THE SAMPPALA GROUP
LIMITED APPRAISAL-RESTRICTED APPRAISAL REPORT
APPRAISAL OF:
Mission Park Apartments
(221 Woodland Parkway, San Marcos, CA 92069)
Shadowridge Meadows Apartments
(1515 South Melrose Drive, Vista CA)
PREPARED FOR:
Mr. David Maurer
Income Growth Management, Inc.
11300 Sorrento Valley Road, Suite 108
San Diego, CA 92121
PREPARED BY:
James Naughton, Jr., MAI
State Certified General Real Estate Appraiser
Certificate # AG006748
DATE OF VALUATION:
May 8, 2002
4895 Savannah Street
San Diego, CA 92110-3824
THE SAMPPALA GROUP
Limited Appraisal-Restricted Appraisal Report
May 10,2002
Ref. No.02-005
Mr. David Maurer
Income Growth Management, Inc.
11300 Sorrento Valley Road, Suite 108
San Diego, CA 92121
RE: Mission Park Apartments (221 Woodland Parkway, San Marcos, CA 92069)
Shadowridge Meadows Apartments (1515 South Melrose Drive, Vista CA 92083
Dear Mr. Maurer:
As requested, we are submitting the following information as a Limited
Appraisal-Restricted Appraisal Report. This appraisal may be considered limited
because it relies primarily on one approach to value (the Income Capitalization
Approach, with support from the Sales Comparison Approach) and is a restricted
report with most supporting data retained in our file. However, based on our
extensive experience in appraising apartment properties and our familiarity with
the subject properties, we are confident that the values reported are a reliable
indicator of value for your "Factual Basis of Value".
A Restricted Report cannot be fully understood without the additional
information in the work file of the appraiser. This information is not presented
in report form due to time constraints in creating a detailed report and also
considering the function of the appraisal.
This is a Restricted Appraisal Report that is intended to comply with the
reporting requirements set forth under the Standards Rule 2-2c of the Uniform
Standards of Professional Practice for a Restricted Appraisal Report. As such,
it does not present discussions of the data, reasoning, and analyses that were
used in the appraisal process to develop the appraiser's opinion of value.
Supporting documentation concerning the data, reasoning, and analyses are
retained in the appraiser's file. The depth of discussion contained in this
report is specific to the needs of the client and for the intended use stated
below. The appraiser is not responsible for the unauthorized use of this report.
PURPOSE OF THE APPRAISAL: To estimate the market value of the subject property
as defined in Standards of Professional Appraisal Practice of the Appraisal
Institute (The Dictionary of Real Estate Appraisal, 3rd Edition). See
definitions attached.
INTENDED USE and USER OF REPORT: For the sole use by the client, Mr. David
Maurer, for internal use. This appraisal is to provide a "Factual Basis of
Value" for the client. The client is known to be knowledgeable in real estate
matters including property values and the use of a Restricted Report is
appropriate for the client's needs.
4895 SAVANNAH STREET, o SAN DIEGO, CA o 92110-3824
PHONE: 619/275-0967 o FAX: 619/275-5200
-2- MAY 10,2002
INTEREST VALUED: The property interests include Fee Simple ownership of the
subject property. The properties are rental apartment units that use short-term
rental agreements and do not create any specific leasehold/leased fee
distinctions.
EFFECTIVE DATE OF VALUE/DATE OF REPORT: May 8, 2002/ May 10, 2002.
ESTIMATED EXPOSURE TIME: Average exposure time for apartments of the size and
quality of the subjects is estimated to vary from 3 to 6 months, based on sales
comparables.
APPRAISAL DEVELOPMENT AND REPORTING PROCESS: The appraisers are very familiar
with the subject properties since we have completed appraisals or appraisal
reviews of each of the properties in the past, In preparing this appraisal, the
appraisers inspected the subject properties in May 2000 (Exterior inspection
only) and analyzed the financial and physical details of the subject properties,
including full year operations for the year 2001 and rent roll dated April 19,
2002.
Brief synopsis of due diligence steps:
o Review previous appraisal work.
o Review current rent roll and talk to rental office.
o Conduct rental survey.
o Review income and expense for 2001.
o Set up proforma for income and expense.
o Compare rent roll market and actual rent.
o Review expenses and compare to comps.
o Compare to previous work.
o Collect and analyze market data.
o Review market comparisons.
o Analyze market overall rates, expenses and other units of comparison.
o Look for market trends. (Articles and comps statistics).
The value estimate for apartment properties of the size and quality of the
subjects tend to rely on the Income Capitalization Approach with some
consideration of the Sales Comparison Approach. The appraiser did not complete a
Cost Approach to value since this approach is not utilized by typical buyers and
sellers to establish values and the results of the Cost Approach are generally
unreliable due to the lack of good land sale data and difficulty in estimating
the various forms of depreciation.
For the Income Approach the appraisers have reviewed the most recent operating
results (Income and Expenses) as well as a current rent roll and rental survey
of the market competition. Based on the historical operating history of the
subject and other information available to the appraisers, we have been able to
develop a reliable income/expense statement for the subject properties. The net
income from these estimates is processed into a value estimate by the Direct
Capitalization since there is sufficient overall rate data from comparable
sales.
THE SAMPPALA GROUP
-3- MAY 1O,2002
The appraisers processed and analyzed approximately 22 sales of apartment
complexes in San Diego County that met the following criteria: built since 1980,
80 units or more and recording date from 1/1/01 to present. Within this sample
is a wide range of properties and we studied eleven specific sales in North San
Diego County that share similar market characteristics with the two subject
properties. No offer to sell properties meeting the basic search criteria was
found using a typical Internet based service (Loopnet). These sales provide rent
levels, expense comparisons, gross rent multipliers and capitalization rates in
addition on to the price, which is compared per unit, per room and per square
foot.
The market conditions for investment properties similar to the subject has
become very strong with vacancies decreasing and values improving. A recent
report of rental trends for San Diego County as of March 2002 cites a 5.8
percent increase in average rents within the last year and an overall vacancy
factor of 2.07 percent (1.94% in North County).
This Restricted Appraisal Report sets forth only the appraiser's conclusions.
Supporting documentation is retained in the appraiser's file. We have attached
brief summary information.
Departures from Standard 1 of USPAP include the following:
Standards Rule 1-3
(a) identify and analyze the effect on use and value of existing land use
regulations, reasonably probable modifications of such land use regulations,
economic supply and demand, the physical adaptability of the real estate, and
market area trends; and
(b) develop an opinion of the highest and best use of the real estate.
Standards Rule 1-4
In developing a real property appraisal, an appraiser must collect, verify, and
analyze all information applicable to the appraisal problem, given the scope of
work identified in accordance with Standards Rule 1-2(f).
(a) When a sales comparison approach is applicable, an appraiser must analyze
such comparable sales data as are available to indicate a value conclusion.
(b) When a cost approach is applicable, an appraiser must:
(i) develop an opinion of site value by an appropriate appraisal method or
technique;
(ii) analyze such comparable cost data as are available to estimate the cost new
of the improvements (if any); and
(iii) analyze such comparable data as are available to estimate the difference
between the cost new and the present worth of the improvements (accrued
depreciation).
(c) When an income approach is applicable, an appraiser must:
(i) analyze such comparable rental data as are available and/or the potential
earnings capacity of the property to estimate the gross income potential of the
property;
(ii) analyze such comparable operating expense data as are available to estimate
the operating expenses of the property;
(iii) analyze such comparable data as are available to estimate rates of
capitalization and/or rates of discount; and
(iv) base projections of future rent and/or income potential and expenses on
reasonably clear and appropriate evidence.
(f) An appraiser must analyze the effect on value, if any, of anticipated public
or private improvements, located on or off the site, to the extent that market
actions reflect such anticipated improvements as of the effective appraisal
date.
(g) An appraiser must analyze the effect on value of any personal property,
trade fixtures, or intangible items that are not real property but are included
in the appraisal.
The departures stated above do not affect the credibility of the concluded
values for the intended use. Although the Cost Approach is not developed, it is
not a typical method used by
THE SAMPPALA GROUP
-4- MAY 1O,2002
investors in existing apartments. The other items mentioned above were
considered in earlier appraisals but are not reported in detail.
REAL ESTATE APPRAISED: Mission Park Apartments is a 264 unit apartment complex
at 221 Woodland Parkway, San Marcos, CA. This is a modern apartment built in two
phases, with 120 one-bedroom units and 144 two-bedroom units. Assessor Parcel
Number is 220-233-10,11.
Shadowridge Meadows is a 184 unit apartment complex at 1515 South Melrose Drive,
Vista, CA. This modern complex has 114 two-bedroom and 70 three-bedroom units
and has 132 garages as well as carports and open parking. Assessor Parcel Number
is 169-011-05.
PRESENT USE and HIGHEST AND BEST USE: The subject properties are operating
successfully as multiple residential apartments and the Highest and Best Use is
concluded to be the same use. The appraiser has not analyzed the potential of
conversion to for-sale units.
CONCLUDED VALUES: We have concluded value estimates for the individual apartment
properties with a date of value of August 1, 2000 as follows.
Mission Park equals $23,800,000.
Shadowridge Meadows equals $19,000,000.
As previously mentioned, this report is restricted for the sole use of the
client and is intended to present the conclusions of our appraisal without the
supporting data.
Thank you for this opportunity to provide appraisal services.
Respectfully submitted,
/S/ James Naughton, Jr.
- ------------------------
James Naughton, Jr., MAI
State Certified General Real Estate Appraiser
Certificate #AG006748
THE SAMPPALA GROUP
-5- MAY 1O,2002
CERTIFICATION
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 no personal interest 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
the development or reporting of a predetermined value or direction In
value that favors the cause of the client, the amount of the value
opinion, the attainment of a stipulated result, or the occurrence of a
subsequent event directly related to the Intended use of this
appraisal.
7. my analyses, opinions, and conclusions were developed, and this report
has been prepared, In conformity with the Uniform Standards of
Professional Appraisal Practice and the Code of Ethics of the
Appraisal Institute.
8. The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
9. I have made a personal inspection of the property that is the subject
of this report.
10. no one except co-signers of the report provided significant
professional assistance to the person signing this report.
11. The undersigned has the necessary training and experience to complete
this appraisal assignment in a competent manner.
12. as of the date of this report, I, James Naughton, Jr., MAI, have
completed the requirements under the continuing education program of
the Appraisal Institute.
/S/ James Naughton, Jr.
- ------------------------
James Naughton, Jr., MAI
State Certified Real Estate Appraiser
Certificate #AG006748
THE SAMPPALA GROUP
-6- MAY 1O,2002
LIMITING CONDITIONS AND ASSUMPTIONS
Standards Rule ("S.R.") 2-1 of the Uniform Standards of Professional Appraisal
Practice (USPAP) requires that the appraiser "clearly and accurately disclose
any extraordinary assumptions or limiting conditions that directly affects the
appraisal and indicates its impact on value." In compliance with this rule and
for proper interpretation of the report, both general and extraordinary
assumptions and limiting conditions are outlined in the following paragraphs.
1. This is a Restricted Appraisal Report which is intended to comply with the
reporting requirements set forth under Standard Rule 2-2(c) of the Uniform
Standards of Professional Appraisal Practice for a Summary Appraisal
Report. As such, it might not include full discussions of the data,
reasoning, and analyses that were used in the appraisal process to develop
the appraiser's opinion of value. Supporting documentation concerning the
data, reasoning, and analyses is retained in the appraiser's file. The
information contained in this report is specific to the needs of the client
and for the intended use stated in this report. The appraiser is not
responsible for unauthorized use of this report.
2. The appraiser assumes no responsibility for economic or physical factors
that may affect or alter the opinions in this report if said economic,
physical or demographic factors were not present as of the letter of
transmittal accompanying this report. The appraiser is not obligated to
predict future political or social trends.
3. The conclusions and opinions expressed in this report apply to the date of
value set forth in the letter of transmittal accompanying this report. The
dollar amount of any value opinion or conclusion rendered or expressed in
this report is based upon the purchasing power of the American dollar
existing on the date of value.
4. In preparing this report, the appraiser was required to rely on information
furnished by other individuals or found in previously existing records
and/or documents. Unless otherwise indicated, such information is presumed
to be reliable. However, no warranty, either expressed or implied, is given
by the appraiser for the accuracy of such information and the appraiser
assumes no responsibility for information relied upon that later is found
to have been inaccurate. The appraiser reserves the right to make such
adjustments to the analyses, opinions and conclusions set forth in this
report as may be required by consideration of additional data or more
reliable data that may become available.
5. No opinion is intended to be expressed on matters that require legal
expertise or specialized investigation or knowledge beyond that ordinarily
employed by real estate appraisers, although such matters may be discussed
in the report. Also, no liability is assumed on account of matters of a
legal nature affecting this property, such as title defects, liens,
encroachments, overlapping boundaries, etc.
6. No opinion as to title is rendered. Data on ownership and the legal
description were obtained from sources generally considered reliable. Title
is assumed to be marketable and free and clear of all liens and
encumbrances, easements and restrictions except those specifically
discussed in the report. The property is appraised assuming it to be under
responsible ownership and competent management and available for its
Highest and Best Use.
7. The appraiser has made no engineering survey. Except as specifically
stated, data relative to size and area were taken from sources considered
reliable and no encroachment of real property improvements is assumed to
exist.
THE SAMPPALA GROUP
-7- MAY 1O, 2002
8. Maps, photos, plats, sketches, floor plans and other exhibits are included
for illustration only, to assist the reader in visualizing the property.
The appraiser has made no survey of the property. Approximate dimensions
may be shown, but exhibits should not be considered as surveys or relied
upon for any other purpose.
9. No opinion is expressed as to the value of subsurface oil, gas or mineral
rights and the property is not subject to surface entry for the exploration
or removal of such materials except as is expressly stated.
10. Any value estimates provided in the report apply to the entire property,
and any proration or division of the total into fractional interests will
invalidate the value estimate, unless such proration or division of
interests has been set forth in the report.
11. The distribution, if any, of the total valuation in this report between
land and improvements applies only under the stated program of utilization.
The separate allocations for land and for buildings must not be used in
conjunction with any other appraisal and are invalid if so used.
12. All mortgages, liens, encumbrances, leases and servitudes have been
disregarded unless so specified within this report. Title to the property
appraised is assumed to be marketable and free of encumbrances.
13. Possession of this report, or any copy thereof, does not carry with it the
right of publication. This report may not be used for any purpose by anyone
but the applicant, without the previous written consent of the appraiser,
and in any event, only in its entirety.
14. The appraiser assumes that there are no hidden or unapparent conditions of
the property, subsoil, terrain or structures, which would render it more or
less valuable. The appraiser assumes no responsibility for such conditions,
or for engineering which might be required to discover such factors.
15. The appraiser is not qualified to detect hazardous waste and/or toxic
materials. Any comment by the appraiser that might suggest the possibility
of the presence of such substances would not be taken as confirmation of
the presence of hazardous waste and/or toxic materials. Such determination
would require investigation by a qualified expert in the field of
environmental assessment. The presence of substances such as asbestos,
urea-formaldehyde foam insulation, or other potentially hazardous materials
may affect the value of the property. The appraiser's value estimate is
predicated on the assumption that there is such material on or in the
property that would cause a loss in value unless otherwise stated in this
report. No responsibility would cause a loss in value unless otherwise
stated in this report. No responsibility is assumed for any environmental
conditions or for any expertise or engineering knowledge required to
discover them. The appraiser's descriptions and resulting comments are the
result of the routine observations made during the appraisal process.
Unless otherwise stated, this report assumes the subject property is in
compliance with all federal, state and local environmental laws,
regulations and rules.
16. Since earthquakes are common in the area, no opinion is offered regarding
their possible effect on individual properties, and no responsibility for
possible effects is assumed, unless detailed geologic reports are made
available.
17. An accessibility survey and/or analysis to determine compliance with state
and federal regulations (ADA compliance, Americans with Disabilities Act)
is beyond the scope of the appraiser's expertise and has not been
conducted.
18. The owners, his agent(s) or assigns are assumed to have represented the
property accurately and correctly and have not withheld information
pertinent to this report or its value conclusion
19. It is assumed that all applicable zoning and use regulations are complied
with, unless a non-conformity has been stated, defined and considered in
the appraisal report. It is
THE SAMPPALA GROUP
-8- MAY 10,2002
assumed that all required licenses, consent or other legislative or
administrative authority from any local, state, or national governmental 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.
20. The appraiser assumes that items of public record pertinent to the property
are correct and that the land area (as listed by the Assessor's Office) is
accurate. This land area was utilized as the total land area throughout
this report.
21. Valuation does not include any value for personal property or chattel items
except for refrigerators that are typically included.
THE SAMPPALA GROUP
-9- MAY 10, 2002
DEFINITIONS OF SIGNIFICANT TERMS
market value.
a. "The fair market value of the property taken is the highest price on the date
of valuation that would be agreed to by a seller being willing to sell but under
no particular or urgent necessity for so doing, nor obligated to sell, and a
buyer, being ready, willing, and able to buy under no particular necessity for
so doing, each dealing with the other with full knowledge of all uses and
purposes for which the property is reasonably adaptable and available."
b. "The fair market value of the property taken for which there is no relevant
market is its value on the date of valuation as determined by any method of
valuation that is just and equitable."
References: The Dictionary of Real Estate Appraisal, 3rd Edition, 1993
fee simple estate. Absolute ownership unencumbered by any other interest or
estate, subject only to the limitations imposed by the governmental powers of
taxation, eminent domain, police power, and escheat.
leased fee estate. An ownership interest held by a landlord with the rights of
use and occupancy conveyed by lease to others. The rights of the lessor (the
leased fee owner) and the leased fee are specified by contract terms contained
within the lease.
leasehold estate. The interest held by the lessee (the tenant or renter) through
a lease conveying the rights of use and occupancy for a stated term under
certain conditions.
highest and best use. The reasonably probable and legal use of vacant land or an
improved property, which is physically possible, appropriately supported,
financially feasible, and that results in the highest value. The four criteria
the Highest and Best Use must meet are legal permissibility, physical
possibility, financial feasibility and maximum profitability.
THE SAMPPALA GROUP