comparative analysis of IRR's used
by recent buyers of similar properties, and a review of published industry
surveys.
The Direct Capitalization Analysis converts one year of income into an overall
value using overall capitalization rates from similar sales. The overall rates
take into consideration buyers assumptions of the market over the long-term.
The results of the Income Capitalization Analysis are usually the primary value
indicator for income producing properties. Investors expect a reasonable rate of
return on their equity investment based on the ownership risks involved; this
approach closely parallels the investment decision process.
RECONCILIATION
In this instance, we have completed the Sales Comparison and Income
Capitalization Approaches to value. As an income producing property, the income
approach is a primary approach to value. The Sales Comparison Approach is also
considered reliable as investors are buying similar buildings in the market.
Our research indicates that market participants are generally not buying,
selling, investing, or lending with reliance placed on the methodology of the
Cost Approach to establish the value. Therefore, we have decided that the Cost
Approach is not a reliable indicator of value for the subject, and this approach
has not been utilized.
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 19
CANYON CREST, LITTLETON, COLORADO
SALES COMPARISON APPROACH
Use of market or comparable sales requires the collection and analysis of
comparable sales data. Similar properties recently sold are compared to the
subject and adjusted based on any perceived differences. This method is based on
the premise that the costs of acquiring a substitute property would tend to
establish a value for the subject property. The premise suggests that if a
substitute is unavailable in the market, the reliability of the approach may be
subordinate to the other approaches.
The reliance on substitute properties produces shortcomings in the validity of
this approach. Geographic and demographic characteristics from each submarket
restrict which sales may be selected. Recent sales with a similar physical
characteristics, income levels, and location are usually limited. The sales we
have identified, however, do establish general valuation parameters as well as
provide support to our conclusion derived through the income approach method.
The standard unit of comparison among similar properties is the sales price per
unit and price per square foot of net rentable area. To accurately adjust prices
to satisfy the requirements of the sales comparison approach, numerous
calculations and highly subjective judgments would be required including
consideration of numerous income and expense details for which information may
be unreliable or unknown. The sales price per unit and square foot are
considered relevant to the investment decision, but primarily as a parameter
against which value estimates derived through the income approach can be judged
and compared.
In examining the comparable sales, we have applied a subjective adjustment
analysis, which includes specific adjustments derived from our experience and
consulting with the market participants.
SALES COMPARISON ANALYSIS
Detailed on the following pages are sales transactions involving properties
located in the subject's competitive investment market.
Photographs of the sale transactions are located in the Addenda. Following the
summary of sales is an adjustment grid that is used to arrive at a value.
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 20
CANYON CREST, LITTLETON, COLORADO
SUMMARY OF COMPARABLE SALES -IMPROVED
DESCRIPTION SUBJECT COMPARABLE COMPARABLE
I - 1 I - 2
- -------------------------------------------------------------------------------------------------------
Property Name Canyon Crest Sierra Vista Sheridan South
LOCATION:
Address 5754 S Lowell 8851 E 5601 W Green
Way (5757 S. Florida Meadows Place
King Street) Avenue
City, State Littleton, Denver, Denver,
Colorado Colorado Colorado
County Arapahoe Arapahoe Denver
PHYSICAL
CHARACTERISTICS:
Net Rentable Area 92,212 133,860 144,106
(SF)
Year Built 1970 1976 1961
Number of Units 90 209 201
Unit Mix: Type Total Type Total Type Total
1Bd/1Ba 30 1Bd/1Ba 152 1Bd/1Ba 103
2Bd/1.5Ba 30 2Bd/1Ba 57 2Bd/1Ba 82
2Bd/1.5Ba 22 3Bd/2Ba 16
Townhouse
3Bd/2.5Ba 8
Townhouse
Average Unit Size 1,025 640 717
(SF)
Land Area (Acre) 3.5360 5.9700 5.4000
Density (Units/Acre) 25.5 35.0 37.2
Parking Ratio 1.50 1.05 1.69
(Spaces/Unit)
Parking Type (Gr., Open Open Open
Cov., etc.)
CONDITION: 0 Fair Average
APPEAL: 0 Fair Average
AMENITIES:
Pool/Spa Yes/Yes No/No No/No
Gym Room No No No
Laundry Room Yes Yes Yes
Secured Parking No No No
Sport Courts No No No
OCCUPANCY: 92% 95% 90%
TRANSACTION DATA:
Sale Date March, 2003 August, 2002
Sale Price ($) $9,400,000 $8,600,000
Grantor Sundance Kinnickinnic
Housing Assoc Realty Company
Grantee Coolidge Sheridan
Sierra Family
Partnership
Sale Documentation 3018857 N/A
Verification Buyer's Broker Public Records
Telephone Number 720-528-6300
- -------------------------------------------------------------------------------------------------
ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF
- -------------------------------------------------------------------------------------------------
Potential Gross Income $ 1,741,656 $8,333 $13.01 $1,439,400 $7,161 $9.99
Vacancy/Credit Loss $ 87.083 $ 417 $ 0.65 $ 143,940 $ 716 $1.00
-----------------------------------------------------
Effective Gross Income $ 1,654,573 $7,917 $12.36 $1,295,460 $6,445 $8.99
Operating Expenses $ 724,283 $3,465 $ 5.41 $ 582,957 $2,900 $4.05
-----------------------------------------------------
Net Operating Income $ 930,290 $4,451 $ 6.95 $ 712,503 $3,545 $4.94
- -------------------------------------------------------------------------------------------------
NOTES:
PRICE PER UNIT $ 44,976 $ 42,786
PRICE PER SQUARE FOOT $ 70.22 $ 59.68
EXPENSE RATIO 43.8% 45.0%
EGIM 5.68 6.64
OVERALL CAP RATE 9.90% 8.28%
Cap Rate based on
Pro Forma or Actual PRO FORMA PRO FORMA
Income?
DESCRIPTION COMPARABLE COMPARABLE COMPARABLE
I - 3 I - 4 I - 5
- -------------------------------------------------------------------------------------------------------
Property Name Fairview Orchard Glen Forest Manor
LOCATION:
Address 14594 E 3131 W Mexico 615 S Forest
Mississippi Avenue Street
Avenue
City, State Aurora, Denver, Denver,
Colorado Colorado Colorado
County Arapahoe Denver Denver
PHYSICAL
CHARACTERISTICS:
Net Rentable Area 77,640 86,994 75,650
(SF)
Year Built 1974 1973 1974
Number of Units 100 114 103
Unit Mix: Type Total Type Total Type Total
1Bd/1Ba 20 1Bd/1Ba 9 1Bd/1Ba 45
2Bd/1Ba 50 2Bd/1Ba 39 2Bd/1Ba 58
3Bd/1.5Ba 20 3Bd/2Ba 50
4Bd/1.5 10 4Bd/2Ba 9
5Bd/2Ba 7
Average Unit Size 776 763 734
(SF)
Land Area (Acre) 7.0600 4.3900 2.4300
Density (Units/Acre) 14.2 26.0 42.4
Parking Ratio 1.94 1.30 1.61
(Spaces/Unit)
Parking Type (Gr., Open Open Open
Cov., etc.)
CONDITION: Average Average Average
APPEAL: Average Average Average
AMENITIES:
Pool/Spa No/No No/No No/No
Gym Room No No No
Laundry Room Yes Yes No
Secured Parking No No No
Sport Courts No No No
OCCUPANCY: 95% 98% 94%
TRANSACTION DATA:
Sale Date February, 2003 November, 2002 January, 2002
Sale Price ($) $6,850,000 $6,800,000 $5,775,000
Grantor Vision Real McKinney Forest
Estate Mason Street
Investments, Inc. Company
Grantee Apache 10 Sandra Forest
Enterprises Foxley Manor
Sale Documentation APA-11592 N/A N/A
Verification Buyer's Broker Broker Public Records
Telephone Number 303-321-5888
- -----------------------------------------------------------------------------------------------------
ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF
- -----------------------------------------------------------------------------------------------------
Potential Gross Income $1,021,800 $10,218 $13.16 $1,428,105 $12,527 $16.42 $803,380 $7,805 $10.63
Vacancy/Credit Loss $ 51,090 $ 511 $ 0.66 $ 71,405 $ 626 $ 0.82 $ 48,233 $ 468 $ 0.64
-----------------------------------------------------------------------------
Effective Gross Income $ 970,710 $ 9,707 $12.50 $1,356,700 $11,901 $15.60 $755,647 $7,336 $ 9.99
Operating Expenses $ 281,339 $ 2,813 $ 3.62 $ 649,715 $ 5,699 $ 7.47 $377,824 $3,668 $ 4.99
-----------------------------------------------------------------------------
Net Operating Income $ 689,371 $ 6,894 $ 8.88 $ 706,985 $ 6,202 $ 8.13 $377,823 $3,668 $ 4.99
- -----------------------------------------------------------------------------------------------------
NOTES:
PRICE PER UNIT $68,500 $59,649 $56,068
PRICE PER SQUARE FOOT $88.23 $78.17 $76.34
EXPENSE RATIO 29.0% 47.9% 50.0%
EGIM 7.06 5.01 7.64
OVERALL CAP RATE 10.06% 10.40% 6.54%
Cap Rate based on
Pro Forma or Actual PRO FORMA PRO FORMA PRO FORMA
Income?
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 21
CANYON CREST, LITTLETON, COLORADO
IMPROVED SALES MAP
[IMPROVED SALES MAP]
IMPROVED SALES ANALYSIS
The improved sales indicate a sales price range from $42,786 to $68,500 per
unit. Adjustments have been made to the sales to reflect differences in
location, age/condition and quality/appeal. Generally speaking, larger
properties typically have a lower price per unit when compared to smaller
properties, all else being equal. Similarly, those projects with a higher
average unit size will generally have a higher price per unit. After appropriate
adjustments are made, the improved sales demonstrate an adjusted range for the
subject from $53,265 to $58,225 per unit with a mean or average adjusted price
of $56,428 per unit. The median adjusted price is $56,667 per unit. Based on the
following analysis, we have concluded to a value of $56,000 per unit, which
results in an "as is" value of $5,000,000 (rounded after necessary adjustment,
if any).
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22
CANYON CREST, LITTLETON, COLORADO
SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE
DESCRIPTION SUBJECT I - 1 I - 2
- -----------------------------------------------------------------------------------------------------------------------------------
Property Name Canyon Crest Sierra Vista Sheridan South
Address 5754 S Lowell Way (5757 S. 8851 E Florida Avenue 5601 W Green Meadows Place
King Street)
City Littleton, Colorado Denver, Colorado Denver, Colorado
Sale Date March, 2003 August, 2002
Sale Price ($) $9,400,000 $8,600,000
Net Rentable Area (SF) 92,212 133,860 144,106
Number of Units 90 209 201
Price Per Unit $44,976 $42,786
Year Built 1970 1976 1961
Land Area (Acre) 3,5360 5,9700 5,4000
VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ.
Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0%
Financing Cash To Seller 0% Cash To Seller 0%
Conditions of Sale Arm's Length 0% Arm's Length 0%
Date of Sale (Time) 03-2003 0% 08-2002 0%
VALUE AFTER TRANS. ADJUST. ($/UNIT) $44,976 $42,786
Location Inferior 10% Comparable 0%
Number of Units 90 209 5% 201 5%
Quality / Appeal Average Comparable 0% Inferior 10%
Age / Condition 1970 1976 / Fair 0% 1961 / Average 10%
Occupancy at Sale 92% 95% 0% 90% 0%
Amenities Average Comparable 0% Comparable 0%
Average Unit Size (SF) 1,025 640 10% 717 10%
PHYSICAL ADJUSTMENT 25% 35%
FINAL ADJUSTED VALUE ($/UNIT) $56,220 $57,761
COMPARABLE COMPARABLE COMPARABLE
DESCRIPTION I - 3 I - 4 I - 5
- ---------------------------------------------------------------------------------------------------------------------------------
Property Name Fairview Orchard Glen Forest Manor
Address 14594 E Mississippi Avenue 3131 W Mexico Avenue 615 S Forest Street
City Aurora, Colorado Denver, Colorado Denver, Colorado
Sale Date February, 2003 November, 2002 January, 2002
Sale Price ($) $6,850,000 $6,800,000 $5,775,000
Net Rentable Area (SF) 77,640 86,994 75,650
Number of Units 100 114 103
Price Per Unit $68,500 $59,649 $56,068
Year Built 1974 1973 1974
Land Area (Acre) 7,0600 4,3900 2,4300
VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ.
Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0%
Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0%
Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0%
Date of Sale (Time) 02-2003 0% 11-2002 0% 01-2002 0%
VALUE AFTER TRANS. ADJUST. ($/UNIT) $68,500 $59,649 $56,068
Location Comparable 0% Comparable 0% Comparable 0%
Number of Units 100 0% 114 0% 103 0%
Quality / Appeal Superior -20% Superior -10% Superior -10%
Age / Condition 1974 / Average 0% 1973 / Average 0% 1974 / Average 0%
Occupancy at Sale 95% 0% 98% 0% 94% 0%
Amenities Comparable 0% Comparable 0% Comparable 0%
Average Unit Size (SF) 776 5% 763 5% 734 5%
PHYSICAL ADJUSTMENT -15% -5% -5%
FINAL ADJUSTED VALUE ($/UNIT) $58,225 $56,667 $53,265
SUMMARY
VALUE RANGE (PER UNIT) $53,265 TO $58,225
MEAN (PER UNIT) $56,428
MEDIAN (PER UNIT) $56,667
VALUE CONCLUSION (PER UNIT) $56,000
VALUE OF IMPROVEMENT & MAIN SITE $5,040,000
PV OF CONCESSIONS -$ 66,000
VALUE INDICATED BY SALES COMPARISON APPROACH $4,974,000
ROUNDED $5,000,000
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
CANYON CREST, LITTLETON, COLORADO
NOI PER UNIT COMPARISON
- -----------------------------------------------------------------------------------------------
SALE PRICE NOI/ SUBJECT NOI
COMPARABLE NO. OF ---------- -------- -------------- ADJUSTMENT INDICATED
NO. UNITS PRICE/UNIT OAR NOI/UNIT SUBJ. NOI/UNIT FACTOR VALUE/UNIT
- -----------------------------------------------------------------------------------------------
I-1 209 $9,400,000 9.90% $930,290 $514,780 1.285 $57,795
$ 44,976 $ 4,451 $ 5,720
I-2 201 $8,600,000 8.28% $712,503 $514,780 1.614 $69,038
$ 42,786 $ 3,545 $ 5,720
I-3 100 $6,850,000 10.06% $689,371 $514,780 0.830 $56,835
$ 68,500 $ 6,894 $ 5,720
I-4 114 $6,800,000 10.40% $706,985 $514,780 0.922 $55,015
$ 59,649 $ 6,202 $ 5,720
I-5 103 $5,775,000 6.54% $377,823 $514,780 1.559 $87,426
$ 56,068 $ 3,668 $ 5,720
PRICE/UNIT VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT
- -------------------------------------------------------------------------------------------------------
Low High Average Median Estimated Price Per Unit $ 55,500
----------
$55,015 $87,426 $65,222 $57,795 Number of Units 90
Value $4,995,000
PV of Concessions -$ 66,000
----------
Value Based on NOI Analysis $4,929,000
Rounded $4,900,000
The adjusted sales indicate a range of value between $55,015 and $87,426 per
unit, with an average of $65,222 per unit. Based on the subject's competitive
position within the improved sales, a value of $55,500 per unit is estimated.
This indicates an "as is" market value of $4,900,000 (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 24
CANYON CREST, LITTLETON, COLORADO
EFFECTIVE GROSS INCOME MULTIPLIER COMPARISON
- --------------------------------------------------------------------------------------------
SALE PRICE
COMPARABLE NO. OF ---------- EFFECTIVE OPERATING SUBJECT
NO. UNITS PRICE/UNIT GROSS INCOME EXPENSE OER PROJECTED OER EGIM
- --------------------------------------------------------------------------------------------
I-1 209 $9,400,000 $1,654,573 $ 724,283 43.77% 5.68
$ 44,976
I-2 201 $8,600,000 $1,295,460 $ 582,957 45.00% 6.64
$ 42,786
I-3 100 $6,850,000 $ 970,710 $ 281,339 28.98% 7.06
$ 68,500 35.10%
I-4 114 $6,800,000 $1,356,700 $ 649,715 47.89% 5.01
$ 59,649
I-5 103 $5,775,000 $ 755,647 $ 377,824 50.00% 7.64
$ 56,068
EGIM VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES
- ------------------------------------------------------------------------------------------------------
Low High Average Median Estimate EGIM 5.80
----------
5.01 7.64 6.41 6.64 Subject EGI $ 820,874
Value $4,761,068
PV of Concessions -$ 66,000
----------
Value Based on EGIM Analysis $4,695,068
Rounded $4,700,000
Value Per Unit $ 52,222
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 35.10% before reserves. The comparable sales
indicate a range of expense ratios from 28.98% to 50.00%, while their EGIMs
range from 5.01 to 7.64. Overall, we conclude to an EGIM of 5.80, which results
in an "as is" value estimate in the EGIM Analysis of $4,700,000.
SALES COMPARISON CONCLUSION
The three valuation methods in the Sales Comparison Approach are shown below.
The overall value via the Sales Comparison Approach is estimated at $4,900,000.
Price Per Unit $5,000,000
NOI Per Unit $4,900,000
EGIM Analysis $4,700,000
Sales Comparison Conclusion $4,900,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 25
CANYON CREST, LITTLETON, COLORADO
INCOME CAPITALIZATION APPROACH
The income capitalization approach is based on the premise that value is created
by the expectation of future benefits. We estimated the present value of those
benefits to derive an indication of the amount that a prudent, informed
purchaser-investor would pay for the right to receive them as of the date of
value.
This approach requires an estimate of the NOI of a property. The estimated NOI
is then converted to a value indication by use of either the direct
capitalization or the discounted cash flow analysis (yield capitalization).
Direct capitalization uses a single year's stabilized NOI as a basis for a value
indication by dividing the income by a capitalization rate. The rate chosen
accounts for a recapture of the investment by the investor and should reflect
all factors that influence the value of the property, such as tenant quality,
property condition, neighborhood change, market trends, interest rates, and
inflation. The rate may be extracted from local market transactions or, when
transaction evidence is lacking, obtained from trade sources.
A discounted cash flow analysis focuses on the operating cash flows expected
from the property and the proceeds of a hypothetical sale at the end of a
holding period (the reversion). The cash flows and reversion are discounted to
their present values using a market-derived discount rate and are added together
to obtain a value indication. Because benefits to be received in the future are
worth less than the same benefits received in the present, this method weights
income in the early years more heavily than the income and the sale proceeds to
be received later. The strength of the discounted cash flow method is its
ability to recognize variations in projected net income, such as those caused by
inflation, stepped leases, neighborhood change, or tenant turnover. Its weakness
is that it requires many judgments regarding the actions of likely buyers and
sellers of the property in the future.
In some situations, both methods yield a similar result. The discounted cash
flow method is typically more appropriate for the analysis of investment
properties with multiple or long-term leases, particularly leases with
cancellation clauses or renewal options. It is especially useful for
multi-tenant properties in volatile markets. The direct capitalization
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26
CANYON CREST, LITTLETON, COLORADO
method is normally more appropriate for properties with relatively stable
operating histories and expectations.
A pro forma analysis for the first year of the investment is made to estimate a
reasonable potential net operating income for the Subject Property. Such an
analysis entails an estimate of the gross income the property should command in
the marketplace. From this total gross income must be deducted an allowance for
vacancy/collection loss and operating expenses as dictated by general market
conditions and the overall character of the subject's tenancy and leased income
to arrive at a projected estimate of net operating income. Conversion of the net
operating income to an indication of value is accomplished by the process of
capitalization, as derived primarily from market data.
MARKET RENT ANALYSIS
In order to determine a market rental rate for the subject, a survey of
competing apartment communities was performed. This survey was displayed
previously in the market analysis section of the report. Detailed information
pertaining to each of the comparable rental communities, along with photographs,
is presented in the Addenda of this report.
The following charts display the subject's current asking and actual rent rates
as well as a comparison with the previous referenced comparable rental
properties.
SUMMARY OF ACTUAL AVERAGE RENTS
- ---------------------------------------------------------------
Average
Unit Area -----------------
Unit Type (Sq. Ft.) Per Unit Per SF %Occupied
- ---------------------------------------------------------------
1Bd/1Ba 640 $ 638 $1.00 93.1%
2Bd/1.5Ba 851 $ 762 $0.90 86.7%
2Bd/1.5Ba Townhouse 1467 $1,088 $0.74 95.5%
3Bd/2.5Ba Townhouse 1901 $1,183 $0.62 100.0%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 27
CANYON CREST, LITTLETON, COLORADO
RENT ANALYSIS
COMPARABLE RENTS
--------------------------------------------------------------------
R-1 R-2 R-3 R-4 R-5
--------------------------------------------------------------------
Columbine Chateau Golden
Falcon Run Meadows Lynwood Nugget Riverside
--------------------------------------------------------------------
SUBJECT SUBJECT COMPARISON TO SUBJECT
SUBJECT UNIT ACTUAL ASKING --------------------------------------------------------------------
DESCRIPTION TYPE RENT RENT Similar Very Superior Slightly Inferior Similar Superior
- ---------------------------------------------------------------------------------------------------------------------------------
Monthly Rent 1BD/1BA $ 638 $ 649 $ 675 $ 680 $ 709
Unit Area (SF) 640 640 642 700 756
Monthly Rent Per Sq.Ft. $ 1.00 $ 1.01 $ 1.05 $0.97 $ 0.94
Monthly Rent 2BD/1.5BA $ 762 $ 739 $ 830 $ 780 $ 819
Unit Area (SF) 851 851 949 900 925
Monthly Rent Per Sq.Ft. $ 0.90 $ 0.87 $ 0.87 $0.87 $ 0.89
Monthly Rent 2BD/1.5BA $1,088 $1,049 $ 943 $1,089
Unit Area (SF) TOWNHOUSE 1,467 1,467 1,436 1,158
Monthly Rent Per Sq.Ft. $ 0.74 $ 0.72 $ 0.66 $ 0.94
Monthly Rent 3BD/2.5BA $1,183 $1,170 $1,015 $1,028
Unit Area (SF) TOWNHOUSE 1,901 1,901 1,064 1,552
Monthly Rent Per Sq.Ft. $ 0.62 $ 0.62 $ 0.95 $ 0.66
DESCRIPTION MIN MAX MEDIAN AVERAGE
- -------------------------------------------------------------
Monthly Rent $ 709 $ 678 $ 688
Unit Area (SF) 756 671 699
Monthly Rent Per Sq.Ft. $ 0.94 $ 1.05 $ 0.97 $ 0.99
Monthly Rent $ 830 $ 800 $ 810
Unit Area (SF) 949 913 925
Monthly Rent Per Sq.Ft. $ 0.87 $ 0.89 $ 0.87 $ 0.88
Monthly Rent $ 943 $1,089 $1,016 $1,016
Unit Area (SF) 1,158 1,436 1,297 1,297
Monthly Rent Per Sq.Ft. $ 0.66 $ 0.94 $ 0.80 $ 0.80
Monthly Rent $1,015 $1,028 $1,021 $1,021
Unit Area (SF) 1,064 1,552 1,308 1,308
Monthly Rent Per Sq.Ft. $ 0.66 $ 0.95 $ 0.81 $ 0.81
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
- ------------------------------------------------------------------------------------------------
1Bd/1Ba 30 640 $ 645 $1.01 $19,350 $232,200
2Bd/1.5Ba 30 851 $ 740 $0.87 $22,200 $266,400
2Bd/1.5Ba Townhouse 22 1,467 $1,050 $0.72 $23,100 $277,200
3Bd/2.5Ba Townhouse 8 1,901 $1,170 $0.62 $ 9,360 $112,320
------- --------
Total $74,010 $888,120
------- --------
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
CANYON CREST, LITTLETON, COLORADO
SUMMARY OF HISTORICAL INCOME & EXPENSES
FISCAL YEAR 2000 FISCAL YEAR 2001 FISCAL YEAR 2002 FISCAL YEAR 2003
------------------------------------------------------------------------------------------------------
ACTUAL ACTUAL ACTUAL MANAGEMENT BUDGET
------------------------------------------------------------------------------------------------------
DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT
- -----------------------------------------------------------------------------------------------------------------------------------
Revenues
Rental Income $ 870,341 $ 9,670 $ 910,911 $ 10,121 $ 555,024 $ 6,167 $ 876,000 $ 9,733
Vacancy $ 41,105 $ 457 $ 45,565 $ 506 $ 52,007 $ 578 $ 98,000 $ 1,089
Credit Loss/Concessions $ 4,638 $ 52 $ 13,093 $ 145 $ 10,334 $ 115 $ 21,500 $ 239
----------------------------------------------------------------------------------------------------
Subtotal $ 45,743 $ 508 $ 58,658 $ 652 $ 62,341 $ 693 $ 119,500 $ 1,328
Laundry Income $ 8,339 $ 93 $ 7,447 $ 83 $ 3,758 $ 42 $ 9,449 $ 105
Garage Revenue $ 5,068 $ 56 $ 5,891 $ 65 $ 3,193 $ 35 $ 0 $ 0
Other Misc. Revenue $ 48,872 $ 543 $ 42,097 $ 468 $ 43,235 $ 480 ($ 9,054) -$ 101
----------------------------------------------------------------------------------------------------
Subtotal Other Income $ 62,279 $ 692 $ 55,435 $ 616 $ 50,186 $ 558 $ 395 $ 4
----------------------------------------------------------------------------------------------------
Effective Gross Income $ 886,877 $ 9,854 $ 907,688 $ 10,085 $ 542,869 $ 6,032 $ 756,895 $ 8,410
Operating Expenses
Taxes $ 26,612 $ 296 $ 45,966 $ 511 $ 35,505 $ 395 $ 45,120 $ 501
Insurance $ 8,820 $ 98 $ 11,909 $ 132 $ 41,320 $ 459 $ 4,184 $ 46
Utilities $ 58,204 $ 647 $ 69,269 $ 770 $ 33,833 $ 376 $ 55,000 $ 611
Repair & Maintenance $ 42,254 $ 469 $ 27,202 $ 302 $ 29,928 $ 333 $ 33,750 $ 375
Cleaning $ 19,053 $ 212 $ 14,667 $ 163 $ 10,157 $ 113 $ 4,000 $ 44
Landscaping $ 4,297 $ 48 $ 4,744 $ 53 $ 1,044 $ 12 $ 4,000 $ 44
Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Marketing & Leasing $ 15,978 $ 178 $ 6,438 $ 72 $ 9,937 $ 110 $ 9,500 $ 106
General Administrative $ 87,367 $ 971 $ 72,019 $ 800 $ 59,966 $ 666 $ 104,300 $ 1,159
Management $ 45,301 $ 503 $ 51,146 $ 568 $ 28,667 $ 319 $ 45,430 $ 505
Miscellaneous ($ 15,199) -$ 169 ($ 19,455) -$ 216 ($ 152) -$ 2 $ 0 $ 0
----------------------------------------------------------------------------------------------------
Total Operating Expenses $ 292,687 $ 3,252 $ 283,905 $ 3,155 $ 250,205 $ 2,780 $ 305,284 $ 3,392
Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
----------------------------------------------------------------------------------------------------
Net Income $ 594,190 $ 6,602 $ 623,783 $ 6,931 $ 292,664 $ 3,252 $ 451,611 $ 5,018
ANNUALIZED 2003
----------------------
PROJECTION AAA PROJECTION
------------------------------------------------------
DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT %
- -----------------------------------------------------------------------------------
Revenues
Rental Income $ 839,560 $ 9,328 $ 888,120 $ 9,868 100.0%
Vacancy $ 136,332 $ 1,515 $ 97,693 $ 1,085 11.0%
Credit Loss/Concessions $ 27,188 $ 302 $ 22,203 $ 247 2.5%
----------------------------------------------------
Subtotal $ 163,520 $ 1,817 $ 119,896 $ 1,332 13.5%
Laundry Income $ 6,100 $ 68 $ 4,500 $ 50 0.5%
Garage Revenue $ 5,060 $ 56 $ 4,500 $ 50 0.5%
Other Misc. Revenue $ 55,764 $ 620 $ 43,650 $ 485 4.9%
----------------------------------------------------
Subtotal Other Income $ 66,924 $ 744 $ 52,650 $ 585 5.9%
----------------------------------------------------
Effective Gross Income $ 742,964 $ 8,255 $ 820,874 $ 9,121 100.0%
Operating Expenses
Taxes $ 51,200 $ 569 $ 35,550 $ 395 4.3%
Insurance $ 16,808 $ 187 $ 16,200 $ 180 2.0%
Utilities $ 58,776 $ 653 $ 54,000 $ 600 6.6%
Repair & Maintenance $ 57,884 $ 643 $ 31,500 $ 350 3.8%
Cleaning $ 16,228 $ 180 $ 10,350 $ 115 1.3%
Landscaping $ 800 $ 9 $ 2,700 $ 30 0.3%
Security $ 5,596 $ 62 $ 5,400 $ 60 0.7%
Marketing & Leasing $ 31,824 $ 354 $ 10,350 $ 115 1.3%
General Administrative $ 104,204 $ 1,158 $ 81,000 $ 900 9.9%
Management $ 40,196 $ 447 $ 41,044 $ 456 5.0%
Miscellaneous $ 2,856 $ 32 $ 0 $ 0 0.0%
----------------------------------------------------
Total Operating Expenses $ 386,372 $ 4,293 $ 288,094 $ 3,201 35.1%
Reserves $ 0 $ 0 $ 18,000 $ 200 6.2%
----------------------------------------------------
Net Income $ 356,592 $ 3,962 $ 514,780 $ 5,720 62.7%
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 14% based on
the subject's historical performance, as well as the anticipated future market
conditions.
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 29
CANYON CREST, LITTLETON, COLORADO
RESERVES FOR REPLACEMENT
"Reserves for replacements" is a contingency account allocated to the expenses
of the property to provide for replacement of short-lived items and for
unforeseen necessary capital expenditures. We have utilized the Korpacz Real
Estate Investor Survey of the national apartment market, which reports a range
of replacement reserves between $150 and $400 per unit. For purposes of this
analysis, we have included an allowance of $200 per unit for reserves for
replacement.
CAPITAL EXPENDITURES
Capital expenditures represent expenses for immediate repair or replacement of
items that have average to long lives. Based on our inspection of the property
as well as discussions with property management personnel, there are no major
items remaining in need of repair or replacement that would require an expense
beyond our reserves for replacement. Therefore an allowance of $200 per unit
should be satisfactory in our reserves for replacement to cover future capital
expenditures.
DISCOUNTED CASH FLOW ANALYSIS
As the subject is a multi-tenant income property, the Discounted Cash Flow
Method is considered appropriate. This method is especially meaningful in that
it isolates the timing of the annual cash flows and discounts them, along with
the expected equity reversion, to a present value. The present value of the cash
flow is added to the present value of the reversion, resulting in a total
property value.
INVESTMENT CRITERIA
Appropriate investment criteria will be derived for the subject based upon
analysis of comparable sales and a survey of real estate investors. The
following table summarizes the findings of Korpacz National Investor Survey for
the most recent period.
KORPACZ NATIONAL INVESTOR SURVEY
1ST QUARTER 2003
NATIONAL APARTMENT MARKET
CAPITALIZATION RATES
-------------------------------------------
GOING-IN TERMINAL
-------------------------------------------
LOW HIGH LOW HIGH
-------------------------------------------
RANGE 6.00% 10.00% 7.00% 10.00%
AVERAGE 8.14% 8.47%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30
CANYON CREST, LITTLETON, COLORADO
SUMMARY OF OVERALL
CAPITALIZATION RATES
- ---------------------------------------------------------
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR
- ---------------------------------------------------------
I-1 Mar-03 95% $44,976 9.90%
I-2 Aug-02 90% $42,786 8.28%
I-3 Feb-03 95% $68,500 10.06%
I-4 Nov-02 98% $59,649 10.40%
I-5 Jan-02 94% $56,068 6.54%
------------------
High 10.40%
------------------
Low 6.54%
------------------
Average 9.04%
------------------
Based on this information, we have concluded the subject's overall
capitalization rate should be 10.50%. 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 11.00%. Finally, the subject's discount rate
or yield rate is estimated based on the previous investor survey and an
examination of returns available on alternative investments in the market. Based
on this analysis, the subject's discount rate is estimated to be 13.00%.
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 13.00% indicates a value of $4,700,000. In this instance, the reversion
figure contributes
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 31
CANYON CREST, LITTLETON, COLORADO
approximately 36% of the total value. Investors surveyed for this assignment
indicated they would prefer to have the cash flow contribute anywhere from 50%
to 60%. Overall, the blend seems reasonable. The cash flow and pricing matrix
are located on the following pages.
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 32
CANYON CREST, LITTLETON, COLORADO
DISCOUNTED CASH FLOW ANALYSIS
CANYON CREST
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009
FISCAL YEAR 1 2 3 4 5 6
- -------------------------------------------------------------------------------------------------------------------------
REVENUE
Base Rent $ 888,120 $ 888,120 $ 897,001 $ 923,911 $ 951,629 $ 980,177
Vacancy $ 97,693 $ 97,693 $ 98,670 $ 101,630 $ 104,679 $ 107,820
Credit Loss $ 22,203 $ 22,203 $ 22,425 $ 23,098 $ 23,791 $ 24,504
Concessions $ 74,520 $ 0 $ 0 $ 0 $ 0 $ 0
--------------------------------------------------------------------------------
Subtotal $ 194,416 $ 119,896 $ 121,095 $ 124,728 $ 128,470 $ 132,324
Laundry Income $ 4,500 $ 4,500 $ 4,545 $ 4,681 $ 4,822 $ 4,966
Garage Revenue $ 4,500 $ 4,500 $ 4,545 $ 4,681 $ 4,822 $ 4,966
Other Misc. Revenue $ 43,650 $ 43,650 $ 44,087 $ 45,409 $ 46,771 $ 48,175
--------------------------------------------------------------------------------
Subtotal Other Income $ 52,650 $ 52,650 $ 53,177 $ 54,772 $ 56,415 $ 58,107
--------------------------------------------------------------------------------
EFFECTIVE GROSS INCOME $ 746,354 $ 820,874 $ 829,083 $ 853,955 $ 879,574 $ 905,961
OPERATING EXPENSES:
Taxes $ 35,550 $ 36,617 $ 37,715 $ 38,846 $ 40,012 $ 41,212
Insurance $ 16,200 $ 16,686 $ 17,187 $ 17,702 $ 18,233 $ 18,780
Utilities $ 54,000 $ 55,620 $ 57,289 $ 59,007 $ 60,777 $ 62,601
Repair & Maintenance $ 31,500 $ 32,445 $ 33,418 $ 34,421 $ 35,454 $ 36,517
Cleaning $ 10,350 $ 10,661 $ 10,980 $ 11,310 $ 11,649 $ 11,998
Landscaping $ 2,700 $ 2,781 $ 2,864 $ 2,950 $ 3,039 $ 3,130
Security $ 5,400 $ 5,562 $ 5,729 $ 5,901 $ 6,078 $ 6,260
Marketing & Leasing $ 10,350 $ 10,661 $ 10,980 $ 11,310 $ 11,649 $ 11,998
General Administrative $ 81,000 $ 83,430 $ 85,933 $ 88,511 $ 91,166 $ 93,901
Management $ 37,318 $ 41,044 $ 41,454 $ 42,698 $ 43,979 $ 45,298
Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
--------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES $ 284,368 $ 295,505 $ 303,549 $ 312,656 $ 322,036 $ 331,697
Reserves $ 18,000 $ 18,540 $ 19,096 $ 19,669 $ 20,259 $ 20,867
--------------------------------------------------------------------------------
NET OPERATING INCOME $ 443,986 $ 506,829 $ 506,437 $ 521,630 $ 537,279 $ 553,397
Operating Expense Ratio (% of EGI) 38.1% 36.0% 36.6% 36.6% 36.6% 36.6%
Operating Expense Per Unit $ 3,160 $ 3,283 $ 3,373 $ 3,474 $ 3,578 $ 3,686
YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014
FISCAL YEAR 7 8 9 10 11
- ----------------------------------------------------------------------------------------------------------
REVENUE
Base Rent $1,009,583 $1,039,870 $1,071,066 $1,103,198 $1,136,294
Vacancy $ 111,054 $ 114,386 $ 117,817 $ 121,352 $ 124,992
Credit Loss $ 25,240 $ 25,997 $ 26,777 $ 27,580 $ 28,407
Concessions $ 0 $ 0 $ 0 $ 0 $ 0
------------------------------------------------------------------
Subtotal $ 136,294 $ 140,382 $ 144,594 $ 148,932 $ 153,400
Laundry Income $ 5,115 $ 5,269 $ 5,427 $ 5,590 $ 5,757
Garage Revenue $ 5,115 $ 5,269 $ 5,427 $ 5,590 $ 5,757
Other Misc. Revenue $ 49,620 $ 51,108 $ 52,642 $ 54,221 $ 55,847
------------------------------------------------------------------
Subtotal Other Income $ 59,851 $ 61,646 $ 63,496 $ 65,400 $ 67,362
------------------------------------------------------------------
EFFECTIVE GROSS INCOME $ 933,140 $ 961,134 $ 989,968 $1,019,667 $1,050,257
OPERATING EXPENSES:
Taxes $ 42,449 $ 43,722 $ 45,034 $ 46,385 $ 47,776
Insurance $ 19,344 $ 19,924 $ 20,522 $ 21,137 $ 21,771
Utilities $ 64,479 $ 66,413 $ 68,406 $ 70,458 $ 72,571
Repair & Maintenance $ 37,613 $ 38,741 $ 39,903 $ 41,100 $ 42,333
Cleaning $ 12,358 $ 12,729 $ 13,111 $ 13,504 $ 13,910
Landscaping $ 3,224 $ 3,321 $ 3,420 $ 3,523 $ 3,629
Security $ 6,448 $ 6,641 $ 6,841 $ 7,046 $ 7,257
Marketing & Leasing $ 12,358 $ 12,729 $ 13,111 $ 13,504 $ 13,910
General Administrative $ 96,718 $ 99,620 $ 102,608 $ 105,687 $ 108,857
Management $ 46,657 $ 48,057 $ 49,498 $ 50,983 $ 52,513
Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0
------------------------------------------------------------------
TOTAL OPERATING EXPENSES $ 341,648 $ 351,897 $ 362,454 $ 373,328 $ 384,527
Reserves $ 21,493 $ 22,138 $ 22,802 $ 23,486 $ 24,190
------------------------------------------------------------------
NET OPERATING INCOME $ 569,999 $ 587,099 $ 604,712 $ 622,853 $ 641,539
Operating Expense Ratio (% of EGI) 36.6% 36.6% 36.6% 36.6% 36.6%
Operating Expense Per Unit $ 3,796 $ 3,910 $ 4,027 $ 4,148 $ 4,273
Gross Residual Sale Deferred Maintenance $ 0
Price $5,832,173
Estimated Stabilized NOI $514,780 Sales Expense Rate 2.00% Less: Sales Expense $ 116,643 Add: Excess Land $ 0
Months to Stabilized 9 Discount Rate 13.00% ----------
Stabilized Occupancy 89.0% Terminal Cap Rate 11.00% Net Residual Sale Price $5,715,530 Other Adjustments $ 0
PV of Reversion $1,683,729 ----------
Add: NPV of NOI $3,033,321 Value Indicated By "DCF" $4,717,050
---------- Rounded $4,700,000
PV Total $4,717,050
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE
--------------------------------------------------------------
TOTAL VALUE 12.50% 12.75% 13.00% 13.25% 13.50%
- ----------------------------------------------------------------------------------
10.50% $4,947,115 $4,871,375 $4,797,227 $4,724,634 $4,653,558
10.75% $4,904,234 $4,829,435 $4,756,206 $4,684,510 $4,614,308
TERMINAL 11.00% $4,863,302 $4,789,401 $4,717,050 $4,646,209 $4,576,843
CAP RATE 11.25% $4,824,190 $4,751,147 $4,679,633 $4,609,611 $4,541,043
11.50% $4,786,777 $4,714,556 $4,643,844 $4,574,604 $4,506,799
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 33
CANYON CREST, LITTLETON, COLORADO
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
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
$66,000 (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 10.50% percent is applicable to the
subject. The results of our direct capitalization analysis are as follows:
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 34
CANYON CREST, LITTLETON, COLORADO
CANYON CREST
TOTAL PER SQ. FT. PER UNIT %OF EGI
----------------------------------------------------
REVENUE
Base Rent $ 888,120 $ 9.63 $ 9,868
Less: Vacancy & Collection Loss 13.50% $ 119,896 $ 1.30 $ 1,332
Plus: Other Income
Laundry Income $ 4,500 $ 0.05 $ 50 0.55%
Garage Revenue $ 4,500 $ 0.05 $ 50 0.55%
Other Misc. Revenue $ 43,650 $ 0.47 $ 485 5.32%
--------------------------------------------------
Subtotal Other Income $ 52,650 $ 0.57 $ 585 6.41%
EFFECTIVE GROSS INCOME $ 820,874 $ 8.90 $ 9,121
OPERATING EXPENSES:
Taxes $ 35,550 $ 0.39 $ 395 4.33%
Insurance $ 16,200 $ 0.18 $ 180 1.97%
Utilities $ 54,000 $ 0.59 $ 600 6.58%
Repair & Maintenance $ 31,500 $ 0.34 $ 350 3.84%
Cleaning $ 10,350 $ 0.11 $ 115 1.26%
Landscaping $ 2,700 $ 0.03 $ 30 0.33%
Security $ 5,400 $ 0.06 $ 60 0.66%
Marketing & Leasing $ 10,350 $ 0.11 $ 115 1.26%
General Administrative $ 81,000 $ 0.88 $ 900 9.87%
Management 5.00% $ 41,044 $ 0.45 $ 456 5.00%
Miscellaneous $ 0 $ 0.00 $ 0 0.00%
TOTAL OPERATING EXPENSES $ 288,094 $ 3.12 $ 3,201 35.10%
Reserves $ 18,000 $ 0.20 $ 200 2.19%
--------------------------------------------------
NET OPERATING INCOME $ 514,780 $ 5.58 $ 5,720 62.71%
"GOING IN" CAPITALIZATION RATE 10.50%
VALUE INDICATION $ 4,902,668 $ 53.17 $ 54,474
PV OF CONCESSIONS ($66,000)
"AS IS" VALUE INDICATION
(DIRECT CAPITALIZATION APPROACH) $ 4,836,668
ROUNDED $ 4,800,000 $ 52.05 $ 53,333
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 35
CANYON CREST, LITTLETON, COLORADO
DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF
- --------------------------------------------------------------
9.75% $5,213,796 $5,200,000 $57,778 $56.39
10.00% $5,081,801 $5,100,000 $56,667 $55.31
10.25% $4,956,245 $5,000,000 $55,556 $54.22
10.50% $4,836,668 $4,800,000 $53,333 $52.05
10.75% $4,722,652 $4,700,000 $52,222 $50.97
11.00% $4,613,819 $4,600,000 $51,111 $49.89
11.25% $4,509,823 $4,500,000 $50,000 $48.80
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD
Applying the capitalization rate to our estimated NOI results in an estimated
value of $4,800,000.
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 $4,700,000
Direct Capitalization Method $4,800,000
Giving consideration to the indicated values provided by both techniques, we
have concluded the estimated value by the income capitalization approach to be
$4,800,000.
AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 36
CANYON CREST, LITTLETON, COLORADO
RECONCILIATION AND CONCLUSION
This appraisal was made to express an opinion as of the Market Value of the fee
simple estate in the property.
AS IS MARKET VALUE OF THE FEE SIMPLE ESTATE
Cost Approach Not Utilized
Sales Comparison Approach $4,900,000
Income Approach $4,800,000
Reconciled Value $4,800,000
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 13, 2003 the market value of the fee simple estate in the property is:
$4,800,000
AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA
CANYON CREST, LITTLETON, COLORADO
ADDENDA
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A
CANYON CREST, LITTLETON, COLORADO
EXHIBIT A
SUBJECT PHOTOGRAPHS
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A
CANYON CREST, LITTLETON, COLORADO
SUBJECT PHOTOGRAPHS
[PICTURE] [PICTURE]
EXTERIOR - APARTMENT BUILDING EXTERIOR - APARTMENT BUILDING]
[PICTURE] [PICTURE]
EXTERIOR - PARKING LOT EXTERIOR - FRONT YARD AREA
[PICTURE] [PICTURE]
INTERIOR - APARTMENT UNIT INTERIOR - APARTMENT UNIT]
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A
CANYON CREST, LITTLETON, COLORADO
SUBJECT PHOTOGRAPHS
[PICTURE] [PICTURE]
INTERIOR - UNFINISHED BASEMENT INTERIOR - APARTMENT UNIT
[PICTURE] [PICTURE]
INTERIOR - LAUNDRY ROOM INTERIOR - STORAGE UNITS
[PICTURE] [PICTURE]
EXTERIOR - POOL AREA EXTERIOR - PLAYGROUND
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B
CANYON CREST, LITTLETON, COLORADO
EXHIBIT B
SUMMARY OF RENT COMPARABLES
AND PHOTOGRAPH OF COMPARABLES
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B
CANYON CREST, LITTLETON, COLORADO
PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES
COMPARABLE I-1
SIERRA VISTA
8851 E Florida Avenue
Denver, Colorado
[PICTURE]
COMPARABLE I-2
SHERIDAN SOUTH
5601 W Green Meadows Place
Denver, Colorado
[PICTURE]
COMPARABLE I-3
FAIRVIEW
14594 E Mississippi Avenue
Aurora, Colorado
[PICTURE]
COMPARABLE I-4
ORCHARD GLEN
3131 W Mexico Avenue
Denver, Colorado
[PICTURE]
COMPARABLE I-5
FOREST MANOR
615 S Forest Street
Denver, Colorado
[PICTURE]
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B
CANYON CREST, LITTLETON, COLORADO
SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE
DESCRIPTION SUBJECT R - 1
- ----------------------------------------------------------------------------------------------------------
Property Name Canyon Crest Falcon Run
Management Company AIMCO OMNI
LOCATION:
Address 5754 S Lowell Way (5757 S. 3488 W. Quincy Avenue
King Street) Sheridan, Colorado
City, State Littleton, Colorado Arapahoe County
Arapahoe 2 miles north of subject
County
Proximity to Subject
PHYSICAL CHARACTERISTICS:
Net Rentable Area (SF) 92,212
Year Built 1970 1975
Effective Age 20 25
Building Structure Type
Parking Type (Gr., Cov., etc.) Open, Open Covered Open
Number of Units 90 94
Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo.
1 1Bd/1Ba 640 30 $638 1 1Bd/1Ba 642 $ 675
2 2Bd/1.5Ba 851 30 $762 2 2Bd/1.5Ba 949 $ 830
3 2Bd/1.5Ba 4 3Bd/2Ba 1,064 $ 1,015
Townhouse 1,467 22 ######
4 3Bd/2.5Ba
Townhouse 1,901 8 ######
Average Unit Size (SF) 1,025
Unit Breakdown: Efficiency 2-Bedroom Efficiency 2-Bedroom
1-Bedroom 3-Bedroom 1-Bedroom 3-Bedroom
CONDITION: Average Average
APPEAL: Average Average
AMENITIES:
Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling
X Balcony X Balcony
Fireplace Fireplace
X Cable TV X Cable TV
Ready Ready
Project Amenities X Swimming X Swimming
Pool Pool
X Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash
Basketball BBQ Basketball BBQ Equipment
Court Equipment Court
Volleyball Theater Volleyball Theater Room
Court Room Court
Sand Volley Meeting Sand Meeting Hall
Ball Hall Volley Ball
Tennis Court Secured Tennis Secured Parking
Parking Court
Racquet Ball X Laundry Racquet X Laundry Room
Room Ball
Jogging Business Jogging Business Office
Track Office Track
Gym Room Gym Room
OCCUPANCY: 92% 90%
LEASING DATA:
Available Leasing Terms 6-12 month leases 6-12 month leases
Concessions $100 off each month on some
2 Bd/1.5 Ba none
Pet Deposit $200 $150
Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas
X Water X Trash X Water X Trash
Confirmation Kathy Ross (Property Manager) Leasing agent
Telephone Number 303-797-6422 303-795-2658
NOTES:
COMPARISON TO SUBJECT: Similar
COMPARABLE COMPARABLE
DESCRIPTION R - 2 R - 3
- ----------------------------------------------------------------------------------------------------------
Property Name Columbine Meadows Chateau Lynwood
Management Company
LOCATION:
Address 8214 West Ken Caryl Place, #B 5579 South Windermere Street
City, State Littleton, Colorado Littleton, Colorado
County Arapahoe County Arapahoe County
Proximity to Subject 4 miles southwest of subject 1.5 east of the subject
PHYSICAL CHARACTERISTICS:
Net Rentable Area (SF)
Year Built 1999 1970
Effective Age 2 30
Building Structure Type
Parking Type (Gr., Cov., etc.) Garage, Open Open
Number of Units 277 56
Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo.
3 2Bd/2.5Ba 1,416 $ 920 1 1Bd/1Ba
3 2Bd/2.5Ba 1,455 $ 965 2 2Bd/1Ba
4 3Bd/2.5Ba 1,565 $1,035
4 3Bd/3Ba 1,539 $1,020
Average Unit Size (SF)
Unit Breakdown: Efficiency 2-Bedroom Efficiency 2-Bedroom
1-Bedroom 3-Bedroom 1-Bedroom 3-Bedroom
CONDITION: Average Fair
APPEAL: Average Fair
AMENITIES:
Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling
Garage Ceiling Garage
X Balcony Balcony
X Fireplace Fireplace
X Cable TV X Cable TV
Ready Ready
Project Amenities X Swimming Swimming
Pool Pool
X Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash
Basketball BBQ Basketball BBQ Equipment
Court Equipment Court
Volleyball Theater Volleyball Theater Room
Court Room Court
Sand Volley Meeting Sand Volley Meeting Hall
Ball Hall Ball
Tennis Court Secured Tennis Court Secured Parking
Parking
Racquet Ball X Laundry Racquet Ball Laundry Room
Room
Jogging Business Jogging Business Office
Track Office Track
Gym Room Gym Room
OCCUPANCY: 82% 93%
LEASING DATA:
Available Leasing Terms 6-12 month leases 6-12 month leases
Concessions $100 off each month none
Pet Deposit none allowed $250
Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas
X Water X Trash X Water X Trash
Confirmation Leasing agent Leasing Agent
Telephone Number 303-972-2967 N/A
NOTES:
COMPARISON TO SUBJECT: Very Superior Slightly Inferior
COMPARABLE COMPARABLE
DESCRIPTION R - 4 R - 5
- ------------------------------------------------------------------------------------------------------
Property Name Golden Nugget Riverside
Management Company AIMCO
LOCATION:
Address 291 W Belleview Avenue 4957 S Prince Court
City, State Englewood, Colorado Littleton, Colorado
County Arapahoe County Arapahoe
Proximity to Subject Approx. 2 miles Approx. 2 miles north of subject
north of subject
PHYSICAL CHARACTERISTICS:
Net Rentable Area (SF)
Year Built 1970 1987
Effective Age 30 10
Building Structure Type
Parking Type (Gr., Cov., etc.) Open Garage, Open
Number of Units 204 248
Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo.
studio 550 $550 1 1Bd/1Ba 590 $ 599
1 1Bd/1Ba 700 $680 1 1Bd/1Ba 706 $ 629
2 2Bd/1Ba 900 $780 1 1Bd/1Ba 726 $ 649
1 1Bd/1Ba 744 $ 749
2 2Bd/1.5Ba 860 $ 789
2 2Bd/2Ba 990 $ 849
1 1Bd/1Ba 875 $ 799
3 2Bd/2Ba 1,158 $1,089
1 1Bd/1Ba 894 $ 829
Studio 606 $ 609
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 Vaulted Ceiling Attach. Garage X Vaulted Ceiling
Balcony X Balcony
Fireplace X Fireplace
X Cable TV X Cable TV
Ready Ready
Project Amenities X Swimming X Swimming
Pool Pool
Spa/Jacuzzi Car Wash X Spa/Jacuz Car Wash
Basketball BBQ Basketball BBQ Equipment
Court Equipment Court
Volleyball Theater Volleyball Theater Room
Court Room Court
Sand Volley Meeting Sand Volley Meeting Hall
Ball Hall Ball
Tennis Court Secured Tennis Secured Parking
Parking Court
Racquet Ball X Laundry Racquet Laundry Room
Room Ball
Jogging Business Jogging Business Office
Track Office Track
Gym Room X Gym Room
OCCUPANCY: 90% 88%
LEASING DATA:
Available Leasing Terms 6-12 month leases 6-12 month leases
Concessions none 2 months free on select units
Pet Deposit $250 $250
Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas
X Water X Trash X Water X Trash
Confirmation Leasing agent Leasing agent
Telephone Number N/A N/A
NOTES:
COMPARISON TO SUBJECT: Similar Superior
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B
CANYON CREST, LITTLETON, COLORADO
PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES
COMPARABLE R-1
FALCON RUN
3488 W. Quincy Avenue
Sheridan, Colorado
[PICTURE]
COMPARABLE R-2
COLUMBINE MEADOWS
8214 West Ken Caryl Place, #B
Littleton, Colorado
[PICTURE]
COMPARABLE R-3
CHATEAU LYNWOOD
5579 South Windermere Street
Littleton, Colorado
[PICTURE]
COMPARABLE R-4
GOLDEN NUGGET
291 W Belleview Avenue
Englewood, Colorado
[PICTURE]
COMPARABLE R-5
RIVERSIDE
4957 S Prince Court
Littleton, Colorado
[PICTURE]
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C
CANYON CREST, LITTLETON, COLORADO
EXHIBIT C
ASSUMPTIONS AND LIMITING CONDITIONS
(3 PAGES)
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C
CANYON CREST, LITTLETON, COLORADO
No responsibility is assumed for matters legal in nature. No investigation has
been made of the title to or any liabilities against the property appraised. In
this appraisal, it is presumed that, unless otherwise noted, the owner's claim
is valid, the property rights are good and marketable, and there are no
encumbrances which cannot be cleared through normal processes.
To the best of our knowledge, all data set forth in this report are true and
accurate. Although gathered from reliable sources, no guarantee is made nor
liability assumed for the accuracy of any data, opinions, or estimates
identified as being furnished by others which have been used in formulating this
analysis.
Land areas and descriptions used in this appraisal were obtained from public
records and have not been verified by legal counsel or a licensed surveyor.
No soil analysis or geological studies were ordered or made in conjunction with
this report, nor were any water, oil, gas, or other subsurface mineral and use
rights or conditions investigated.
Substances such as asbestos, urea-formaldehyde foam insulation, other chemicals,
toxic wastes, or other potentially hazardous materials could, if present,
adversely affect the value of the property. Unless otherwise stated in this
report, the existence of hazardous substance, which may or may not be present on
or in the property, was not considered by the appraiser in the development of
the conclusion of value. The stated value estimate is predicated on the
assumption that there is no material on or in the property that would cause such
a loss in value. No responsibility is assumed for any such conditions, and the
client has been advised that the appraiser is not qualified to detect such
substances, quantify the impact on values, or develop the remedial cost.
No environmental impact study has been ordered or made. Full compliance with
applicable federal, state, and local environmental regulations and laws is
assumed unless otherwise stated, defined, and considered in the report. It is
also assumed that all required licenses, consents, or other legislative or
administrative authority from any local, state, or national government or
private entity organization either have been or can be obtained or renewed for
any use which the report covers.
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C
CANYON CREST, LITTLETON, COLORADO
It is assumed that all applicable zoning and use regulations and restrictions
have been complied with unless a nonconformity has been stated, defined, and
considered in the appraisal report. Further, it is assumed that the utilization
of the land and improvements is within the boundaries of the property described
and that no encroachment or trespass exists unless noted in the report.
The Americans with Disabilities Act ("ADA") became effective January 26, 1992.
We have not made a specific compliance survey and analysis of this property to
determine whether or not it is in conformity with the various detailed
requirements of the ADA. It is possible that a compliance survey of the property
together with a detailed analysis of the requirements of the ADA could reveal
that the property is not in compliance with one or more of the requirements of
the act. If so, this fact could have a negative effect on the value of the
property. Since we have no direct evidence relating to this issue, we did not
consider the possible noncompliance with the requirements of ADA in estimating
the value of the property.
We have made a physical inspection of the property and noted visible physical
defects, if any, in our report. This inspection was made by individuals
generally familiar with real estate and building construction. However, these
individuals are not architectural or structural engineers who would have
detailed knowledge of building design and structural integrity. Accordingly, we
do not opine on, nor are we responsible for, the structural integrity of the
property including its conformity to specific governmental code requirements,
such as fire, building and safety, earthquake, and occupancy, or any physical
defects which were not readily apparent to the appraiser during the inspection.
The value or values presented in this report are based upon the premises
outlined herein and are valid only for the purpose or purposes stated.
The date of value to which the conclusions and opinions expressed apply is set
forth in this report. The value opinion herein rendered is based on the status
of the national business economy and the purchasing power of the U.S. dollar as
of that date.
Testimony or attendance in court or at any other hearing is not required by
reason of this appraisal unless arrangements are previously made within a
reasonable time in advance for
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C
CANYON CREST, LITTLETON, COLORADO
such testimony, and then such testimony shall be at American Appraisal
Associates, Inc.'s, prevailing per diem for the individuals involved.
Possession of this report or any copy thereof does not carry with it the right
of publication. No portion of this report (especially any conclusion to use, the
identity of the appraiser or the firm with which the appraiser is connected, or
any reference to the American Society of Appraisers or the designations awarded
by this organization) shall be disseminated to the public through prospectus,
advertising, public relations, news, or any other means of communication without
the written consent and approval of American Appraisal Associates, Inc.
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D
CANYON CREST, LITTLETON, COLORADO
EXHIBIT D
CERTIFICATE OF APPRAISER
(1 PAGE)
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D
CERTIFICATE OF APPRAISER
I certify that, to the best of my knowledge and belief:
The statements of fact contained in this report are true and correct.
The reported analyses, opinions, and conclusions are limited only by
the reported assumptions and limiting conditions, and represent the
unbiased professional analyses, opinions, and conclusions of American
Appraisal Associates, Inc.
American Appraisal Associates, Inc. and I personally, have no present
or prospective interest in the property that is the subject of this
report and have no personal interest or bias with respect to the
parties involved.
Compensation for American Appraisal Associates, Inc. is not contingent
on an action or event resulting from the analyses, opinions, or
conclusions in, or the use of, this report.
The analyses, opinions, and conclusions were developed, and this report
has been prepared, in conformity with the requirements of the Uniform
Standards of Professional Appraisal Practice and the Code of
Professional Ethics and the Standards of Professional Practice of the
Appraisal Institute.
The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
I personally did not inspect the subject property. James Newell
provided significant real property appraisal assistance in the
preparation of this report.
I am currently in compliance with the Appraisal Institutes continuing
education requirements.
/s/ Douglas Needham
--------------------------
Douglas Needham, MAI
Managing Principal, Real Estate Group
Colorado State Certified General Real Estate
Appraiser #CG40017035
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E
CANYON CREST, LITTLETON, COLORADO
EXHIBIT E
QUALIFICATIONS OF APPRAISER
(2 PAGES)
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E
CANYON CREST, LITTLETON, COLORADO
DOUGLAS A. NEEDHAM, MAI
MANAGING PRINCIPAL, REAL ESTATE ADVISORY GROUP
POSITION Douglas A. Needham is a Managing Principal for the
Irvine Real Estate Advisory Group of American
Appraisal Associates, Inc. ("AAA").
EXPERIENCE
Valuation Mr. Needham has appraised all types of major
commercial real estate including apartments,
hotels/motels, light and heavy industrial facilities,
self-storage facilities, mobile home parks, offices,
retail shopping centers, service stations,
special-use properties, and vacant land.
Business Mr. Needham joined AAA in 1998. Prior to joining AAA,
he was a senior associate at Koeppel Tener, a senior
analyst at Great Western Appraisal Group, and an
associate appraiser at R. L. McLaughlin & Associates.
EDUCATION Texas A&M University
Bachelor of Business Administration - Finance
STATE CERTIFICATIONS State of Arizona, Certified General Real Estate
Appraiser, #30943
State of California, Certified General Real Estate
Appraiser, #AG025443
State of Colorado, Certified General Appraiser,
#CG40017035
State of Oregon, Certified General Appraiser,
#C000686
State of Washington, Certified General Real Estate
Appraiser,
#1101111
PROFESSIONAL Appraisal Institute, MAI Designated Member
AFFILIATIONS
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E
CANYON CREST, LITTLETON, COLORADO
VALUATION AND Appraisal Institute
SPECIAL COURSES Advanced Income Capitalization
Appraisal Principles
Appraisal Procedures
Basic Income Capitalization
Standards of Professional Practice
AMERICAN APPRAISAL ASSOCIATES, INC.
CANYON CREST, LITTLETON, COLORADO
GENERAL SERVICE CONDITIONS
AMERICAN APPRAISAL ASSOCIATES, INC.
CANYON CREST, LITTLETON, COLORADO
GENERAL SERVICE CONDITIONS
The services(s) provided by AAA will be performed in accordance with
professional appraisal standards. Our compensation is not contingent in any way
upon our conclusions of value. We assume, without independent verification, the
accuracy of all data provided to us. We will act as an independent contractor
and reserve the right to use subcontractors. All files, workpapers or documents
developed by us during the course of the engagement will be our property. We
will retain this data for at least five years.
Our report is to be used only for the specific purpose stated herein; and any
other use is invalid. No reliance may be made by any third party without our
prior written consent. You may show our report in its entirety to those third
parties who need to review the information contained herein. No one should rely
on our report as a substitute for their own due diligence. We understand that
our reports will be described in public tender offer documents distributed to
limited partners. We reserve the right to review the public tender offer
documents prior to their issuance to confirm that disclosures of facts from the
current appraisals are accurate. No reference to our name or our report, in
whole or in part, in any other SEC filing or private placement memorandum you
prepare and/or distribute to third parties may be made without our prior written
consent.
The Tender Offer Partnerships, as that term is defined in the Settlement
Agreement, agree to indemnify and hold us harmless against and from any and all
losses, claims, actions, damages, expenses or liabilities, including reasonable
attorneys' fees, to which we may become subject in connection with this
engagement except where such losses, claims, actions, damages, expenses or
liabilities, including reasonable attorney's fees, arise or result from AAA's
misconduct, bad faith or negligence. Co-Clients will not be liable for any of
our acts or omissions.
AAA is an equal opportunity employer.