UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-9
(AMENDMENT NO. 1)
SOLICITATION/RECOMMENDATION STATEMENT UNDER SECTION 14(d)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
Income Growth Partners, Ltd. X
(Name of Subject Company)
Income Growth Partners, Ltd. X
(Names of Persons Filing Statement)
Original Units of Limited Partnership Interest
(Title of Class of Securities)
000-18528
(CUSIP Number of Class of Securities)
David Maurer
11230 Sorrento Valley Road, Suite 220
San Diego, CA 92121
Telephone (858) 457-2750
(Name, address, and telephone numbers of person authorized to receive
notices and communications on behalf of the persons filing statement)
Copy To:
David A. Fisher
Fisher Thurber LLP
4225 Executive Square, Suite 1600
La Jolla, CA 92037
Telephone (858) 535-9400
[ ] Check the box if the filing relates solely to preliminary communications
made before the commencement of a tender offer.
TABLE OF CONTENTS
4. The Solicitation or Recommendation.
7. Purposes of the Transaction and Plans or Proposals
8. Additional Information
9. Exhibits
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) Recommendation.
Income Growth Management, Inc., the general partner of the Partnership
(the "General Partner"), has not approved the Offer. The General Partner
believes that the price per Original Unit offered in the Offer to the holders
thereof ("Limited Partners") may not fairly compensate Limited Partners for
their interest in the Partnership, and, therefore, recommends the Limited
Partners not tender Original Units pursuant to the Offer.
(b) Reasons for the Recommendation.
In determining to recommend that Limited Partners not tender their
Original Units in the Offer, the General Partner based its reasons for its
recommendation on the following factors:
(1) Millenium states in the Purchase Tender Offer Statement that its
offer of $850 per Original Unit equals the amount of net proceeds that Millenium
estimates would be distributed per Original Unit if the Partnership sold its two
properties for $42 million, the combined value of the properties estimated in a
Limited Appraisal-Restricted Appraisal Report dated May 8, 2002, obtained by the
General Partner (the "2002 Appraisal").
As part of the General Partner's evaluation of the Tender Offer by
Millenium, the General Partner consulted with Hendricks & Partners, a prominent
apartment brokerage firm with experience in the apartment sales business. The
General Partner also reviewed sales comparison reports prepared by Hendricks &
Partners detailing sales of 20 comparable apartment buildings in the San Diego
County area from March 28, 2002 through April 1, 2003. The General Partner also
reviewed a rent and sales comparison report, also prepared by Hendricks &
Partners providing a summary study of local sales comparables for 6 apartment
buildings (from March 28, 2002 through May 20, 2003) and rent comparables for 8
apartment buildings. The General Partner also reviewed the Hendricks & Partners
Apartment Update Third Quarter 2002 for the Southern California Region and the
Hendricks & Partners Forecast 2003, both prepared by Hendricks & Partners and
detailing the residential real estate markets on both a local and national level
with information and statistical data regarding rent growth and vacancy rates,
rental and sales figures, as well as other information related to the
residential real estate market.
In addition, the General Partner reviewed a market study prepared for
the Mission Park apartments by Integra Realty Resources - San Diego ("Integra
Report"). The purpose of the Integra Report was to compare the rental market and
"for sale" market in San Diego County as of February 24, 2003. The Integra
Report compares the rental and sales markets in San Diego and provides supply
and demand comparisons, rental rates, pricing levels, and absorption and
competition levels relating to the Mission Park apartments. Based upon an
analysis of supply and demand comparisons, rental rates, pricing levels,
absorption and competition levels, and general economic conditions, the Integra
Report concludes that the Mission Park apartments have an indicated value of
$25,400,000 based upon an overall capitalization rate of 8.5%. The
capitalization rate was derived from comparable projects that sold in the Vista,
San Marcos, and Oceanside areas; the range of overall capitalization rates was
the 7.97% to 9.28%. The Integra Report concludes that based upon the factors
referenced above, the demand for housing is expected to continue at reasonable
levels in the San Marcos area as the region is poised for further growth.
Additionally, the Integra Report concludes that the North County East market and
the San Marcos submarket are experiencing strong demand for apartment units,
thereby further supporting the indicated value of $25,400,000.
2
Based on its review of rental and sales data on comparable properties
in the relevant area, market studies and industry reports, and its consultation
with Hendricks & Partners, however, the General Partner believes the value of
the Partnership's two properties has increased since the delivery of the 2002
Appraisal. Accordingly, the General Partner is presently considering listing the
properties for sale at a combined price of approximately $50 million. The net
proceeds available for distribution per Original Unit following sale of the
properties for $50 million would be approximately $979.63. This would exceed the
$850 per Original Unit being offered by Millenium by approximately 15.25%, or
$129.63 per Original Unit. It cannot be guaranteed that the properties will be
listed for sale or, if they are listed, that they can be sold for a combined
price of $50 million. In considering whether to sell the Partnership properties,
the General Partner is taking into consideration its familiarity with and its
view of the Partnership's business, properties, financial condition, the nature
of the local real estate sales market, the historical and current prices for the
Units, and the mortgage debt on both properties. For additional considerations
affecting the General Partners consideration to sell the properties, see Item 7
below. No assurances can be provided that the General Partner's estimates are
correct, and the actual amount of net proceeds that would be received from the
sale of the properties may differ substantially from the General Partner's
estimates.
(2) By tendering Original Units pursuant to the Offer, the Limited
Partners will be giving up the opportunity to participate in any potential
future benefits from the ownership of the Original Units, including
distributions resulting from any future sale of the Partnership's properties.
(3) While the Partnership's Amended and Restated Limited Partnership
Agreement allows for a $200 transfer fee, the General Partner has imposed a $40
fee in the past two fiscal years, and a $40 per transaction fee will apply to
any transfers of Original Units pursuant to the Offer. Therefore, net proceeds
to each Limited Partner will be reduced by at least $40.
(4) The tender of Units pursuant to the Offer may constitute a taxable
event to the participating Limited Partner. See Item 8--Certain Federal Income
Tax Considerations.
The General Partner did not assign relative weights to the foregoing
factors or determine that any factor was of particular importance. Rather, the
General Partner viewed its position and recommendations as being based on the
totality of information presented to and considered by it.
To the knowledge of the General Partner, none of the Partnership's
executive officers, directors or affiliates who own Original Units intend to
sell any of such Units owned by them prior to the expiration of the Offer or
tender such Units in the Offer.
3
The Limited Partners should consult with their respective advisors
about the financial, tax, legal and other implications of accepting or rejecting
the Offer.
ITEM 7. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS.
The Partnership is not currently undertaking or engaging in any
negotiations in response to the Offer that relate to (i) a tender offer for or
other acquisition of securities by or of the Partnership or any other person;
(ii) an extraordinary transaction, such as a merger, reorganization or
liquidation, involving the Partnership or its subsidiaries; or (iii) any
material change in the indebtedness, present capitalization or dividend policy
of the Partnership.
The Partnership is, however, currently investigating the possible sale
of both of the Partnership's properties and the subsequent dissolution of the
Partnership. The General Partner has consulted a prominent apartment brokerage
firm, Hendricks & Partners, in connection with listing the properties for sale.
The Partnership, through its subsidiaries, presently owns the following two
properties:
(i) Mission Park. This property is a 264 unit apartment complex in San
Marcos, California. The property was purchased in 1989 for $17,000,000.
(ii) Shadowridge Meadows. This property is a 184 unit apartment complex
in Vista, California. The property was purchased in 1988 for $12,700,000.
Among other factors, the General Partner is evaluating a prepayment
penalty on the Shadowridge Meadows property. The mortgage on the Shadowridge
Meadows property contains a prepayment penalty that would require a penalty to
be paid to the lender in the event the property is sold prior to the maturity
date of the loan in November 2007. Based upon its review of the relevant loan
documents, this prepayment penalty is estimated to be approximately $2,468,657.
The amount of the prepayment penalty will vary depending upon a number of
factors, including without limitation when the property is sold and the U.S.
Treasury yield rates. Therefore the amount of the prepayment penalty will vary
depending upon when the property is sold.
Additionally, the General Partner is also considering a prepayment
penalty on the Mission Park property. The mortgage on the Mission Park property
contains a prepayment penalty that would require a penalty to be paid to the
lender in the event the property is sold prior to January 2006. Based upon its
review of the relevant loan documents, this prepayment penalty is estimated to
be approximately $306,000. The amount of the prepayment penalty is calculated,
in part, upon a percentage of the principal amount to be prepaid. Therefore the
amount of the prepayment penalty will vary depending upon when the property is
sold.
In considering whether to sell the Partnership properties, the General
Partner is studying the impact of these issues upon the proposed sale of the two
properties and their possible financial effect on the Partnership and the
Limited Partners. The prepayment penalties referenced above are estimates only.
There can be no assurance that the prepayment penalties will be in the amounts
indicated above.
4
There can be no assurance that the Partnership's properties can be sold
at the projected sales price of $50
million.
ITEM 8. ADDITIONAL INFORMATION.
(a) Certain Federal Income Tax Considerations.
The Federal Income Tax Discussion set forth below is included herein
for general information only and does not purport to address all aspects of
taxation that may be relevant to a particular Limited Partner. For example, this
discussion does not address the effect of any applicable foreign state, local or
other tax law other than federal income tax laws. Certain Limited Partners
(including trusts, foreign persons, tax-exempt organizations or corporations)
may be subject to special rules not discussed below. This discussion is based on
the Internal Revenue Code of 1986, as amended (the "Code"), existing
regulations, court decisions and Internal Revenue Service rulings and other
pronouncements.
Each Limited Partner should consult their own tax advisor as to the
particular tax consequences to such Limited Partner of the Offer, including the
application of alternative minimum tax and federal, foreign, state, local, and
other tax laws.
The following general discussion is based upon the assumption that the
Partnership is treated as a partnership for federal income tax purposes and is
not a "publicly traded partnership," as that term is defined in the Code.
Gain or Loss. A taxable Limited Partner will recognize a gain or loss
on the sale of such Limited Partner's Units in the amount equal to the
difference between (i) the amount realized by such Limited Partner on the sale
and (ii) such Limited Partner's adjusted tax basis in the Units sold. The amount
realized by a Limited Partner will include the Limited Partner's share of the
Partnership's liabilities, if any (as determined under Section 752 of the Code
and the regulations thereunder). If the Limited Partner reports a loss on the
sale, such loss generally will not be currently deducted by such Limited Partner
except against such Limited Partner's capital gains from other investments.
However, non-corporate taxpayers may deduct up to $3,000 of capital losses per
year in excess of the amount of their capital gains against ordinary income.
The adjusted tax basis in the Units of a Limited Partner will depend
upon each Limited Partner's individual circumstances. Each Limited Partner who
plans to tender Units pursuant to the Offer should consult with a tax advisor as
to such Limited Partner's adjusted tax basis in such Limited Partner's Units and
the resulting consequences of a sale.
ITEM 9. EXHIBITS.
Exhibit 1 Item 12 of Income Growth Partners, Ltd. X Annual Report on Form 10KSB
for the year ended December 31, 2002.
Exhibit 2 Letter to Limited Partners dated May 7, 2003.
Exhibit 3 Market Study prepared by Integra Realty Resources San Diego dated
February 26, 2003 in connection with the Mission Park apartments.
5
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
Income Growth Partners, Ltd. X, a California limited partnership
By: Its General Partner
Income Growth Management, Inc., a California corporation
/s/ David W. Maurer
- --------------------------------------------------------------------------------
(Signature)
David W. Maurer, President
- --------------------------------------------------------------------------------
(Name and title)
June 6, 2003
- --------------------------------------------------------------------------------
(Date)
INSTRUCTION TO SIGNATURE: The statement must be signed by the filing person or
that person's authorized representative. If the statement is signed on behalf of
a person by an authorized representative (other than an executive officer of a
corporation or general partner of a partnership), evidence of the
representative's authority to sign on behalf of the person must be filed with
the statement. The name and any title of each person who signs the statement
must be typed or printed beneath the signature. SEE ss. 240.14d-1(f) with
respect to signature requirements.
Exhibit Index
Exhibit 1 Item 12 of Income Growth Partners, Ltd. X Annual Report on Form
10KSB for the year ended December 31, 2002.
Exhibit 2 Letter to Limited Partners dated May 7, 2003.
Exhibit 3 Market Study prepared by Integra Realty Resources San Diego dated
February 26, 2003 in connection with the Mission Park apartments.
6
Exhibit 1
Item 12 of Annual Report on Form 10KSB
of Income Growth Partners, Ltd. X
December 31, 2002
Item 12. Certain Relationships and Related Transactions
The Partnership is entitled to engage in various transactions involving its
general partners and its affiliates as described in the Partnership Agreement.
The table below reflects amounts paid to the general partner or its affiliates
during the following years:
2002 2001
---- ----
Management Fees $284,000 $245,000
Administrative Costs $192,000 $115,000
Administrative Fees $ 20,000 $ 17,000
1
Exhibit 2
Letter to Limited Partners dated May 7, 2003
May 7, 2003
Re: Income Growth Partners, Ltd. X
Dear Investor:
On April 17, 2003, Income Growth Partners, Ltd. X ("Partnership")
received a tender offer statement on Schedule TO and exhibits from Millenium
Management, LLC, a California limited liability company, to purchase for cash up
to 1,880 original units of limited partnership interests in the Partnership
("Original Units"). The purchase price offered is $850 per Original Unit,
without interest, less the amount of distributions per unit, if any, made to the
unit holders by the Partnership after the date of the offer, and less any
Partnership transfer fees, on the terms and conditions described in the Offer to
Purchase dated April 17, 2003 and the related Agreement of Transfer and Letter
of Transmittal which are exhibits to the Schedule TO.
The referenced tender offer for the units of the Partnership has not
been approved by the General Partner. On May 6, 2003, the General Partner caused
to be filed Schedule 14D-9 with the Securities and Exchange Commission. The
Schedule 14D-9 states that the General Partner believes that the price per
Original Unit offered in the Offer to the holders thereof ("Limited Partners")
may not fairly compensate Limited Partners for their interest in the
Partnership, and, therefore, recommends the Limited Partners not tender Original
Units pursuant to the Offer.
A copy of the Schedule 14D-9 as filed with the Securities and Exchange
Commission on May 6, 2003 is enclosed for your information.
Sincerely,
Income Growth Management, Inc.
General Partner
/s/ David W. Maurer
- -------------------------
David W. Maurer
President
Enclosure
2
Exhibit 3
Mission Park Apartments Market Study
by Integra Realty Resources San Diego dated February 26, 2003
MARKET STUDY
"Mission Park Apartments"
264 Units in Two Phases
Located at 221 Woodland Parkway, San Marcos
San Diego County, California 92069
Prepared for
Mr. David Maurer
Income Growth Management
11230 Sorrento Valley Road, Suite 220
San Diego, California 92121
Date of Report: February 26, 2003
Prepared by
Lance W. Dore, MAI
INTEGRA REALTY RESOURCES - SAN DIEGO
2250 Third Avenue
San Diego, California 92101
February 26, 2003
Mr. David Maurer
Income Growth Management
11230 Sorrento Valley Road, Suite 220
San Diego, California 92121
RE: Market Study - "Mission Park Apartments"
221 Woodland Parkway, San Marcos, San Diego County, California
Integra Realty Resources -- San Diego File No. 2003088
Dear Mr. Maurer:
Pursuant to your request, I have performed an analysis of the San Marcos
multi-family residential market for the above referenced property, as more
specifically described in the market study report which follows. The purpose of
the market study was to compare the rental market and "for sale" market in San
Diego County and the subject's submarket as of February 24, 2003. The market
study provides supply and demand comparisons, rental rates, pricing levels, and
absorption and competition levels specific to the subject. This market study is
for use by Income Growth Management for consultation purposes.
In review, the subject property consists of a 264 unit apartment project that is
situated on approximately 21 acres. Specifically the project has a mix of 120
one-bedroom and 144 two-bedroom units.
I, Lance W. Dore, MAI, made an inspection of the subject's exterior and
surrounding environs. I have also gathered and analyzed considerable data and
information having a bearing on its values. My findings are reported in a market
study. I have the knowledge and experience to complete the market study
assignment in a competent manner. Please see the Analyst Qualifications in the
Addenda of this report.
The market study was prepared in conformance with the Uniform Standards of
Professional Appraisal Practice (USPAP), the Office of the Comptroller of the
Currency (OCC), and the Code of Professional Ethics and Standards of
Professional Conduct of the Appraisal Institute.
Thank you for the opportunity of submitting this market study. If I can be of
further service, please do not hesitate to call.
Respectfully submitted,
- ------------------------------
Lance W. Dore, MAI
California Certified General
Real Estate Analyst
OREA No. AG002464 (Exp. 10/01/04)
CERTIFICATION STATEMENT
I certify that to the best of my knowledge and belief:
1. the statements of fact contained in this report are true and correct;
2. the reported analyses, opinions, and conclusions are limited only by
the reported assumptions and limiting conditions, and are my personal,
impartial, and unbiased professional analyses, opinions, and
conclusions;
3. I have no present or prospective interest in the property that is the
subject of this report, and I have no personal interest or bias with
respect to the parties involved;
4. I have no bias with respect to the property that is the subject of
this report or to the parties involved with this assignment;
5. my engagement in this assignment was not contingent upon developing or
reporting predetermined results;
6. my compensation for completing this assignment is not contingent upon
an action or event resulting from the analyses, opinions, or
conclusions in, or the use of, this report;
7. the assignment was not based on a requested minimum valuation, a
specific valuation, or the approval of a loan;
8. I have the knowledge and experience to complete this assignment and
have appraised this property type before;
9. my analyses, opinions, and conclusions were developed, and this report
has been prepared in conformity with the Uniform Standards of
Professional Appraisal Practice;
10. the reported analyses, opinions and conclusions were developed, and
this report has been prepared, in conformity with the requirements of
the Code of Professional Ethics and Standards of Professional Practice
of the Appraisal Institute;
11. no one provided significant research assistance to the person signing
this report;
12. I, Lance W. Dore, MAI, made a personal inspection of the property that
is the subject of this report;
13. that the use of this report is subject to the requirements of the
Appraisal Institute relating to review by its duly authorized
authorities;
14. I, Lance W. Dore, MAI, am currently certified under the continuing
education program of the Appraisal Institute and am a California state
certified general real estate analyst; and
15. the date of market study is February 26, 2003.
- -------------------------
Lance W. Dore, MAI
California Certified General
Real Estate Analyst
OREA No. AG002464 (Exp. 10/01/04)
MARKET STUDY
AERIAL PHOTO
[aerial photo of Woodland Pkwy here]
AERIAL PHOTO
[aerial photo of north portion here]
[aerial photo of south portion here]
SPECIFIC LIMITING CONDITIONS
1. This report was completed per the requirements of the Uniform Standards of
Professional Appraisal Practice (U.S.P.A.P.) and those additional
requirements expected of a member of the Appraisal Institute. The
development process used was a market analysis and documented in consulting
report.
2. I was not provided with a preliminary title report. No adverse easements or
encroachments were noted during the physical inspection and none were
assumed to exist. The appraised value was based on the assumption that
there were no tax liens affecting the subject property. Per the San Diego
County Tax Assessor, the subject property was current in the payment of
real estate taxes as of the date of value.
3. The estimated unit mix and size of the subject improvements was obtained
from information provided by the client. The referenced site size estimate
was based on the subject's assessor parcel map. These figures were assumed
to be accurate and the figures were relied upon in the valuation of the
property.
4. No opinion is expressed with regard to potential seismic impact and it was
assumed that the subject's potential risks are similar to those shared by
most properties in the subject area and generally within Southern
California. I make no warranty as to the seismic stability of the subject
land. The assumption was made that any future development of the property,
if any, will occur in accordance with all appropriate regulations and
ordinances regarding grading, fill, and applicable building codes.
5. The Federal Americans with Disabilities Act (ADA) became effective January
26, 1992. 1 have not made a specific compliance survey and analysis of the
proposed subject improvements to determine whether or not they will be in
conformity with the various detailed requirements of the ADA. I assumed
that the architect designed the buildings to be in conformance of the
latest design, access, and hardware regulations of the Americans with
Disabilities Act.
6. It was assumed that the subject improvements have been constructed in such
a manner that renders them free of structural defects or any other
unapparent conditions of the property; that all mechanical equipment and
appliances are in good working condition; and that all electrical
components and the roofing are in good condition. If the client has any
questions regarding these items, it is the client's responsibility to order
the appropriate reviews of the improvements. I do not have the skill or
expertise needed to make such observations.
7. Acceptance of, and/or use of this report constitutes acceptance of the
above conditions.
GENERAL ASSUMPTIONS AND LIMITING CONDITIONS
1. No responsibility was assumed for the legal description or title
considerations. Title to the property was assumed to be good and marketable
unless otherwise stated.
2. The property was appraised free and clear of any or all liens or
encumbrances unless otherwise stated.
3. Responsible ownership and competent property management were assumed.
4. The information furnished by the client and others was believed to be
reliable. However, no warranty is given for its accuracy.
5. All engineering was assumed to be correct. The sketches and maps in this
report were included to assist the reader in visualizing the property and
are not necessarily to scale. Various photos, if any, were included for the
same purpose and were not intended to represent the property in other than
actual status, as of the date of the photos. Site plans were not surveys
unless shown from separate surveyor.
6. It was assumed that there are no hidden or unapparent conditions of the
property, subsoil, or structures that render it more or less valuable. No
responsibility was assumed for such conditions or for arranging for
engineering studies that may be required to discover them.
7. The analysis was based on the premise that there is full compliance with
all applicable federal, state, and local environmental regulations and laws
unless otherwise stated in the report. Further, that all applicable zoning,
building, and use regulations have been complied with, unless nonconformity
has been stated, defined, and considered in the report. Further, it was
assumed that all required licenses, certificates of occupancy, consents, or
other legislative or administrative authority, local, state, federal and/or
private entity or organization have been or can be obtained or renewed for
any use on which the value estimate contained in this report is based.
8. It was assumed that the utilization of the land and improvements is within
the boundaries or property lines of the property described and that there
was no encroachment or trespass unless noted in the report.
9. The distribution, if any, of the total valuation in this report between
land and improvements applied only under the stated program of utilization.
The separate allocations must not be used in conjunction with any other
analysis and are invalid if so used.
10. Possession of this report or any copy thereof does not carry with it the
right of publication. It may not be used for any purpose by any person
other than the party to whom it is addressed without the written consent of
the analyst, and in any event only with the proper written qualification
and only in its entirety.
11. The analyst herein by reason of this report is not required to give further
consultation, testimony, or be in attendance in court with reference to the
property in question unless arrangements have been made.
12. Neither all nor any part of the contents of this report (especially any
conclusions as to value, the identity of the analyst, or the firm with
which the analyst is connected) shall be disseminated to the public through
advertising, public relations, news, sales, or other media without the
prior written consent and approval of the analyst.
13. The value estimates provided in the report apply to the entire property,
and any proration of the total into fractional interest will invalidate the
value estimate, unless such proration or division of interests has been set
forth in the report.
14. No responsibility was assumed for matters legal in character or nature, nor
matters of survey, nor of any architectural, structural, mechanical, or
engineering nature. No opinion was rendered as to the title. which was
presumed to be good and merchantable. The property was appraised as if free
and clear, unless otherwise stated this report. The legal description was
assumed to be correct as used in this report as furnished by the client,
his designee, or as derived by the analyst. It was assumed that there are
no hidden or unapparent conditions of the property, subsoil, or structures
that render it more or less valuable. No responsibility was assumed for
such conditions or for arranging for engineering studies that may be
required to discover them. This would include subsoil conditions that are
either expansive or restrictive to development, hazardous or toxic waste
conditions due to chemical storage or leaks of underground tanks or on site
chemical use. The analyst assumed no responsibility for any costs or
consequences arising due to the need, or the lack of need, for flood hazard
or earthquake insurance.
15. Any proposed improvements were assumed to have been completed unless
otherwise stipulated; any construction was assumed to conform to the
building plans referenced. The analyst assumed that the reader or user has
been provided with copies of available building plans and all leases and
amendments, if any, encumbering the property.
16. The forecasts, projections, or operating estimates contained herein were
based upon current market conditions, anticipated short-term supply and
demand factors, and a continued stable economy. These forecasts are subject
to changes in future conditions.
17. The analyst may not divulge the material (evaluation) contents of the
report, analytical findings or conclusions, or give a copy of the report to
anyone other than the client, legal authorities via subpoena, or the
Appraisal Institute.
18. No environmental or impact studies, special market study or feasibility
analysis were requested or made unless otherwise specified in an agreement
for services or in the report.
19. Acceptance of, and/or use of this report constitutes acceptance of the
above conditions.
MISSION PARK PROJECT - NEIGHBORHOOD
GENERAL OVERVIEW - "SAN MARCOS"
LOCATION
The project is located in inland north San Diego County in an unincorporated
area near San Marcos, California. This city is situated five miles inland from
the Pacific Ocean, approximately 30 miles north of downtown San Diego, and 90
miles south of Los Angeles. San Marcos is bordered to the west by the cities of
Vista and Carlsbad, to the north and south by undeveloped land in San Diego
County and to the east by the city of Escondido.
ACCESS / TRANSPORTATION
The city is bisected by State Highway 78, a six-lane freeway that provides
commuters with vehicular access to Interstate 5 to the west at Oceanside and
Interstate 15 to the east at Escondido. There are six freeway interchanges on
State Highway 78 that are either existing, planned, or under construction. Major
north-south access through the city include Twin Oaks Valley Road and Rancho
Santa Fe Road, while east-west thoroughfares include Mission Road and San Marcos
Boulevard. There have been increasing demands upon the local infrastructure due
to the increasing population base. Morning and evening commuter traffic is
congested along State Highway 78 which is typical of north San Diego County.
Other means of transportation include bus service provided by the Metropolitan
Transit Service and a proposed light rail transit system provided by the North
County Transit District Commuter Rail. The light rail system will roughly follow
the alignment of the existing Santa Fe Railroad along the Highway 78 corridor.
The city is also 35 miles from the Lindbergh Field (San Diego Airport) and six
miles east of Palomar Airport located in Carlsbad.
POPULATION
According to the California Department of Finance, as of January 1, 2002, the
population of San Marcos was 60,800, which represents a 5.6%+/- increase from
the 2001 figure of 57,600. Since 1990, the population has increased by 21,826
persons or 56%+/-, indicating an average annual growth rate of 5.1%+/-.
According to SANDAG's 2020 Region Wide Forecast, the long-term forecast is for
city growth to continue over the next 20 years. SANDAG projects the city to have
an average annual growth rate of 2.74% from 2001 through 2020. San Marcos's
average population per household as of January 2000 was 3.15 persons with the
median age of 32.5 years (SANDAG).
According to population household income gathered from SANDAG, the 2000 median
household income in San Marcos was $43,522 per year. The city's median household
income was slightly lower than the region's 2000 median household income of
$46,503. From 1990 to 2000, San Marcos experienced one of the highest increases
in the entire county in median household income, increasing by more than 35%.
This compares to the regional increase of 32.8%.
EMPLOYMENT
Primary employers in San Marcos include San Marcos Unified School District,
Palomar College, California State University San Marcos, city of San Marcos, as
well as manufacturing companies such as Hunter Industries, Signet Armorlite,
NAPP systems, and others. The city is centrally located between Carlsbad, Vista,
and Oceanside employment centers to the west and the Escondido industrial area
to the east. San Marcos has been expanding its employment base also by
attracting new industrial and retail businesses such as the new multi-plex
theater on San Marcos Boulevard and a new retail center on San Marcos Boulevard
at State Highway 78.
CONCLUSIONS
The demand for housing should continue at reasonable levels in San Marcos. The
population is steadily increasing, interest rates are at reasonable levels,
income figures are adequate, and the area is poised for future growth. North
county inland oriented developments continue to find adequate market acceptance
by prospective buyers. As the scarce supply of remaining land continues to be
developed and built out, particularly in the coastal communities, those
available projects should capture a larger market share of demand for housing.
The outlook over the next few years is for a continuation of this trend.
Overall, the outlook for San Marcos is considered positive.
MISSION PARK PROJECT - STATISTICS
FIVE MILE RADIUS
Specific to the influences in the subject's 5-mile radius the following
demographic profile exists:
Population Data - 5 Mile Radius
-------------------------------
1995 2000 2010 2020
---- ---- ---- ----
Population 165,935 183,270 210,755 229,534
Population <15 41,047 46,644 51,624 56,470
Population 15-64 102,217 112,565 132,260 138,571
Population 65+ 22,671 24,061 26,871 34,493
Persons Per Household 2.87 2.95 2.94 2.9
Household Population 164,014 181,189 207,512 225,295
As shown, the population is expected to increase from 2000 to 2010 approximately
1.50% per year. The persons per household is expected to remain stable at 2.94
per household.
[graph of Population Data - 5 Mile Radius graph here]
In addition, the amount of land in development is as follows. Please note,
immediately adjacent to the subject (west) is the proposed construction of a new
San Marcos high school.
Land Uses - 5 Mile Radius
-------------------------
1995 2000 2010 2020
---- ---- ---- ----
Percent Developed 71.7 76.1 82.3 88.7
Total Acreage 51,188 51,188 51,188 51,188
Total Developed Acreage 31,504 33,423 36,147 38,967
Developed Residential Acreage 12,338 13,649 16,857 19,962
Developed Employment Acreage 3,591 4,254 4,716 4,996
Developed Other Acreage 15,576 15,520 14,574 14,009
Total Vacant Acreage 12,411 10,492 7,768 4,948
Total Constrained (Unusable) Acreage 7,273 7,273 7,273 7,273
As shown, the amount of vacant land is expected to continue to decrease as
development occurs throughout the various sectors including residential,
commercial and other.
Specific income levels and employment sectors are also shown as follows:
Household Units - 5 Mile Radius
-------------------------------
1995 2000 2010 2020
---- ---- ---- ----
Household Income <$10,000 4,266 3,948 3,922 3,725
Household Income $10,000-$14,999 3,957 3,794 3,998 3,896
Household Income $15,000-$24,999 9,473 9,444 10,304 10,377
Household Income $25,000-$34,999 9,046 9,355 10,379 10,778
Household Income $35,000-$49,999 11,396 12,253 14,035 15,187
Household Income $50,000-$74,999 11,190 12,614 15,068 17,239
Household Income $75,000-$99,999 4,229 5,132 6,447 7,850
Household Income >$100,000 3,679 4,787 6,477 8,506
Median Household Income 37,469 40,047 42,173 44,880
[Household Income - 5 Mile Radius graph here]
Household income levels are expected to increase with the greatest concentration
of household income in the $35,000 to $75,000 income levels. The greatest
expected percentage increase is %35.03% for household income levels greater then
$100,000 between 2000 and 2010.
Employment - 5 Mile Radius
--------------------------
1995 2000 2010 2020
---- ---- ---- ----
Total Employment 71,170 91,991 110,714 122,366
Civilian Employment 71,170 91,991 110,714 122,366
Military Employment 0 0 0 0
Manufacturing Employment 8,144 9,684 9,863 9,370
Wholesale and Retail Trade Employment 18,728 22,918 28,357 31,534
Services Employment 17,041 24,462 30,226 33,775
Government Employment 6,230 8,597 10,786 12,357
Other Employment 21,027 26,330 31,482 35,330
[Employment - 5 Mile Radius graph here]
Total employment is expected to increase 2.03% per year between 2000 and 2010.
The predominate employment sectors are Wholesale, Retail, Trade, and Services.
APARTMENT MARKET OVERVIEW - SAN DIEGO COUNTY
GENERAL OVERVIEW
The San Diego County apartment market experienced its largest increase in the
number of new apartment projects in ten years with twelve new projects opening
in 2002 for a total of 2,867 units. Coupled with the projects that opened in
1998 through 2001, the number of new units developed in the market region has
done little to lessen the demand pressure for rental housing in San Diego
County. In total, 43 new projects have opened since 1998 adding 12,515 rental
units to the housing stock.
The apartment market, after giving away incentives and realizing flat rental
rates throughout the early-to-mid 1990s, is reaping the rewards of an under
built supply and demand imbalance. Since rents started moving upwards in the
beginning of 1996, the average rental rate for San Diego County has increased
approximately 60.0% to an average of $1,084 per month. The vacancy rate for the
county was reported at 1.42% as of September 2002. The current county vacancy
rate is still at frictional levels and we are in a "landlords market", as
vacancy rates in a market at equilibrium is typically 5.0%. This low vacancy
trend is expected to continue as new construction of apartment projects
continues to lag behind the strong demand.
VACANCY AND RENTAL RATE TRENDS
According to the September 2002 apartment Rental Trends Survey, conducted by
MarketPoint Realty Advisors of San Diego, the countywide vacancy rate for
apartment projects was reported at 1.42%, which decreased from the March 2002
estimate of 2.58%. Despite the continued introduction of new units, the
countywide vacancy rate remains extremely low at frictional vacancy levels. In
addition, of the 1,703 vacant units countywide, nearly 60% of those vacancies
were found in new projects that were going through their initial lease-up
period.
The weighted average rental rate of the 119,900 San Diego County rental units
surveyed as of September 2002 was $41 per month higher than the average rent
from March 2002. Countywide the average rental rate climbed to a new all-time
high of $1,084 per month. Compared to a year ago, the average rental rate is up
by 5.76% percent, $59 per month. The increase represents the tenth consecutive
six-month period that the average countywide rental rate has increased after
nearly six years of virtual nominal rental rate increases. With the average rent
increasing and the average unit size virtually unchanged at 851 square feet of
living space, the average rent per square foot ratio climbed to a landmark $1.27
per square foot. Rental trends in the county from September 1997 to September
2002 are summarized in the table on the following page.
SAN DIEGO COUNTY APARTMENT MARKET CHANGING CONDITIONS
1997 THROUGH 2002
- ------------------------------------------------------------------------------------------------------------------------------------
Change
1-Mar-02 1-Sep-01 1-Sep-00 1-Sep-99
1-Sep-97 1-Sep-98 1-Sep-99 1-Sep-00 1-Mar-01 1-Sep-01 1-Mar-02 1-Sep-02 1-Sep-02 1-Sep-02 1-Sep-02 1-Sep-02
- ------------------------------------------------------------------------------------------------------------------------------------
RENTAL RATES
Total County $721 $785 $857 $943 $986 $1,025 $1,043 $1,084 3.93% 5.76% 14.95% 38.09%
North County $761 $829 $915 $999 $1,045 $1,088 $1,101 $1,144 3.91% 5.15% 14.51% 38.00%
South County $684 $743 $815 $889 $926 $964 $985 $1,024 3.96% 6.22% 15.19% 37.82%
SQUARE FOOTAGE
Total County 837 836 841 842 842 846 848 851 0.35% 0.59% 1.07% 1.79%
North County 857 857 863 859 866 870 873 877 0.46% 0.80% 2.10% 2.33%
South County 817 817 820 823 817 822 823 827 0.49% 0.61% 0.49% 1.22%
PRICE/SF
Total County $0.86 $0.94 $1.02 $1.12 $1.17 $1.21 $1.23 $1.27 3.56% 5.13% 13.73% 35.66%
North County $0.89 $0.97 $1.06 $1.17 $1.21 $1.25 $1.26 $1.30 3.43% 4.31% 11.49% 34.85%
South County $0.84 $0.91 $0.99 $1.07 $1.13 $1.17 $1.20 $1.24 3.46% 5.58% 15.72% 36.15%
TOTAL UNITS
Total County 110,119 109,807 111,998 113,518 114,410 115,924 117,796 119,900 1.79% 3.43% 5.62% 9.19%
North County 53,331 53,067 54,041 55,697 56,298 57,492 58,736 59,474 1.26% 3.45% 6.78% 12.07%
South County 56,788 56,740 57,957 57,821 58,112 58,432 59,060 60,426 2.31% 3.41% 4.51% 6.50%
TOTAL VACANT
Total County 1,238 554 949 718 1,688 1,641 3,035 1,703 -43.89% 3.78% 137.19% 207.40%
North County 543 268 491 489 1,115 1,083 1,848 929 -49.73% -14.22% 89.98% 246.64%
South County 695 286 458 229 573 558 1,187 774 -34.79% 38.71% 237.99% 170.63%
VACANCY FACTOR
Total County 1.12% 0.50% 0.85% 0.63% 1.48% 1.42% 2.58% 1.42% -44.87% 0.34% 125.45% 181.52%
North County 1.02% 0.51% 0.91% 8.30% 1.98% 1.88% 3.15% 1.56% -50.35% -17.08% -81.18% 209.30%
South County 1.22% 0.50% 0.79% 0.42% 0.99% 0.95% 2.01% 1.28% -36.27% 34.13% 204.98% 154.12%
Based on recent trends, it appears that rental rate averages in the county have
been increasing rapidly and that rental housing affordability continues to be a
crisis. This is evidenced by the average 5.76% increase in rents over the past
year and the 14.95% increase over the past eighteen months. This is especially
important when considering the consumer price index which measures general
inflation has been near ?3% over the past several years. Overall, rental rates
are expected to continue to increase but at more moderate levels than 1999
through 2002.
The rate of rental rate elasticity over the past year has been skewed by the
introduction of new units, which are commanding significantly higher rental
rates than existing projects. According to MarketPoint Realty Advisors, the
average rental rates commanded by units released in 2001, 2000, 1999, and 1998
were
$1,611, $1,476, $1,494, and $1,468 respectively, compared to $1,032 per month
commanded by the complexes opened prior to 1998. An analysis of rental rate
trends for existing complexes, which excludes complexes opened since 1998,
reveals a slightly higher rental rate elasticity at existing complexes as
compared to new projects. Whereas the overall rental rate average climbed by
5.1% between March 2002 and September 2002, the average rent among existing
projects is up only 2.8%. However, the existing projects that have been
constructed since 1998 have posted moderate rental rate increases over the past
several six-month periods which is evidenced by the 2.40% rental increase since
March 2001. Thus we can conclude that rental increases for the newer projects
are not as substantial relative to overall county rental increases.
RENTAL RATE DISTRIBUTION
Virtually all new units released to the market since 1998 are currently
positioned above $1,000 per month. Of the total 119,900 units surveyed, 53.3%
are positioned over $1,000 per month, and an additional 33.5% are positioned
between $800 and $1,000 per month. According to MarketPoint Realty Advisors, the
most startling statistic noted in their September 2002 survey was the total lack
of units available under $500 per month, and the shrinking availability of units
in the $500 to $600 per month price range.
NEW AND PROPOSED CONSTRUCTION
The San Diego County Apartment Market is experiencing its lowest vacancy levels
this decade. The high occupancy levels have put upward pressure on rent levels
for the past two years. Due to the very limited supply and increasing rent
levels, new construction for multi-family complexes has become financially
feasible. Apartment units under construction and proposed at this time consist
primarily of high-end "luxury" apartments. According to MarketPoint Realty
Advisors, there are currently 97 proposed apartment projects with a total of
21,068 units in various stages of the planning process. However, only 4,365 of
these units are classified as "affordable."
ABSORPTION TRENDS
San Diego County continues to experience strong growth in new construction of
apartment projects. Since 1998, 43 new projects have come on-line and when
completed will total 112,515 units. The table on the following page provides the
historical absorption of the new projects for the county from March 1998 to
September 2002 as reported by MarketPoint Realty Advisors. The absorption is
detailed in six-month increments.
ABSORPTION TREND
Time Period Units Units Monthly % Leased
Released Leased Absorption
- ----------------------------------------------------------------------
3/98 - 9/98 383 373 62 97.39%
9/98 - 3/99 1,316 1,127 188 85.64%
3/99 - 9/99 1,126 1,097 183 97.42%
9/99 - 3/00 782 657 110 84.02%
3/00 - 9/00 1,685 1,755 293 104.15%
9/00 - 3/01 1,013 849 142 83.81%
3/01 - 9/01 2,056 1,944 324 94.55%
9/01 - 3/02 1,932 1,803 301 93.32%
3/02 - 9/02 2,867 2,419 403 84.37%
- ----------------------------------------------------------------------
Total 13,160 12,024 286 91.37%
In total, 13,160 units have been released in San Diego County since March 1998
of which 12,024 had been absorbed as of September 2002. The monthly absorption
rate over this four and 1/2 year period equates to 286 units per month for new
projects. Based on the information presented, the San Diego County Apartment
Market continues to experience strong demand for new units which is forecasted
to continue into the future until supply and demand can reach equilibrium.
APARTMENT MARKET OVERVIEW - NORTH COUNTY EAST
VACANCY AND INVENTORY
According to MarketPoint Realty Advisors, the subject is located in the North
County East market area. As of September 2002, this market had 104 projects with
a total of 10,782 units and had an overall vacancy rate of 0.62%. Vacancy rates
in the North County East market are minimal with the majority of apartment
complexes operating at maximum occupancy. According to the leasing agents that
were contacted during the rental survey, there is typically a waiting list for
vacant units.
RENTAL RATES
The North County East market and the San Marcos submarket are experiencing
strong demand for apartment units. Both the market and the submarket have
vacancy rates that are well below typical frictional vacancy rate levels (5%).
In addition, the market and submarket have average rent per square foot
indicators that are well above the average rent per square foot for the County.
The following table details the average rental rates for the various unit types
in North County East market and San Marcos submarket.
APARTMENT MARKET SURVEY
-----------------------
North County East San Marcos Submarket
----------------- --------------------
Unit Monthly Average Rent Monthly Average Rent
Type Rent Size(sf) Per SF Rent Size(sf) Per SF
- ---- ---- -------- ------ ---- -------- ------
Studio $614 450 $1.36 N/A N/A N/A
1-BR $780 679 $1.15 $846 649 $1.30
2-BR $952 917 $1.04 $987 887 $1.11
3-BR $1,196 1,113 $1.07 $1,230 1,064 $1.16
4-BR $1,525 1,510 $1.01 N/A N/A N/A
Avg $906 841 $1.08 $980 846 $1.16
Vacancy 0.62% 0.16%
North County East and San Marcos apartment submarkets have also experienced
strong growth in rental rates over the past several years. This is detailed in
the table below.
APARTMENT MARKET SURVEY
-----------------------
North County East San Marcos Submarket
----------------- --------------------
September September % September September %
Category 1999 2002 Change 1999 2002 Change
- -------- ---- ---- ------ ---- ---- ------
Avg Rent $730 $906 24.11% $769 $980 27.44%
Avg Size 848 841 -0.83% 868 846 -2.53%
Rent/SF $0.86 $1.08 25.14% $0.89 $1.16 30.75%
Vacancy 0.86% 0.62% -27.91% 0.50% 0.16% -68.00%
As can be seen from the comparison of North County East and San Marcos, the
rents in San Marcos (the subject area), are $74 per month higher, or $0.08 per
square foot than the North County East areas. Overall, it can be concluded that
the San Marcos area has a higher demand then the other North County East areas
of Fallbrook, Bonsall, and Escondido.
PROPOSED ACTIVITY
There is a limited amount of new units for the subject area. The Highway 78
corridor is proposed for 1,641 units, which equates to approximately 8 to 15 new
projects (average project size of 100 to 200 units). This represents 7.8% of the
total proposed inventory for San Diego County. It can be concluded that new
development is anticipated based on the continued demand for units as
demonstrated by the low vacancy.
ABSORPTION
A specific breakdown for the absorption of units in just San Marcos was not
available; however the North County of San Diego absorption figures were
available.
The North San Diego County area surveyed 395 projects. The average absorption
was 7.44 units per month for existing projects. This reflects basic turnover.
However, when analyzing new developments the average absorption (reflects new
rentals), was 118.33 per month for Compass Pointe in Mira Mesa, and 38.97 per
month for Creekview at Sabre Springs in Poway.
Overall, because of the limited number of new projects absorption figures only
reflect turnover for existing projects. When new projects are absorbed the
monthly absorption rate is 39 to 118.
MARKETABILITY
The subject, as noted, would support an apartment project (as existing). Typical
for the North County area are projects ranging in size from 50 to 300 units with
a mix of 1-bedroom and 2-bedroom units. The subject has a mix of 1-bedroom (120
units) and 2-bedroom (144 units). This unit mix is typical for projects in the
area. In addition, the subject's average 1-bedroom unit size is approximately
647 square feet and the subject's average 2-bedroom unit size is approximately
930 square feet. This average unit size is typical for the area. The subject
rental rates for the 1-bedroom units range from $940 to $955 per unit, or $1.45
to $1.47 per square foot. The subject rental rates for the 2-bedroom units range
from $1,140 to $1,260 per unit, or $1.22 to $1.33 per square foot. Most units
have good quality fixtures and appliances, which include an oven/stove,
microwave oven, dishwasher, trash disposal system, refrigerator, and fireplaces.
Amenities in the project include two pools, two spas, clubhouse/recreation room,
and tennis courts.
As of September 2002, the county had a vacancy rate of less than 2%. There has
been a slight increase in the past few months, but vacancy levels are still well
below 5%. The supply of apartment units in San Diego County is on the rise (due
to new construction) but is expected to fall short of current demand for the
next few years. In addition to experiencing the lowest vacancy levels this
decade, the apartment market has had significant rental rate increases over the
past two years. The increase in rental rates and high occupancy levels has
fueled new construction in the county. Most of the construction activity has
been of "luxury" complexes, and desirable sites have become scarce to
nonexistent in many locations. The subject project is considered to offer a
market acceptable product.
CONCLUSIONS
Market conditions, elements of supply and demand, and the location
characteristics of the subject support use of the site for multi-family
residential uses.
VALUATION
It has been concluded that the subject has market acceptability for apartments
(rental). The subject's actual rents were used in the analysis with market
accepted expenses and vacancy projections. The indicated value is $25,400,000
based on an 8.50% overall rate. The overall rate was selected from eight
comparable projects that sold in the Vista, San Marcos, and Oceanside areas. The
range of overall rates was 7.97% to 9.28%. The estimate of value is shown as
follows. This value will be compared to the analysis as "for sale" condominiums.
DIRECT CAPITALIZATION ANALYSIS
MISSION PARK
POTENTIAL GROSS INCOME:
Rent Income: No. Units Plan Sq. Ft. Rent/Month Rent/SF Mo. Rent
--------------------------------------------------------------
120 1/1 647 $950 $1.47 $114,000
60 2/2 928 $1,145 $1.23 $68,700
84 2/2 945 $1,230 $1.30 $103,320
--------------------------------------------------------------
264 Average 806 $1,083 $1.34 $286,020
Additional Income: Laundry Income ($5.00 x 31 Units) $1,320
Parking $0
Other $0
-----------
Gross Monthly Income: $287,340
x12
-----------
POTENTIAL GROSS ANNUAL INCOME: $3,448,080
VACANCY & COLLECTION LOSS: 5.00% ($172,404)
CONCESSIONS/INCENTIVES: $0
-----------
EFFECTIVE GROSS INCOME: $3,275,676
EXPENSES:
Fixed: Property Taxes 1.11% x $25,400,000 $282,329
Special Assessments $0 x 1 $0
Licenses and Fees $336 x 1 $336
Insurance $150 x 264 $39,600
-----------------------------------------------------------------
Total Fixed Expenses $322,265
Variable: Management Onsite $2,290 x 12 $27,480
Other Personnel Onsite $6,000 x 12 $72,000
Management Offsite 6.00% x $3,275,676 $196,541
Maintenance & Repairs $750 x 264 $198,000
Landscaping $3,500 x 12 $42,000
Pool Service $500 x 12 $6,000
Gas & Electric (Commons) $150 x 264 $39,600
Water & Sewer (Commons) $250 x 264 $66,000
Trash Refuse Service $1,200 x 12 $14,400
Elevator Service $0 x 12 $0
Pest Control $40 x 264 $10,560
Payroll Taxes $600 x 12 $7,200
Advertising & Marketing $500 x 12 $6,000
Admin/Legal/Phone $3,500 x 12 $42,000
Reserves 2.00% x $3,275,676 $65,514
-----------------------------------------------------------------
Total Variable Expenses $793,294
Total Expenses: 34.06% Of EGI
$4,226 Per Unit
$5.24 Per SF NRA ($1,115,559)
------------
NET OPERATING INCOME: $2,160,117
CAPITALIZATION RATE: 8.50%
------------
MARKET VALUE UPON STABILIZATION: $25,413,145
Rounded, $25,400,000
Per Unit Basis: $96,212
Per Room Basis: $27,137
Per NRA Basis: $119.42
ATTACHED HOUSING MARKET OVERVIEW - SAN DIEGO COUNTY
PRICING & SALES TRENDS
The analyst analyzed both the new and resale "attach" markets relative to
pricing and sales trends. The following chart details new attached price trends
in San Diego County. Pricing in the attached new home market in San Diego County
has been fluctuating over the past two years. The most recent average price of
$394,304, or $321.88 per square foot, is the second highest level over the
entire two-year period, after the average price peaked in 2nd quarter 2002. Over
the entire two-year period, the average price per attached unit has increased
43%+/- from $274,823 to $394,304 while the average price per square foot
increased 45%+/-, from $222.71 to $321.88.
[Attached Housing Price & $/PSF Trend
San Diego County graph here]
As can be seen from the following chart, the average price for attached projects
in the subject's submarket, Highway 78 Corridor, has also fluctuated widely over
the past two years. The Highway 78 Corridor submarket consists of the
communities of San Marcos, Bonsall, Escondido, Fallbrook, Lake San Marcos,
Oceanside, Valley Center, and Vista. Over the entire two-year period, the
average price per attached product has increased 229%+/-, from $84,900 to
$278,949, and the average price per square foot has increased 115%+/- from
$92.28 to $198.53, suggesting a stronger market than the county in general.
[Attached Housing Price & $/PSF Trend
Highway 78 Corridor graph here]
Net sales of attached housing in the San Diego County market area have
fluctuated over the past two years. The 4th quarter 2002, with 1,025 net sales,
had the greatest number of quarterly sales over the two-year period. Sales
velocity decreased in the second half of 2001 due to economic uncertainty and
the events of September 11, 2001, but subsequently rebounded in early 2002.
[Net Attached Sales - San Diego County graph here]
The most recent quarter, with 87 sales, demonstrated a -222%+/- decrease over
the 2nd quarter of 2002, although 3rd quarter 2002 sales were lower than those
reported one quarter earlier when the market peaked. In the subject's submarket,
net sales have also widely fluctuated and with the exception of 3rd and 4th
quarter 2001, sales in the subject's submarket have generally been stable.
[Net Attached Sales - San Diego Central graph here]
SUPPLY OVERVIEW
The following table outlines existing and future supply of attached units in San
Diego County and the subject's submarket, Highway 78 Corridor, per Residential
Trends. Future supply figures were not available for Highway 78 corridor.
NEW HOUSING EXISTING AND FUTURE SUPPLY
(4TH QUARTER 2002)
- --------------------------------------------------------------------------------------
Product Unsold Remaining Final Final Tentative Planning Under Totals
Type Units for Dev. Map Approval Approval Stage Constr.
- --------------------------------------------------------------------------------------
San Diego County (Total)
Attached 555 1,004 842 116 13,098 4,778 5,281 25,674
- --------------------------------------------------------------------------------------
Highway 78 Corridor (Subject Submarket)
Attached 18 141 0 0 n/a n/a n/a n/a
- --------------------------------------------------------------------------------------
Overall, it can be concluded that with only 18 unsold units in the Highway 78
corridor, and 141 remaining for development, there is limited supply of attached
units. Please note, there are no attached projects in San Marcos.
RESALE PRODUCT
To further support my analysis, a review of the Multiple Listing Service resale
data for the subject's competing market area was conducted. This included Vista,
San Marcos and Escondido. Oceanside was excluded because of the oceanfront
amenities that are not reflective of the subject area. The data is over the
previous two quarters. There were 250 units sold between 10/1/02 and 3/15/03.
The average sales price was $204,916, or $186 per square foot. The average
marketing time was 32 days. The average unit was 2 bedrooms with 1.78 baths, and
1,120 square feet.
RESIDENTIAL DEMAND OVERVIEW
POPULATION
According to the California Department of Finance, as of January 1, 2002, the
county's population was 2,918,300, which is the third largest of California's 58
counties, and the fifth largest of all counties in the nation. This indicates an
increase of 58,400 persons or 2.0% during the calendar year 2001, which
represents the fifteenth largest annual gain in the entire state. This increase
was just slightly more than the increase of 48,200 persons or 1.7% during the
calendar year 2000, 58,210 persons or 2.04% during calendar year 1999, 55,500
persons or 2.09% during calendar year 1998, and was significantly less than the
gain of 65,700 persons or 2.41% for calendar year 1997. According to the
California Department of Finance, the long-term forecast is for county growth to
slow over the next 20 years, consistent with recent local and national forecasts
and similar to other Southern California counties.
[Population of San Diego County
Historical and Projected graph]
According to the State of California Department of Finance, the city of San
Diego has a January 1, 2002 population of 1,255,700. The following chart
summarizes the city's historical and forecasted population trends.
[Population of San Diego City
Historical and Projected graph]
The city's population as of January 1, 2002 was 1,255,700, indicating a 1.25%+/-
increase in population between 2002 and 2003. The city's population represents
about 43%+/- of the total county population. It is apparent that long-term
forecasts indicate that population levels should continue to increase, thus
increasing the need, or demand, for housing.
EMPLOYMENT
According to the California Employment Development Department (EDD), the
unemployment rate in San Diego County was 4.0% in December 2002, which was
slightly lower as the November 2002 unemployment rate of 4.3%. This compares to
the December 2001 San Diego unemployment rate of 3.3%. The December 2002 San
Diego jobless rate compares with a statewide unemployment rate of 6.3%, and a
national jobless rate of 6.0%. For all of 2002, San Diego's jobless rate
averaged 4.l+/-, well below national (5.8%) and state (6.4%) 2002 annual
averages. The San Diego Region's 2000 median household income was estimated at
$47,067, an increase of 33%+/- from the regional median income in 1990. The
region's median income remains below the state, but higher than the nation.
[Unemployment Rates - Not Seasonally Adjusted graph]
Employment categories forecasted to experience gains greater than 75% over the
25-year period include: construction, transportation, commerce, and utilities,
wholesale and retail trade, finance, insurance, real estate, and services. Due
to the recent recession, a softening is anticipated in the job market. This is
demonstrated in the recent increases in unemployment. However, San Diego has
fared well compared to the state and nation. Overall, the long-term projections
are for continued increases in employment, which typically increases demand for
housing.
PURCHASING POWER / AFFORDABILITY
For most homeowners, mortgage rates have never been better. While some potential
homeowners have concerns about job security or the safety of their housing
equity, many are seizing the opportunity to "lock in" the lowest mortgage rate
in their lifetime. Housing affordability has long been a critical issue in San
Diego County. There are several reasons San Diego County housing affordability
remains among the lowest in the nation. Core issues pertain to relatively high
land prices, significant development impact related fees, the shift toward
detached housing in the new home market due to construction defect litigation in
attached housing construction, and lower average wages compared to other coastal
counties in California. With the steady population increase forecasted through
2020, San Diego County is expected to remain among the least affordable housing
regions in the nation.
2000 HOUSEHOLD INCOME
ATTACHED PRODUCT
- ---------------------------------------------------------------------------------------------
Jurisdiction Under $15,000 to $25,000 to $35,000 to $50,000 to $75,000
$15,000 $24,999 $34,999 $49,999 $74,999 & Over
- ---------------------------------------------------------------------------------------------
San Marcos 1,571 2,342 2,691 3,377 3,903 3,161
City 9% 14% 16% 20% 23% 19%
- ---------------------------------------------------------------------------------------------
San Diego 124,436 117,642 122,297 159,617 200,299 271,201
Region 12% 12% 12% 16% 20% 27%
- ---------------------------------------------------------------------------------------------
Source: US Bureau of the Census, Census 2000
I have analyzed the San Diego County and Highway 78 Corridor submarkets with
regard to household income levels. According to population household income
information gathered from SANDAG, the San Marcos City 2000 median household
income was $43,522 per year. This is only slightly less than the entire county,
which had a median household income of $47,067. The referenced table lists the
percentage of household income by rank for that of San Diego City and the
county.
Qualifying potential was also considered in ascertaining effective demand.
Assuming a subject pricing level at the average price of the Highway 78
corridor, or $200,000 to $210,000, the required annual household income needed
to qualify for a conventional mortgage would be $44,318 to $46,534. This
reflects an 80% loan-to-value ratio, 6% fixed rate, 30-year mortgage, 2% factor
for insurance and property taxes, and a mortgage-debt ratio of 35% of annual
income. Based on the average household income data for San Marcos, approximately
62% of the households in San Marcos could afford the average price of $200,000
to $210,000.
HOME PURCHASE QUALIFYING CRITERIA
ATTACHED PRODUCT
- ----------------------------------------------------------------------------------------------
Plan Appraised Value ADS(1) Taxes/Other(2) Total(1+2) Debt/Income Income Req.
Low $200,000 $11,511 $4,000 $15,511 35.00% $44,318
High $210,000 $12,087 $4,200 $16,287 35.00% $46,534
- ----------------------------------------------------------------------------------------------
(1) Annual Debt Service based on a 30-year loan at 80% ltv and 6.0%
(2) Taxes and other expenses based on 2% of sale price.
However, these figures do not account for that portion of the population with
sufficient cash or other assets to purchase a home without meeting the income
criteria assumed in this analysis. Some prospective buyers in this submarket
have diverse income and asset sources, including but not limited to the
following: dual wage earners resulting in annual household incomes often in
excess of $75,000; cash windfalls resulting from company stock options and/or
bonuses; and older, more mature buyers with accumulated cash reserves. Further,
move-up or move-down buyers may be moving equity that effectively reduces the
loan amount below the 80% criteria exhibited above. As evidenced by absorption
of similar product in the submarket, there are a reasonable number of
prospective buyers having sufficient purchasing power for housing in this price
range. However, any large upward movement in mortgage interest rates could
substantially reduce the effective demand for product in this price range.
CONCLUSIONS DEMAND
Those factors typically employed to estimate effective demand for housing would
indicate that demand should continue at relatively strong levels. The population
is increasing, employment opportunities are stable, and interest rates are at
reasonable levels. Increases in purchasing power, a result of wage increases and
low interest rates, are now being off-set by substantial increases in home
prices. San Diego continues to be one of the least "affordable" housing markets
in the country, but San Marcos is considered to have a lower threshold of
pricing levels that would allow it to compete in the market. Provided economic
conditions do not deteriorate and/or interest rates do not increase
substantially, demand for the subject product, as a "for sale" project, at
competitive market levels should be good assuming adequate conversion. As noted,
there are no attached project "for sale" in San Marcos. However, a review of
competitive projects along Highway 78 is summarized as follows:
COMPETITIVE PROJECTS
I have summarized all seven attached projects along the Highway 78 corridor. The
sales prices ranged from $155,000 to $326,900. The price per square foot range
was from $155.74 to $226.52. Please note, The Hidden Glen project was a
conversion from a rental project to a "for sale" project.
HIGHWAY 78 PROJECTS
ATTACHED PRODUCT
- -------------------------------------------------------------------------------------------------
Project Units Sold Size Range(sf) Base Price Range $ psf $ psf
- -------------------------------------------------------------------------------------------------
Morgan's Corner 162 51 1,454 to 1,740 $299,900 to $326,900 $206.26 $187.87
The Villas 58 56 1,346 to 1,391 $259,900 to $273,900 $193.09 $196.91
Hidden Glen 30 30 900 to 1,100 $155,000 to $195,000 $172.22 $177.27
Cupertino 64 59 1,380 to 1,601 $282,990 to $314,990 $205.07 $196.75
Alterra 22 11 1,191 to 1,397 $267,990 to $281,990 $225.01 $201.85
Springfield 84 84 1,342 to 1,554 $303,990 to $324,990 $226.52 $209.13
Summit Village 58 28 1,416 to 1,464 $228,000 to $228,000 $161.02 $155.74
SUBJECT PRICING
After a review of the various product types in the subject area, which included
both "spot sales" from MLS and attached projects, it would be reasonable to
conclude an overall price level for the subject units ranging from $150,000 to
$195,000 with an approximately average unit price of $175,000. This reflects
both the average unit size, the quality and condition attributes of a conversion
project, and overall supply and demand factors. This equates to a price per
square foot range of $206.34 to $231.84. The average unit price of $175,000
equates to a price per square foot of $217.12.
ABSORPTION
Referencing the same attached projects, the average cumulative weekly sales rate
for all the projects was 1.96. This equates to a monthly average of 8.49 units
per month. Hidden Glen, which is the one apartment conversion project that was
converted to a "for sale" project, had a monthly absorption of 12. The project
has a total of 30 units and began sales in September 2002 and sold out in
November 2002.
Based on the predominate sales price levels for the subject area, with
appropriate conversion costs for upgrades to the individual units and marketing
efforts, a reasonable absorption period for the subject would be 12 to 15 units
per month. A similar or slightly higher absorption rate is shown based on the
number of units for the project and presales activity during conversion, which
would include some existing "rental" tenants who would opt, and qualify for an
"ownership" unit. This absorption reflects a 10% transfer rate of "rental"
tenants to "ownership" tenants.
CONCLUSIONS
Market conditions and elements of supply and demand support the use of the
subject property for attached housing as conversion project with 264 residential
units is considered good at the proposed pricing levels that can be supported in
the market. As noted, this ranges from $150,000 to $195,000 per unit, with an
average unit price of $175,000, or $217.12 per square foot. The expected
absorption rate is from 12 to 15 units per month.
VALUATION
REFINEMENTS TO BASE VALUE ESTIMATES
Based on my analysis of the market it is typical to charge premiums for 2nd
floor units, location, and parking. However, the base price levels were
projected to include the majority of these premiums.
AGGREGATE RETAIL VALUE
The table on the following page provides a summary of estimated retail values
for the entire subject project, totaling 264 units.
AGGREGATE RETAIL VALUES
MISSION PARK
Room Avg. Size Base Value Total
Plan # of Units Count Sq. Ft. Value (Sq. Ft.) Value
---- ---------- ----- ------- ----- --------- -----
A 120 1 Bd/1 Ba. 647 $150,000 $231.84 $18,000,000
B 60 2 Bd/2 Ba. 928 $190,000 $204.74 $11,400,000
C 84 2 Bd/2 Ba. 945 $200,000 $211.64 $16,800,000
----- -------- -----------
Totals: 264 $175,000 $46,200,000
Premiums and Discounts
- ----------------------
# of Units Average
---------- -------
Floor/Location 0 $0 $0
Vaulted Ceiling 0 $0 $0
Central HVAC 0 $0 $0
Parking 3 $0 $0
----
TOTAL UNITS 264
AGGREGATE RETAIL VALUE $46,200,000
AVERAGE RETAIL VALUE PER UNIT $175,000
Based on the preceding analyses, we have concluded that the aggregate retail
proceeds of the proposed condominiums, if sold to individual buyers are
$46,200,000.
DISCOUNTED CASH FLOW ANALYSIS
The subdivision development approach begins with the aggregate retail proceeds
estimate. Then through a DCF analysis, deductions are taken for various
expenses, (i.e. carrying costs, sales expenses, and expenses for apartment
operation). In addition, revenues for sales of units and rental income are
factored into the model. From, the residual net cash flow to the project is
discounted into an indication of value. This analysis assumes that the complex
and remaining units would be released in a manner consistent with anticipated
market demand.
Average Retail Value: The retail value of each individual home is set
forth previously in this report. The unit values
are averaged for the purpose of this analysis.
While averaging can lead to distortion, the value
differences between the subject units are not
large enough to cause serious distortions. In this
case, averaging is necessary, since it is
impossible to predict when each specific
condominium will sell.
Renovation Costs: Based on a review of other projects that have
converted from apartments to condominiums, a per
unit renovation cost of $15,000, or $3,960,000 is
shown. This is assumed to include indirect costs
associated with conversion. Final cost estimates
pending approvals for conversion may change from
this estimate and should only be used as part of
this consultation to determine feasibility.
Absorption Rate: As shown, an absorption rate of approximately 12
to 15 units per month is used.
Presales: The absorption rate reflects presales of
approximately 25 to 26 units. This is based on 10%
of the existing rental tenant base converting to
an ownership base.
Sales & Marketing
Expense: Estimated at 6% of total sales revenues. This
includes expenses such as commissions,
advertising, escrow and title expense.
General & Administrative: Estimated at 3.0% of retail sales proceeds for the
subject product. This expense is estimated based
on our private survey of developers and lenders.
Taxes & Assessments: Taxes are estimated at 1.1% of the current market
value. The derivation of the assessment rate has
been previously discussed in this report. These
amounts are multiplied by the average remaining
unsold units in each period.
Homeowner's Ass's. Dues: The HOA dues were estimated at $195 per unit per
month. This is consistent with other attached
projects in the Highway 78 corridor. Most projects
surveyed had HOA's ranging from $134 to $195.
Special Assessment: None.
Other Expense: Insurance expense is estimated at $8 per unit,
multiplied by the average unsold inventory each
month. Model operation is estimated to cost $1,500
per month.
Developer's Profit: Not included in the analysis, but is reflected in
the discount rate.
Price & Expense Inflation: Inflation over the sell-off period was included in
the 2nd Year with a 5% escalation.
Discount Rate: A rate of 15.0% is used to discount the net
proceeds from the sale of the units to a present
value. This rate is believed to be sufficient to
attract investment capital to the project,
considering the risk associated with this type of
project and the fact that development profit
wasn't allocated to the project. A sensitivity
analysis is included in the spreadsheet, which
shows the differences in present value assuming
discount rates of 13.00%, 15.00% and 18.00%. The
value indicators are similar, indicating that
these analyses are not highly sensitive to changes
in the discount rate. An all-cash investment is
assumed at these discount rates.
Based on the attached cashflow analyses, the subject would have a present value
range of $32,600,000 to $34,000,000 (rd.). This range is associated with the
different discount rates. The indicated price per unit ranges from $123,485 to
$128,788. This is shown as follows:
Present Value Factor Indicated PV of Cash Flow Value per Unit
- -------------------- ------------------------- --------------
13.00% $34,000,000 $128,788
15.00% $33,450,000 $126,705
18.00% $32,600,000 $123,485
Please note, that the discount between the sum retail value of $46,200,000 and
the mid-point value of $33,450,000 is 27.60%, which is a typical discount
between the sum retail and discounted value.
DISCOUNTED CASH FLOW ANALYSIS
Property Name Mission Park
Location San Marcos, CA
File Number 2003089
Analyst LWD
Monthly Period>>> 0 1 2 3 4 5
Month Ending>>> Mar-03 Apr-03 May-03 Jun-03 Jul-03 Aug-03
- ------------------------------------------------------------------------------------------------------------------------
LOT OR UNIT ANALYSIS
Total Units 264.0 264.0 264.0 264.0 264.0 264.0
Beginning Units Available 264.0 239.0 227.0 215.0 203.0 191.0
Periodic Sales 25.0 12.0 12.0 12.0 12.0 12.0
Ending Units Available 239.0 227.0 215.0 203.0 191.0 179.0
- ------------------------------------------------------------------------------------------------------------------------
SALES REVENUE
Average Home Price $ 175,000 $ 175,000 $ 175,000 $ 175,000 $ 175,000 $ 175,000
Gross Sales Revenue $ 4,375,000 $ 2,100,000 $ 2,100,000 $ 2,100,000 $ 2,100,000 $ 2,100,000
- ------------------------------------------------------------------------------------------------------------------------
EXPENSES
Sales and Marketing (262,500) (126,000) (126,000) (126,000) (126,000) (126,000)
General & Administrative (131,250) (63,000) (63,000) (63,000) (63,000) (63,000)
On and Off-Site Development $0 0 0 0 0 0 0
Direct Building Costs $3,960,000(3,960,000) 0 0 0 0 0
Indirect Building Costs $0 0 0 0 0 0 0
Loan Points - Take Out 0 0 0 0 0 0
Real Estate Taxes 0 (26,364) (24,970) (23,577) (22,183) (20,789)
Special Assessments 0 0 0 0 0 0
Homeowners Association Dues 0 (44,265) (41,925) (39,585) (37,245) (34,905)
Homeowners Subsidy 0 0 0 0 0 0
Insurance (1,912) (1,816) (1,720) (1,624) (1,528) (1,432)
Models (1,500) (1,500) (1,500) (1,500) (1,500) (1,500)
Profit 0 0 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------
Total Expenses ($4,357,162) ($ 262,945) ($ 259,115) ($ 255,286) ($ 251,456) ($ 247,626)
- ------------------------------------------------------------------------------------------------------------------------
NET CASH FLOW - To condos $ 17,838 $ 1,837,055 $ 1,840,885 $ 1,844,714 $ 1,848,544 $ 1,852,374
- ------------------------------------------------------------------------------------------------------------------------
NET CASH FLOW - To project $ 17,838 $ 1,837,055 $ 1,840,885 $ 1,844,714 $ 1,848,544 $ 1,852,374
- ------------------------------------------------------------------------------------------------------------------------
Present Value Factor @ 13.00% 1.000000 0.989283 0.978680 0.968192 0.957815 0.947550
Present Value Factor @ 15.00% 1.000000 0.987654 0.975461 0.963418 0.951524 0.939777
Present Value Factor @ 18.00% 1.000000 0.985222 0.970662 0.956317 0.942184 0.928260
- ------------------------------------------------------------------------------------------------------------------------
Discounted Cash Flow @ 13.00% $ 17,838 $ 1,817,367 $ 1,801,638 $ 1,786,037 $ 1,770,564 $ 1,755,217
Discounted Cash Flow @ 15.00% $ 17,838 $ 1,814,375 $ 1,795,711 $ 1,777,232 $ 1,758,934 $ 1,740,818
Discounted Cash Flow @ 18.00% $ 17,838 $ 1,809,906 $ 1,786,876 $ 1,764,132 $ 1,741,669 $ 1,719,485
- ------------------------------------------------------------------------------------------------------------------------
Indicated Value @ 13.00% $34,023,565 per DU= $ 128,877
Indicated Value @ 15.00% $33,453,548 per DU= $ 126,718
Indicated Value @ 18.00% $32,623,564 per DU= $ 123,574
continued below
Monthly Period>>> 6 7 8 9 10
Month Ending>>> Sep-03 Oct-03 Nov-03 Dec-03 Jan-04
- -------------------------------------------------------------------------------------------------------------
LOT OR UNIT ANALYSIS
Total Units 264.0 264.0 264.0 264.0 264.0
Beginning Units Available 179.0 167.0 155.0 143.0 131.0
Periodic Sales 12.0 12.0 12.0 12.0 12.0
Ending Units Available 167.0 155.0 143.0 131.0 119.0
- -------------------------------------------------------------------------------------------------------------
SALES REVENUE
Average Home Price $ 175,000 $ 175,000 $ 175,000 $ 175,000 $ 175,000
Gross Sales Revenue $ 2,100,000 $ 2,100,000 $ 2,100,000 $ 2,100,000 $ 2,100,000
- -------------------------------------------------------------------------------------------------------------
EXPENSES
Sales and Marketing (126,000) (126,000) (126,000) (126,000) (126,000)
General & Administrative (63,000) (63,000) (63,000) (63,000) (63,000)
On and Off Site Development 0 0 0 0 0
Direct Building Costs 0 0 0 0 0
Indirect Building Costs 0 0 0 0 0
Loan Points - Take Out 0 0 0 0 0
Real Estate Taxes (19,396) (18,002) (16,608) (15,215) (13,821)
Special Assessments 0 0 0 0 0
Homeowners Association Dues (32,565) (30,225) (27,885) (25,545) (23,205)
Homeowners Subsidy 0 0 0 0 0
Insurance (1,336) (1,240) (1,144) (1,048) (952)
Models (1,500) (1,500) (1,500) (1,500) (1,500)
Profit 0 0 0 0 0
- -------------------------------------------------------------------------------------------------------------
Total Expenses ($ 243,797) ($ 239,967) ($ 236,137) ($ 232,308) ($ 228,478)
- -------------------------------------------------------------------------------------------------------------
NET CASH FLOW - To condos $ 1,856,203 $ 1,860,033 $ 1,863,863 $ 1,867,692 $ 1,871,522
- -------------------------------------------------------------------------------------------------------------
NET CASH FLOW - To project $ 1,856,203 $ 1,860,033 $ 1,863,863 $ 1,867,692 $ 1,871,522
- -------------------------------------------------------------------------------------------------------------
Present Value Factor @ 13.00% 0.937395 0.927349 0.917410 0.907578 0.897851
Present Value Factor @ 15.00% 0.928175 0.916716 0.905398 0.894221 0.883181
Present Value Factor @ 18.00% 0.914542 0.901027 0.887711 0.874592 0.861667
- -------------------------------------------------------------------------------------------------------------
Discounted Cash Flow @ 13.00% $ 1,739,996 $ 1,724,899 $ 1,709,927 $ 1,695,077 $ 1,680,349
Discounted Cash Flow @ 15.00% $ 1,722,881 $ 1,705,122 $ 1,687,538 $ 1,670,129 $ 1,652,893
Discounted Cash Flow @ 18.00% $ 1,697,576 $ 1,675,940 $ 1,654,572 $ 1,633,469 $ 1,612,629
- -------------------------------------------------------------------------------------------------------------
Input Assumptions
-----------------
Inflation Est - Value (Yr 1) 5.00% Tax Rate 1.10% Direct Building Costs $3,690,000
Inflation Est - Value (Yrs2+) 5.00% Presales 25 Indirect Building Costs $0
Inflation Estimate - Expenses (Yrs1+) 0.00% Initial Absorption (per Month) 12.00 Construction Period (Months) 0
Inflation Estimate - Real Estate Taxes 0.00% Absorption Period (Months) 20.00 Month Construction Begins 0
Sales and Marketing Expense 6.00% Total Units 264 Profit Rate 0.00%
General & Administrative Expense 3.00% Monthly Ins. per unit $8 Profit Allocation to Sales 100%
Loan Points 0.00% Model Operation per Mo. $1,500 Month Sales Begin 1
Percent Govt. Insured 0.00% Special Assessments/Unit/Mo. $0 No. of Periods/Year 12
Avg. Govt. Loan Percentage 0.00% Homeowner's Dues $195 Discount Rate 1 13.00%
Starting Avg. Home Price $175,000 Homeowner's Subsidy $0 Discount Rate 2 15.00%
Tax Basis per Lot or Unit $126,700 Discount Rate 3 18.00%
Conclusions
- -----------
Concluded Discount Rate 15.00%
PV of Net Cash Flow $33,453,548
Rounded $33,450,000
Value per DU $126,705
Discount from Retail 27.60%
DISCOUNTED CASH FLOW ANALYSIS
Property Name Mission Park
Location San Marcos, CA
File Number 2,003,089
Analyst LWD
Monthly Period>>> 11 12 13 14 15 16
Month Ending>>> Feb-04 Mar-04 Apr-04 May-04 Jun-04 Jul-04
- --------------------------------------------------------------------------------------------------------------------------
LOT OR UNIT ANALYSIS
Total Units 264.0 264.0 264.0 264.0 264.0 264.0
Beginning Units Available 119.0 107.0 95.0 83.0 71.0 59.0
Periodic Sales 12.0 12.0 12.0 12.0 12.0 12.0
Ending Units Available 107.0 95.0 83.0 71.0 59.0 47.0
- --------------------------------------------------------------------------------------------------------------------------
SALES REVENUE
Average Home Price $ 175,000 $ 175,000 $ 183,750 $ 183,750 $ 183,750 $ 183,750
Gross Sales Revenue $ 2,100,000 $ 2,100,000 $ 2,205,000 $ 2,205,000 $ 2,205,000 $ 2,205,000
- --------------------------------------------------------------------------------------------------------------------------
EXPENSES
Sales and Marketing (126,000) (126,000) (132,300) (132,300) (132,300) (132,300)
General & Administrative (63,000) (63,000) (66,150) (66,150) (66,150) (66,150)
Site Development Costs 0 0 0 0 0 0
Direct Building Costs 0 0 0 0 0 0
Indirect Building Costs 0 0 0 0 0 0
Loan Points - Take Out 0 0 0 0 0 0
Real Estate Taxes (12,427) (11,033) (9,640) (8,246) (6,852) (5,459)
Special Assessments 0 0 0 0 0 0
Homeowners Association Dues (20,865) (18,525) (16,185) (13,845) (11,505) (9,165)
Homeowners Subsidy 0 0 0 0 0 0
Insurance (856) (760) (664) (568) (472) (376)
Models (1,500) (1,500) (1,500) (1,500) (1,500) (1,500)
Profit 0 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
Total Expenses ($ 224,648) ($ 220,818) ($ 226,439) ($ 222,609) ($ 218,779) ($ 214,950)
- --------------------------------------------------------------------------------------------------------------------------
NET CASH FLOW - To condos $ 1,875,352 $ 1,879,182 $ 1,978,561 $ 1,982,391 $ 1,986,221 $ 1,990,050
NET CASH FLOW - To project $ 1,875,352 $ 1,879,182 $ 1,978,561 $ 1,982,391 $ 1,986,221 $ 1,990,050
Present Value Factor @ 13.00% 0.888229 0.878710 0.869292 0.859976 0.850759 0.841641
Present Value Factor @ 15.00% 0.872277 0.861509 0.850873 0.840368 0.829993 0.819746
Present Value Factor @ 18.00% 0.848933 0.836387 0.824027 0.811849 0.799852 0.788031
- --------------------------------------------------------------------------------------------------------------------------
Discounted Cash Flow @ 13.00% $ 1,665,742 $ 1,651,255 $ 1,719,948 $ 1,704,808 $ 1,689,796 $ 1,674,909
Discounted Cash Flow @ 15.00% $ 1,635,827 $ 1,618,931 $ 1,683,504 $ 1,665,938 $ 1,648,550 $ 1,631,336
Discounted Cash Flow @ 18.00% $ 1,592,049 $ 1,571,724 $ 1,630,388 $ 1,609,403 $ 1,588,682 $ 1,568,221
- --------------------------------------------------------------------------------------------------------------------------
continued below
Monthly Period>>> 17 18 19 20 21
Month Ending>>> Aug-04 Sep-04 Oct-04 Nov-04 Dec-04
- ---------------------------------------------------------------------------------------------------------
LOT OR UNIT ANALYSIS
Total Units 264.0 264.0 264.0 264.0 264.0
Beginning Units Available 47.0 35.0 23.0 11.0 0.0
Periodic Sales 12.0 12.0 12.0 11.0 0.0
Ending Units Available 35.0 23.0 11.0 0.0 0.0
- --------------------------------------------------------------------------------------------------------------------------
SALES REVENUE
Average Home Price $ 183,750 $ 183,750 $ 183,750 $ 183,750 $ 183,750
Gross Sales Revenue $ 2,205,000 $ 2,205,000 $ 2,205,000 $ 2,021,250 $ 0
- --------------------------------------------------------------------------------------------------------------------------
EXPENSES
Sales and Marketing (132,300) (132,300) (132,300) (121,275) 0
General & Administrative (66,150) (66,150) (66,150) (60,638) 0
Site Development Costs 0 0 0 0 0
Direct Building Costs 0 0 0 0 0
Indirect Building Costs 0 0 0 0 0
Loan Points - Take Out 0 0 0 0 0
Real Estate Taxes (4,065) (2,671) (1,278) 0 0
Special Assessments 0 0 0 0 0
Homeowners Association Dues (6,825) (4,485) (2,145) 0 0
Homeowners Subsidy 0 0 0 0 0
Insurance (280) (184) (88) 0 0
Models (1,500) (1,500) (1,500) (1,500) 0
Profit 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
Total Expenses ($ 211,120) ($ 207,290) ($ 203,461) ($ 183,413) $ 0
- --------------------------------------------------------------------------------------------------------------------------
NET CASH FLOW - To condos $ 1,993,880 $ 1,997,710 $ 2,001,539 $ 1,837,838 $ 0
NET CASH FLOW - To project $ 1,993,880 $ 1,997,710 $ 2,001,539 $ 1,837,838 $ 0
- --------------------------------------------------------------------------------------------------------------------------
Present Value Factor @ 13.00% 0.832621 0.823698 0.814870 0.806137 0.797498
Present Value Factor @ 15.00% 0.809626 0.799631 0.789759 0.780009 0.770379
Present Value Factor @ 18.00% 0.776385 0.764912 0.753607 0.742470 0.731498
- --------------------------------------------------------------------------------------------------------------------------
Discounted Cash Flow @ 13.00% $ 1,660,147 $ 1,645,510 $ 1,630,995 $ 1,481,549 $ 0
Discounted Cash Flow @ 15.00% $ 1,614,297 $ 1,597,430 $ 1,580,733 $ 1,433,529 $ 0
Discounted Cash Flow @ 18.00% $ 1,548,019 $ 1,528,071 $ 1,508,375 $ 1,364,540 $ 0
- --------------------------------------------------------------------------------------------------------------------------
CONCLUSIONS OF MARKET STUDY
Comparing the subject project as a "rental" project vs. a "for sale" project, it
is clear that the subject has a higher value as a "for sale" condominium
project. The realized increase from the "rental value" of $25,400,000 vs. the
"for sale" value of $33,450,000 is 31.69%, or a total increase of $8,050,000.
This conclusion reflects the assumptions of this market study based on a
preliminary research of the market for both product types. These conclusions may
change based on final approvals, detailed cost estimates, and changes in the
economy.
ANALYST QUALIFICATIONS
QUALIFICATIONS OF
LANCE W. DORE, MAI
CERTIFIED GENERAL REAL ESTATE APPRAISER
PRESENT Managing Director - Integra Realty Resources - San Diego
EMPLOYMENT: San Diego Office: 2250 Third Avenue, San Diego, CA 92101
PAST Director - Dore & Curry, Inc., Real Estate Consultants
EMPLOYMENT: (1/90-12/96) 1010 Turquoise Street, Suite 215, San Diego, CA
92109
Principal - L.W. Dore, Real Estate Consultants (4/88-1/90)
4490 Fanuel Street, Ste. 217, San Diego, CA 92109
Senior Appraiser - The Lawrence Group (5/84-4/88)
2010 Jimmy Durante Blvd., Ste. 220, Del Mar, CA 92014
Appraiser - Bank of America (4/83-5/84)
Escondido, CA
EDUCATION: San Diego State University, San Diego, CA
Bachelor of Science - Real Estate (December 1982)
PROFESSIONAL Courses Taken:
EDUCATION: --------------
(AIREA) - Appraisal Principles 1-Al
(AIREA) - Basic Valuation Procedures l-A2
(AIREA) - Income Capitalization Theory lB-A
(AIREA) - Income Capitalization Theory lB-B
(IREA) - Case Studies in R.E. Valuation 2-1
(AIREA) - Report Writing Course 2-2
(AIREA) - Computer Assisted Investment Analysis
(AI) - Condemnation Appraising - 710
(AI) - Standards of Professional Practice - 430
Professional Conferences:
-------------------------
(AIREA) - Appraising Commercial Property
(AIREA) - Income Investment Analysis
(SREA) - After Tax Analysis
(AIREA) - Hotel and Motel Valuation
(AIREA) - Appraisal Litigation
(AIREA) - Leasehold Valuation Analysis I
(UCSD) - Toxic and Hazardous Waste Issues in R.E. Development
(ASFMRA)- Mineral Rights Valuation
(AI) - Course 110 Instructor's Seminar
(Private)- Argus Workshop
(AI) - Understanding Limited Appraisal - General
(AI) - Fair Lending and the Appraiser
(AI) - Federal and State Laws and Regulations
(IRWA) - Condemnation Seminar
QUALIFICATIONS OF LANCE W. DORE, MAI (CONT'D)
Professional Conferences (Cont'd):
(AI) - Hospital and Skilled Nursing Facilities
(AI) - Environmental Trends in Real Estate
(AI) - Operating Expenses in Real Estate
SPEAKER: Appraisal Institute - National Seminar Series
Land Valuation and Environmental Issues
The Trust for Public Land
NCCP - Natural Communities Conservation Plan
Pan Pacific Conference - Valuation of Submerged Lands
PUBLICATION: Appraisal Journal - July 2001 - "Valuation of Submerged Lands"
INSTRUCTOR: Appraisal Institute
Appraisal Principles - Course 110
Appraisal Procedures - Course 120
Standards of Professional Appraisal Practice - Course 410
Dynamics of Office Building Valuation
New Industrial Valuation
The Appraisal Education Foundation
Principles of Real Estate Appraisal
Income Capitalization
Miramar & Mira Costa Community College (Limited Credentials in
R.E.)
Appraisal Principles
Pan Pacific Congress - Auckland, New Zealand
Speaker on Valuation of Submerged Land
PROPERTY TYPES Single-Family Residences
APPRAISED: Condominium Units/Planned Unit Development Units
Residential Income Properties
Residential Subdivisions
Senior Housing: Congregate Care, Group Homes, Residential Care
Commercial Shopping Centers / Power Centers
Office Buildings / Office Parks
Industrial Buildings / Industrial Parks
Research & Development / Scientific Research Properties
Mixed-Use Properties
Vacant Land (raw & mapped)
Finished Land (commercial, industrial, residential, etc.)
Special Purpose Properties including Auto Service/Wrecking
Facilities, Equestrian Facilities, Restaurants, Golf Courses
Appraisal Reviews and Marketability & Feasibility Studies
QUALIFICATIONS OF LANCE W. DORE, MAI (Cont'd)
AFFILIATIONS: Member of the Appraisal Institute, MAI (No. 8471)
Designated 1990
California Certified General Real Estate Appraiser
OREA No. AG002464 - expires October 1, 2004
Appraisal Institute - San Diego Chapter
Member of Board of Directors and Chapter President - 2000
Member of Board of Directors and Chapter Vice-President - 1999
Member of Board of Directors and Chapter Secretary - 1998
Member of Board of Directors and Chapter Treasurer - 1997
Education Committee Chairperson - 1996
Candidate Guidance Chairperson - 1995
Admissions Committee Chairperson - 1994
Admissions Committee - 1992-1995
Appraisal Institute - National
Member of the International Relations Committee
Ethics and Standards Committee
California Licensed Real Estate Broker
San Diego Board of Realtors - Realtor Member
International Right of Way Association (IR/WA)
Member - San Diego Chapter No. 11
QUALIFIED United States Federal Bankruptcy Court, San Diego District
EXPERT WITNESS: San Diego County District, California State Superior Court
Superior Court, San Bernardino County