TRAILS
100 TRAILS CIRCLE
NASHVILLE, TENNESSEE
MARKET VALUE -
FEE SIMPLE ESTATE
AS OF MAY 5, 2003
PREPARED FOR:
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
(AIMCO)
C/O LINER YANKELEVITZ SUNSHINE & REGENSTREIF LLP
&
LIEFF CABRASER HEIMANN & BERNSTEIN
ON BEHALF OF NUANES, ET. AL.
[AMERICAN APPRAISAL ASSOCIATES(R) LOGO]
[AMERICAN APPRAISAL ASSOCIATES(R) LOGO]
[AMERICAN APPRAISAL ASSOCIATES(R) LETTERHEAD]
JULY 2, 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: TRAILS
100 TRAILS CIRCLE
NASHVILLE, DAVIDSON COUNTY, TENNESSEE
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 248 units with a
total of 198,560 square feet of rentable area. The improvements were built in
1972. The improvements are situated on 19.16 acres. Overall, the improvements
are in average condition. As of the date of this appraisal, the subject property
is 95% occupied.
It is our understanding the appraisal will be used by the clients to assist the
San Mateo Superior Court in the settlement of litigation between the above
mentioned clients. The appraisal is intended to conform to the Uniform Standards
of Professional Appraisal Practice ("USPAP") as promulgated by the Appraisal
Standards Board of the Appraisal Foundation and the Code of Professional Ethics
and Standards of Professional Practice of the Appraisal Institute. The appraisal
is presented in a summary report, and the Departure Provision of USPAP has not
been invoked in this appraisal. It is entirely inappropriate to use this value
conclusion or the report for any purpose other than the one stated.
AMERICAN APPRAISAL ASSOCIATES, INC. LETTER OF TRANSMITTAL PAGE 2
TRAILS, NASHVILLE, TENNESSEE
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 5, 2003 is:
($9,400,000)
Respectfully submitted,
AMERICAN APPRAISAL ASSOCIATES, INC.
/s/ Frank Fehribach
July 2, 2003 Frank Fehribach, MAI
#053272 Managing Principal, Real Estate Group
Tennessee Temporary Practice Permit #00053573
Report By:
Daniel Salcedo
Tennessee Temporary Practice Permit #00053558
AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3
TRAILS, NASHVILLE, TENNESSEE
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............................................ 37
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
TRAILS, NASHVILLE, TENNESSEE
EXECUTIVE SUMMARY
PART ONE - PROPERTY DESCRIPTION
PROPERTY NAME: Trails
LOCATION: 100 Trails Circle
Nashville, Tennessee
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 5, 2003
DATE OF REPORT: July 2, 2003
PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS:
SITE:
Size: 19.16 acres, or 834,610 square feet
Assessor Parcel No.: 109-000-196
Floodplain: Community Panel No. 47037C0308F (April 20, 2001)
Flood Zone X, an area outside the floodplain.
Zoning: RM-15 (Medium to High Density Apartment
District)
BUILDING:
No. of Units: 248 Units
Total NRA: 198,560 Square Feet
Average Unit Size: 801 Square Feet
Apartment Density: 12.9 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
- --------- ---- -------- ------ ------ ------
1Br/1Ba-1A10 521 $500 $0.96 $ 12,000 $ 144,000
1Br/1Ba-1B10 631 $530 $0.84 $ 33,920 $ 407,040
1Br/1Ba-1C10 767 $545 $0.71 $ 17,440 $ 209,280
1Br/1Ba-1D10 806 $580 $0.72 $ 18,560 $ 222,720
2Br/1Ba-2A10 933 $640 $0.69 $ 25,600 $ 307,200
2Br/2Ba-2B20 1,036 $665 $0.64 $ 37,240 $ 446,880
- ------------ ----- ---- ----- -------- ----------
Total $144,760 $1,737,120
===== ======== ==========
OCCUPANCY: 95%
ECONOMIC LIFE: 45 Years
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5
TRAILS, NASHVILLE, TENNESSEE
EFFECTIVE AGE: 25 Years
REMAINING ECONOMIC LIFE: 20 Years
SUBJECT PHOTOGRAPHS AND LOCATION MAP:
SUBJECT PHOTOGRAPHS
[PICTURE] [PICTURE]
UNIT TYPE FACADE UNIT TYPE
AREA MAP
[MAP]
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6
TRAILS, NASHVILLE, TENNESSEE
NEIGHBORHOOD MAP
[MAP]
HIGHEST AND BEST USE:
As Vacant: Hold for future multi-family development
As Improved: Continuation as its current use
METHOD OF VALUATION: In this instance, the Sales Comparison and
Income Approaches to value were utilized.
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 7
TRAILS, NASHVILLE, TENNESSEE
PART TWO - ECONOMIC INDICATORS
Amount $/Unit
------ ------
INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION
Potential Rental Income $1,737,120 $ 7,005
Effective Gross Income $1,759,362 $ 7,094
Operating Expenses $ 822,048 $ 3,315 46.7% of EGI
Net Operating Income: $ 875,314 $ 3,529
Capitalization Rate 9.50%
DIRECT CAPITALIZATION VALUE $9,200,000 * $37,097 / UNIT
DISCOUNTED CASH FLOW ANALYSIS:
Holding Period 10 years
2002 Economic Vacancy 6%
Stabilized Vacancy & Collection Loss: 7%
Lease-up / Stabilization Period N/A
Terminal Capitalization Rate 10.50%
Discount Rate 12.00%
Selling Costs 2.00%
Growth Rates:
Income 3.00%
Expenses: 3.00%
DISCOUNTED CASH FLOW VALUE $9,400,000 * $37,903 / UNIT
RECONCILED INCOME CAPITALIZATION VALUE $9,400,000 $37,903 / UNIT
SALES COMPARISON APPROACH
PRICE PER UNIT:
Range of Sales $/Unit (Unadjusted) $17,808 to $82,471
Range of Sales $/Unit (Adjusted) $36,507 to $41,236
VALUE INDICATION - PRICE PER UNIT $9,500,000 * $38,306 / UNIT
EGIM ANALYSIS
Range of EGIMs from Improved Sales 4.64 to 6.66
Selected EGIM for Subject 5.40
Subject's Projected EGI $ 1,759,362
EGIM ANALYSIS CONCLUSION $ 9,500,000 * $38,306 / UNIT
NOI PER UNIT ANALYSIS CONCLUSION $ 9,400,000 * $37,903 / UNIT
RECONCILED SALES COMPARISON VALUE $ 9,500,000 $38,306 / 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
TRAILS, NASHVILLE, TENNESSEE
PART THREE - SUMMARY OF VALUE CONCLUSIONS
SALES COMPARISON APPROACH:
Price Per Unit $9,500,000
NOI Per Unit $9,400,000
EGIM Multiplier $9,500,000
INDICATED VALUE BY SALES COMPARISON $9,500,000 $38,306 / UNIT
INCOME APPROACH:
Direct Capitalization Method: $9,200,000
Discounted Cash Flow Method: $9,400,000
INDICATED VALUE BY THE INCOME APPROACH $9,400,000 $37,903 / UNIT
RECONCILED OVERALL VALUE CONCLUSION: $9,400,000 $37,903 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9
TRAILS, NASHVILLE, TENNESSEE
INTRODUCTION
IDENTIFICATION OF THE SUBJECT
The subject property is located at 100 Trails Circle, Nashville, Davidson
County, Tennessee. Nashville identifies it as 109-000-196.
SCOPE OF THE ASSIGNMENT
The property, neighborhood, and comparables were inspected by Daniel Salcedo on
May 5, 2003. Frank Fehribach, MAI has not made a personal inspection of the
subject property. Daniel Salcedo performed the research, valuation analysis and
wrote the report. Frank Fehribach, MAI reviewed the report and concurs with the
value. Both, Frank Fehribach, MAI and Daniel Salcedo 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 5, 2003. The
date of the report is July 2, 2003.
PURPOSE AND USE OF APPRAISAL
The purpose of the appraisal is to estimate the market value of the fee simple
interest in the subject property. It is understood that the appraisal is
intended to assist the clients in litigation settlement proceedings. The
appraisal was not based on a requested minimum valuation, a specific valuation,
or the approval of a loan.
PROPERTY RIGHTS APPRAISED
We have appraised the Fee Simple Estate in the subject property (as applied in
the Sales & Income Approaches), subject to the existing short-term leases. A Fee
Simple Estate is
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 10
TRAILS, NASHVILLE, TENNESSEE
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
TRAILS, NASHVILLE, TENNESSEE
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 Nashville, Tennessee. 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 -J. Perry Priest Lake
West -I-40
South -Elm Hill Pike
North -I-40
MAJOR EMPLOYERS
Major employers in the subject's area include ComPlus, Concetra, Saturn
Corporation, Gaylord Entertainment, Nissan Motor Manufacturing Corporation,
Kroger Company, Reemay, Inc., United Parcel Service, First American National
Bank, and Bridgestone/Firestone. 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
TRAILS, NASHVILLE, TENNESSEE
NEIGHBORHOOD DEMOGRAPHICS
AREA
----------------------------------------
CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA
- --------------------------- ------------ ------------ ------------ ---
POPULATION TRENDS
Current Population 5,992 30,839 87,513 1,275,686
5-Year Population 6,495 33,717 93,450 1,391,452
% Change CY-5Y 8.4% 9.3% 6.8% 9.1%
Annual Change CY-5Y 1.7% 1.9% 1.4% 1.8%
HOUSEHOLDS
Current Households 2,827 14,048 37,586 499,284
5-Year Projected Households 3,126 15,677 40,792 550,820
% Change CY - 5Y 10.6% 11.6% 8.5% 10.3%
Annual Change CY-5Y 2.1% 2.3% 1.7% 2.1%
INCOME TRENDS
Median Household Income $ 41,704 $ 43,385 $ 43,321 $ 45,328
Per Capita Income $ 23,069 $ 24,234 $ 22,449 $ 23,901
Average Household Income $ 51,150 $ 53,259 $ 52,707 $ 61,067
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 37.92% 44.16% 40.71% 31.23%
5-Year Projected % Renting 35.05% 43.30% 39.90% 30.53%
% of Households Owning 54.44% 48.17% 51.11% 61.72%
5-Year Projected % Owning 57.48% 49.47% 52.34% 62.91%
Source: Demographics Now
AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13
TRAILS, NASHVILLE, TENNESSEE
SURROUNDING IMPROVEMENTS
The following uses surround the subject property:
North - Residential
South - Vacant Land
East - Vacant Land
West - Vacant Land
CONCLUSIONS
The subject is well located within the city of Nashville. 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
TRAILS, NASHVILLE, TENNESSEE
MARKET ANALYSIS
The subject property is located in the city of Nashville in Davidson County. The
overall pace of development in the subject's market is more or less decreasing.
Based on our site inspection of the market area, there was no evidence of
additional development for multifamily use. The following table illustrates
historical vacancy rates for the subject's market.
HISTORICAL VACANCY RATE
Period Region Submarket
- ------ ------ ---------
1997 5.5% 5.0%
1998 6.7% 6.0%
1999 5.9% 7.0%
2000 5.9% 7.9%
2001 8.3% 8.6%
2002 8.0% 8.0%
Source: Greater Nashville Apartment Association
Occupancy trends in the subject's market are a stable. Historically speaking,
the subject's submarket has equated the overall market. Occupancy in the
subject's market area is expected to be around 94.0% in average. Any expected
changes are caused by the short time fluctuations derived from the current
economic situation affecting the local, regional and national markets.
Market rents in the subject's market have been following increasing trend. The
following table illustrates historical rental rates for the subject's market.
HISTORICAL AVERAGE RENT
Period Region % Change Submarket % Change
- ------ ------ -------- --------- --------
1996 $583 - $735 -
1997 $604 3.6% $760 3.4%
1998 $634 5.0% $769 1.2%
1999 $647 2.1% $784 2.0%
2000 $667 3.1% $796 1.5%
2001 $677 1.5% $814 2.3%
2002 $685 1.2% $820 0.7%
Source: Greater Nashville Apartment Association
The following table illustrates a summary of the subject's competitive set.
AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15
TRAILS, NASHVILLE, TENNESSEE
COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject
--- ------------- ----- ----- ---------- --------------------
R-1 Polo Park 386 98% 1987 Approx. 3 miles north of subject
R-2 Spinnaker Cove 278 93% 1986 Approx.1.8 miles northeast of subject
R-3 Oakwell Farms 414 96% 1987 Approx. 1.4 miles north of subject
R-4 The Lakes 256 91% 1985 Approx. 0.3 miles south of subject
R-5 Park at Hermitage 440 94% 1986 Approx. 2 miles northeast of subject
Subject Trails 248 95% 1972
Rental rates are expected to stabilize.
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16
TRAILS, NASHVILLE, TENNESSEE
PROPERTY DESCRIPTION
SITE ANALYSIS
Site Area 19.16 acres, or 834,610 square feet
Shape Irregular
Topography Moderate 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 47037C0308F, dated April 20,2001
Flood Zone Zone X
Zoning RM-15, 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
- ------------- ---- -------- ----- --------- -----
109-000-196 $396,800 $3,031,800 $3,428,600 0.03840 $131,658
IMPROVEMENT ANALYSIS
Year Built 1972
Number of Units 248
Net Rentable Area 198,560 Square Feet
Construction:
Foundation Reinforced concrete slab
Frame Heavy or light wood
Exterior Walls Brick or masonry
Roof Composition shingle over a wood truss structure
Project Amenities Amenities at the subject include a swimming
pool, sand volleyball, tennis court, gym room,
barbeque equipment, meeting hall, laundry room,
business office, and parking area.
Unit Amenities Individual unit amenities include a balcony,
fireplace, cable TV connection, and washer dryer
connection. Appliances available in each unit
include a refrigerator, stove, microwave
dishwasher, water heater, garbage disposal, and
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17
TRAILS, NASHVILLE, TENNESSEE
oven.
Unit Mix:
Unit Area
Unit Type Number of Units (Sq. Ft.)
--------- --------------- ---------
1Br/1Ba-1A10 24 521
1Br/1Ba-1B10 64 631
1Br/1Ba-1C10 32 767
1Br/1Ba-1D10 32 806
2Br/1Ba-2A10 40 933
2Br/2Ba-2B20 56 1,036
Overall Condition Average
Effective Age 25 years
Economic Life 45 years
Remaining Economic Life 20 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 248-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
TRAILS, NASHVILLE, TENNESSEE
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
TRAILS, NASHVILLE, TENNESSEE
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
TRAILS, NASHVILLE, TENNESSEE
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
TRAILS, NASHVILLE, TENNESSEE
SUMMARY OF COMPARABLE SALES -IMPROVED
DESCRIPTION SUBJECT COMPARABLE COMPARABLE COMPARABLE
I - 1 I - 2 I - 3
- ------------------------------------------------------------------------------------------------------------------------------------
Property Name Trails Alta Lake Colonnade Hermitage Gardens
LOCATION:
Address 100 Trails 3960 Bell Road 4100 Central Pike 4701 Old
Circle Hickory Blvd
City, State Nashville, Hermitage, TN Nashville, TN Nashville, TN
Tennessee
County Davidson Davidson Davidson Davidson
PHYSICAL CHARACTERISTICS:
Net Rentable Area (SF) 198,560 360,144 259,776 66,868
Year Built 1972 2001 1998 1962
Number of Units 248 348 288 73
Unit Mix: Type Total Type Total Type Total Type Total
1Br/1Ba - 1A10 24 1Br/1Ba 189 1Br/1Ba 108 1Br/1Ba 25
1Br/1Ba - 1B10 64 2Br/2Ba 129 2Br/2Ba 156 2Br/1Ba 48
1Br/1Ba - 1C10 32 3Br/2Ba 48 3Br/2Ba 24
1Br/1Ba - 1D10 32
2Br/1Ba - 2A10 40
2Br/2Ba - 2B20 56
Average Unit Size (SF) 801 1.035 902 916
Land Area (Acre) 19.1600 31.1500 13.4800 3.0300
Density (Units/Acre) 12.9 11.2 21.4 24.1
Parking Ratio (Spaces/
Unit) 2.50 2.50 2.20 2.00
Parking Type (Gr., Cov.,
etc.) Open Open, Caroport/garage Open, Carport/garage Open
CONDITION: Good Good Good Fair
APPEAL: Good Good Good Fair
AMENITIES:
Pool/Spa Yes/No Yes/No Yes/No Yes/No
Gym Room Yes Yes Yes No
Laundry Room Yes Yes No Yes
Secured Parking No Yes Yes No
Sport Courts Yes Yes No No
Washer/Dryer Connection Yes Yes Yes Yes
Storage No Yes Yes No
Other
OCCUPANCY: 95% 94% 95% 90%
TRANSACTION DATA:
Sale Date April, 2002 January, 1999 October, 2001
Sale Price ($) $28,700,000 $17,420,000 $1,300,000
Grantor Wood Partners Nashville 2 Central N/A
pike Apts LP
Grantee USB Realty Investors United Dominion Hermitage Garden
Realty Trust Apartments LP
Sale Documentation Deed-20020611-0071164 Deed-00011288-0000152 Deed-20011029-0117743
Verification Blair Carroll Brian Houchin Bruce Graustein
Telephone Number 615.874.2400 615.391.2232 615.883.6861
ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF
- ------------------------------------------------------------------------------------------------------------------------------------
Potential Gross Income $5,214,312 $14,984 $14.48 $2,753,760 $9,562 $10.60 $311,111 $4,262 $4.65
Vacancy/Credit Loss $ 365,002 $ 1,049 $ 1.01 $ 137,688 $ 478 $ 0.53 $ 31,111 $ 426 $0.47
--------------------------------------------------------------------------------
Effective Gross Income $4,849,310 $13,935 $13.46 $2,616,072 $9,084 $10.09 $280,000 $3,836 $4.19
Operating Expenses $2,128,210 $ 6,116 $ 5.91 $1,067,200 $3,706 $ 4.11 $152,650 $2,091 $2.28
--------------------------------------------------------------------------------
Net Operating Income $2,721,100 $ 7,819 $ 7.56 $1,548,872 $5,378 $ 5.96 $127,350 $1,745 $1.90
- ------------------------------------------------------------------------------------------------------------------------------------
NOTES: Overall superior to subject Overall superior to Overall inferior to
subject subject
- ------------------------------------------------------------------------------------------------------------------------------------
PRICE PER UNIT $82,471 $60,486 $17,808
PRICE PER SQUARE FOOT $ 79.69 $ 67.06 $ 19.44
EXPENSE RATIO 43.9% 40.8% 54.5%
EGIM 5.92 6.66 4.64
OVERALL CAP RATE 9.48% 8.89% 9.80%
Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA PRO FORMA
DESCRIPTION COMPARABLE COMPARABLE
I - 4 I - 5
- -------------------------------------------------------------------------------------
Property Name Berkley Ridge Waterford landing Hermitage
(Summittree)
LOCATION:
Address 308 Plus Park Blvd 5901 Old Hickory Blvd
City, State Nashville, TN Hermitage, TN
County Davidson Davidson
PHYSICAL CHARACTERISTICS:
Net Rentable Area (SF) 227,408 200,008
Year Built 1972 1998
Number of Units 244 184
Unit Mix: Type Total Type Total
- -------------------------------------------------------------------------------------
1Br/1Ba 90 1Br/1Ba 76
2Br/2Ba 130 2Br/2Ba 82
3Br/2Ba 24 3Br/2Ba 26
Average Unit Size (SF) 932 1,087
Land Area (Acre) 18.1100 14.9600
Density (Units/Acre) 13.5 12.3
Parking Ratio (Spaces/
Unit) 2.80 2.00
Parking Type (Gr., Cov.,
etc.) Open Open, Caroport/garage
CONDITION: Average Average
APPEAL: Average Average
AMENITIES:
Pool/Spa Yes/No Yes/No
Gym Room No No
Laundry Room Yes Yes
Secured Parking No Yes
Sport Courts No No
Washer/Dryer Connection No Yes
Storage No Yes
Other
OCCUPANCY: 90% 94%
TRANSACTION DATA:
Sale Date June, 2001 June, 2002
Sale Price ($) $6,550,000 $10,200,000
Grantor N/A N/A
Grantee RCP Summitree LLC Waterford landing-Hermitage
Sale Documentation Deed-20010619-0064950 Deed-20020626-0077077
Verification Ellen Pakrer Tabbetha Muller
Telephone Number 615.360.6004 615.884.9948
ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF
- -------------------------------------------------------------------------------------
Potential Gross Income $1,384,205 $5,673 $6.09 $1,941,769 $10,553 $9.71
Vacancy/Credit Loss $ 138,421 $ 567 $0.61 $ 116,506 $ 633 $0.58
------------------------------------------------------
Effective Gross Income $1,245,784 $5,106 $5.48 $1,825,263 $ 9,920 $9.13
Operating Expenses $ 671,434 $2,752 $2.95 $ 830,863 $ 4,516 $4.15
------------------------------------------------------
Net Operating Income $ 574,350 $2,354 $2.53 $ 994,400 $ 5,404 $4.97
- -------------------------------------------------------------------------------------
NOTES: Overall slightly inferior Overall comparable to subject
to subject
- -------------------------------------------------------------------------------------
Price Per Unit $26,844 $55,435
Price Per Square Foot $ 28.80 $ 51.00
Expense Ratio 53.9% 45.5%
EGIM 5.26 5.59
Overall Cap Rate 8.77% 9.75%
Cap Rate based on Pro PRO FORMA PRO FORMA
Forma Income?
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22
TRAILS, NASHVILLE, TENNESSEE
[IMPROVED SALES MAP]
IMPROVED SALES ANALYSIS
The improved sales indicate a sales price range from $17,808 to $82,471 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 $36,507 to $41,236 per unit with a mean or average adjusted price
of $38,564 per unit. The median adjusted price is $38,804 per unit. Based on the
following analysis, we have concluded to a value of $38,500 per unit, which
results in an "as is" value of $9,500,000 (rounded after necessary adjustment,
if any).
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23
TRAILS, NASHVILLE, TENNESSEE
SALES ADJUSTMENT GRID
DESCRIPTION SUBJECT COMPARABLE COMPARABLE
I - 1 I - 2
- ---------------------------------------------------------------------------------------------
Property Name Trails Alta Lake Colonnade
Address 100 Trails Circle 3960 Bell Road 4100 Central Pike
City Nashville, Hermitage, TN Nashville, TN
Tennessee
Sale Date April, 2002 January, 1999
Sale Price ($) $28,700,000 $17,420,000
Net Rentable Area (SF) 198,560 360,144 259,776
Number of Units 248 348 288
Price Per Unit $82,471 $60,486
Year Built 1972 2001 1998
Land Area (Acre) 19,1600 31,1500 13,4800
VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ.
Property Rights Conveyed Fee Simple Estate Fee Simple 0% Fee Simple 0%
Estate Estate
Financing Cash To Seller 0% Cash To Seller 0%
Conditions of Sale Arm's Length 0% Arm's Length 0%
Date of Sale (Time) 04-2002 0% 01-1999 -5%
VALUE AFTER TRANS. ADJUST. ($/UNIT) $82,471 $57,462
Location Comparable 0% Comparable 0%
Number of Units 248 348 0% 288 0%
Quality / Appeal Good Superior -15% Superior -15%
Age / Condition 1972 2001 / Good -20% 1998 / Good -20%
Occupancy at Sale 95% 94% 0% 95% 0%
Amenities Good Comparable 0% Comparable 0%
Average Unit Size (SF) 801 1,035 -15% 902 0%
PHYSICAL ADJUSTMENT -50% -35%
FINAL ADJUSTED VALUE ($/UNIT) $41,236 $37,350
DESCRIPTION COMPARABLE COMPARABLE COMPARABLE
I - 3 I - 4 I - 5
- ----------------------------------------------------------------------------------------------------------
Property Name Hermitage Gardens Berkley Ridge Waterford landing Hermitage
(Summittree)
Address 4701 Old Hickory 308 Plus Park 5901 Old Hickory Blvd
Blvd Blvd
City Nashville, TN Nashville, TN Hermitage, TN
Sale Date October, 2001 June, 2001 June, 2002
Sale Price ($) $1,300,000 $6,550,000 $10,200,000
Net Rentable Area (SF) 66,868 227,408 200,008
Number of Units 73 244 184
Price Per Unit $17,808 $26,844 $55,435
Year Built 1962 1972 1998
Land Area (Acre) 3,0300 18,1100 14,9600
VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ.
- ----------------------------------------------------------------------------------------------------------
Property Rights Conveyed Fee Simple 0% Fee Simple 0% Fee Simple 0%
Estate Estate Estate
Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0%
Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0%
Date of Sale (Time) 10-2001 0% 06-2001 0% 06-2002 0%
VALUE AFTER TRANS. ADJUST. $17,808 $26,844 $55,435
($/UNIT)
- ----------------------------------------------------------------------------------------------------------
Location Inferior 15% Comparable 0% Comparable 0%
Number of Units 73 20% 244 0% 184 0%
Quality / Appeal Inferior 25% Inferior 25% Superior -5%
Age / Condition 1962 / Fair 20% 1972 / Average 0% 1998 / Average -20%
Occupancy at Sale 90% 0% 90% 0% 94% 10%
Amenities Inferior 25% Inferior 20% Comparable 0%
Average Unit Size (SF) 916 0% 932 0% 1,087 -15%
PHYSICAL ADJUSTMENT 105% 45% -30%
FINAL ADJUSTED VALUE ($/UNIT) $36,507 $38,924 $38,804
SUMMARY
VALUE RANGE (PER UNIT) $36,507 TO $41,236
MEAN (PER UNIT) $38,564
MEDIAN (PER UNIT) $38,804
VALUE CONCLUSION (PER UNIT) $38,500
VALUE INDICATED BY SALES COMPARISON APPROACH $9,548,000
ROUNDED $9,500,000
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
TRAILS, NASHVILLE, TENNESSEE
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-1 348 $28,700,000 9.48% $2,721,100 $875,314 0.451 $ 37,226
$ 82,471 $ 7,819 $ 3,529
I-2 288 $17,420,000 8.89% $1,548,872 $875,314 0.656 $ 39,696
$ 60,486 $ 5,378 $ 3,529
I-3 73 $ 1,300,000 9.80% $ 127,350 $875,314 2.023 $ 36,029
$ 17,808 $ 1,745 $ 3,529
I-4 244 $ 6,550,000 8.77% $ 574,350 $875,314 1.499 $ 40,251
$ 26,844 $ 2,354 $ 3,529
I-5 184 $10,200,000 9.75% $ 994,400 $875,314 0.653 $ 36,204
$ 55,435 $ 5,404 $ 3,529
PRICE/UNIT
Low High Average Median
$36,029 $40,251 $ 37,881 $37,226
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT
Estimated Price Per Unit $ 38,000
Number of Units 248
----------
Value Based on NOI Analysis $9,424,000
Rounded $9,400,000
The adjusted sales indicate a range of value between $36,029 and $40,251 per
unit, with an average of $37,881 per unit. Based on the subject's competitive
position within the improved sales, a value of $38,000 per unit is estimated.
This indicates an "as is" market value of $9,400,000 (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
TRAILS, NASHVILLE, TENNESSEE
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-1 348 $28,700,000 $4,849,310 $2,128,210 43.89% 5.92
$ 82,471
I-2 288 $17,420,000 $2,616,072 $1,067,200 40.79% 6.66
$ 60,486
I-3 73 $ 1,300,000 $ 280,000 $ 152,650 54.52% 46.72% 4.64
$ 17,808
I-4 244 $ 6,550,000 $1,245,784 $ 671,434 53.90% 5.26
$ 26,844
I-5 184 $10,200,000 $1,825,263 $ 830,863 45.52% 5.59
$ 55,435
EGIM
Low High Average Median
4.64 6.66 5.61 5.59
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES
Estimate EGIM 5.40
Subject EGI $1,759,362
----------
Value Based on EGIM Analysis $9,500,553
Rounded $9,500,000
Value Per Unit $ 38,306
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 46.72% before reserves. The comparable sales
indicate a range of expense ratios from 40.79% to 54.52%, while their EGIMs
range from 4.64 to 6.66. Overall, we conclude to an EGIM of 5.40, which results
in an "as is" value estimate in the EGIM Analysis of $9,500,000.
SALES COMPARISON CONCLUSION
The three valuation methods in the Sales Comparison Approach are shown below.
The overall value via the Sales Comparison Approach is estimated at $9,500,000.
Price Per Unit $9,500,000
NOI Per Unit $9,400,000
EGIM Analysis $9,500,000
Sales Comparison Conclusion $9,500,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26
TRAILS, NASHVILLE, TENNESSEE
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
TRAILS, NASHVILLE, TENNESSEE
method is normally more appropriate for properties with relatively stable
operating histories and expectations.
A pro forma analysis for the first year of the investment is made to estimate a
reasonable potential net operating income for the Subject Property. Such an
analysis entails an estimate of the gross income the property should command in
the marketplace. From this total gross income must be deducted an allowance for
vacancy/collection loss and operating expenses as dictated by general market
conditions and the overall character of the subject's tenancy and leased income
to arrive at a projected estimate of net operating income. Conversion of the net
operating income to an indication of value is accomplished by the process of
capitalization, as derived primarily from market data.
MARKET RENT ANALYSIS
In order to determine a market rental rate for the subject, a survey of
competing apartment communities was performed. This survey was displayed
previously in the market analysis section of the report. Detailed information
pertaining to each of the comparable rental communities, along with photographs,
is presented in the Addenda of this report.
The following charts display the subject's current asking and actual rent rates
as well as a comparison with the previous referenced comparable rental
properties.
SUMMARY OF ACTUAL AVERAGE RENTS
Average
Unit Area ---------------------
Unit Type (Sq. Ft.) Per Unit Per Sf %Occupied
- ------------------------------------------------------------------------------
1Br/1Ba - 1A10 521 $498 $0.96 100.0%
1Br/1Ba - 1B10 631 $529 $0.84 90.6%
1Br/1Ba - 1C10 767 $544 $0.71 96.9%
1Br/1Ba - 1D10 806 $577 $0.72 96.9%
2Br/1Ba - 2A10 933 $634 $0.68 97.5%
2Br/2Ba - 2B20 1036 $664 $0.64 94.6%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28
TRAILS, NASHVILLE, TENNESSEE
RENT ANALYSIS
COMPARABLE RENTS
---------------------------------------------------
R-1 R-2 R-3 R-4 R-5
---------------------------------------------------
Spinnaker Oakwell Park At
Polo Park Cove Farms The Lakes Hermitage
---------------------------------------------------
SUBJECT SUBJECT COMPARISON TO SUBJECT
SUBJECT UNIT ACTUAL ASKING ---------------------------------------------------
DESCRIPTION TYPE RENT RENT Superior Similar Similar Superior Superior
- ---------------------------------------------------------------------------------------------------------------
Monthly Rent 1Br/1Ba -1A10 $ 498 $ 497 $ 767 $ 619
Unit Area (SF) 521 521 832 684
Monthly Rent Per Sq. Ft. $0.96 $ 0.95 $ 0.92 $0.90
Monthly Rent 1Br/1Ba -1B10 $ 529 $ 512
Unit Area (SF) 631 631
Monthly Rent Per Sq. Ft. $0.84 $ 0.81
Monthly Rent 1Br/1Ba - 1C10 $ 544 $ 527
Unit Area (SF) 767 767
Monthly Rent Per Sq. Ft. $0.71 $ 0.69
Monthly Rent 1Br/1Ba - 1D10 $ 577 $ 556 $ 576 $ 602 $ 584
Unit Area (SF) 806 806 657 661 750
Monthly Rent Per Sq. Ft. $0.72 $ 0.69 $0.88 $ 0.91 $ 0.78
Monthly Rent 2Br/1Ba -2A10 $ 634 $ 611 $ 789 $ 697
Unit Area (SF) 933 933 963 950
Monthly Rent Per Sq. Ft. $0.68 $ 0.65 $ 0.82 $ 0.73
Monthly Rent 2Br/2Ba - 2B20 $ 664 $ 667 $ 987 $ 909 $1,010 $ 849
Unit Area (SF) 1,036 1,036 987 1,289 1,300 1,250
Monthly Rent Per Sq. Ft. $0.64 $ 0.64 $1.00 $ 0.71 $ 0.78 $ 0.68
DESCRIPTION MIN MAX MEDIAN AVERAGE
- ------------------------------------------------------------------
Monthly Rent $ 619 $ 767 $ 693 $ 693
Unit Area (SF) 684 832 758 758
Monthly Rent Per Sq. Ft. $0.90 $ 0.92 $ 0.91 $ 0.91
Monthly Rent
Unit Area (SF)
Monthly Rent Per Sq. Ft.
Monthly Rent
Unit Area (SF)
Monthly Rent Per Sq. Ft.
Monthly Rent $ 576 $ 602 $ 584 $ 587
Unit Area (SF) 657 750 661 689
Monthly Rent Per Sq. Ft. $0.78 $ 0.91 $ 0.88 $ 0.86
Monthly Rent $ 697 $ 789 $ 743 $ 743
Unit Area (SF) 950 963 957 957
Monthly Rent Per Sq. Ft. $0.73 $ 0.82 $ 0.78 $ 0.78
Monthly Rent $ 849 $1,010 $ 948 $ 939
Unit Area (SF) 987 1,300 1,270 1,207
Monthly Rent Per Sq. Ft. $0.68 $ 1.00 $ 0.74 $ 0.79
CONCLUDED MARKET RENTAL RATES AND TERMS
Based on this analysis above, the subject's concluded market rental rates and
gross rental income is calculated as follows:
GROSS RENTAL INCOME PROJECTION
Market Rent
Unit Area ------------------------ Monthly Annual
Unit Type Number of Units (Sq. Ft.) Per Unit Per SF Income Income
- ----------------------------------------------------------------------------------------------------------------------
1Br/1Ba - 1A10 24 521 $500 $0.96 $ 12,000 $ 144,000
1Br/1Ba - 1B10 64 631 $530 $0.84 $ 33,920 $ 407,040
1Br/1Ba - 1C10 32 767 $545 $0.71 $ 17,440 $ 209,280
1Br/1Ba - 1D10 32 806 $580 $0.72 $ 18,560 $ 222,720
2Br/1Ba - 2A10 40 933 $640 $0.69 $ 25,600 $ 307,200
2Br/2Ba - 2B20 56 1,036 $665 $0.64 $ 37,240 $ 446,880
- ----------------------------------------------------------------------------------------------------------------------
Total $144,760 $1,737,120
==========================================
PRO FORMA ANALYSIS
For purposes of this appraisal, we were provided with income and expense data
for the subject property. A summary of this data is presented on the following
page.
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 29
TRAILS, NASHVILLE, TENNESSEE
SUMMARY OF HISTORICAL INCOME & EXPENSES
FISCAL YEAR 2000 FISCAL YEAR 2001 FISCAL YEAR 2002 FISCAL YEAR 2003
--------------------------------------------------------------------------------------------------------
ACTUAL ACTUAL ACTUAL MANAGEMENT BUDGET
--------------------------------------------------------------------------------------------------------
DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT
- ------------------------------------------------------------------------------------------------------------------------------------
Revenues
Rental Income $1,857,246 $ 7,489 $1,901,704 $ 7,668 $1,811,009 $ 7,302 $1,775,764 $ 7,160
Vacancy $ 94,548 $ 381 $ 125,641 $ 507 $ 103,093 $ 416 $ 84,000 $ 339
Credit Loss/Concessions $ 23,042 $ 93 $ 40,124 $ 162 $ 14,130 $ 57 $ 14,540 $ 59
--------------------------------------------------------------------------------------------------------
Subtotal $ 117,590 $ 474 $ 165,765 $ 668 $ 117,223 $ 473 $ 98,540 $ 397
Laundry Income $ 11,022 $ 44 $ 7,513 $ 30 $ 6,859 $ 28 $ 6,384 $ 26
Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Other Misc. Revenue $ 63,330 $ 255 $ 81,232 $ 328 $ 135,448 $ 546 $ 132,080 $ 533
--------------------------------------------------------------------------------------------------------
Subtotal Other Income $ 74,352 $ 300 $ 88,745 $ 358 $ 142,307 $ 574 $ 138,464 $ 558
--------------------------------------------------------------------------------------------------------
Effective Gross Income $1,814,008 $ 7,315 $1,824,684 $ 7,358 $1,836,093 $ 7,404 $1,815,688 $ 7,321
Operating Expenses
Taxes $ 101,124 $ 408 $ 117,392 $ 473 $ 131,658 $ 531 $ 131,650 $ 531
Insurance $ 33,202 $ 134 $ 37,629 $ 152 $ 38,675 $ 156 $ 42,753 $ 172
Utilities $ 130,813 $ 527 $ 132,257 $ 533 $ 143,760 $ 580 $ 140,160 $ 565
Repair & Maintenance $ 58,946 $ 238 $ 57,784 $ 233 $ 38,902 $ 157 $ 58,465 $ 236
Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Landscaping $ 53,229 $ 215 $ 50,222 $ 203 $ 52,129 $ 210 $ 48,636 $ 196
Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Marketing & Leasing $ 39,477 $ 159 $ 27,422 $ 111 $ 14,972 $ 60 $ 16,240 $ 65
General Administrative $ 181,702 $ 733 $ 216,493 $ 873 $ 212,415 $ 857 $ 204,108 $ 823
Management $ 91,163 $ 368 $ 89,134 $ 359 $ 92,075 $ 371 $ 90,059 $ 363
Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
--------------------------------------------------------------------------------------------------------
Total Operating Expenses $ 689,656 $ 2,781 $ 728,333 $ 2,937 $ 724,586 $ 2,922 $ 732,071 $ 2,952
Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
--------------------------------------------------------------------------------------------------------
Net Income $1,124,352 $ 4,534 $1,096,351 $ 4,421 $1,111,507 $ 4,482 $1,083,617 $ 4,369
ANNUALIZED 2003
----------------------
PROJECTION AAA PROJECTION
------------------------------------------------------------
DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT %
- -------------------------------------------------------------------------------------------
Revenues
Rental Income $1,733,528 $ 6,990 $1,737,120 $ 7,005 100.0%
Vacancy $ 102,024 $ 411 $ 104,227 $ 420 6.0%
Credit Loss/Concessions $ 20,580 $ 83 $ 17,371 $ 70 1.0%
---------------------------------------------------------------
Subtotal $ 122,604 $ 494 $ 121,598 $ 490 7.0%
Laundry Income $ 15,952 $ 64 $ 7,440 $ 30 0.4%
Garage Revenue $ 0 $ 0 $ 0 $ 0 0.0%
Other Misc. Revenue $ 134,780 $ 543 $ 136,400 $ 550 7.9%
---------------------------------------------------------------
Subtotal Other Income $ 150,732 $ 608 $ 143,840 $ 580 8.3%
---------------------------------------------------------------
Effective Gross Income $1,761,656 $ 7,103 $1,759,362 $ 7,094 100%
Operating Expenses
Taxes $ 131,648 $ 531 $ 136,400 $ 550 7.8%
Insurance $ 50,476 $ 204 $ 43,400 $ 175 2.5%
Utilities $ 161,800 $ 652 $ 155,000 $ 625 8.8%
Repair & Maintenance $ 116,100 $ 468 $ 99,200 $ 400 5.6%
Cleaning $ 0 $ 0 $ 0 $ 0 0.0%
Landscaping $ 66,316 $ 267 $ 62,000 $ 250 3.5%
Security $ 0 $ 0 $ 0 $ 0 0.0%
Marketing & Leasing $ 29,804 $ 120 $ 27,280 $ 110 1.6%
General Administrative $ 226,280 $ 912 $ 210,800 $ 850 12.0%
Management $ 87,536 $ 353 $ 87,968 $ 355 5.0%
Miscellaneous $ 0 $ 0 $ 0 $ 0 0.0%
---------------------------------------------------------------
Total Operating Expenses $ 869,960 $ 3,508 $ 822,048 $ 3,315 46.7%
Reserves $ 0 $ 0 $ 62,000 $ 250 7.5%
---------------------------------------------------------------
Net Income $ 891,696 $ 3,596 $ 875,314 $ 3,529 49.8%
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
TRAILS, NASHVILLE, TENNESSEE
RESERVES FOR REPLACEMENT
"Reserves for replacements" is a contingency account allocated to the expenses
of the property to provide for replacement of short-lived items and for
unforeseen necessary capital expenditures. We have utilized the Korpacz Real
Estate Investor Survey of the national apartment market, which reports a range
of replacement reserves between $150 and $400 per unit. For purposes of this
analysis, we have included an allowance of $250 per unit for reserves for
replacement.
CAPITAL EXPENDITURES
Capital expenditures represent expenses for immediate repair or replacement of
items that have average to long lives. Based on our inspection of the property
as well as discussions with property management personnel, there are no major
items remaining in need of repair or replacement that would require an expense
beyond our reserves for replacement. Therefore an allowance of $250 per unit
should be satisfactory in our reserves for replacement to cover future capital
expenditures.
DISCOUNTED CASH FLOW ANALYSIS
As the subject is a multi-tenant income property, the Discounted Cash Flow
Method is considered appropriate. This method is especially meaningful in that
it isolates the timing of the annual cash flows and discounts them, along with
the expected equity reversion, to a present value. The present value of the cash
flow is added to the present value of the reversion, resulting in a total
property value.
INVESTMENT CRITERIA
Appropriate investment criteria will be derived for the subject based upon
analysis of comparable sales and a survey of real estate investors. The
following table summarizes the findings of Korpacz National Investor Survey for
the most recent period.
KORPACZ NATIONAL INVESTOR SURVEY
1ST QUARTER 2003
NATIONAL APARTMENT MARKET
CAPITALIZATION RATES
---------------------------------------------------------------
GOING-IN TERMINAL
---------------------------------------------------------------
LOW HIGH LOW HIGH
- ---------------------------------------------------------------------------------
RANGE 6.00% 10.00% 7.00% 10.00%
AVERAGE 8.14% 8.47%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 31
TRAILS, NASHVILLE, TENNESSEE
SUMMARY OF OVERALL
CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR
- --------------------------------------------------------------------------
I-1 Apr-02 94% $82,471 9.48%
I-2 Jan-99 95% $60,486 8.89%
I-3 Oct-01 90% $17,808 9.80%
I-4 Jun-01 90% $26,844 8.77%
I-5 Jun-02 94% $55,435 9.75%
------------------------
High 9.80%
------------------------
Low 8.77%
------------------------
Average 9.34%
Based on this information, we have concluded the subject's overall
capitalization rate should be 9.50%. The terminal capitalization rate is applied
to the net operating income estimated for the year following the end of the
holding period. Based on the concluded overall capitalization rate, the age of
the property and the surveyed information, we have concluded the subject's
terminal capitalization rate to be 10.50%. Finally, the subject's discount rate
or yield rate is estimated based on the previous investor survey and an
examination of returns available on alternative investments in the market. Based
on this analysis, the subject's discount rate is estimated to be 12.00%.
HOLDING PERIOD
The survey of investors indicates that most investors are completing either
10-year cash flows or extending the analysis to the end of the lease if it is
more than 10-years. A 10-year period has been used in the analysis of the
subject with the eleventh year stabilized NOI used to determine the reversion.
SELLING COSTS
Sales of similar size properties are typically accomplished with the aid of a
broker and will also incur legal and other transaction related cost. Based on
our survey of brokers and a review of institutional investor projections, an
allowance of 2.00% of the sale amount is applied.
DISCOUNTED CASH FLOW CONCLUSION
Discounting the annual cash flows and the equity reversion at the selected rate
of 12.00% indicates a value of $9,400,000. In this instance, the reversion
figure contributes
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32
TRAILS, NASHVILLE, TENNESSEE
approximately 38% 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
TRAILS, NASHVILLE, TENNESSEE
DISCOUNTED CASH FLOW ANALYSIS
TRAILS
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008
FISCAL YEAR 1 2 3 4 5
- ------------------------------------------------------------------------------------------------------------------------
REVENUE
Base Rent $1,737,120 $1,789,234 $1,842,911 $1,898,198 $1,955,144
Vacancy $ 104,227 $ 107,354 $ 110,575 $ 113,892 $ 117,309
Credit Loss $ 17,371 $ 17,892 $ 18,429 $ 18,982 $ 19,551
Concessions $ 0 $ 0 $ 0 $ 0 $ 0
------------------------------------------------------------------------------
Subtotal $ 121,598 $ 125,246 $ 129,004 $ 132,874 $ 136,860
Laundry Income $ 7,440 $ 7,663 $ 7,893 $ 8,130 $ 8,374
Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0
Other Misc. Revenue $ 136,400 $ 140,492 $ 144,707 $ 149,048 $ 153,519
------------------------------------------------------------------------------
Subtotal Other Income $ 143,840 $ 148,155 $ 152,600 $ 157,178 $ 161,893
------------------------------------------------------------------------------
EFFECTIVE GROSS INCOME $1,759,362 $1,812,142 $1,866,507 $1,922,502 $1,980,177
OPERATING EXPENSES:
Taxes $ 136,400 $ 140,492 $ 144,707 $ 149,048 $ 153,519
Insurance $ 43,400 $ 44,702 $ 46,043 $ 47,424 $ 48,847
Utilities $ 155,000 $ 159,650 $ 164,440 $ 169,373 $ 174,454
Repair & Maintenance $ 99,200 $ 102,176 $ 105,241 $ 108,399 $ 111,650
Cleaning $ 0 $ 0 $ 0 $ 0 $ 0
Landscaping $ 62,000 $ 63,860 $ 65,776 $ 67,749 $ 69,782
Security $ 0 $ 0 $ 0 $ 0 $ 0
Marketing & Leasing $ 27,280 $ 28,098 $ 28,941 $ 29,810 $ 30,704
General Administrative $ 210,800 $ 217,124 $ 223,638 $ 230,347 $ 237,257
Management $ 87,968 $ 90,607 $ 93,325 $ 96,125 $ 99,009
Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0
------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES $ 822,048 $ 846,710 $ 872,111 $ 898,274 $ 925,222
Reserves $ 62,000 $ 63,860 $ 65,776 $ 67,749 $ 69,782
------------------------------------------------------------------------------
NET OPERATING INCOME $ 875,314 $ 901,573 $ 928,620 $ 956,479 $ 985,173
------------------------------------------------------------------------------
Operating Expense Ratio (% of EGI) 46.7% 46.7% 46.7% 46.7% 46.7%
Operating Expense Per Unit $ 3,315 $ 3,414 $ 3,517 $ 3,622 $ 3,731
YEAR APR-2009 APR-2010 APR-2011 APR-2012 APR-2013 APR-2014
FISCAL YEAR 6 7 8 9 10 11
- -----------------------------------------------------------------------------------------------------------------------------------
REVENUE
Base Rent $2,013,798 $2,074,212 $2,136,438 $2,200,532 $2,266,548 $2,334,544
Vacancy $ 120,828 $ 124,453 $ 128,186 $ 132,032 $ 135,993 $ 140,073
Credit Loss $ 20,138 $ 20,742 $ 21,364 $ 22,005 $ 22,665 $ 23,345
Concessions $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
---------------------------------------------------------------------------------------------
Subtotal $ 140,966 $ 145,195 $ 149,551 $ 154,037 $ 158,658 $ 163,418
Laundry Income $ 8,625 $ 8,884 $ 9,150 $ 9,425 $ 9,708 $ 9,999
Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Other Misc. Revenue $ 158,125 $ 162,869 $ 167,755 $ 172,787 $ 177,971 $ 183,310
---------------------------------------------------------------------------------------------
Subtotal Other Income $ 166,750 $ 171,752 $ 176,905 $ 182,212 $ 187,679 $ 193,309
---------------------------------------------------------------------------------------------
EFFECTIVE GROSS INCOME $2,039,582 $2,100,770 $2,163,793 $2,228,707 $2,295,568 $2,364,435
OPERATING EXPENSES:
Taxes $ 158,125 $ 162,869 $ 167,755 $ 172,787 $ 177,971 $ 183,310
Insurance $ 50,312 $ 51,822 $ 53,377 $ 54,978 $ 56,627 $ 58,326
Utilities $ 179,687 $ 185,078 $ 190,630 $ 196,349 $ 202,240 $ 208,307
Repair & Maintenance $ 115,000 $ 118,450 $ 122,003 $ 125,664 $ 129,433 $ 133,317
Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Landscaping $ 71,875 $ 74,031 $ 76,252 $ 78,540 $ 80,896 $ 83,323
Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Marketing & Leasing $ 31,625 $ 32,574 $ 33,551 $ 34,557 $ 35,594 $ 36,662
General Administrative $ 244,375 $ 251,706 $ 259,257 $ 267,035 $ 275,046 $ 283,298
Management $ 101,979 $ 105,038 $ 108,190 $ 111,435 $ 114,778 $ 118,222
Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
---------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES $ 952,979 $ 981,568 $1,011,015 $1,041,346 $1,072,586 $1,104,764
Reserves $ 71,875 $ 74,031 $ 76,252 $ 78,540 $ 80,896 $ 83,323
---------------------------------------------------------------------------------------------
NET OPERATING INCOME $1,014,728 $1,045,170 $1,076,525 $1,108,821 $1,142,086 $1,176,348
---------------------------------------------------------------------------------------------
Operating Expense Ratio (% of EGI) 46.7% 46.7% 46.7% 46.7% 46.7% 46.7%
Operating Expense Per Unit $ 3,843 $ 3,958 $ 4,077 $ 4,199 $ 4,325 $ 4,455
Estimated Stabilized NOI $875,314
Months to Stabilized 3
Stabilized Occupancy 94.0%
Sales Expense Rate 2.00%
Discount Rate 12.00%
Terminal Cap Rate 10.50%
"DCF" Value Analysis
Gross Residual Sale Price $11,203,316
Less: Sales Expense $ 224,066
-----------
Net Residual Sale Price $10,979,250
PV of Reversion $ 3,535,025
Add: NPV of NOI $ 5,855,515
-----------
PV Total $ 9,390,540
Deferred Maintenance $ 0
Add: Excess Land $ 0
Other Adjustments $ 0
-----------
Value Indicated By "DCF" $ 9,390,540
Rounded $ 9,400,000
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE
----------------------------------------------------------------------------------
TOTAL VALUE 11.50% 11.75% 12.00% 12.25% 12.50%
- ------------------------------------------------------------------------------------------------------------------
TERMINAL 10.00% $9,874,850 $9,719,406 $9,567,291 $9,418,422 $9,272,719
CAP RATE 10.25% $9,780,176 $9,626,829 $9,476,760 $9,329,887 $9,186,132
10.50% $9,690,011 $9,538,661 $9,390,540 $9,245,568 $9,103,668
10.75% $9,604,039 $9,454,593 $9,308,330 $9,165,171 $9,025,040
11.00% $9,521,975 $9,374,347 $9,229,857 $9,088,428 $8,949,985
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 34
TRAILS, NASHVILLE, TENNESSEE
INCOME LOSS DURING LEASE-UP
The subject is currently near or at a stabilized condition. Therefore, there is
no income loss during lease-up at the subject property.
CONCESSIONS
Concessions have historically not been utilized at the subject property or in
the subject's market. Therefore, no adjustment was included for concessions.
DIRECT CAPITALIZATION METHOD
After having projected the income and expenses for the property, the next step
in the valuation process is to capitalize the net income into an estimate of
value. The selected overall capitalization rate ("OAR") covers both return on
and return of capital. It is the overall rate of return an investor expects.
After considering the market transactions and the investor surveys, we
previously conclude that an overall rate of 9.50% percent is applicable to the
subject. The results of our direct capitalization analysis are as follows:
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 35
TRAILS, NASHVILLE, TENNESSEE
TRAILS
TOTAL PER SQ. FT. PER UNIT %OF EGI
- --------------------------------------------------------------------------------------------------------------------------------
REVENUE
Base Rent $1,737,120 $ 8.75 $ 7,005
Less: Vacancy & Collection Loss 7.00% $ 121,598 $ 0.61 $ 490
Plus: Other Income
Laundry Income $ 7,440 $ 0.04 $ 30 0.42%
Garage Revenue $ 0 $ 0.00 $ 0 0.00%
Other Misc. Revenue $ 136,400 $ 0.69 $ 550 7.75%
----------------------------------------------------------
Subtotal Other Income $ 143,840 $ 0.72 $ 580 8.18%
EFFECTIVE GROSS INCOME $1,759,362 $ 8.86 $ 7,094
OPERATING EXPENSES:
Taxes $ 136,400 $ 0.69 $ 550 7.75%
Insurance $ 43,400 $ 0.22 $ 175 2.47%
Utilities $ 155,000 $ 0.78 $ 625 8.81%
Repair & Maintenance $ 99,200 $ 0.50 $ 400 5.64%
Cleaning $ 0 $ 0.00 $ 0 0.00%
Landscaping $ 62,000 $ 0.31 $ 250 3.52%
Security $ 0 $ 0.00 $ 0 0.00%
Marketing & Leasing $ 27,280 $ 0.14 $ 110 1.55%
General Administrative $ 210,800 $ 1.06 $ 850 11.98%
Management 5.00% $ 87,968 $ 0.44 $ 355 5.00%
Miscellaneous $ 0 $ 0.00 $ 0 0.00%
TOTAL OPERATING EXPENSES $ 822,048 $ 4.14 $ 3,315 46.72%
Reserves $ 62,000 $ 0.31 $ 250 3.52%
----------------------------------------------------------
NET OPERATING INCOME $ 875,314 $ 4.41 $ 3,529 49.75%
"GOING IN" CAPITALIZATION RATE 9.50%
VALUE INDICATION $9,213,827 $46.40 $37,153
"AS IS" VALUE INDICATION
(DIRECT CAPITALIZATION APPROACH) $9,213,827
ROUNDED $9,200,000 $46.33 $37,097
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 36
TRAILS, NASHVILLE, TENNESSEE
DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF
- -----------------------------------------------------------------------------------------------------
8.75% $10,003,583 $10,000,000 $40,323 $50.36
9.00% $ 9,725,706 $ 9,700,000 $39,113 $48.85
9.25% $ 9,462,849 $ 9,500,000 $38,306 $47.84
9.50% $ 9,213,827 $ 9,200,000 $37,097 $46.33
9.75% $ 8,977,575 $ 9,000,000 $36,290 $45.33
10.00% $ 8,753,135 $ 8,800,000 $35,484 $44.32
10.25% $ 8,539,644 $ 8,500,000 $34,274 $42.81
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD
Applying the capitalization rate to our estimated NOI results in an estimated
value of $9,200,000.
CORRELATION AND CONCLUSION BY THE INCOME APPROACH
The two methods used to estimate the market value of the subject property by the
income approach resulted in the following indications of value:
Discounted Cash Flow Analysis $9,400,000
Direct Capitalization Method $9,200,000
Giving consideration to the indicated values provided by both techniques, we
have concluded the estimated value by the income capitalization approach to be
$9,400,000.
AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 37
TRAILS, NASHVILLE, TENNESSEE
RECONCILIATION AND CONCLUSION
This appraisal was made to express an opinion as of the Market Value of the fee
simple estate in the property.
AS IS MARKET VALUE OF THE FEE SIMPLE ESTATE
Cost Approach Not Utilized
Sales Comparison Approach $9,500,000
Income Approach $9,400,000
Reconciled Value $9,400,000
The Direct Capitalization Method is considered a reliable indicator of value.
Income and expenses were estimated and projected based on historical operating
statements and market oriented expenses. This method is primarily used by
investors in their underwriting analysis. Furthermore, there was good support
for an overall rate in the Direct Capitalization Method.
The Sales Comparison Approach to value supported the value conclusion by the
Income Approach and was given secondary consideration. Investment-grade,
income-producing properties such as the subject are not typically traded based
on cost. Therefore, the Cost Approach has not been considered in our valuation.
FINAL VALUE - FEE SIMPLE ESTATE
Based on the investigation and premise outlined, it is our opinion that as of
May 5, 2003 the market value of the fee simple estate in the property is:
$9,400,000
AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA
TRAILS, NASHVILLE, TENNESSEE
ADDENDA
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A
TRAILS, NASHVILLE, TENNESSEE
EXHIBIT A
SUBJECT PHOTOGRAPHS
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A
TRAILS, NASHVILLE, TENNESSEE
SUBJECT PHOTOGRAPHS
[PICTURE] [PICTURE]
UNIT TYPE FACADE UNIT TYPE
[PICTURE] [PICTURE]
BEDROOM BEDROOM
[PICTURE] [PICTURE]
KITCHEN AREA LIVING ROOM AREA
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A
TRAILS, NASHVILLE, TENNESSEE
SUBJECT PHOTOGRAPHS
[PICTURE] [PICTURE]
POOL LAUNDRY ROOM
[PICTURE] [PICTURE]
SITE IMPROVEMENTS MAIN ENTRANCE
[PICTURE] [PICTURE]
TRAILS CIRCLE -SOUTH TRAILS CIRCLE-NORTH
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B
TRAILS, NASHVILLE, TENNESSEE
EXHIBIT B
SUMMARY OF RENT COMPARABLES
AND PHOTOGRAPH OF COMPARABLES
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B
TRAILS, NASHVILLE, TENNESSEE
PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES
COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3
ALTA LAKE COLONNADE HERMITAGE GARDENS
3960 Bell Road 4100 Central Pike 4701 Old Hickory Blvd
Hermitage, TN Nashville, TN Nashville, TN
[PICTURE] [PICTURE] [PICTURE]
COMPARABLE I-4 COMPARABLE I-5
BERKLEY RIDGE (SUMMITTREE) WATERFORD LANDING HERMITAGE
308 Plus Park Blvd 5901 Old Hickory Blvd
Nashville, TN Hermitage, TN
[PICTURE] [PICTURE]
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B
TRAILS, NASHVILLE, TENNESSEE
SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE
DESCRIPTION SUBJECT R - 1
- ------------------------------------------------------------------------------------------------------------------------------------
Property Name Trails Polo Park
Management Company AIMCO Sentinel Real Estate
LOCATION:
Address 100 Trails Circle 100 Jackson Downs Blvd
City, State Nashville, Tennessee Nashville, TN
County Davidson Davidosn
Proximity to Subject Approx. 3 miles north of subject
PHYSICAL CHARACTERISTICS:
Net Rentable Area (SF) 198,560 271,744
Year Built 1972 1987
Effective Age 25 16
Building Structure Type Brick & wood siding walls; asphalt shingle roof Brick & wood siding walls; asphalt shingle roof
Parking Type (Gr., Cov., etc.) Open Open, Carport/Garage
Number of Units 248 386
Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty MO
1 1Br/1Ba-1A10 521 24 $498 4 1Br/1Ba 657 266 $576
2 1Br/1Ba-1B10 631 64 $529 6 2Br/2Ba 987 120 $987
3 1Br/1Ba - 1C10 767 32 $544
4 1Br/1Ba - 1D10 806 32 $577
5 2Br/1Ba-2A10 933 40 $634
6 2Br/2Ba - 2B20 1,036 56 $664
Average Unit Size (SF) 801 760
Unit Breakdown: Efficiency 0% 2-Bedroom 39% Efficiency 0% 2-Bedroom 31%
1-Bedroom 61% 3-Bedroom 0% 1-Bedroom 69% 3-Bedroom 0%
CONDITION: Good Good
APPEAL: Average Good
AMENITIES:
Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling
X Balcony X W/D Connection Balcony X W/D Connection
X Fireplace Other X Fireplace X Other
X Cable TV Ready X Cable TV Ready Storage & Playground
Project Amenities X Swimming Pool X Swimming Pool
Spa/Jacuzzi Car Wash X Spa/Jacuzzi Car Wash
Basketball Court X BBQ Equipment Basketball Court BBQ Equipment
Volleyball Court Theater Room Volleyball Court Theater Room
X Sand Volley Ball X Meeting Hall Sand Volley Ball X Meeting Hall
X Tennis Court Secured Parking Tennis Court Secured Parking
Racquet Ball X Laundry Room X Racquet Ball X Laundry Room
Jogging Track X Business Office Jogging Track Business Office
X Gym Room X Gym Room
OCCUPANCY: 95% 98%
LEASING DATA:
Available Leasing Terms 6 to 12 months 6 to 12 months
Concessions 1.0 to 1.5 month off selected units 1 month
Pet Deposit $300 Fee/$20Mnth No Pets
Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas
X Water Trash X Water Trash
Confirmation Cindy Payne/Property Manager Laura Owens/Property Manager
Telephone Number 615.889.4800 615.889.9210
NOTES: None
COMPARISON TO SUBJECT: SUPERIOR
COMPARABLE COMPARABLE
DESCRIPTION R - 2 R - 3
- ------------------------------------------------------------------------------------------------------------------------------------
Property Name Spinnaker Cove Oakwell Farms
Management Company Equity Residential America First Properties
LOCATION:
Address 100 Arbor Lake Blvd 1800 Oakwell Farms Lane
City, State Hermitage, TN Hermitage, TN
County Davidson Davidson
Proximity to Subject Approx. 1.8 miles northeast of subject Approx. 1.4 miles north of subject
PHYSICAL CHARACTERISTICS:
Net Rentable Area (SF) 266,880 330,372
Year Built 1986 1987
Effective Age 17 16
Building Structure Type Brick & wood siding walls; asphalt shingle roof Brick & wood siding walls; asphalt shingle roof
Parking Type (Gr., Cov., etc.) Open Open
Number of Units 278 414
Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo.
1 1Br/1Ba 832 176 $767 4 1Br/1Ba 661 244 $ 602
7 2Br/2Ba 1,101 58 $789 5 2Br/2Ba 963 154 $ 789
6 3Br/2Ba 1,289 44 $909 6 3Br/2Ba 1,300 16 $1,010
Average Unit Size (SF) 960 798
Unit Breakdown: Efficiency 0% 2-Bedroom 21% Efficiency 0% 2-Bedroom 37%
1-Bedroom 63% 3-Bedroom 16% 1-Bedroom 59% 3-Bedroom 4%
CONDITION: Good Good
APPEAL: Good Good
AMENITIES:
Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling
Balcony X W/D Connection Balcony X W/D Connection
X Fireplace X Other X Fireplace X Other
X Cable TV Ready Boat Storage X Cable TV Ready Storage
Project Amenities X Swimming Pool X Swimming Pool
X Spa/Jacuzzi Car Wash X Spa/Jacuzzi Car Wash
Basketball Court X BBQ Equipment Basketball Court X BBQ Equipment
Volleyball Court Theater Room Volleyball Court Theater Room
Sand Volley Ball X Meeting Hall 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 Business Office Jogging Track Business Office
X Gym Room X Gym Room
OCCUPANCY: 93% 96%
LEASING DATA:
Available Leasing Terms 6 to 12 months 6 to 12 months
Concessions Reduce rates on selected units $99 Deposit
Pet Deposit $200 $250
Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas
X Water Trash Water Trash
Confirmation Elaine Yates/Property Manager Lori Kougler/Property Manager
Telephone Number 615.889.7117 615.885.0300
NOTES: None None
COMPARISON TO SUBJECT: Similar Similar
COMPARABLE COMPARABLE
DESCRIPTION R - 4 R - 5
- ------------------------------------------------------------------------------------------------------------------------------------
Property Name The Lakes Park at Hermitage
Management Company Brookside Properties Mid-America
LOCATION:
Address 100 Lincoya Bay Drive 5900 Old Hickory Blvd
City, State Nashville, TN Hermitage, TN
County Davidson Davidson
Proximity to Subject Approx. 0.3 miles south of subject Approx. 2 miles northeast of subject
PHYSICAL CHARACTERISTICS:
Net Rentable Area (SF) 235,264 392,480
Year Built 1985 1986
Effective Age 13 17
Building Structure Type Brick & wood siding walls; asphalt shingle roof Brick & wood siding walls; asphalt shingle roof
Parking Type (Gr., Cov., etc.) Open Open
Number of Units 256 440
Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo.
4 1Br/1Ba 750 88 $584 1 1Br/1Ba 684 216 $619
5 2Br/2Ba 950 136 $697 7 2Br/2Ba 1,093 224 $743
6 3Br/2.5Ba 1,250 32 $849
Average Unit Size (SF) 919 892
Unit Breakdown: Efficiency 0% 2-Bedroom 53% Efficiency 0% 2-Bedroom 51%
1-Bedroom 34% 3-Bedroom 13% 1-Bedroom 49% 3-Bedroom 0%
CONDITION: Good Good
APPEAL: Average Average
AMENITIES:
Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling
Balcony X W/D Connection Balcony X W/D Connection
X Fireplace X Other X Fireplace X Other
X Cable TV Ready Storage X Cable TV Ready Storage & Playground
Project Amenities X Swimming Pool X Swimming Pool
X Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash
Basketball Court BBQ Equipment Basketball Court BBQ Equipment
Volleyball Court Theater Room Volleyball Court Theater Room
Sand Volley Ball Meeting Hall Sand Volley Ball 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 Business Office Jogging Track Business Office
X Gym Room X Gym Room
OCCUPANCY: 91% 94%
LEASING DATA:
Available Leasing Terms 6 to 12 months 6 to 12 months
Concessions 2 mnths free on 14 month lease 1 month
Pet Deposit $300 $100 to $150
Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas
X Water Trash X Water Trash
Confirmation Diana English/Property Manager Kim Banks/Property Manager
Telephone Number 615.889.7400 615.883.0209
NOTES: None None
COMPARISON TO SUBJECT: Superior Superior
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B
TRAILS, NASHVILLE, TENNESSEE
PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES
COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3
POLO PARK SPINNAKER COVE OAKWELL FARMS
100 Jackson Downs Blvd 100 Arbor Lake Blvd 1800 Oakwell Farms Lane
Nashville, TN Hermitage, TN Hermitage, TN
[PICTURE] [PICTURE] [PICTURE]
COMPARABLE R-4 COMPARABLE R-5
THE LAKES PARK AT HERMITAGE
100 Lincoya Bay Drive 5900 Old Hickory Blvd
Nashville, TN Hermitage, TN
[PICTURE] [PICTURE]
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C
TRAILS, NASHVILLE, TENNESSEE
EXHIBIT C
ASSUMPTIONS AND LIMITING CONDITIONS
(3 PAGES)
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C
TRAILS, NASHVILLE, TENNESSEE
No responsibility is assumed for matters legal in nature. No investigation has
been made of the title to or any liabilities against the property appraised. In
this appraisal, it is presumed that, unless otherwise noted, the owner's claim
is valid, the property rights are good and marketable, and there are no
encumbrances which cannot be cleared through normal processes.
To the best of our knowledge, all data set forth in this report are true and
accurate. Although gathered from reliable sources, no guarantee is made nor
liability assumed for the accuracy of any data, opinions, or estimates
identified as being furnished by others which have been used in formulating this
analysis.
Land areas and descriptions used in this appraisal were obtained from public
records and have not been verified by legal counsel or a licensed surveyor.
No soil analysis or geological studies were ordered or made in conjunction with
this report, nor were any water, oil, gas, or other subsurface mineral and use
rights or conditions investigated.
Substances such as asbestos, urea-formaldehyde foam insulation, other chemicals,
toxic wastes, or other potentially hazardous materials could, if present,
adversely affect the value of the property. Unless otherwise stated in this
report, the existence of hazardous substance, which may or may not be present on
or in the property, was not considered by the appraiser in the development of
the conclusion of value. The stated value estimate is predicated on the
assumption that there is no material on or in the property that would cause such
a loss in value. No responsibility is assumed for any such conditions, and the
client has been advised that the appraiser is not qualified to detect such
substances, quantify the impact on values, or develop the remedial cost.
No environmental impact study has been ordered or made. Full compliance with
applicable federal, state, and local environmental regulations and laws is
assumed unless otherwise stated, defined, and considered in the report. It is
also assumed that all required licenses, consents, or other legislative or
administrative authority from any local, state, or national government or
private entity organization either have been or can be obtained or renewed for
any use which the report covers.
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C
TRAILS, NASHVILLE, TENNESSEE
It is assumed that all applicable zoning and use regulations and restrictions
have been complied with unless a nonconformity has been stated, defined, and
considered in the appraisal report. Further, it is assumed that the utilization
of the land and improvements is within the boundaries of the property described
and that no encroachment or trespass exists unless noted in the report.
The Americans with Disabilities Act ("ADA") became effective January 26, 1992.
We have not made a specific compliance survey and analysis of this property to
determine whether or not it is in conformity with the various detailed
requirements of the ADA. It is possible that a compliance survey of the property
together with a detailed analysis of the requirements of the ADA could reveal
that the property is not in compliance with one or more of the requirements of
the act. If so, this fact could have a negative effect on the value of the
property. Since we have no direct evidence relating to this issue, we did not
consider the possible noncompliance with the requirements of ADA in estimating
the value of the property.
We have made a physical inspection of the property and noted visible physical
defects, if any, in our report. This inspection was made by individuals
generally familiar with real estate and building construction. However, these
individuals are not architectural or structural engineers who would have
detailed knowledge of building design and structural integrity. Accordingly, we
do not opine on, nor are we responsible for, the structural integrity of the
property including its conformity to specific governmental code requirements,
such as fire, building and safety, earthquake, and occupancy, or any physical
defects which were not readily apparent to the appraiser during the inspection.
The value or values presented in this report are based upon the premises
outlined herein and are valid only for the purpose or purposes stated.
The date of value to which the conclusions and opinions expressed apply is set
forth in this report. The value opinion herein rendered is based on the status
of the national business economy and the purchasing power of the U.S. dollar as
of that date.
Testimony or attendance in court or at any other hearing is not required by
reason of this appraisal unless arrangements are previously made within a
reasonable time in advance for
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C
TRAILS, NASHVILLE, TENNESSEE
such testimony, and then such testimony shall be at American Appraisal
Associates, Inc.'s, prevailing per diem for the individuals involved.
Possession of this report or any copy thereof does not carry with it the right
of publication. No portion of this report (especially any conclusion to use, the
identity of the appraiser or the firm with which the appraiser is connected, or
any reference to the American Society of Appraisers or the designations awarded
by this organization) shall be disseminated to the public through prospectus,
advertising, public relations, news, or any other means of communication without
the written consent and approval of American Appraisal Associates, Inc.
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D
TRAILS, NASHVILLE, TENNESSEE
EXHIBIT D
CERTIFICATE OF APPRAISER
(1 PAGE)
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D
CERTIFICATE OF APPRAISER
I certify that, to the best of my knowledge and belief:
The statements of fact contained in this report are true and correct.
The reported analyses, opinions, and conclusions are limited only by
the reported assumptions and limiting conditions, and represent the
unbiased professional analyses, opinions, and conclusions of American
Appraisal Associates, Inc.
American Appraisal Associates, Inc. and I personally, have no present
or prospective interest in the property that is the subject of this
report and have no personal interest or bias with respect to the
parties involved.
Compensation for American Appraisal Associates, Inc. is not contingent
on an action or event resulting from the analyses, opinions, or
conclusions in, or the use of, this report.
The analyses, opinions, and conclusions were developed, and this report
has been prepared, in conformity with the requirements of the Uniform
Standards of Professional Appraisal Practice and the Code of
Professional Ethics and the Standards of Professional Practice of the
Appraisal Institute.
The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
I personally did not inspect the subject property. Daniel Salcedo
provided significant real property appraisal assistance in the
preparation of this report.
I am currently in compliance with the Appraisal Institute's continuing
education requirements.
-s- Frank Fehribach, MAI
------------------------
Frank Fehribach, MAI
Managing Principal, Real Estate Group
Tennessee Temporary Practice Permit
#00053573
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E
TRAILS, NASHVILLE, TENNESSEE
EXHIBIT E
QUALIFICATIONS OF APPRAISER
(2 PAGES)
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E
TRAILS, NASHVILLE, TENNESSEE
FRANK A. FEHRIBACH, MAI
MANAGING PRINCIPAL, REAL ESTATE GROUP
POSITION Frank A. Fehribach is a Managing Principal for the
Dallas Real Estate Group of American Appraisal
Associates, Inc. ("AAA").
EXPERIENCE
Valuation Mr. Fehribach has experience in valuations for
resort hotels; Class A office buildings; Class A
multifamily complexes; industrial buildings and
distribution warehousing; multitract mixed-use
vacant land; regional malls; residential
subdivision development; and special-purpose
properties such as athletic clubs, golf courses,
manufacturing facilities, nursing homes, and
medical buildings. Consulting assignments include
development and feasibility studies, economic
model creation and maintenance, and market
studies.
Mr. Fehribach also has been involved in overseeing
appraisal and consulting assignments in Mexico and
South America.
Business Mr. Fehribach joined AAA as an engagement director
in 1998. He was promoted to his current position
in 1999. Prior to that, he was a manager at Arthur
Andersen LLP. Mr. Fehribach has been in the
business of real estate appraisal for over ten
years.
EDUCATION University of Texas - Arlington
Master of Science - Real Estate
University of Dallas
Master of Business Administration - Industrial
Management
Bachelor of Arts - Economics
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E
TRAILS, NASHVILLE, TENNESSEE
STATE CERTIFICATIONS State of Arizona, Certified General Real Estate
Appraiser, #30828
State of Arkansas, State Certified General
Appraiser, #CG1387N
State of Colorado, Certified General Appraiser,
#CG40000445
State of Georgia, Certified General Real Property
Appraiser, #218487
State of Michigan, Certified General Appraiser,
#1201008081
State of Texas, Real Estate Salesman License,
#407158 (Inactive)
State of Texas, State Certified General Real
Estate Appraiser, #TX-1323954-G
PROFESSIONAL Appraisal Institute, MAI Designated Member
AFFILIATIONS Candidate Member of the CCIM Institute pursuing
Certified
Commercial Investment Member (CCIM) designation
PUBLICATIONS "An Analysis of the Determinants of Industrial
Property
-authored with Dr. Ronald C. Rutherford
and Dr. Mark Eakin, The Journal of Real Estate
Research, Vol. 8, No. 3, Summer 1993, p. 365.
AMERICAN APPRAISAL ASSOCIATES, INC.
TRAILS, NASHVILLE, TENNESSEE
GENERAL SERVICE CONDITIONS
AMERICAN APPRAISAL ASSOCIATES, INC.
TRAILS, NASHVILLE, TENNESSEE
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 or
negligence. Co-Clients will not be liable for any of our acts or omissions.
AAA is an equal opportunity employer.