REFLECTIONS (GREENSPRING MANOR)
7999 SILVERLEAF DRIVE
INDIANAPOLIS, INDIANA
MARKET VALUE -
FEE SIMPLE ESTATE
AS OF MAY 7, 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 LOGO]
[AMERICAN APPRAISAL ASSOCIATES LOGO]
9441 LBJ Freeway Suite 114
Dallas, Texas 75243
Telephone: (972) 994-9100
Fax: (972) 994-0516
UNITED STATES INTERNATIONAL
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Seattle
JULY 9, 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: REFLECTIONS (GREENSPRING MANOR)
7999 SILVERLEAF DRIVE
INDIANAPOLIS, MARION COUNTY, INDIANA
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 582 units with a
total of 459,080 square feet of rentable area. The improvements were built in
1972. The improvements are situated on 37.749 acres. Overall, the improvements
are in average condition. As of the date of this appraisal, the subject property
is 61% 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
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
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 7, 2003 is:
($25,700,000)
Respectfully submitted,
AMERICAN APPRAISAL ASSOCIATES, INC.
/s/ Kenneth W. Kapecki
----------------------
July 9, 2003 Ken Kapecki, MAI
#053272 Managing Principal, Real Estate Group
State of Indiana, Certified General Appraiser,
#CG49600008
Report By:
John Nolan
AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
TABLE OF CONTENTS
Cover
Letter of Transmittal
Table of Contents
APPRAISAL DATA
Executive Summary .............................................................. 4
Introduction ................................................................... 9
Area Analysis .................................................................. 11
Market Analysis ................................................................ 14
Site Analysis .................................................................. 16
Improvement Analysis ........................................................... 16
Highest and Best Use ........................................................... 17
VALUATION
Valuation Procedure ............................................................ 18
Sales Comparison Approach ...................................................... 20
Income Capitalization Approach ................................................. 26
Reconciliation and Conclusion .................................................. 38
ADDENDA
Exhibit A - Photographs of Subject Property
Exhibit B - Summary of Rent Comparables and Photograph of Comparables
Exhibit C - Assumptions and Limiting Conditions
Exhibit D - Certificate of Appraiser
Exhibit E - Qualifications
General Service Conditions
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 4
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
EXECUTIVE SUMMARY
PART ONE - PROPERTY DESCRIPTION
PROPERTY NAME: Reflections (Greenspring Manor)
LOCATION: 7999 Silverleaf Drive
Indianapolis, Indiana
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 7, 2003
DATE OF REPORT: July 9, 2003
PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS:
SITE:
Size: 37.749 acres, or 1,644,346 square feet
Assessor Parcel No.: 000651
Floodplain: Community Panel No. 18097C0039E (January 5, 2001)
Flood Zone X, an area outside the floodplain.
Zoning: D-6II (Low Density Multifamily District)
BUILDING:
No. of Units: 582 Units
Total NRA: 459,080 Square Feet
Average Unit Size: 789 Square Feet
Apartment Density: 15.4 units per acre
Year Built: 1972
UNIT MIX AND MARKET RENT:
GROSS RENTAL INCOME PROJECTION
Market Rent
Square ----------------------- Monthly Annual
Unit Type Feet Per Unit Per SF Income Income
- ------------------------------------------------ ---------- ----------- ---------- ---------- ----------
Eff/1Ba - EA10 450 $ 420 $ 0.93 $ 100,800 $1,209,600
1Br/1Ba - 1A10 770 $ 580 $ 0.75 $ 60,320 $ 723,840
1Br/1Ba - 2A15 950 $ 660 $ 0.69 $ 66,000 $ 792,000
2Br/2Ba - 2A25 1,200 $ 770 $ 0.64 $ 66,220 $ 794,640
2Br/2Ba - 3A25 1,400 $ 880 $ 0.63 $ 45,760 $ 549,120
----- ---------- ---------- ---------- ----------
Total $ 339,100 $4,069,200
========== ==========
OCCUPANCY: 61%
ECONOMIC LIFE: 45 Years
EFFECTIVE AGE: 15 Years
REMAINING ECONOMIC LIFE: 30 Years
\
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
SUBJECT PHOTOGRAPHS AND LOCATION MAP:
SUBJECT PHOTOGRAPHS
[PICTURE] [PICTURE]
EXTERIOR - APARTMENT BUILDING EXTERIOR - APARTMENT BUILDING
AREA MAP
[AREA MAP]
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
NEIGHBORHOOD MAP
[NEIGHBORHOOD MAP]
HIGHEST AND BEST USE:
As Vacant: Hold for future multi-family development
As Improved: Continuation as its current use
METHOD OF VALUATION: In this instance, the Sales Comparison and Income
Approaches to value were utilized.
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 7
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
PART TWO - ECONOMIC INDICATORS
INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION Amount $/Unit
- -------------------------------------- ----------- -------
Potential Rental Income $ 4,069,200 $ 6,992
Effective Gross Income $ 3,904,798 $ 6,709
Operating Expenses $ 1,793,535 $ 3,082 45.9% of EGI
Net Operating Income: $ 2,023,963 $ 3,478
Capitalization Rate 7.75%
DIRECT CAPITALIZATION VALUE $25,300,000 * $43,471 / UNIT
DISCOUNTED CASH FLOW ANALYSIS:
Holding Period 10 years
2002 Economic Vacancy 61%
Stabilized Vacancy & Collection Loss: 7%
Lease-up / Stabilization Period 18 months
Terminal Capitalization Rate 8.25%
Discount Rate 10.50%
Selling Costs 2.00%
Growth Rates:
Income 3.00%
Expenses: 3.00%
DISCOUNTED CASH FLOW VALUE $25,600,000 * $43,986 / UNIT
RECONCILED INCOME CAPITALIZATION VALUE $25,600,000 $43,986 / UNIT
SALES COMPARISON APPROACH
PRICE PER UNIT:
Range of Sales $/Unit (Unadjusted) $34,268 to $61,397
Range of Sales $/Unit (Adjusted) $41,122 to $48,678
VALUE INDICATION - PRICE PER UNIT $ 26,500,000 * $45,533 / UNIT
EGIM ANALYSIS
Range of EGIMs from Improved Sales 5.31 to 7.04
Selected EGIM for Subject 6.25
Subject's Projected EGI $ 3,904,798
EGIM ANALYSIS CONCLUSION $ 23,600,000 * $40,550 / UNIT
NOI PER UNIT ANALYSIS CONCLUSION $ 26,000,000 * $44,674 / UNIT
RECONCILED SALES COMPARISON VALUE $ 25,800,000 $44,330 / 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
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
PART THREE - SUMMARY OF VALUE CONCLUSIONS
SALES COMPARISON APPROACH:
Price Per Unit $26,500,000
NOI Per Unit $26,000,000
EGIM Multiplier $23,600,000
INDICATED VALUE BY SALES COMPARISON $25,800,000 $44,330 / UNIT
INCOME APPROACH:
Direct Capitalization Method: $25,300,000
Discounted Cash Flow Method: $25,600,000
INDICATED VALUE BY THE INCOME APPROACH $25,600,000 $43,986 / UNIT
RECONCILED OVERALL VALUE CONCLUSION: $25,700,000 $44,158 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
INTRODUCTION
IDENTIFICATION OF THE SUBJECT
The subject property is located at 7999 Silverleaf Drive, Indianapolis, Marion
County, Indiana. Indianapolis identifies it as 000651.
SCOPE OF THE ASSIGNMENT
The property, neighborhood, and comparables were inspected by John Nolan on May
7, 2003. Ken Kapecki, MAI has not made a personal inspection of the subject
property. John Nolan performed the research, valuation analysis and wrote the
report. Ken Kapecki, MAI reviewed the report and concurs with the value. Ken
Kapecki, MAI and John Nolan 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 7, 2003. The
date of the report is July 9, 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
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
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 DDRE II. 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
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
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 Indianapolis, Indiana. 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 - U.S. 31
West - I-465
South - W. 73rd, 71st
North - I-465
MAJOR EMPLOYERS
Major employers in the subject's area include Clarian Health Systems, Eli Lilly
and Company, Community Hospitals Indianapolis, Marsh/Village Pantry
Supermarkets, St. Vincent Hospital and Health Care, IUPUI, Kroger Central
Marketing Area, Rolls Royce, Federal Express, and St. Francis Hospital & Health
Centers. 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
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
NEIGHBORHOOD DEMOGRAPHICS
AREA
--------------------------------------------
CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA
- --------------------------- ------------ ------------ ------------ ------------
POPULATION TRENDS
Current Population 15,442 67,258 159,771 1,646,584
5-Year Population 15,677 71,859 171,159 1,750,376
% Change CY-5Y 1.5% 6.8% 7.1% 6.3%
Annual Change CY-5Y 0.3% 1.4% 1.4% 1.3%
HOUSEHOLDS
Current Households 6,861 29,094 68,734 648,288
5-Year Projected Households 7,027 31,195 74,030 696,995
% Change CY - 5Y 2.4% 7.2% 7.7% 7.5%
Annual Change CY-5Y 0.5% 1.4% 1.5% 1.5%
INCOME TRENDS
Median Household Income $ 36,629 $ 50,853 $ 57,257 $ 47,488
Per Capita Income $ 25,778 $ 32,525 $ 32,618 $ 24,134
Average Household Income $ 57,156 $ 75,023 $ 75,578 $ 61,296
Source: Demographics Now
The subject neighborhood's population is expected to show increases above that
of the region. The immediate market offers inferior income levels as compared to
the broader market.
The following table illustrates the housing statistics in the subject's
immediate area, as well as the MSA region.
HOUSING TRENDS
AREA
----------------------------------------------
CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA
- -------------------------- ------------ ------------ ------------ -----
HOUSING TRENDS
% of Households Renting 56.08% 40.47% 34.61% 29.55%
5-Year Projected % Renting 54.87% 39.66% 33.72% 28.58%
% of Households Owning 31.88% 51.56% 59.22% 63.75%
5-Year Projected % Owning 33.29% 52.86% 60.49% 65.18%
Source: Demographics Now
AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
SURROUNDING IMPROVEMENTS
The following uses surround the subject property:
North - Multi-Family Residential (Fountainhead)
South - Single-Family Residential
East - Single-Family Residential
West - Multi-Family Residential (Kensington/Cedar Crossings)
CONCLUSIONS
The subject is well located within the city of Indianapolis. 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
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
MARKET ANALYSIS
The subject property is located in the city of Indianapolis in Marion County.
The overall pace of development in the subject's market is more or less stable.
Approximately 2,550 new units are projected to be constructed in the
Indianapolis Metro Area in 2003. This would represent a slight increase from
2002 constructed units of 2,439. The new construction is primarily occurring on
the northwest side of town, on the southwest suburbs near the airport, and
downtown. No new construction is anticipated in the subject's immediate
neighborhood. (Source: CB Richard Ellis) The following table illustrates
historical vacancy rates for the subject's market.
HISTORICAL VACANCY RATE
Period Region Submarket
- ------ ------ ---------
2002 9.3% 10.4%
2001 9.4% 9.3%
2000 8.8% 9.4%
1999 7.8% 9.2%
1998 7.9% 8.9%
1997 7.8% 6.4%
1996 7.7% 8.1%
1995 7.7% 6.8%
1994 7.7% 6.2%
(Source: CB Richard Ellis, US Census Bureau)
Occupancy trends in the subject's market are decreasing. Historically speaking,
the subject's submarket has equated the overall market. Vacancy rates in the
area have been increasing for the past three years due primarily to the US
recession and decreasing mortgage rates. Low mortgage rates have enticed many
former renters to purchase homes. To encourage leasing activity, apartment
managers have decreased rents, and offered rent concessions such as free rent or
waiving security deposits. In addition, many properties have added/improved
amenities such as swimming pools, tennis courts, fitness rooms, and clubhouses.
While the Indianapolis economy has been affected by the recession of the early
2000's, its economy is strong relative to other major US cities.
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.
AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
HISTORICAL AVERAGE RENT
Period Region % Change Submarket % Change
- ------ ------ -------- --------- --------
1993 $609 - N/A -
1994 $637 4.6% N/A N/A
1995 $659 3.5% N/A N/A
1996 $684 3.8% N/A N/A
1997 $703 2.8% N/A N/A
1998 $730 3.8% N/A N/A
1999 $747 2.3% N/A N/A
2000 $767 2.7% N/A N/A
2001 $779 1.6% N/A N/A
2002 $787 1.0% N/A N/A
Source:CB Richard Ellis
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 Carlton Apartments 702 80% N/A 0.75 miles NW of subject
R-2 Landmark Apartments 231 80% 1974 0.50 miles S of subject
R-3 Kensington Apartments 296 98% 1967 0.50 miles N of subject
R-4 Barrington Apartments 144 96% 1966 1 mile N of subject
R-5 Chelsea Village 246 91% 1983 1.25 miles N of subject
Subject Reflections (Greenspring Manor) 582 61% 1972
The current trend toward low interest rates has increased the percentage of
homeowners to renters. Consequently, the market has worsened for rental
properties with rents dropping and vacancies increasing.
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
PROPERTY DESCRIPTION
SITE ANALYSIS
Site Area 37.749 acres, or 1,644,346 square feet
Shape Rectangular
Topography Slightly slope
Utilities All necessary utilities are available to the
site.
Soil Conditions Stable
Easements Affecting Site None other than typical utility easements
Overall Site Appeal Average
Flood Zone:
Community Panel 18097C0039E, dated January 5, 2001
Flood Zone Zone X
Zoning D-6II, 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
- ------------- ---------- ---------- ---------- ---------- --------
000651 $1,330,100 $7,097,800 $8,427,900 $ 0.03261 $274,859
IMPROVEMENT ANALYSIS
Year Built 1972
Number of Units 582
Net Rentable Area 459,080 Square Feet
Construction:
Foundation Reinforced concrete slab
Frame Heavy or light wood
Exterior Walls Brick or masonry
Roof Composition shingle over a wood truss structure
Project Amenities Amenities at the subject include a swimming pool,
volleyball court, sand volleyball, jogging
track, gym room, barbeque equipment, meeting
hall, laundry room, business office, and secured
parking.
Unit Amenities Individual unit amenities include a balcony, cable TV
connection, washer and dryer, and washer/dryer connection.
Appliances available in each unit include a refrigerator,
stove, dishwasher, water heater, garbage disposal,
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
washer/dryer, and oven.
Unit Mix:
Unit Area
Unit Type Number of Units (Sq. Ft.)
- -------------- --------------- ----------
Eff/1Ba - EA10 240 450
1Br/1Ba - 1A10 104 770
1Br/1Ba - 2A15 100 950
2Br/2Ba - 2A25 86 1,200
2Br/2Ba - 3A25 52 1,400
Overall Condition Average
Effective Age 15 years
Economic Life 45 years
Remaining Economic Life 30 years
Deferred Maintenance None
HIGHEST AND BEST USE ANALYSIS
In accordance with the definition of highest and best use, an analysis of the
site relating to its legal uses, physical possibilities, and financial
feasibility is appropriate. The highest and best use as vacant is to hold for
future multi-family development. The subject improvements were constructed in
1972 and consist of a 582-unit multifamily project. The highest and best use as
improved is for a continued multifamily use. Overall, the highest and best use
of the subject property is the continued use of the existing apartment project.
AMERICAN APPRAISAL ASSOCIATES, INC. VALUATION PROCEDURE PAGE 18
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
THE VALUATION PROCEDURE
There are three traditional approaches, which can be employed in establishing
the market value of the subject property. These approaches and their
applicability to the valuation of the subject are summarized as follows:
THE COST APPROACH
The application of the Cost Approach is based on the principle of substitution.
This principle may be stated as follows: no one is justified in paying more for
a property than that amount by which he or she can obtain, by purchase of a site
and construction of a building, without undue delay, a property of equal
desirability and utility. In the case of a new building, no deficiencies in the
building should exist.
In the case of income-producing real estate, the cost of construction plays a
minor and relatively insignificant role in determining market value. The Cost
Approach is typically only a reliable indicator of value for: (a) new
properties; (b) special use properties; and (c) where the cost of reproducing
the improvements is easily and accurately quantified and there is no economic
obsolescence. In all instances, the issue of an appropriate entrepreneurial
profit - the reward for undertaking the risk of construction, remains a highly
subjective factor especially in a market lacking significant speculative
development.
THE SALES COMPARISON APPROACH
The Sales Comparison Approach is an estimate of value based upon a process of
comparing recent sales of similar properties in the surrounding or competing
areas to the subject property. Inherent in this approach is the principle of
substitution.
The application of this approach consists of comparing the subject property with
similar properties of the same general type, which have been sold recently or
currently are available for sale in competing areas. This comparative process
involves judgment as to the similarity of the subject property and the
comparable sale with respect to many value factors such as location, contract
rent levels, quality of construction, reputation and prestige, age and
condition, among others. The estimated value through this approach represents
the probable price at which a willing seller would sell the subject property to
a willing and knowledgeable buyer as of the date of value.
AMERICAN APPRAISAL ASSOCIATES, INC. VALUATION PROCEDURE PAGE 19
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
THE INCOME CAPITALIZATION APPROACH
The theory of the Income Capitalization Approach is based on the premise that
present value is the value of the cash flow and reversionary value the property
will produce over a reasonable holding (ownership) period.
The Discounted Cash Flow Analysis will convert equity cash flows (including cash
flows and equity reversion) into a present value utilizing an internal rate of
return (or discount rate). The Internal Rate of Return (IRR) will be derived
from a comparison of alternate investments, a comparative analysis of IRR's used
by recent buyers of similar properties, and a review of published industry
surveys.
The Direct Capitalization Analysis converts one year of income into an overall
value using overall capitalization rates from similar sales. The overall rates
take into consideration buyers assumptions of the market over the long-term.
The results of the Income Capitalization Analysis are usually the primary value
indicator for income producing properties. Investors expect a reasonable rate of
return on their equity investment based on the ownership risks involved; this
approach closely parallels the investment decision process.
RECONCILIATION
In this instance, we have completed the Sales Comparison and Income
Capitalization Approaches to value. As an income producing property, the income
approach is a primary approach to value. The Sales Comparison Approach is also
considered reliable as investors are buying similar buildings in the market.
Our research indicates that market participants are generally not buying,
selling, investing, or lending with reliance placed on the methodology of the
Cost Approach to establish the value. Therefore, we have decided that the Cost
Approach is not a reliable indicator of value for the subject, and this approach
has not been utilized.
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 20
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
SALES COMPARISON APPROACH
Use of market or comparable sales requires the collection and analysis of
comparable sales data. Similar properties recently sold are compared to the
subject and adjusted based on any perceived differences. This method is based on
the premise that the costs of acquiring a substitute property would tend to
establish a value for the subject property. The premise suggests that if a
substitute is unavailable in the market, the reliability of the approach may be
subordinate to the other approaches.
The reliance on substitute properties produces shortcomings in the validity of
this approach. Geographic and demographic characteristics from each submarket
restrict which sales may be selected. Recent sales with a similar physical
characteristics, income levels, and location are usually limited. The sales we
have identified, however, do establish general valuation parameters as well as
provide support to our conclusion derived through the income approach method.
The standard unit of comparison among similar properties is the sales price per
unit and price per square foot of net rentable area. To accurately adjust prices
to satisfy the requirements of the sales comparison approach, numerous
calculations and highly subjective judgments would be required including
consideration of numerous income and expense details for which information may
be unreliable or unknown. The sales price per unit and square foot are
considered relevant to the investment decision, but primarily as a parameter
against which value estimates derived through the income approach can be judged
and compared.
In examining the comparable sales, we have applied a subjective adjustment
analysis, which includes specific adjustments derived from our experience and
consulting with the market participants.
SALES COMPARISON ANALYSIS
Detailed on the following pages are sales transactions involving properties
located in the subject's competitive investment market.
Photographs of the sale transactions are located in the Addenda. Following the
summary of sales is an adjustment grid that is used to arrive at a value.
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 21
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
SUMMARY OF COMPARABLE SALES - IMPROVED
COMPARABLE COMPARABLE
DESCRIPTION SUBJECT I - 1 I - 2
- ------------------------------------------------------------------------------------------------------------------
Property Name Reflections (Greenspring Abington Apartments Cross Creek Apartments
Manor)
LOCATION:
Address 7999 Silverleaf Drive 4656 Edwardian Circle 5756 Cross Creek Dr.
City, State Indianapolis, Indiana Indianapolis, IN Indianapolis, IN
County Marion Marion Marion
PHYSICAL CHARATERISTICS:
Net Rentable Area (SF) 459,080 293,676 159,492
Year Built 1972 1980 1990
Number of Units 582 328 208
Unit Mix: Type Total Type Total Type Total
Eff/1Ba - EA10 240 1Br/1Ba 156 1Br/1Ba 20
1Br/1Ba - 1A10 104 2Br/1Ba 56 1Br/1Ba 76
1Br/1Ba - 2A15 100 2Br/2Ba 84 1Br/1Ba 36
2Br/2Ba - 2A25 86 3Br/2Ba 32 2Br/2Ba 76
2Br/2Ba - 3A25 52
Average Unit Size (SF) 789 895 767
Land Area (Acre) 37.7490 0.0000 0.0000
Density (Units/Acre) 15.4
Parking Ratio (Spaces/Unit) 2.00 2.00 2.00
Parking Type (Gr., Cov., etc.) Garage, Open Covered Open, Covered Open, Covered
CONDITION: Good Good Good
APPEAL: Good Good Average
AMENITIES:
Pool/Spa Yes/No Yes/No Yes/No
Gym Room Yes Yes No
Laundry Room Yes Yes No
Secured Parking Yes Yes Yes
Sport Courts Yes Yes No
Washer/Dryer Connection Yes Yes Yes
Other
Other
OCCUPANCY: 61% 95% 87%
TRANSACTION DATA:
Sale Date July, 2002 December, 2000
Sale Price ($) $11,240,000 $8,714,417
Grantor Glenborough Realty Trust
Grantee AIMCO GE Capital
Sale Documentation
Verification
Telephone Number
ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF
Potential Gross Income $2,276,112 $6,939 $7.75 $1,473,120 $7,082 $9.24
Vacancy/Credit Loss $ 159,328 $ 486 $0.54 $ 103,118 $ 496 $0.65
Effective Gross Income $2,116,784 $6,454 $7.21 $1,370,002 $6,587 $8.59
Operating Expenses $1,164,231 $3,549 $3.96 $ 753,501 $3,623 $4.72
Net Operating Income $ 952,553 $2,904 $3.24 $ 616,501 $2,964 $3.87
NOTES: None None
PRICE PER UNIT $34,268 $41,896
PRICE PER SQUARE FOOT $ 38.27 $ 54.64
EXPENSE RATIO 55.0% 55.0%
EGIM 5.31 6.36
OVERALL CAP RATE 8.47% 7.07%
Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA
COMPARABLE COMPARABLE
DESCRIPTION SUBJECT I - 3 I - 4
- -------------------------------------------------------------------------------------------------------------------
Property Name Reflections (Greenspring Arbor Green Apartments Arbor Green Apartments
Manor)
LOCATION:
Address 7999 Silverleaf Drive 3836 Arbor Green Ln. 3836 Arbor Green Ln.
City, State Indianapolis, Indiana Indianapolis, IN Indianapolis, IN
County Marion Marion Marion
PHYSICAL CHARATERISTICS:
Net Rentable Area (SF) 459,080 181,152 181,152
Year Built 1972 1989 1989
Number of Units 582 208 208
Unit Mix: Type Total Type Total Type Total
Eff/1Ba - EA10 240 1Br/1Ba 48 1Br/1Ba 48
1Br/1Ba - 1A10 104 1Br/1Ba 56 1Br/1Ba 56
1Br/1Ba - 2A15 100 2Br/1Ba 16 2Br/1Ba 16
2Br/2Ba - 2A25 86 2Br/2Ba 72 2Br/2Ba 72
2Br/2Ba - 3A25 52 3Br/2Ba 16 3Br/2Ba 16
Average Unit Size (SF) 789 871 871
Land Area (Acre) 37.7490 20.7750 20.7750
Density (Units/Acre) 15.4 10.0 10.0
Parking Ratio (Spaces/Unit) 2.00 2.00 2.00
Parking Type (Gr., Cov., etc.) Garage, Open Covered Open, Covered Open, Covered
CONDITION: Good Good Good
APPEAL: Good Good Good
AMENITIES:
Pool/Spa Yes/No Yes/No Yes/No
Gym Room Yes Yes Yes
Laundry Room Yes Yes Yes
Secured Parking Yes Yes Yes
Sport Courts Yes Yes Yes
Washer/Dryer Connection Yes Yes Yes
Other
Other
OCCUPANCY: 61% 94% 94%
TRANSACTION DATA:
Sale Date September, 2002 May, 2001
Sale Price ($) $11,250,000 $9,400,000
Grantor Connor & Murphy
Grantee Ritter & Co. Connor & Murphy
Sale Documentation
Verification
Telephone Number
ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF
Potential Gross Income $1,719,264 $8,266 $9.49 $1,719,264 $8,266 $9.49
Vacancy/Credit Loss $ 120,348 $ 579 $0.66 $ 120,348 $ 579 $0.66
Effective Gross Income $1,598,916 $7,687 $8.83 $1,598,916 $7,687 $8.83
Operating Expenses $ 879,404 $4,228 $4.85 $ 879,404 $4,228 $4.85
Net Operating Income $ 719,512 $3,459 $3.97 $ 719,512 $3,459 $3.97
NOTES: None None
PRICE PER UNIT $54,087 $45,192
PRICE PER SQUARE FOOT $ 62.10 $ 51.89
EXPENSE RATIO 55.0% 55.0%
EGIM 7.04 5.88
OVERALL CAP RATE 6.40% 7.65%
Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA
COMPARABLE
DESCRIPTION SUBJECT I - 5
- ----------------------------------------------------------------------------------------
Property Name Reflections (Greenspring Carriagetree Apartments
Manor) (Monon Place Apts)
LOCATION:
Address 7999 Silverleaf Drive 5900 Carvel Ave.
City, State Indianapolis, Indiana Indianapolis, IN
County Marion Marion
PHYSICAL CHARATERISTICS:
Net Rentable Area (SF) 459,080 140,492
Year Built 1972 1966
Number of Units 582 136
Unit Mix: Type Total Type Total
Eff/1Ba - EA10 240 1Br/1Ba 16
1Br/1Ba - 1A10 104 2Br/1Ba 16
1Br/1Ba - 2A15 100 2Br/2Ba 84
2Br/2Ba - 2A25 86 3Br/2Ba 20
2Br/2Ba - 3A25 52
Average Unit Size (SF) 789 1,033
Land Area (Acre) 37.7490 8.0000
Density (Units/Acre) 15.4 17.0
Parking Ratio (Spaces/Unit) 2.00 2.00
Parking Type (Gr., Cov., etc.) Garage, Open Covered Open, Covered
CONDITION: Good Good
APPEAL: Good Very Good
AMENITIES:
Pool/Spa Yes/No Yes/No
Gym Room Yes No
Laundry Room Yes Yes
Secured Parking Yes Yes
Sport Courts Yes Yes
Washer/Dryer Connection Yes Yes
Other
Other
OCCUPANCY: 61% 98%
TRANSACTION DATA:
Sale Date April, 2001
Sale Price ($) $8,350,000
Grantor
Grantee Buckingham Management
Sale Documentation
Verification
Telephone Number
ESTIMATED PRO-FORMA: Total $ $/Unit $/SF
Potential Gross Income $1,492,992 $10,978 $10.63
Vacancy/Credit Loss $ 104,509 $ 768 $ 0.74
Effective Gross Income $1,388,483 $10,209 $ 9.88
Operating Expenses $ 763,665 $ 5,615 $ 5.44
Net Operating Income $ 624,817 $ 4,594 $ 4.45
NOTES: None
PRICE PER UNIT $61,397
PRICE PER SQUARE FOOT $ 59.43
EXPENSE RATIO 55.0%
EGIM 6.01
OVERALL CAP RATE 7.48%
Cap Rate based on Pro Forma or Actual Income? PRO FORMA
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
IMPROVED SALES MAP
[IMPROVED SALES MAP]
IMPROVED SALES ANALYSIS
The improved sales indicate a sales price range from $34,268 to $61,397 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 $41,122 to $48,678 per unit with a mean or average adjusted price
of $45,849 per unit. The median adjusted price is $48,350 per unit. Based on the
following analysis, we have concluded to a value of $47,000 per unit, which
results in an "as is" value of $26,500,000 (rounded after necessary adjustment,
if any).
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
SALES ADJUSTMENT GRID
DESCRIPTION SUBJECT COMPARABLE COMPARABLE
I - 1 I - 2
- ----------------------------------- ------------------------ -------------------------- ---------------------------
Property Name Reflections (Greenspring Abington Apartments Cross Creek Apartments
Manor)
Address 7999 Silverleaf Drive 4656 Edwardian Circle 5756 Cross Creek Dr.
City Indianapolis, Indiana Indianapolis, IN Indianapolis, IN
Sale Date July, 2002 December, 2000
Sale Price ($) $11,240,000 $8,714,417
Net Rentable Area (SF) 459,080 293,676 159,492
Number of Units 582 328 208
Price Per Unit $34,268 $41,896
Year Built 1972 1980 1990
Land Area (Acre) 37.7490
VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ.
Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0%
Financing Cash To Seller 0% Cash To Seller 0%
Conditions of Sale Arm's Length 0% Arm's Length 0%
Date of Sale (Time) 07-2002 0% 12-2000 5%
VALUE AFTER TRANS ADJUST ($/UNIT) $34,268 $43,991
Location Comparable 0% Comparable 0%
Number of Units 582 328 -5% 208 -15%
Quality / Appeal Good Inferior 5% Inferior 5%
Age / Condition 1972 1980 / Good 15% 1990 / Good 20%
Occupancy at Sale 61% 95% 0% 87% 0%
Amenities Good Inferior 10% Comparable 0%
Average Unit Size (SF) 789 895 -5% 767 0%
PHYSICAL ADJUSTMENT 20% 10%
FINAL ADJUSTED VALUE ($/UNIT) $41,122 $48,390
DESCRIPTION SUBJECT COMPARABLE COMPARABLE
I - 3 I - 4
- ----------------------------------- ------------------------ --------------------------- ---------------------------
Property Name Reflections (Greenspring Arbor Green Apartments Arbor Green Apartments
Manor)
Address 7999 Silverleaf Drive 3836 Arbor Green Ln. 3836 Arbor Green Ln.
City Indianapolis, Indiana Indianapolis, IN Indianapolis, IN
Sale Date September, 2002 May, 2001
Sale Price ($) $11,250,000 $9,400,000
Net Rentable Area (SF) 459,080 181,152 181,152
Number of Units 582 208 208
Price Per Unit $54,087 $45,192
Year Built 1972 1989 1989
Land Area (Acre) 37.7490 20.7750 20.7750
VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ.
Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0%
Financing Cash To Seller 0% Cash To Seller 0%
Conditions of Sale Arm's Length 0% Arm's Length 0%
Date of Sale (Time) 09-2002 0% 05-2001 5%
VALUE AFTER TRANS ADJUST ($/UNIT) $54,087 $47,452
Location Comparable 0% Comparable 0%
Number of Units 582 208 -15% 208 -15%
Quality / Appeal Good Inferior 5% Inferior 5%
Age / Condition 1972 1989 / Good 5% 1989 / Good 5%
Occupancy at Sale 61% 94% 0% 94% 0%
Amenities Good Comparable 0% Comparable 0%
Average Unit Size (SF) 789 871 -5% 871 -5%
PHYSICAL ADJUSTMENT -10% -10%
FINAL ADJUSTED VALUE ($/UNIT) $48,678 $42,707
DESCRIPTION SUBJECT COMPARABLE
I - 5
- ----------------------------------- ------------------------ ----------------------------
Property Name Reflections (Greenspring Carriagetree Apartments
Manor) (Monon Place Apts)
Address 7999 Silverleaf Drive 5900 Carvel Ave.
City Indianapolis, Indiana Indianapolis, IN
Sale Date April, 2001
Sale Price ($) $8,350,000
Net Rentable Area (SF) 459,080 140,492
Number of Units 582 136
Price Per Unit $61,397
Year Built 1972 1966
Land Area (Acre) 37.7490 8.0000
VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ.
Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0%
Financing Cash To Seller 0%
Conditions of Sale Arm's Length 0%
Date of Sale (Time) 04-2001 5%
VALUE AFTER TRANS ADJUST ($/UNIT) $64,467
Location Comparable 0%
Number of Units 582 136 -25%
Quality / Appeal Good Inferior 5%
Age / Condition 1972 1966 / Good 15%
Occupancy at Sale 61% 98% -5%
Amenities Good Comparable 0%
Average Unit Size (SF) 789 1,033 -15%
PHYSICAL ADJUSTMENT -25%
FINAL ADJUSTED VALUE ($/UNIT) $48,350
SUMMARY
VALUE RANGE (PER UNIT) $41,122 TO $ 48,678
MEAN (PER UNIT) $45,849
MEDIAN (PER UNIT) $48,350
VALUE CONCLUSION (PER UNIT) $47,000
Value of Improvement & Main Site $27,354,000
Less: Lease-Up Cost -$ 756,000
PV of Concessions -$ 57,000
Value Indicated by Sales Comparison Approach $26,541,000
Rounded $26,500,000
NET OPERATING INCOME (NOI) ANALYSIS
We have also conducted a net operating income (NOI) comparison analysis. The NOI
effectively takes into account the various physical, location, and operating
aspects of the sale. When the subject's NOI is compared to the sale NOI, a
percent adjustment can be arrived at. The following table illustrates this
analysis.
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 24
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
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-1 328 $11,240,000 8.47% $952,553 $2,023,963 1.197 $ 41,035
$ 34,268 $ 2,904 $ 3,478
I-2 208 $ 8,714,417 7.07% $616,501 $2,023,963 1.173 $ 49,157
$ 41,896 $ 2,964 $ 3,478
I-3 208 $11,250,000 6.40% $719,512 $2,023,963 1.005 $ 54,374
$ 54,087 $ 3,459 $ 3,478
I-4 208 $ 9,400,000 7.65% $719,512 $2,023,963 1.005 $ 45,433
$ 45,192 $ 3,459 $ 3,478
I-5 136 $ 8,350,000 7.48% $624,817 $2,023,963 0.757 $ 46,474
$ 61,397 $ 4,594 $ 3,478
PRICE/UNIT
LOW HIGH AVERAGE MEDIAN
--- ---- ------- ------
$41,035 $54,374 $47,295 $46,474
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT
Estimated Price Per Unit $ 46,000
Number of Units 582
Value $26,772,000
Less: Lease-Up Cost -$ 756,000
PV of Concessions -$ 57,000
Value Based on NOI Analysis $25,959,000
Rounded $26,000,000
The adjusted sales indicate a range of value between $41,035 and $54,374 per
unit, with an average of $47,295 per unit. Based on the subject's competitive
position within the improved sales, a value of $46,000 per unit is estimated.
This indicates an "as is" market value of $26,000,000 (rounded after necessary
adjustment, if any) for the NOI Per Unit Analysis.
EFFECTIVE GROSS INCOME MULTIPLIER (EGIM) ANALYSIS
The effective gross income multiplier (EGIM) is derived by dividing the sales
price by the total effective gross income. The following table illustrates the
EGIMs for the comparable improved sales.
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 25
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
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-1 328 $11,240,000 $2,116,784 $1,164,231 55.00% 5.31
$ 34,268
I-2 208 $ 8,714,417 $1,370,002 $ 753,501 55.00% 6.36
$ 41,896
I-3 208 $11,250,000 $1,598,916 $ 879,404 55.00% 7.04
45.93%
$ 54,087
I-4 208 $ 9,400,000 $1,598,916 $ 879,404 55.00% 5.88
$ 45,192
I-5 136 $ 8,350,000 $1,388,483 $ 763,665 55.00% 6.01
$ 61,397
EGIM
LOW HIGH AVERAGE MEDIAN
- --- ---- ------- ------
5.31 7.04 6.12 6.01
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES
Estimate EGIM 6.25
Subject EGI $ 3,904,798
Value $24,404,988
Less: Lease-Up Cost -$ 756,000
PV of Concessions -$ 57,000
-----------
Value Based on EGIM Analysis $23,591,988
Rounded $23,600,000
Value Per Unit $ 40,550
There is an inverse relationship, which generally holds among EGIMs and
operating expenses. Properties, which have higher expense ratios, typically sell
for relatively less and therefore produce a lower EGIM. As will be illustrated
in the Income Capitalization Approach of this report, the subject's operating
expense ratio (OER) is estimated at 45.93% before reserves. The comparable sales
indicate an expense ratio of 55.00%, while their EGIMs range from 5.31 to 7.04.
Overall, we conclude to an EGIM of 6.25, which results in an "as is" value
estimate in the EGIM Analysis of $23,600,000.
SALES COMPARISON CONCLUSION
The three valuation methods in the Sales Comparison Approach are shown below.
The overall value via the Sales Comparison Approach is estimated at $25,800,000.
Price Per Unit $26,500,000
NOI Per Unit $26,000,000
EGIM Analysis $23,600,000
Sales Comparison Conclusion $25,800,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
INCOME CAPITALIZATION APPROACH
The income capitalization approach is based on the premise that value is created
by the expectation of future benefits. We estimated the present value of those
benefits to derive an indication of the amount that a prudent, informed
purchaser-investor would pay for the right to receive them as of the date of
value.
This approach requires an estimate of the NOI of a property. The estimated NOI
is then converted to a value indication by use of either the direct
capitalization or the discounted cash flow analysis (yield capitalization).
Direct capitalization uses a single year's stabilized NOI as a basis for a value
indication by dividing the income by a capitalization rate. The rate chosen
accounts for a recapture of the investment by the investor and should reflect
all factors that influence the value of the property, such as tenant quality,
property condition, neighborhood change, market trends, interest rates, and
inflation. The rate may be extracted from local market transactions or, when
transaction evidence is lacking, obtained from trade sources.
A discounted cash flow analysis focuses on the operating cash flows expected
from the property and the proceeds of a hypothetical sale at the end of a
holding period (the reversion). The cash flows and reversion are discounted to
their present values using a market-derived discount rate and are added together
to obtain a value indication. Because benefits to be received in the future are
worth less than the same benefits received in the present, this method weights
income in the early years more heavily than the income and the sale proceeds to
be received later. The strength of the discounted cash flow method is its
ability to recognize variations in projected net income, such as those caused by
inflation, stepped leases, neighborhood change, or tenant turnover. Its weakness
is that it requires many judgments regarding the actions of likely buyers and
sellers of the property in the future.
In some situations, both methods yield a similar result. The discounted cash
flow method is typically more appropriate for the analysis of investment
properties with multiple or long-term leases, particularly leases with
cancellation clauses or renewal options. It is especially useful for
multi-tenant properties in volatile markets. The direct capitalization
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 27
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
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
- --------- --------- -------- ------ ---------
Eff/1Ba - EA10 450 $449 $1.00 70.4%
1Br/1Ba - 1A10 770 $569 $0.74 53.8%
1Br/1Ba - 2A15 950 $659 $0.69 47.0%
2Br/2Ba - 2A25 1200 $729 $0.61 51.2%
2Br/2Ba - 3A25 1400 $829 $0.59 76.9%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
RENT ANALYSIS
COMPARABLE RENTS
-------------------------------------------------------
R-1 R-2 R-3 R-4 R-5
-------------------------------------------------------
Carlton Landmark Kensington Barrington Chelsea
Apartments Apartments Apartments Apartments Village
SUBJECT SUBJECT -------------------------------------------------------
DESCRIPTION SUBJECT UNIT ACTUAL ASKING COMPARISON TO SUBJECT
TYPE RENT RENT -------------------------------------------------------
Similar Similar Similar Superior Similar
- ------------------------ -------------- ------- ------- ---------- ---------- ---------- ---------- -------
Monthly Rent EFF/1BA - EA10 $ 449 $ 429 $ 478 $ 465
Unit Area (SF) 450 450 498 500
Monthly Rent Per Sq. Ft. $ 1.00 $ 0.95 $ 0.96 $ 0.93
Monthly Rent 1Br/1Ba - 1A10 $ 569 $ 559 $ 517 $ 570 $ 573 $ 660 $ 548
Unit Area (SF) 770 770 612 726 727 685 750
Monthly Rent Per Sq. Ft. $ 0.74 $ 0.73 $ 0.84 $ 0.79 $ 0.79 $ 0.96 $ 0.73
Monthly Rent 1Br/1Ba - 2A15 $ 659 $ 659 $ 625 $ 653 $ 665 $ 705 $ 662
Unit Area (SF) 950 950 923 885 930 907 963
Monthly Rent Per Sq. Ft. $ 0.69 $ 0.69 $ 0.68 $ 0.74 $ 0.72 $ 0.78 $ 0.69
Monthly Rent 2Br/2Ba - 2A25 $ 729 $ 769 $ 700 $ 723 $ 720 $ 857 $ 742
Unit Area (SF) 1,200 1,200 1,140 1,085 1,250 1,118 1,150
Monthly Rent Per Sq. Ft. $ 0.61 $ 0.64 $ 0.61 $ 0.67 $ 0.58 $ 0.77 $ 0.64
Monthly Rent 2Br/2Ba - 3A25 $ 829 $ 929 $ 883 $ 855 $1,045
Unit Area (SF) 1,400 1,400 1,540 1,475 1,496
Monthly Rent Per Sq. Ft. $ 0.59 $ 0.66 $ 0.57 $ 0.58 $ 0.70
DESCRIPTION MIN MAX MEDIAN AVERAGE
- ------------------------ ------ ------ ------ -------
Monthly Rent $ 465 $ 478 $ 471 $ 471
Unit Area (SF) 498 500 499 499
Monthly Rent Per Sq. Ft. $ 0.93 $ 0.96 $ 0.94 $ 0.94
Monthly Rent $ 517 $ 660 $ 570 $ 574
Unit Area (SF) 612 750 726 700
Monthly Rent Per Sq. Ft. $ 0.73 $ 0.96 $ 0.79 $ 0.82
Monthly Rent $ 625 $ 705 $ 662 $ 662
Unit Area (SF) 885 963 923 921
Monthly Rent Per Sq. Ft. $ 0.68 $ 0.78 $ 0.72 $ 0.72
Monthly Rent $ 700 $ 857 $ 723 $ 748
Unit Area (SF) 1,085 1,250 1,140 1,149
Monthly Rent Per Sq. Ft. $ 0.58 $ 0.77 $ 0.64 $0.65
Monthly Rent $ 855 $1,045 $ 883 $ 928
Unit Area (SF) 1,475 1,540 1,496 1,504
Monthly Rent Per Sq. Ft. $ 0.57 $ 0.70 $ 0.58 $0.62
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 Type Number of Units Unit Area --------------- Monthly Annual
(Sq. Ft.) Per Unit Per SF Income Income
- -------------- --------------- --------- -------- ------ -------- ----------
Eff/1Ba - EA10 240 450 $420 $0.93 $100,800 $1,209,600
1Br/1Ba - 1A10 104 770 $580 $0.75 $ 60,320 $ 723,840
1Br/1Ba - 2A15 100 950 $660 $0.69 $ 66,000 $ 792,000
2Br/2Ba - 2A25 86 1,200 $770 $0.64 $ 66,220 $ 794,640
2Br/2Ba - 3A25 52 1,400 $880 $0.63 $ 45,760 $ 549,120
Total $339,100 $4,069,200
PRO FORMA ANALYSIS
For purposes of this appraisal, we were provided with income and expense data
for the subject property. A summary of this data is presented on the following
page.
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 29
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
SUMMARY OF HISTORICAL INCOME & EXPENSES
FISCAL YEAR 2000 FISCAL YEAR 2001 FISCAL YEAR 2002 FISCAL YEAR 2003
----------------------- ----------------------- ----------------------- -----------------------
DESCRIPTION ACTUAL ACTUAL ACTUAL MANAGEMENT BUDGET
----------- ----------------------- ----------------------- ----------------------- -----------------------
TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT
----------- -------- ----------- -------- ----------- -------- ----------- --------
Revenues
Rental Income $ 3,266,793 $ 5,613 $ 2,910,787 $ 5,001 $ 3,933,838 $ 6,759 $ 4,051,853 $ 6,962
Vacancy $ 1,679,636 $ 2,886 $ 1,824,769 $ 3,135 $ 2,224,548 $ 3,822 $ 2,291,284 $ 3,937
Credit Loss/Concessions $ 53,880 $ 93 $ 74,216 $ 128 $ 168,012 $ 289 $ 173,052 $ 297
------------ --------- ------------ --------- ------------ --------- ------------ ---------
Subtotal $ 1,733,516 $ 2,979 $ 1,898,985 $ 3,263 $ 2,392,560 $ 4,111 $ 2,464,337 $ 4,234
Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Garage Revenue $ 0 $ 0 $ 110 $ 0 $ 0 $ 0 $ 0 $ 0
Other Misc. Revenue $ 101,298 $ 174 $ 67,214 $ 115 $ 116,934 $ 201 $ 120,442 $ 207
------------ --------- ------------ --------- ------------ --------- ------------ ---------
Subtotal Other Income $ 101,298 $ 174 $ 67,324 $ 116 $ 116,934 $ 201 $ 120,442 $ 207
------------ --------- ------------ --------- ------------ --------- ------------ ---------
Effective Gross Income $ 1,634,575 $ 2,809 $ 1,079,126 $ 1,854 $ 1,658,212 $ 2,849 $ 1,707,958 $ 2,935
Operating Expenses
Taxes $ 205,441 $ 353 $ 151,567 $ 260 $ 262,246 $ 451 $ 270,113 $ 464
Insurance $ 70,324 $ 121 $ 62,313 $ 107 $ 83,545 $ 144 $ 86,051 $ 148
Utilities $ 249,976 $ 430 $ 224,574 $ 386 $ 295,036 $ 507 $ 303,887 $ 522
Repair & Maintenance $ 65,773 $ 113 $ 51,707 $ 89 $ 126,534 $ 217 $ 130,330 $ 224
Cleaning $ 93,796 $ 161 $ 60,282 $ 104 $ 96,887 $ 166 $ 99,794 $ 171
Landscaping $ 58,012 $ 100 $ 34,520 $ 59 $ 74,052 $ 127 $ 76,274 $ 131
Security $ 0 $ 0 $ 0 $ 0 $ 27 $ 0 $ 28 $ 0
Marketing & Leasing $ 25,906 $ 45 $ 32,730 $ 56 $ 89,497 $ 154 $ 92,182 $ 158
General Administrative $ 366,142 $ 629 $ 344,238 $ 591 $ 523,946 $ 900 $ 539,664 $ 927
Management $ 88,883 $ 153 $ 60,720 $ 104 $ 83,790 $ 144 $ 86,304 $ 148
Miscellaneous ($ 112,132) -$ 193 ($ 207,604) -$ 357 ($ 592,092) -$ 1,017 ($ 609,855) -$ 1,048
------------ --------- ------------ --------- ------------ --------- ------------ ---------
Total Operating Expenses $ 1,112,121 $ 1,911 $ 815,047 $ 1,400 $ 1,043,468 $ 1,793 $ 1,074,772 $ 1,847
Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
------------ --------- ------------ --------- ------------ --------- ------------ ---------
Net Income $ 522,454 $ 898 $ 264,079 $ 454 $ 614,744 $ 1,056 $ 633,186 $ 1,088
------------ --------- ------------ --------- ------------ --------- ------------ ---------
ANNUALIZED YEAR 2003
-----------------------
DESCRIPTION PROJECTION AAA PROJECTION
----------- ----------------------- ---------------------------------
TOTAL PER UNIT TOTAL PER UNIT %
----------- -------- ----------- -------- --------
Revenues
Rental Income $ 3,906,884 $ 6,713 $ 4,069,200 $ 6,992 100.0%
Vacancy $ 1,739,540 $ 2,989 $ 203,460 $ 350 5.0%
Credit Loss/Concessions $ 150,476 $ 259 $ 81,384 $ 140 2.0%
------------ --------- ----------- -------- --------
Subtotal $ 1,890,016 $ 3,247 $ 284,844 $ 489 7.0%
Laundry Income $ 0 $ 0 $ 0 $ 0 0.0%
Garage Revenue $ 0 $ 0 $ 0 $ 0 0.0%
Other Misc. Revenue $ 203,516 $ 350 $ 120,442 $ 207 3.0%
------------ --------- ----------- -------- --------
Subtotal Other Income $ 203,516 $ 350 $ 120,442 $ 207 3.0%
------------ --------- ----------- -------- --------
Effective Gross Income $ 2,220,384 $ 3,815 $ 3,904,798 $ 6,709 100.0%
Operating Expenses
Taxes $ 416,752 $ 716 $ 270,113 $ 464 6.9%
Insurance $ 91,536 $ 157 $ 86,051 $ 148 2.2%
Utilities $ 394,152 $ 677 $ 303,887 $ 522 7.8%
Repair & Maintenance $ 93,584 $ 161 $ 130,330 $ 224 3.3%
Cleaning $ 81,832 $ 141 $ 99,794 $ 171 2.6%
Landscaping $ 27,468 $ 47 $ 76,274 $ 131 2.0%
Security $ 324 $ 1 $ 0 $ 0 0.0%
Marketing & Leasing $ 11,420 $ 20 $ 92,182 $ 158 2.4%
General Administrative $ 448,916 $ 771 $ 539,664 $ 927 13.8%
Management $ 104,864 $ 180 $ 195,240 $ 335 5.0%
Miscellaneous ($ 434,272) -$ 746 $ 0 $ 0 0.0%
------------ --------- ----------- -------- --------
Total Operating Expenses $ 1,236,576 $ 2,125 $ 1,793,535 $ 3,082 45.9%
Reserves $ 0 $ 0 $ 87,300 $ 150 4.9%
------------ --------- ----------- -------- --------
Net Income $ 983,808 $ 1,690 $ 2,023,963 $ 3,478 51.8%
------------ --------- ----------- -------- --------
REVENUES AND EXPENSES
The subject's revenue and expense projections are displayed on the previous
chart. Rental income is based on the market analysis previously discussed. Other
income consists of forfeited deposits, laundry income, late rent payments, month
to month fees, pet fees, vending machine revenue, etc.
We forecasted the property's annual operating expenses after reviewing its
historical performance at the subject property. We analyzed each item of expense
and attempted to forecast amounts a typical informed investor would consider
reasonable.
VACANCY AND COLLECTION LOSS
An investor is primarily interested in the annual revenue an income property is
likely to produce over a specified period of time, rather than the income it
could produce if it were always 100% occupied and all tenants were paying their
rent in full and on time. An investor normally expects some income loss as
tenants vacate, fail to pay rent, or pay their rent late.
We have projected a stabilized vacancy and collection loss rate of 7% based on
the subject's historical performance, as well as the anticipated future market
conditions.
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
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 $150 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 $150 per unit
should be satisfactory in our reserves for replacement to cover future capital
expenditures.
DISCOUNTED CASH FLOW ANALYSIS
As the subject is a multi-tenant income property, the Discounted Cash Flow
Method is considered appropriate. This method is especially meaningful in that
it isolates the timing of the annual cash flows and discounts them, along with
the expected equity reversion, to a present value. The present value of the cash
flow is added to the present value of the reversion, resulting in a total
property value.
INVESTMENT CRITERIA
Appropriate investment criteria will be derived for the subject based upon
analysis of comparable sales and a survey of real estate investors. The
following table summarizes the findings of Korpacz National Investor Survey for
the most recent period.
KORPACZ NATIONAL INVESTOR SURVEY
1ST QUARTER 2003
NATIONAL APARTMENT MARKET
CAPITALIZATION RATES
------------------------------
GOING-IN TERMINAL
------------ -------------
LOW HIGH LOW HIGH
--- ---- --- ----
RANGE 6.00% 10.00% 7.00% 10.00%
AVERAGE 8.14% 8.47%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 31
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
SUMMARY OF OVERALL
CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR
- --------- --------- ------ ---------- -----
I-1 Jul-02 95% $ 34,268 8.47%
I-2 Dec-00 87% $ 41,896 7.07%
I-3 Sep-02 94% $ 54,087 6.40%
I-4 May-01 94% $ 45,192 7.65%
I-5 Apr-01 98% $ 61,397 7.48%
High 8.47%
Low 6.40%
Average 7.42%
Based on this information, we have concluded the subject's overall
capitalization rate should be 7.75%. The terminal capitalization rate is applied
to the net operating income estimated for the year following the end of the
holding period. Based on the concluded overall capitalization rate, the age of
the property and the surveyed information, we have concluded the subject's
terminal capitalization rate to be 8.25%. Finally, the subject's discount rate
or yield rate is estimated based on the previous investor survey and an
examination of returns available on alternative investments in the market. Based
on this analysis, the subject's discount rate is estimated to be 10.50%.
HOLDING PERIOD
The survey of investors indicates that most investors are completing either
10-year cash flows or extending the analysis to the end of the lease if it is
more than 10-years. A 10-year period has been used in the analysis of the
subject with the eleventh year stabilized NOI used to determine the reversion.
SELLING COSTS
Sales of similar size properties are typically accomplished with the aid of a
broker and will also incur legal and other transaction related cost. Based on
our survey of brokers and a review of institutional investor projections, an
allowance of 2.00% of the sale amount is applied.
DISCOUNTED CASH FLOW CONCLUSION
Discounting the annual cash flows and the equity reversion at the selected rate
of 10.50% indicates a value of $25,600,000. In this instance, the reversion
figure contributes
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
approximately 47% of the total value. Investors surveyed for this assignment
indicated they would prefer to have the cash flow contribute anywhere from 50%
to 60%. Overall, the blend seems reasonable. The cash flow and pricing matrix
are located on the following pages.
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 33
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
DISCOUNTED CASH FLOW ANALYSIS
REFLECTIONS (GREENSPRING MANOR)
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009
FISCAL YEAR 1 2 3 4 5 6
----------- ---------- ---------- ---------- ---------- --------- ----------
REVENUE
Base Rent $4,069,200 $4,191,276 $4,317,014 $4,446,525 $4,579,920 $4,717,318
Vacancy $1,003,736 $ 296,882 $ 215,851 $ 222,326 $ 228,996 $ 235,866
Credit Loss $ 81,384 $ 83,826 $ 86,340 $ 88,930 $ 91,598 $ 94,346
Concessions $ 62,856 $ 0 $ 0 $ 0 $ 0 $ 0
---------- ---------- ---------- ---------- ---------- ----------
Subtotal $1,147,976 $ 380,708 $ 302,191 $ 311,257 $ 320,594 $ 330,212
Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Other Misc. Revenue $ 120,442 $ 124,055 $ 127,777 $ 131,610 $ 135,559 $ 139,625
---------- ---------- ---------- ---------- ---------- ----------
Subtotal Other Income $ 120,442 $ 124,055 $ 127,777 $ 131,610 $ 135,559 $ 139,625
---------- ---------- ---------- ---------- ---------- ----------
EFFECTIVE GROSS INCOME $3,041,666 $3,934,624 $4,142,600 $4,266,878 $4,394,885 $4,526,731
OPERATING EXPENSES:
Taxes $ 270,113 $ 278,217 $ 286,563 $ 295,160 $ 304,015 $ 313,135
Insurance $ 86,051 $ 88,633 $ 91,292 $ 94,031 $ 96,852 $ 99,757
Utilities $ 303,887 $ 313,004 $ 322,394 $ 332,066 $ 342,028 $ 352,288
Repair & Maintenance $ 130,330 $ 134,240 $ 138,267 $ 142,415 $ 146,688 $ 151,088
Cleaning $ 99,794 $ 102,787 $ 105,871 $ 109,047 $ 112,319 $ 115,688
Landscaping $ 76,274 $ 78,562 $ 80,919 $ 83,346 $ 85,847 $ 88,422
Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Marketing & Leasing $ 92,182 $ 94,947 $ 97,796 $ 100,730 $ 103,752 $ 106,864
General Administrative $ 539,664 $ 555,854 $ 572,530 $ 589,706 $ 607,397 $ 625,619
Management $ 152,083 $ 196,731 $ 207,130 $ 213,344 $ 219,744 $ 226,337
Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
---------- ---------- ---------- ---------- ---------- ----------
TOTAL OPERATING EXPENSES $1,750,379 $1,842,975 $1,902,761 $1,959,844 $2,018,640 $2,079,199
Reserves $ 87,300 $ 89,919 $ 92,617 $ 95,395 $ 98,257 $ 101,205
---------- ---------- ---------- ---------- ---------- ----------
NET OPERATING INCOME $1,203,987 $2,001,729 $2,147,222 $2,211,639 $2,277,988 $2,346,328
========== ========== ========== ========== ========== ==========
Operating Expense Ratio (% of EGI) 57.5% 46.8% 45.9% 45.9% 45.9% 45.9%
Operating Expense Per Unit $ 3,008 $ 3,167 $ 3,269 $ 3,367 $ 3,468 $ 3,573
========== ========== ========== ========== ========== ==========
YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014
FISCAL YEAR 7 8 9 10 11
----------- ---------- ---------- ---------- ---------- ---------
REVENUE
Base Rent $4,858,838 $5,004,603 $5,154,741 $5,309,383 $5,468,665
Vacancy $ 242,942 $ 250,230 $ 257,737 $ 265,469 $ 273,433
Credit Loss $ 97,177 $ 100,092 $ 103,095 $ 106,188 $ 109,373
Concessions $ 0 $ 0 $ 0 $ 0 $ 0
---------- ---------- ---------- ---------- ----------
Subtotal $ 340,119 $ 350,322 $ 360,832 $ 371,657 $ 382,807
Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0
Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0
Other Misc. Revenue $ 143,814 $ 148,128 $ 152,572 $ 157,150 $ 161,864
---------- ---------- ---------- ---------- ----------
Subtotal Other Income $ 143,814 $ 148,128 $ 152,572 $ 157,150 $ 161,864
---------- ---------- ---------- ---------- ----------
EFFECTIVE GROSS INCOME $4,662,533 $4,802,409 $4,946,481 $5,094,876 $5,247,722
OPERATING EXPENSES:
Taxes $ 322,530 $ 332,205 $ 342,172 $ 352,437 $ 363,010
Insurance $ 102,750 $ 105,832 $ 109,007 $ 112,277 $ 115,646
Utilities $ 362,857 $ 373,743 $ 384,955 $ 396,504 $ 408,399
Repair & Maintenance $ 155,621 $ 160,289 $ 165,098 $ 170,051 $ 175,153
Cleaning $ 119,159 $ 122,734 $ 126,416 $ 130,208 $ 134,114
Landscaping $ 91,075 $ 93,807 $ 96,621 $ 99,520 $ 102,505
Security $ 0 $ 0 $ 0 $ 0 $ 0
Marketing & Leasing $ 110,070 $ 113,372 $ 116,773 $ 120,276 $ 123,885
General Administrative $ 644,387 $ 663,719 $ 683,631 $ 704,140 $ 725,264
Management $ 233,127 $ 240,120 $ 247,324 $ 254,744 $ 262,386
Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0
---------- ---------- ---------- ---------- ----------
TOTAL OPERATING EXPENSES $2,141,575 $2,205,822 $2,271,997 $2,340,157 $2,410,361
Reserves $ 104,241 $ 107,368 $ 110,589 $ 113,907 $ 117,324
---------- ---------- ---------- ---------- ----------
NET OPERATING INCOME $2,416,717 $2,489,219 $2,563,896 $2,640,812 $2,720,037
========== ========== ========== ========== ==========
Operating Expense Ratio (% of EGI) 45.9% 45.9% 45.9% 45.9% 45.9%
Operating Expense Per Unit $ 3,680 $ 3,790 $ 3,904 $ 4,021 $ 4,142
========== ========== ========== ========== ==========
Estimated Stabilized NOI $2,023,963
Months to Stabilized 18
Stabilized Occupancy 95.0%
Sales Expense Rate 2.00%
Discount Rate 10.50%
Terminal Cap Rate 8.25%
Gross Residual Sale Price $32,970,143 Deferred Maintenance $ 0
Less: Sales Expense $ 659,403 Add: Excess Land $ 0
-----------
Net Residual Sale Price $32,310,740 Other Adjustments $ 0
-----------
PV of Reversion $11,904,855 Value Indicated By "DCF" $25,625,401
Add: NPV of NOI $13,720,546 Rounded $25,600,000
-----------
PV Total $25,625,401
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE
-------------------------------------------------------------------
TOTAL VALUE 10.00% 10.25% 10.50% 10.75% 11.00%
- -----------------------------------------------------------------------------------------------------
7.75% $27,332,688 $26,857,769 $26,393,456 $25,939,479 $25,495,573
8.00% $26,918,286 $26,452,668 $25,997,428 $25,552,300 $25,117,026
TERMINAL CAP RATE 8.25% $26,528,999 $26,072,119 $25,625,401 $25,188,586 $24,761,422
8.50% $26,162,611 $25,713,955 $25,275,258 $24,846,267 $24,426,735
8.75% $25,817,159 $25,376,257 $24,945,124 $24,523,510 $24,111,174
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 34
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
INCOME LOSS DURING LEASE-UP
The subject is currently 61% occupied, below our stabilized occupancy
projection. We have estimated an 18-month lease-up period. An adjustment must be
made to bring the subject to a stabilized operating level. To account for this
income loss during lease-up, we have compared the current DCF analysis to an "as
stabilized" DCF analysis assuming the subject's occupancy were stabilized. The
difference in net operating income during the lease-up period is discounted to a
present value figure of $756,000 as shown in the following table.
DESCRIPTION YEAR 1 YEAR 2
----------- ------ ------
"As Is" Net Operating Income $1,203,987 $2,001,729
Stabilized Net Operating Income $1,964,250 $2,084,682
---------- ----------
Difference $ 760,262 $ 82,952
PV of Income Loss During Lease-Up $ 755,957
----------
Rounded $ 756,000
----------
CONCESSIONS
Due to softness in the market, concessions have been utilized at the subject
property and within the market. Based on our discussions with the subject's
property manager and those at competing properties, these concessions are
expected to continue in the near term until the market returns to a stabilized
level. Concessions have been included as a line item deduction within the
discounted cash flow analysis. The present value of these concessions equates to
$57,000 (rounded). This amount has been deducted from the Direct Capitalization
analysis, as well as the Sales Comparison Approach value.
DIRECT CAPITALIZATION METHOD
After having projected the income and expenses for the property, the next step
in the valuation process is to capitalize the net income into an estimate of
value. The selected overall capitalization rate ("OAR") covers both return on
and return of capital. It is the overall rate of return an investor expects.
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 35
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
After considering the market transactions and the investor surveys, we
previously conclude that an overall rate of 7.75% percent is applicable to the
subject. The results of our direct capitalization analysis are as follows:
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 36
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
REFLECTIONS (GREENSPRING MANOR)
TOTAL PER SQ. FT. PER UNIT %OF EGI
----- ----------- -------- -------
REVENUE
Base Rent $ 4,069,200 $ 8.86 $ 6,992
Less: Vacancy & Collection Loss 7.00% $ 284,844 $ 0.62 $ 489
Plus: Other Income
Laundry Income $ 0 $ 0.00 $ 0 0.00%
Garage Revenue $ 0 $ 0.00 $ 0 0.00%
Other Misc. Revenue $ 120,442 $ 0.26 $ 207 3.08%
------------ ------ -------- ----
Subtotal Other Income $ 120,442 $ 0.26 $ 207 3.08%
EFFECTIVE GROSS INCOME $ 3,904,798 $ 8.51 $ 6,709
OPERATING EXPENSES:
Taxes $ 270,113 $ 0.59 $ 464 6.92%
Insurance $ 86,051 $ 0.19 $ 148 2.20%
Utilities $ 303,887 $ 0.66 $ 522 7.78%
Repair & Maintenance $ 130,330 $ 0.28 $ 224 3.34%
Cleaning $ 99,794 $ 0.22 $ 171 2.56%
Landscaping $ 76,274 $ 0.17 $ 131 1.95%
Security $ 0 $ 0.00 $ 0 0.00%
Marketing & Leasing $ 92,182 $ 0.20 $ 158 2.36%
General Administrative $ 539,664 $ 1.18 $ 927 13.82%
Management 5.00% $ 195,240 $ 0.43 $ 335 5.00%
Miscellaneous $ 0 $ 0.00 $ 0 0.00%
TOTAL OPERATING EXPENSES $ 1,793,535 $ 3.91 $ 3,082 45.93%
Reserves $ 87,300 $ 0.19 $ 150 2.24%
------------ ------ -------- ----
NET OPERATING INCOME $ 2,023,963 $ 4.41 $ 3,478 51.83%
============ ====== ======== =====
"GOING IN" CAPITALIZATION RATE 7.75%
VALUE INDICATION $ 26,115,649 $56.89 $ 44,872
LESS: LEASE-UP COST ($ 756,000)
PV OF CONCESSIONS ($ 57,000)
"AS IS" VALUE INDICATION
(DIRECT CAPITALIZATION APPROACH) $ 25,302,649
ROUNDED $ 25,300,000 $55.11 $ 43,471
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 37
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF
- -------- ----- ------- ------ ----
7.00% $28,100,755 $28,100,000 $ 48,282 $61.21
7.25% $27,103,729 $27,100,000 $ 46,564 $59.03
7.50% $26,173,171 $26,200,000 $ 45,017 $57.07
7.75% $25,302,649 $25,300,000 $ 43,471 $55.11
8.00% $24,486,535 $24,500,000 $ 42,096 $53.37
8.25% $23,719,883 $23,700,000 $ 40,722 $51.62
8.50% $22,998,327 $23,000,000 $ 39,519 $50.10
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD
Applying the capitalization rate to our estimated NOI results in an estimated
value of $25,300,000.
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 $25,600,000
Direct Capitalization Method $25,300,000
Giving consideration to the indicated values provided by both techniques, we
have concluded the estimated value by the income capitalization approach to be
$25,600,000.
AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 38
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
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 $25,800,000
Income Approach $25,600,000
Reconciled Value $25,700,000
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
May 7, 2003 the market value of the fee simple estate in the property is:
$25,700,000
ADDENDA
AMERICAN APPRAISAL ASSOCIATES, INC.
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
ADDENDA
EXHIBIT A
AMERICAN APPRAISAL ASSOCIATES, INC.
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
EXHIBIT A
SUBJECT PHOTOGRAPHS
EXHIBIT A
AMERICAN APPRAISAL ASSOCIATES, INC.
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
SUBJECT PHOTOGRAPHS
[PICTURE] [PICTURE]
EXTERIOR - APARTMENT BUILDING EXTERIOR - APARTMENT BUILDING
[PICTURE] [PICTURE]
EXTERIOR - PLAYGROUND EXTERIOR - POOL
[PICTURE] [PICTURE]
INTERIOR - LIVING ROOM INTERIOR - BEDROOM
EXHIBIT A
AMERICAN APPRAISAL ASSOCIATES, INC.
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
SUBJECT PHOTOGRAPHS
[PICTURE]
INTERIOR - KITCHEN
EXHIBIT B
AMERICAN APPRAISAL ASSOCIATES, INC.
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
EXHIBIT B
SUMMARY OF RENT COMPARABLES
AND PHOTOGRAPH OF OMPARABLES
EXHIBIT B
AMERICAN APPRAISAL ASSOCIATES, INC.
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES
COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3
ABINGTON APARTMENTS CROSS CREEK APARTMENTS ARBOR GREEN APARTMENTS
4656 Edwardian Circle 5756 Cross Creek Dr. 3836 Arbor Green Ln.
Indianapolis, IN Indianapolis, IN Indianapolis, IN
[PICTURE] [PICTURE] [PICTURE]
COMPARABLE I-4 COMPARABLE I-5
ARBOR GREEN APARTMENTS CARRIAGETREE APARTMENTS (MONON PLACE APTS)
3836 Arbor Green Ln. 5900 Carvel Ave.
Indianapolis, IN Indianapolis, IN
[PICTURE] [PICTURE]
EXHIBIT B
AMERICAN APPRAISAL ASSOCIATES, INC.
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
SUMMARY OF COMPARABLE RENTAL PROPERTIES
DESCRIPTION SUBJECT COMPARABLE
R - 1
- ------------------------------------------------------------------------------------------------------------------------
Property Name Reflections (Greenspring Manor) Carlton Apartments
Management Company AIMCO
LOCATION:
Address 7999 Silverleaf Drive 2629 Plaza Dr.
City, State Indianapolis, Indiana Indianapolis, IN
County Marion Marion
Proximity to Subject 0.75 miles NW of subject
PHYSICAL CHARATERISTICS:
Net Rentable Area (SF) 459,080
Year Built 1972 N/A
Effective Age 15 10
Building Structure Type Wood, w/ brick & siding facade; Wood, w/ brick & siding facade;
asphalt shingle roof asphalt shingle roof
Parking Type
(Gr., Cov., etc.) Garage, Open Covered Open, Covered
Number of Units 582 702
Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo.
1 Eff/1Ba - EA10 450 240 $449 1 Studio 470 0 $460
2 1Br/1Ba - 1A10 770 104 $569 2 1BD/1BH 660 0 $560
3 1Br/1Ba - 2A15 950 100 $659 2 1BD/1BH 560 0 $495
4 2Br/2Ba - 2A25 1,200 86 $729 1 1BD/1BH 525 0 $495
5 2Br/2Ba - 3A25 1,400 52 $829 2 1BD/1BH 615 0 $495
$900 3 2BD/1BH 870 0 $565
3 2BD/2BH 975 0 $685
4 2BD/2BH 1,140 0 $700
Average Unit Size (SF) 789
Unit Breakdown: Efficiency 0% 2-Bedroom 39% Efficiency 2-Bedroom
1-Bedroom 61% 3-Bedroom 0% 1-Bedroom 3-Bedroom
CONDITION: Good Good
APPEAL: Average Good
AMENITIES:
Unit Amenities Attach. Garage Vaulted Ceiling X Attach. Garage X Vaulted Ceiling
X Balcony X W/D Connect. X Balcony X W/D Connect.
Fireplace X Washer Dryer X Fireplace Washer Dryer
X Cable TV Ready X Cable TV Ready
Project Amenities X Swimming Pool X Swimming Pool
Spa/Jacuzzi Car Wash Spa/Jacuzzi X Car Wash
Basketball Court X BBQ Equipment X Basketball Court X BBQ Equipment
X Volleyball Court Theater Room Volleyball Court Theater Room
X Sand Volley Ball X Meeting Hall X Sand Volley Ball X Meeting Hall
Tennis Court X Secured Parking X Tennis Court Secured Parking
Racquet Ball X Laundry Room Racquet Ball X Laundry Room
X Jogging Track X Business Office X Jogging Track X Business Office
X Gym Room X Gym Room
OCCUPANCY: 61% 80%
LEASING DATA:
Available Leasing Terms 6 to 15 Months 3 to 12 Months
Concessions 1 - 1 1/2 Months Free 1 Month Free
Pet Deposit $300 - $500 $ 200
Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas
X Water Trash X Water Trash
Confirmation
Telephone Number
NOTES: None
COMPARISON TO SUBJECT: Similar
DESCRIPTION COMPARABLE COMPARABLE
R - 2 R - 3
- ------------------------------------------------------------------------------------------------------------------------
Property Name Landmark Apartments Kensington Apartments
Management Company
LOCATION:
Address 7600 Harcourt Rd. 8444 Rothbury Dr.
City, State Indianapolis, IN Indianapolis, IN
County Marion Marion
Proximity to Subject 0.50 miles S of subject 0.50 miles N of subject
PHYSICAL CHARATERISTICS:
Net Rentable Area (SF) 215,760
Year Built 1974 1967
Effective Age 25 15
Building Structure Type Wood, w/ brick & siding Wood, w/ brick & siding facade;
facade; asphalt shingle roof asphalt shingle roof
Parking Type
(Gr., Cov., etc.) Open, Covered Open, Covered
Number of Units 231 296
Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo.
1 Studio 500 28 $465 2 1BD/1BH 630 0 $570
2 1BD/1BH 726 60 $570 2 1BD/1BH 750 0 $550
3 1BD/1BH 910 8 $640 2 1BD/1BH 800 0 $600
4 1BD/1BH 1,188 20 $700 3 2BD/1BH 910 0 $650
4 2BD/1BH 1,034 40 $735 3 2BD/2BH 950 0 $680
3 2BD/1BH 880 45 $655 4 2BD/2BH 1,250 0 $720
5 2BD/2BH 1,450 21 $835 5 2BD/2BH 1,350 0 $790
5 3BD/2BH 1,750 9 $995 5 3BD/2BH 1,600 0 $920
Average Unit Size (SF) 934 1,124
Unit Breakdown: Efficiency 12% 2-Bedroom 46% Efficiency 0% 2-Bedroom 0%
1-Bedroom 38% 3-Bedroom 4% 1-Bedroom 0% 3-Bedroom 0%
CONDITION: Good Slightly Superior
APPEAL: Good Slightly Superior
AMENITIES:
Unit Amenities Attach. Garage Vaulted Ceiling X Attach. Garage X Vaulted Ceiling
X Balcony X W/D Connect. X Balcony X W/D Connect.
Fireplace Washer Dryer X Fireplace Washer Dryer
X Cable TV Ready X Cable TV Ready
Project Amenities X Swimming Pool X Swimming Pool
Spa/Jacuzzi Car Wash Spa/Jacuzzi X Car Wash
Basketball Court X BBQ Equipment X Basketball Court X BBQ Equipment
Court
X Volleyball Court Theater Room Volleyball Court Theater Room
X Sand Volley Ball X Meeting Hall X Sand Volley Ball X Meeting Hall
X Tennis Court Secured Parking X Tennis Court Secured Parking
Racquet Ball X Laundry Room Racquet Ball X Laundry Room
Jogging Track X Business Office X Jogging Track X Business Office
X Gym Room X Gym Room
OCCUPANCY: 80% 98%
LEASING DATA:
Available Leasing Terms 9 to 12 Months 6 to 12 Months
Concessions None 1 Month Free
Pet Deposit $150 $200
Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas
X Water Trash X Water Trash
Confirmation
Telephone Number
NOTES: None
COMPARISON TO SUBJECT: Similar Similar
DESCRIPTION COMPARABLE COMPARABLE
R - 4 R - 5
- -----------------------------------------------------------------------------------------------------------------------------
Property Name Barrington Apartments Chelsea Village
Management Company
LOCATION:
Address 8717 Old Town West Dr. 9280 Chelsea Village Dr.
City, State Indianapolis, IN Indianapolis, IN
County Marion Marion
Proximity to Subject 1 mile N of subject 1.25 miles N of subject
PHYSICAL CHARATERISTICS:
Net Rentable Area (SF) 161,914 227,720
Year Built 1966 1983
Effective Age 25 15
Building Structure Type Wood, w/ brick & siding facade; Wood, w/ brick & siding facade;
asphalt shingle roof asphalt shingle roof
Parking Type
(Gr., Cov., etc.) Garage, Open, Covered Open, Covered
Number of Units 144 246
Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo.
2 1BD/1BH 628 18 $ 640 2 1BD/1BH 730 74 $531
2 1BD/1BH 855 6 $ 720 2 1BD/1BH 830 18 $616
3 2BD/1BH 907 18 $ 705 3 2BD/1BH 930 52 $613
4 2BD/2BH 1,069 36 $ 825 4 2BD/2BH 1,100 28 $655
4 2BD/2BH 1,153 20 $ 875 3 2BD/2BH 1,000 46 $717
4 3BD/2BH 1,295 6 $ 985 4 3BD/2BH 1,200 28 $828
5 3BD/2BH 1,496 40 $1,045
Average Unit Size (SF) 1,124 926
Unit Breakdown: Efficiency 0% 2-Bedroom 51% Efficiency 0% 2-Bedroom 51%
1-Bedroom 17% 3-Bedroom 32% 1-Bedroom 37% 3-Bedroom 11%
CONDITION: Good Good
APPEAL: Good Good
AMENITIES:
Unit Amenities X Attach. Garage Vaulted Ceiling Attach. Garage X Vaulted Ceiling
X Balcony X W/D Connect. X Balcony X W/D Connect.
X Fireplace Washer Dryer X Fireplace Washer Dryer
X Cable TV Ready X Cable TV Ready
Project Amenities X Swimming Pool X Swimming Pool
X Spa/Jacuzzi Car Wash X Spa/Jacuzzi Car Wash
Basketball X BBQ Equipment Basketball Court X BBQ Equipment
Court
Volleyball X Theater Room X Volleyball Court Theater Room
Court
Sand Volley X Meeting Hall X Sand Volley Ball Meeting Hall
Ball
Tennis Court X Secured Parking X Tennis Court Secured Parking
Racquet Ball Laundry Room Racquet Ball X Laundry Room
Jogging Track X Business Office Jogging Track Business Office
X Gym Room X Gym Room
OCCUPANCY: 96% 91%
LEASING DATA:
Available Leasing Terms 3 to 12 Months 6 to 12 Months
Concessions 1 Month Free 1 Month Free
Pet Deposit $200 $200
Utilities Paid by Tenant X Electric Natural Gas X Electric Natural Gas
X Water Trash X Water Trash
Confirmation
Telephone Number
NOTES: None None
COMPARISON TO SUBJECT: Superior Similar
EXHIBIT B
AMERICAN APPRAISAL ASSOCIATES, INC.
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES
COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3
CARLTON APARTMENTS LANDMARK APARTMENTS KENSINGTON APARTMENTS
2629 Plaza Dr. 7600 Harcourt Rd. 8444 Rothbury Dr.
Indianapolis, IN Indianapolis, IN Indianapolis, IN
[PICTURE] [PICTURE] [PICTURE]
COMPARABLE R-4 COMPARABLE R-5
BARRINGTON APARTMENTS CHELSEA VILLAGE
8717 Old Town West Dr. 9280 Chelsea Village Dr.
Indianapolis, IN Indianapolis, IN
[PICTURE] [PICTURE]
EXHIBIT C
AMERICAN APPRAISAL ASSOCIATES, INC.
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
EXHIBIT C
ASSUMPTIONS AND LIMITING CONDITIONS
(3 PAGES)
EXHIBIT C
AMERICAN APPRAISAL ASSOCIATES, INC.
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
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.
EXHIBIT C
AMERICAN APPRAISAL ASSOCIATES, INC.
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
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
EXHIBIT C
AMERICAN APPRAISAL ASSOCIATES, INC.
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
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.
EXHIBIT D
AMERICAN APPRAISAL ASSOCIATES, INC.
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
EXHIBIT D
CERTIFICATE OF APPRAISER
(1 PAGE)
EXHIBIT D
AMERICAN APPRAISAL ASSOCIATES, INC.
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. John Nolan provided
significant real property appraisal assistance in the preparation of this
report.
I am currently in compliance with the Appraisal Institute's continuing
education requirements.
/s/ Kenneth W. Kapecki
----------------------
Ken Kapecki, MAI
Managing Principal, Real Estate Group
State of Indiana, Certified General Appraiser,
#CG49600008
EXHIBIT E
AMERICAN APPRAISAL ASSOCIATES, INC.
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
EXHIBIT E
QUALIFICATIONS OF APPRAISER
(3 PAGES)
EXHIBIT E
AMERICAN APPRAISAL ASSOCIATES, INC.
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
KENNETH W. KAPECKI, MAI
MANAGING PRINCIPAL, REAL ESTATE GROUP
POSITION
Kenneth W. Kapecki is the Managing Principal for the Chicago Real Estate Group
of American Appraisal Associates, Inc. ("AAA").
EXPERIENCE
Valuation
Mr. Kapecki has over 17 years of experience in providing valuation services to
clients worldwide. He has a diversified background with considerable expertise
in the valuation of special-purpose properties, large multilocational holdings,
and investment-grade real estate. He has appraised steel mills, chemical plants,
food processing facilities, airports, mines, railroad rights-of-way, hotels, and
a variety of commercial and manufacturing facilities.
Mr. Kapecki's experience further extends to highest and best use studies,
feasibility studies, lease valuation analyses, cost segregation analyses, and
insurable value analyses. His reports are most frequently prepared for
acquisition, ad valorem tax, divestiture, financing, allocation of purchase
price, litigation support, and value reporting. Over the years, he has completed
appraisals in 50 states representing over $10 billion in value.
Mr. Kapecki has developed a core competency in the valuation of hospitality
property. He has appraised more than 150 hotels in the last two years alone for
financing, acquisition due diligence, cost segregation, and feasibility. These
properties consisted of a mixture of limited-service, full-service, and resort
hotels located throughout the United States as well as in the Bahamas, Belize,
and Guam.
EXHIBIT E
AMERICAN APPRAISAL ASSOCIATES, INC.
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
Court
Mr. Kapecki has testified as an expert witness in state and federal district
courts and by deposition statements and interrogatory communications.
Business
Prior to joining AAA in 2001, Mr. Kapecki was a senior manager in the Chicago
Valuation Service Group of Arthur Andersen, where he served as the central
regional team leader for real estate staff training, hospitality consulting, and
the valuation of real estate. Prior to his employment with Arthur Andersen, Mr.
Kapecki served as the manager of real estate valuations for Lloyd-Thomas Coats
and Burchard Co.
EDUCATION
University of Wisconsin - La Crosse
Bachelor of Science - Geography
STATE CERTIFICATIONS
State of Illinois, Certified General Real Estate Appraiser, #153000331
State of Indiana, Certified General Appraiser, #CG49600008
State of Michigan, Certified General Appraiser, #1201003145
State of Wisconsin, Certified General Appraiser and Licensed
Appraiser, #641
PROFESSIONAL AFFILIATIONS
Appraisal Institute, MAI Designated Member
Chicago Chapter, Admissions Committee Member, 1997 - Present
EXHIBIT E
AMERICAN APPRAISAL ASSOCIATES, INC.
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
VALUATION AND SPECIAL COURSES
Appraisal Institute
Appraisal Principles
Case Studies in Real Estate Valuation
Fair Lending and the Appraiser
Highest & Best Use and Market Analysis
Income Capitalization, Parts A and B
Litigation Support: The Appraiser as an Expert Witness
Partial Interest Valuation
Real Estate Disclosure
Report Writing
Standards of Professional Practice
Valuation of Detrimental Conditions
Valuation Theory and Techniques
Arthur Andersen, Course Developer
Income Capitalization Theory and Techniques
Introduction to the Cost Approach
Property Inspection and Market Data Collection
AMERICAN APPRAISAL ASSOCIATES, INC.
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
GENERAL SERVICE CONDITIONS
AMERICAN APPRAISAL ASSOCIATES, INC.
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
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.