COMPLETE APPRAISAL OF
REAL PROPERTY
The Cascade Apartments
3441 SW Burlingame Road
Topeka, Shawnee County, Kansas 66611
IN A RESTRICTED APPRAISAL REPORT
As of 4/16/04 Prepared For:
SPECS, Inc.
4200 Blue Ridge Boulevard, Suite LH-06
Kansas City, Missouri 64133
Prepared By:
Cushman & Wakefield of Colorado, Inc.
Valuation Services, Advisory Group
1670 Broadway, Suite 3400
Denver, CO 80202-4801
C&W File 10: 2004-51001-9059
Cushman & Wakefield
Cushman & Wakefield of Illinois, Inc.
455 North Cityfront Plaza, Suite 2800
Chicago, IL 60611
312.470.1817 Tel
312.470.2317 Fax
randal_dawson@cushwake.com
April 29, 2004
Mr. Jim Hoyt President SPECS, Inc.
4200 Blue Ridge Boulevard, Suite LH-06 Kansas City,
Missouri 64133
Re: Complete Appraisal of Real Property
In a Restricted Report
The Cascade Apartments
3441 SW Burlingame Road
Topeka, Shawnee County, Kansas 66611
C&W File ID: 2004-51001-9059
Dear Mr. Hoyt:
In fulfillment of our agreement as outlined in the Letter of Engagement, we are
pleased to transmit our complete appraisal report on the property referenced
above.
The value opinion reported below is qualified by certain assumptions, limiting
conditions, certifications, and definitions, which are set forth in the report.
We particularly call your attention to the following extraordinary assumptions
and hypothetical conditions:
Extraordinary Assumptions: Our conversations with the maintenance supervisor
indicated that the subject property experienced soil settlement in some of the
concrete stairs and carports. We did not receive a copy of structural tests and
we assume throughout this analysis that there are no hidden or unapparent
conditions of the Property, subsoil or structures that render the Property more
or less valuable (no responsibility is assumed for such conditions or for
arranging for engineering studies that may be required to discover them).
Hypothetical Conditions: This appraisal employs no hypothetical conditions.
Mr. Jim Hoyt
Specs, Inc.
April 29, 2004
Page 2
This report was prepared for SPECS, Inc., and is intended only for their
specified use. It may be distributed to the client's attorneys, accountants,
advisors. investors, lenders, potential mortgage participants and rating
agencies. It may not be distributed to or relied upon by other persons or
entities without written permission of Cushman & Wakefield of Colorado, Inc.
This appraisal report has been prepared in accordance with our interpretation of
FIRREA, your institution's guidelines and requirements, the regulations of OCC,
Fannie Mae Multifamily Delegated Underwriting guidelines and the Uniform
Standards of Professional Appraisal Practice (USPAP) including the competency
provision.
This is a Restricted Use Appraisal Report which is intended to comply with the
reporting requirements set forth under Standards Rule 2-2(c) of the Uniform
Standards of Professional Appraisal Practice for a Restricted Use Appraisal
Report. As such, it represents no 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 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 unauthorized use of this
report.
The property was inspected by and the report was prepared by Arod B. Javier
under the supervision of Guy DiRienzo, MAL
This appraisal employs the Sales Comparison Approach and the Income
Capitalization Approach. Based on our analysis and knowledge of the subject
property type and relevant investor profiles, it is our opinion that these
approaches would be considered applicable and/or necessary for market
participants. The subject's age makes it difficult to accurately form an opinion
of depreciation and tends to make the Cost Approach unreliable. Investors do not
typically rely on the Cost Approach when purchasing a property such as the
subject of this report. Therefore, we have not utilized the Cost Approach to
develop an opinion of market value.
Based on our Complete Appraisal as defined by the Uniform Standards of
Professional Appraisal Practice, we have developed an opinion that the market
value of the Fee Simple estate, subject to short term leases, of the referenced
property, subject to the assumptions and limiting conditions, certifications,
extraordinary and hypothetical conditions, if any, and definitions, "as-is" on
April 16, 2004 is:
TWO MILLION EIGHT HUNDRED THOUSAND DOLLARS
$2,800,000
Mr. Jim Hoyt
Specs, Inc.
April 29,2004
Page 3
Based on recent market transactions, as well as discussions with market
participants, a sale of the subject property at the above-stated opinion of
market value would have required an exposure time of approximately under twelve
(under 12 months) months. Furthermore, a marketing period of approximately under
twelve (under 12 months) months is currently warranted for the subject property.
This letter is invalid as an opinion of value if detached from the report, which
contains the text, exhibits, and Addenda.
Respectfully submitted,
CUSHMAN & WAKEFIELD OF COLROADO, INC.
/S/ AROD B. JAVIER
- -------------------
Arod B. Javier
Associate Appraiser
arodjavier@cushwake.com
303-813-6493 Office Direct
303-813-6499 Fax
/S/ GUY DIRIENZO
- -----------------
Guy DiRienzo, MAI
Managing Director
Kansas Certified General Appraiser
License No. G-1420
guy _dirienzo@cushwake.com
303-813-6443 Office Direct
303-813-6499 Fax
SUMMARY OF SALIENT FACTS
Common Property Name: The Cascade Apartments
Location: 3441 SW Burlingame Road
Topeka, Shawnee County, Kansas 66611
The site is located at the southwest corner of
Burlingame Road and 34th Street, just north of
Interstate 470.
Property Description: The property consists of a 10-building, 2
story garden apartment community containing 86
units on a 5.58-acre parcel of land.
Assessor's Parcel Number: 1461303002105
Interest Appraised: Fee Simple Estate, subject to short term
leases,
Date of Value: April 16, 2004
Forecast Date of Stabilization: May 1, 2004
Date of Inspection: April 16, 2004
Ownership: Cascade Joint Venture LP
Occupancy: Current physical occupancy is 87.21 percent,
with 75 occupied units and 11 vacant units.
Current Property Taxes
Total Assessment: $3,208,000
2003 Property Taxes: $52,060
Highest and Best Use
If Vacant: Investment property development to the highest
density possible
As Improved: As it is currently employed
Site & Improvements
Zoning: PUD - Multi-Family
Land Area: 5.58 gross acres (5.58 net)
243,065 gross square feet (243,065 net)
Number of Units: 86
Number of Stories: 2
Number of Buildings: 10
Year Built: 1973
Type of Construction: Wood stud wall construction
Net Building Area: 109,088
Parking: 172 spaces (2.00:Unit). This is a typical
parking ratio.
SUMMARY OF SALIENT FACTS
INDICATED AS IS VALUE
Rent Loss:
Capital Improvements $66,250
Sales Comparison Approach:
Indicated Value: $2,800,000
Per Unit: $32.558
Per Square Foot: $25.67
Income Capitalization Approach
Discounted Cash Flow
Projection Period: 11 years
Holding Period: 10 years
Terminal Capitalization Rate: 10.25%
Internal Rate of Return: 11.00%
Indicated Value: $2,700,000
Per Unit: $31,395
Per Square Foot: $24.75
Direct Capitalization
Net Operating Income: $285,909
Capitalization Rate: 10.00%
Indicated Value: $2,800,000
Per Unit: $32,475
Per Square Foot: $25.60
Reconciled Income Capitalization
Approach Value: $2,800,000
Per Unit: $32,558
Per Square Foot: $25.67
FINAL VALUE CONCLUSION $2,800,000
Per Unit: $32,558
Per Square Foot: $25.67
Implied Capitalization Rate: 10.21%
Exposure Time: under 12 months
Marketing Time: under 12 months
Extraordinary Assumptions and Hypothetical Conditions
Extraordinary Assumptions
An extraordinary assumption is defined by the Uniform Standards of Professional
Appraisal Practice (2002 Edition, The Appraisal Foundation, page 3) as "an
assumption, directly related to a specific assignment, which, if found to be
false, could alter the appraiser's opinions or conclusions. Extraordinary
assumptions presume as fact otherwise uncertain information about physical,
legal or economic characteristics of the subject property; or about conditions
external to the property, such as market conditions or trends; or about the
integrity of data used in an analysis".
Our conversations with the maintenance supervisor indicated that the subject
property experienced soil settlement in some of the concrete stairs and
carports. We did not receive a copy of structural tests and we assume throughout
this analysis that there are no hidden or unapparent conditions of the Property,
subsoil or structures that render the Property more or less valuable (no
responsibility is assumed for such conditions or for arranging for engineering
studies that may be required to discover them).
Hypothetical Conditions
A hypothetical condition is defined by the Uniform Standards of Professional
Appraisal Practice (2002 Edition, The Appraisal Foundation, page 3) as "that
which is contrary to what exists but is supposed for the purpose of analysis.
Hypothetical conditions assume conditions contrary to known facts about
physical, legal, or economic characteristics of the subject property; or about
conditions external to the property, such as market conditions or trends; or
about the integrity of data used in an analysis".
This appraisal employs no hypothetical conditions.
SUBJECT PHOTOGRAPHS
Graphic Omitted
Exterior view of a typical rental building
Graphic Omitted
Exterior view of a typical rental building with an attached carport
Graphic Omitted
View of a typical carport
Graphic Omitted
View of a typical interior roadway
Graphic Omitted
Exterior view of the office/clubhouse
Graphic Omitted
Exterior view of the pool
Graphic Omitted
Interior view of a typical vacant unit
Graphic Omitted
Interior view of a typical occupied unit
Graphic Omitted
View of the storage units
Graphic Omitted
View of a typical laundry room
Graphic Omitted
South view along SW Burlingame Road, subject to the right
Graphic Omitted
North view along SW Burlingame Road, subject to the left
TABLE OF CONTENTS
INTR0DUCTION..................................................................1
AREA ANALYSIS.................................................................5
PROPERTY DESCRIPTION..........................................................7
VALUATION PROCESS............................................................13
SALES COMPARISON APPROACH....................................................15
INCOME CAPITALIZATION APPROACH ..............................................21
RECONCILIATION AND FINAL VALUE OPINION.......................................29
ASSUMPTIONS AND LIMITING CONDITIONS..........................................30
CERTIFICATlON OF APPRAISAL...................................................33
ADDENDA......................................................................34
INTRODUCTION
Identification of Property
Common Property Name: The Cascade Apartments
Location: 3441 SW Burlingame Road
Topeka, Shawnee County, Kansas 66611
The site is located at the southwest corner
of Burlingame Road and 34th Street, just
north of Interstate 470.
Property Description: The property consists of a 31 year old,
10-building, 2-story garden apartment
complex containing 86 units on a 5.58
acre site.
Assessor's Parcel Number: 1461303002105
Property Ownership and Recent History
Current Ownership: Cascade Joint Venture LP
Sale History: The property has not transferred within
the past three years to the best of our
knowledge.
Current Disposition: To the best of our knowledge, the
property is not under contract of sale
nor is it being marketed for sale.
Intended Use and Users of the Appraisal
This appraisal is intended to provide an opinion of the market value of the Fee
Simple interest in the property for the exclusive use of SPECS, Inc. in internal
decision-making. It may be distributed to the client's attorneys, accountants,
advisors, investors, lenders, potential mortgage participants and rating
agencies. All other uses and users are unintended.
Dates of Inspection and Valuation
The value conclusion reported herein is as of April 16, 2004. The property was
inspected on April 16, 2004 by Arod B. Javier. Guy DiRienzo, MAl has reviewed
the report but did not inspect the property.
Property Rights Appraised
Fee Simple Interest
Scope of the Appraisal
This is a complete appraisal presented in a restricted report, intended to
comply with the reporting requirements set forth under the Uniform Standards of
Professional Appraisal Practice (US PAP) for a Restricted Appraisal Report. In
addition, the report was also prepared to conform to the requirements of the
Code of Professional Ethics of the Appraisal Institute and the Financial
Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), Title XI
Regulations.
In preparation of this appraisal, we investigated a wide array of improved sales
in the subject's submarket, analyzed rental data, and considered the input of
buyers, sellers, brokers, property developers and public officials.
Additionally, we investigated the general regional economy as well as the
specifics of the local area of the subject.
The scope of this appraisal required collecting primary and secondary data
relative to the subject property. The depth of the analysis is intended to be
appropriate in relation to the significance of the appraisal issues as presented
herein. The data have been analyzed and confirmed with sources believed to be
reliable, whenever possible, leading to the value conclusions set forth in this
report. In the context of completing this report, we have made a physical
inspection of the subject property and the comparables. The valuation process
involved utilizing market-derived and supported techniques and procedures
considered appropriate to the assignment.
This appraisal employs the Sales Comparison Approach and the Income
Capitalization Approach. Based on our analysis and knowledge of the subject
property type and relevant investor profiles, it is our opinion that these
approaches would be considered applicable and/or necessary for market
participants. The subject's age makes it difficult to accurately form an opinion
of depreciation and tends to make the Cost Approach unreliable. Investors do not
typically rely on the Cost Approach when purchasing a property such as the
subject of this report. Therefore, we have not utilized the Cost Approach to
develop an opinion of market value.
This is a Restricted Use Appraisal Report which is intended to comply with the
reporting requirements set forth under Standards Rule 2-2(c) of the Uniform
Standards of Professional Appraisal Practice for a Restricted Use Appraisal
Report. As such, it represents no 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 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 unauthorized use of this
report.
Definitions of Value, Interest Appraised and Other Terms
The following definitions of pertinent terms are taken from the Dictionary of
Real Estate Appraisal, Third Edition (1993), published by the Appraisal
Institute, as well as other sources.
Market Value
Market value is one of the central concepts of the appraisal practice. Market
value is differentiated from other types of value in that it is created by the
collective patterns of the market. A current economic definition agreed upon by
agencies that regulate federal financial institutions in the United States of
America follows, taken from the glossary of the Uniform Standards of
Professional Appraisal Practice of The Appraisal Foundation:
The most probable price which a property should bring in a competitive and open
market under all conditions requisite to a fair sale, the buyer and seller, each
acting prudently and knowledgeably, and assuming the price is not affected by
undue stimulus. Implicit in this definition is the consummation of a sale as of
a specified date and the passing of title from seller to buyer under conditions
whereby:
1. Buyer and seller are typically motivated;
2. Both parties are well informed or well advised, and acting in what they
consider their own best interests;
3. A reasonable time is allowed for exposure in the open market; 4. Payment is
made in terms of cash in US dollars or in terms of financial
arrangements comparable thereto; and
5. The price represents the normal consideration for the property sold
unaffected by special or creative financing or sales concessions granted by
anyone associated with the sale.
Fee Simple Estate
Absolute ownership unencumbered by any other interest or estate, subject to the
limitations imposed by the governmental powers of taxation, eminent domain,
police power, and escheat.
Market Rent
The rental income that a property would most probably command on the open
market, indicated by the current rents paid and asked for comparable space as of
the date of appraisal.
Cash Equivalent
A price expressed in terms of cash, as distinguished from a price expressed
totally or partly in terms of the face amounts of notes or other securities that
cannot be sold at their face amounts.
Market Value As Is on Appraisal Date
The value of specific ownership rights to an identified parcel of real estate as
of the effective date of the appraisal; related to what physically exists and is
legally permissible and excludes all assumptions concerning hypothetical market
conditions or possible rezoning.
Exposure Time and Marketing Time
Exposure Time
Under Paragraph 3 of the Definition of Market Value, the value opinion
presumes that "A reasonable time is allowed for exposure in the open
market". Exposure time is defined as the length of time the property
interest being appraised would have been offered on the market prior to the
hypothetical consummation of a sale at the market value on the effective
date of the appraisal. Exposure time is presumed to precede the effective
date of the appraisal.
The reasonable exposure period is a function of price, time and use. It is not
an isolated opinion of time alone. Exposure time is different for various types
of real estate and under various market conditions. As noted above, exposure
time is always presumed to precede the effective date of appraisal. It is the
length of time the property would have been offered prior to a hypothetical
market value sale on the effective date of appraisal. It is a retrospective
opinion based on an analysis of recent past events, assuming a competitive and
open market. It assumes not only adequate, sufficient and reasonable time but
adequate, sufficient and a reasonable marketing effort. Exposure time and
conclusion of value are therefore interrelated.
Based on discussions with market participants and information gathered during
the sales verification process, a reasonable exposure time for the subject
property at the value concluded within this report would have been under 12
months. This assumes an active and professional marketing plan would have been
employed by the current owner.
Marketing Time
Marketing time is an opinion of the time that might be required to sell a
real property interest at the appraised value. Marketing time is presumed
to start on the effective date of the appraisal. (Marketing time is
subsequent to the effective date of the appraisal and exposure time is
presumed to precede the effective date of the appraisal). The opinion of
marketing time uses some of the same data analyzed in the process of
estimating reasonable exposure time and it is not intended to be a
prediction of a date of sale.
We believe, based on the assumptions employed in our analysis, as well as our
selection of investment parameters for the subject, that our value conclusion
represents a price achievable within a period of under 12 months.
Legal Description
The subject site is identified by Shawnee County as Parcel Number 1461303002105.
AREA ANALYSIS
Regional Analysis
The short- and long-term value of real estate is influenced by a variety of
factors and forces that interact within a given region. Regional analysis serves
to identify those forces that affect property value, and the role they play
within the region. The four primary forces that influence real property value
include environmental characteristics, governmental forces, social factors, and
economic trends. These forces determine the supply and demand for real property,
which, in turn, affect market value. The subject property is located in the City
of Topeka in the central portion of the Topeka MSA. A profile of the Topeka MSA
provided by Economy.com, a leading provider of economic, financial, and industry
information indicated that "Topeka continues to be a mediocre-performing state
capital economy. While the state government offices are definite assets to the
metro area, they are not catalysts for growth. The metropolitan economy's dismal
demographic trends will constrain growth on the service and retail fronts, while
low industrial diversity will foster high employment volatility, unsettling the
potential for stable growth. Longer term, the metro area's loss of migrants to
faster growing, more diverse metro areas will weigh on Topeka's economy,
especially on population-driven industries. The metro area is expected to lag
the nation throughout the extended forecast horizon: This has been exacerbated
by the closure of the TeleTech call center when it was not able to renew a
contract with Verizon. The site closure resulted in the layoff of 800 employees
and the loss of $17 million in payrolls annually. However, Target has recently
opened a warehouse distribution center, which will slightly offset the resultant
layoffs in TeleTech.
Local Market Area Analysis
The subject local market area is described in this section of the report. The
subject property is located within the City of Topeka, the government county
seat of Shawnee County, Kansas. Within the context of the Topeka MSA, the
subject is located within the southerly sector of the Topeka Metropolitan Area.
The Central Business and State Capital Districts of Topeka are located
approximately four miles northeast of the subject property. The overall location
of the subject is at the northwest quadrant of the Kansas Turnpike and
Burlingame Road. The area has good access within the framework of the
metropolitan area. Access characteristics to and through the neighborhood are
considered good, with various major highways and arteries servicing the area. US
75 is a secondary north-south highway serving the southerly periphery of Topeka.
This limited access highway terminates at Interstate 470 to the north.
Interstate 470 is a peripheral looping around the southerly portion of the
Greater Topeka MSA. According to the Greater Topeka Chamber of Commerce, this
highway has experienced several improvements in the past years as part of the
Kansas Comprehensive Highway Program. A new $48 million stretch connects U.S.
Highway 75 with Interstate 470 near Burlingame Road. Both roadways establish the
neighborhood's south perimeter. The subject is currently accessed by S.W.
Burlingame Road, a secondary arterial that connects directly with Interstate 470
and indirectly with Interstate 75, and the Kansas Turnpike.
The area comprising the immediate subject neighborhood has been and remains
single- and multi-family residential development. However, to the east of the
subject is Topeka Boulevard, the major north-south commercial thoroughfare
providing accessibility throughout the city of Topeka. In this general area,
Topeka Boulevard is comprised of various service commercial uses, business and
industrial parks, and the Forbes Field Airport. Commercial air service is
provided from Forbes Field by US Airways Express with several daily commuter
flights to Kansas City International Airport. Other uses in the area along
Topeka Avenue include modest single to multi-family development, and several
manufactured housing communities. SW 37th Street to the south of the subject
also contains several retail development. Overall, regional and local access
characteristics to and through the neighborhood is considered good. Various
major arteries service the area and Interstate 70 is the major east-west highway
serving the Topeka Metropolitan Area. The subject's proximity to highway access
causes it to be linked to other employment and residential centers throughout
the Metro Area.
Market Analysis
Information for the Market Analysis was obtained from statistics published by
NAI Cohen-Esrey Real Estate Services Inc. through year-end 2003 and previous
periods. The Topeka market is broken down into four submarkets, South,
Southwest, Midtown, and West submarkets with a total inventory of 7,455 units.
The subject property is located in the South submarket, the smallest of all the
submarkets.
Occupancy for the entire market as of year-end 2003 was reported at 90.63
percent, a slight increase from the year-end 2002 rate of 88.71 percent, but
still below Topeka's historical 10-year occupancy rate, except for 1996, which
reported an occupancy rate of 90.36 percent. For the South submarket, occupancy
was reported at 92.07 percent, an increase from year-end 2002, but still below
the 95.96 percent occupancy rate experienced in 2001. We also surveyed apartment
complexes that directly compete with the subject property. Our rental survey
indicated a slightly lower occupancy rate of 88 percent, with a range between 80
and 95 percent.
As of year-end 2003, average rental rates for the Topeka market were reported at
$0.61 per square foot, a slight decrease from year-end 2002. The South submarket
reported an average rental rate of $0.6075 per square foot, a substantial
decrease from year-end 2002 rate of $0.70 per square foot. Rental rates since
1994 have increased at an average rate of 1.63 percent after a decrease in 2003.
Our rental survey indicated a lower average rental rate at $0.57 per square
foot, with a range between $0.34 and $0.96 per square foot.
The Topeka apartment market maintained stabilized occupancy rates in the range
of 90 and 93 percent. Since 1994, rental rates continued to increase by an
average of less than two percent through 2003. Due to a downturn in economic
conditions, many companies have downsized and vacated space. There have also
been a large number of layoffs, particularly TeleTech. The entire Topeka
apartment market as well as the subject's sub market has felt the effects.
Concessions are being offered but rates remain stable in general and are
projected to continue to be that way for two to three years more.
PROPERTY DESCRIPTION
Site Description
Location: 3441 SW Burlingame Road
Topeka, Shawnee County, Kansas 66611
The site is located at the southwest corner
of Burlingame Road and 34th Street, just
north of Interstate 470.
Shape: Rectangular
Topography: Relatively flat, level at street grade
Land Area: 5.58 gross acres (5.58 net acres)
243,065 gross square feet (243,065
net square feet)
Frontage, Access, Visibility: The site has good visibility and access
with a normal depth to frontage ratio.
Soil Conditions: We did not receive nor review a soil report.
However, we assume that the soil's load-bearing
capacity is sufficient to support existing and/or
proposed structure(s). We did not observe any
evidence to the contrary during our physical
inspection of the property. Drainage appears to
be adequate.
Utilities
Site Improvements: The site improvements include asphalt paved
parking areas, curbing, signage, landscaping,
and drainage.
Land Use Restrictions: We were not given a title report to review. We
do not know of any easements, encroachments, or
restrictions that would adversely affect
the site's use. However, we recommend a title
search to determine whether any adverse
conditions exist.
Flood Zone: National Flood Insurance Rate Map Community
Panel Number 2051870014c dated December 1,
1981 designated at Flood Zone C, areas
outside the 1 OO-year flood plain.
Hazardous Substances: We observed no evidence of toxic or hazardous
substances during our inspection of the site.
However, we are not trained to perform technical
environmental inspections and recommend the
services of a professional engineer for this
purpose.
Overall Functionality: The subject site is functional for the current
intended use.
Improvements Description
The unit mix is as follows.
UNIT MIX
No. Unit NRA Units Actual
No. Plan BR BA Units (SF) (SF) Leased Occupancy
- -------------------------------------------------------------------------------
1 1BR1BA 1 1 23 727 16,721 18 78.3%
- -------------------------------------------------------------------------------
2 2BR2BA 2 2 13 1,092 14,196 11 84.6%
- -------------------------------------------------------------------------------
3 2BR2BALoft 2 2 9 1,280 11,520 7 77.8%
- -------------------------------------------------------------------------------
4 2BR2BA 2 2 19 1,119 21,261 19 100.0%
- -------------------------------------------------------------------------------
5 2BR1.5BA TH 2 1 1/2 10 1,845 18,450 8 80.0%
- -------------------------------------------------------------------------------
6 3BR2BA TH 3 2 12 2,245 26,940 12 100.0%
- -------------------------------------------------------------------------------
TOTAL AVERAGE 86 1,268 109,088 75 87.2%
- -------------------------------------------------------------------------------
General Description
Number of Units: 86
Year Built: 1973
Number of Buildings: 10
Number of Stories: 2
Net Rentable Area: 109,088 square feet
Design and Functionality: The subject consists of a
garden apartment property of wood stud wall
construction with brick and wood veneer
exterior and pitched roof with composition
shingles. The subject has Average overall
appeal to prospective apartment tenants.
Amenities: Office/clubhouse, pool, laundry rooms,
storage units
Construction Detail
Foundation: Poured concrete slab
Framing: Wood stud wall construction
Floors: Upper floors are of wood decking
Exterior Walls: The exterior facade of the building consists
of brick and wood veneer exterior.
Roof Cover: Pitched roof with composition shingles.
Windows: Units have windows in aluminum frames.
The windows are single paned with screens.
Mechanical Detail
Heating: Heat to the subject is supplied either by
electric single unit forced air heaters.
Heating is supplied via baseboard
converters with local zone temperature
control.
Cooling: The subject is cooled by ground
mounted package HVAC units.Cooling
is distributed to the apartments through
an integrated duct network with
individual controls.
Plumbing: The plumbing system is assumed to be
adequate for existing use and in
compliance with local law and building
codes. The plumbing system is typical of
other apartment properties in the area
with a combination of PVC, steel,
copper and cast iron piping throughout
the building.
Electrical Service: The electrical system is assumed to be
adequate for existing use and in
compliance with local law and building
codes. The electrical system is typical of
other apartment properties in the area.
Fire Protection: The building is not fully sprinklered.
Each apartment has electric smoke
detector and fire extinguishers in
compliance with local code.
Interior Detail
Layout: The subject property is a 10-building
community arranged in a campus
setting.
Floor Covering: Carpet in living, dining and bedroom
areas and sheet vinyl tile in kitchen and
bathrooms.
Walls: Painted and textured gypsum board.
Ceilings: Painted and textured gypsum board.
Bathrooms: Depending on the unit type, each
apartment is equipped with one or two full
bathrooms. Full bathrooms consist of a
showerltub kit with wall mounted showerhead,
toilet and sink and sheet vinyl floor
covering, and a combination wall papered
gypsum board walls.
Site Improvements
Parking: 172 spaces (2.00:Unit). This is a typical
parking ratio.
On site Landscaping: A variety of trees, shrubbery and grass.
Other: Concrete curbs and walkways.
Summary
Condition: The subject improvements are in
average/fair condition given its
competitive position. There are currently
no "downed" or unleasable units. The
current capital improvement expenditure
is estimated herein to be $66,250.
We did not inspect the roofs or make a
detailed inspection of the mechanical
systems. The appraisers, however, are not
qualified to render an opinion as to the
adequacy or condition of these components.
The client is urged to retain an expert in
this field if detailed information is needed
about the adequacy and condition of
mechanical systems.
Quality: The overall quality is average and is
consistent with the comparables in the
micro-market.
Layout & Functional Plan: Average
Year Built: 1973
Effective Age: 25 years
Expected Economic Life: 40 years
Remaining Economic Life: 15 years
Real Property Taxes And Assessments
The property is subject to the taxing jurisdiction of Shawnee County. The
assessors' parcel identification number is 1461303002105. Current property taxes
are presented below:
PROPERTY TAX DATA (2003)
Total
2003
Assessment
Assessor's Parcel Number 1461303002105000
Assessor's Market Value
Land $364,420
Improvements 2,843,580
Assessor's Market Value: $3,208,000
Equalization/Assessment Ratio 11.50%
Assessed Value $368,920
Assessed Value per Unit $36,892
Assessed Value per SqFt $47.30
Taxes for 1st $20,000 in value $279
Total Tax Rate 14.12%
Total Property Taxes $52,060
Property Taxes per Unit $5,206
Property Taxes per SqFt $6.67
ZONING
The property is zoned PUD - Multi-Family by the City of Topeka. Permitted uses
within this district include residential development and small-scale attendant
retail. Office and industrial development is prohibited in this zoning district.
Zoning regulations imposed within this district are as follows:
We are not experts in the interpretation of complex zoning ordinances but the
property appears to be a conforming use based on our review of public
information. The determination of compliance is beyond the scope of a real
estate appraisal.
We know of no deed restrictions, private or public, that further limit the
subject property's use. The research required to determine whether or not such
restrictions exist, however, is beyond the scope of this appraisal assignment.
Deed restrictions are a legal matter and only a title examination by an attorney
or title company can usually uncover such restrictive covenants. Thus, we
recommend a title search to determine if any such restrictions do exist.
HIGHEST AND BEST USE
Definition Of Highest And Best Use
According to The Dictionary of Real Estate Appraisal, Third Edition (1993), a
publication of the Appraisal Institute, the highest and best use is defined as:
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.
Highest And Best Use Criteria
We evaluated the site's highest and best use both as currently improved and as
if vacant.
Highest and Best Use of Site As Though Vacant
Considering the subject site's size, configuration and topography, location
among other apartment properties and state of the local apartment market, it is
our opinion that the Highest and Best Use of the subject site as though vacant
is investment property development to the highest density possible.
Highest and Best Use of Property As Improved
According to the Dictionary of Real Estate Appraisal, highest and best use of
the property as improved is defined as:
The use that should be made of a property is as it exists. An existing
property should be renovated or retained as is so long as it continues to
contribute to the total market value of the property, or until the return
from a new improvement would more than offset the cost of demolishing the
existing building and constructing a new one. .
It is our opinion that the existing complex adds value to the site as if vacant,
and rent levels of existing leases encumbering the subject property would
dictate a continuation of the current use. Therefore, it is our opinion that the
Highest and Best Use of the subject property as improved is as it is currently
employed.
VALUATION PROCESS
Methodology
There are three generally accepted approaches available in developing an opinion
of value: the Cost, Sales Comparison and Income Capitalization approaches. We
have considered and analyzed each in this appraisal to develop an opinion of the
market value of the subject property, because this is a complete appraisal. In
appraisal practice, an approach to value is included or eliminated based on its
applicability to the property type being valued and the quality of information
available. Each approach is discussed below, and applicability to the subject
property is briefly addressed in the following summary.
Land Value
Developing an opinion of land value is typically accomplished via the Sales
Comparison Approach by analyzing sites of comparable utility adjusted for
differences, to indicate a value for the subject parcel. Valuation is typically
accomplished using a unit of comparison such as price per square foot or acre.
Adjustments are applied to the units of comparison from an analysis of
comparable sales, and the adjusted unit of comparison is then used to derive a
total value. The reliability of this approach is dependent upon (a) the
availability of comparable sales data; (b) the verification of the sales data;
(c) the degree of comparability; (d) the absence of non-typical conditions
affecting the sales price.
Cost Approach
The Cost Approach is based upon the proposition that an informed purchaser would
pay no more for the subject than the cost to produce a substitute property with
equivalent utility. This approach is particularly applicable when the property
being appraised involves relatively new improvements, which represent the
highest and best use of the land; or when relatively unique or specialized
improvements are located on the site, for which there exist few sales or leases
of comparable properties. In the Cost Approach, the appraiser forms an opinion
of the cost of all improvements, depreciating them to reflect value loss from
physical, functional and external causes. Land value, entrepreneurial profit and
depreciated improvement costs are then added for a total value.
Sales Comparison Approach
The Sales Comparison Approach utilizes sales of comparable properties. adjusted
for differences, to indicate a value for the subject property. Valuation is
typically accomplished using a unit of comparison such as price per square foot,
effective gross income multiplier or net income multiplier. Adjustments are
applied to the units of comparison from an analysis of comparable sales, and the
adjusted unit of comparison is then used to derive a total value. The
reliability of this approach is dependent upon (a) the availability of
comparable sales data; (b) the verification of the sales data; (c) the degree of
comparability; (d) the absence of non-typical conditions affecting the sales
price.
Income Capitalization Approach
This approach first determines the income-producing capacity of a property by
utilizing contract rents on leases in place and by estimating market rent from
rental activity at competing properties. Deductions then are made for vacancy
and collection loss and operating expenses. The resulting net operating income
is capitalized at an overall capitalization rate to derive an opinion of value.
The capitalization rate represents the relationship between net operating income
and value.
Related to the Direct Capitalization Method is the Discounted Cash Flow Method.
In this method, periodic cash flows (which consist of net operating income less
capital costs) and a reversionary value are developed and discounted to a
present value using an internal rate of return that is determined by analyzing
current investor yield requirements for similar investments.
The reliability of the Income Capitalization Approach depends upon whether
investors actively purchase the subject property type for income potential, as
well as the quality and quantity of available income and expense data from
comparable investments.
Summary
This appraisal employs the Sales Comparison Approach and the Income
Capitalization Approach. Based on our analysis and knowledge of the subject
property type and relevant investor profiles, it is our opinion that these
approaches would be considered applicable and/or necessary for market
participants. The subject's age makes it difficult to accurately fonn an opinion
of depreciation and tends to make the Cost Approach unreliable. Investors do not
typically rely on the Cost Approach when purchasing a property such as the
subject of this report. Therefore, we have not utilized the Cost Approach to
develop an opinion of market value. The valuation process is concluded by
analyzing each approach to value used in the appraisal. When more than one
approach is used, each approach is judged based on its applicability,
reliability, and the quantity and quality of its data. A final value opinion is
chosen that either corresponds to one of the approaches to value, or is a
correlation of all the approaches used in the appraisal. SALES COMPARISON
APPROACH
Methodology
In the Sales Comparison Approach, we developed an opinion of value by comparing
this property with similar, recently sold properties in the surrounding or
competing area. Inherent in this approach is the principle of substitution,
which states that when a property is replaceable in the market, its value tends
to be set at the cost of acquiring an equally desirable substitute property,
assuming that no costly delay is encountered in making the substitution.
By analyzing sales that qualify as arm's-length transactions between willing and
knowledgeable buyers and sellers, we can identify value and price trends. The
basic steps of this approach are:
1. Research recent, relevant property sales and current offerings throughout
the competitive area;
2. Select and analyze properties that are similar to the property appraised,
analyzing changes in economic conditions that may have occurred between the
sale date and the date of value, and other physical, functional, or
locational factors;
3. Identify sales that include favorable financing and calculate the cash
equivalent price;
4. Reduce the sale prices to a common unit of comparison such as price per
square foot, price per unit or effective gross income multiplier;
5. Make appropriate comparative adjustments to the prices of the comparable
properties to relate them to the property being appraised; and
6. Interpret the adjusted sales data and draw a logical value conclusion.
On the following pages we present a summary of the improved properties that we
compared to the subject property, a map showing their locations, and an
adjustment grid. Detail sheets describing these sales can be found in the
Addenda.
Due to the nature of the subject property and the level of detail available for
the comparable data, we have elected to analyze the comparables through
application of a traditional adjustment grid utilizing percentage adjustments
and an effective gross income multiplier analysis.
APARTMENT SALES
Name Grantor Sale Price Average % Occ. Quality SP/SF
------- ------- ----------- -------- -------- ------- -------
No. Address Grantee Date Bldg SqFt # Units Year SP/Unit
Built
1. Mt. Vernon Mt. Vernon $2,575,000 953 N/Av Average $23.69
Apartments Housing LP
Topeka, KS DCAL LLC 11/03 108,696 114 units 1946 $22,588
2. Brookfield MRV Inc. $7,250,000 861 99.0% Good $52.64
Village
Apartments IRET Inc. 10/03 137,717 160 units 1989 $45,313
3. Sunrise Sunrise $2,300,000 986 82.0% Average $34.32
Place Place LC
Apartments
Lawrence, Edward Carter 10/03 67,020 68 units 1983 $33,824
KS et al
4. Quail TCI Quail $4,700,000 1,377 95.0% Average $35.93
Creek Quail Creek
Apartments
Lawrence,KS Quail 11/03 130,796 95 units 1969 $49,474
Creek Inc.
5. Capital Highland $660,000 494 95.0% Average $27.25
Square Realty of
Apartments Topeka, LLC
Topeka, KS Douglas 8/02 24,220 49 units 1970 $13,469
Phelps
Expense
Name Grantor Ratio NOI/Unit
------- ------- -------- --------
No. Address Grantee EGIM OAR Comments
1. Mt. Vernon Mt. Vernon N/Av N/Av Brick building with one
Apartments Housing LP and two bedroom units.
Topeka, KS DCAL LLC N/Av N/Av Inferior location age,
and appeal.
2. Brookfield MRV Inc. 38% $4,110 This is a good quality
Village complex considered
Apartments IRET Inc. 6.88 9.07% overall superior when
compared to the subject
property.
3. Sunrise Sunrise 46% $2,462 Part of a two property
Place Place LC portfolio. Experienced
Apartments setbacks in management
Lawrence, Edward Carter 7.43 7.28% and operated below
KS et al market. Superior
location near the
University of Kansas.
4. Quail TCI Quail 41% $4,700 This property includes 7
Creek Quail Creek apartment buildings, 4
Apartments townhouse buildings, 2
Lawrence,KS Quail 6.23 9.50% duplexes and an office
Creek Inc. /clubhouse. Superior
location near the
University of Kansas.
5. Capital Highland 67% $1,210 This is a Class C
Square Realty of apartment complex with
Apartments Topeka, LLC minimal land.
Topeka, KS Douglas 3.69 8.98%
Phelps
Survey Minimum $660,000 494 SF 82.0% N/A $23.69 38% $1,210
Survey Maximum $7,250,000 1,377 SF 99.0% N/A $52.64 67% $4,700
Survey Average $3,497,000 934 SF 92.8% N/A $34.77 48% $3,120
Survey Minimum 8/02 24,220 SF 49 units 1946 13469 3.69 7.28%
Survey Maximum 11/03 137,717 SF 160 units 1989 49474 7.43 9.50%
Survey Average 7/03 93,690 SF 97 units 1971 32933 6.06 8.71%
Subject Property N/A 1,268 SF 87.2% average N/A 52% $3,325
N/A 109,088 SF 86 1973 N/A N/A N/A
- -------------------------------------------------------------------------------
IMPROVED COMPRABLE SALE ADJUSTMENT GRID
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
ECONOMIC ADJUSTMENTS(CUMULATIVE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No. $/Unit Property Financing & Exp. After Market* Subtotal
Date Rights Conditions of Purchase Conditions
Conveyed Sale
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1 $22,588 Fee Simple/Mkt. Arms-Length None Inferior $22,768
11/03 0.0% 0.0% 0.0% 0.8% 0.8%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2 $45,313 Fee Simple/Mkt. Arms-Length None Inferior $45,811
10/03 0.0% 0.0% 0.0% 1.1% 1.1%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3 $33,824 Fee Simple/Mkt. Arms-Length None Inferior $34,196
10/03 0.0% 0.0% 0.0% 1.1% 1.1%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
4 $49,474 Fee Simple/Mkt. Arms-Length None Inferior $50,625
7/03 0.0% 0.0% 0.0% 1.6% 1.6%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
5 $13,469 Fee Simple/Mkt. Arms-Length None Inferior $13,914
8/02 0.0% 0.0% 0.0% 3.3% 3.3%
- -------------------------------------------------------------------------------
PROPERTY CHARACTERISTIC ADJUSTMENTS (ADDITIVE)
No. Location Size Ave, Amenities Unit Utility Economics
Quality Size
Conditions
1 Inferior Similar Inferior Similar Inferior Similar Similar
5.0% 0.0% 5.0% 0.0% 10.0% 0.0% 0.0%
2 Superior Similar Superior Similar Inferior Similar Similar
-5.0% 0.0% -30.0% 0.0% 10.0% 0.0% 0.0%
3 Superior Similar Superior Similar Inferior Similar Inferior
-15.0% 0.0% -10.0% 0.0% 10.0% 0.0% 10.0%
4 Superior Similar Superior Similar Superior Similar Superior
-15.0% 0.0% -5.0% 0.0% -5.0% 0.0% -10.0%
5 Inferior Similar Inferior Inferior Inferior InferiorSimilar
20.0% 0.0% 15.0% 20.0% 35.0% 20.0% 0.0%
No. Other Adj. Overall
1 Similar $29,599 Inferior
0.0% 30.0%
2 Similar $34,358 Superior
0.0% -25.0%
3 Similar $32,486 Superior
0.0% -5.0%
4 Similar $32,672 Superior
0.0% -35.0%
5 Similar $29,219 Inferior
0.0% 110.0%
SUMMARY
Price Range Unadj. Adj. *Market Conditions Adjustment
$/Unit $/Unit
Low $13,469 $29,219 Compound annual change in mark
conditions: 2.00%
High $49,474 $34,358 Date of Value (for adjustment
calculations): Apr-04
Average $32,933 $31,667
Net Adjustment
Low -35.0%
High 110.0%
Average 15.0%
Percentage Adjustment Method
Adiustment Process
The sales that we have utilized represent the best available information that
could be compared to the subject property. The major elements of comparison for
an analysis of this type include the property rights conveyed, the financial
terms incorporated into a particular transaction, the conditions or motivations
surrounding the sale, changes in market conditions since the sale, the location
of the real estate, its physical traits and the economic characteristics of the
property.
The first adjustment made to the market data takes into account differences
between the subject property and the comparable property sales with regard to
the legal interest transferred. Advantageous financing terms or peculiar
conditions of sale are then adjusted to reflect a normal market transaction.
Next, changes in market condition must be accounted for, thereby creating a time
adjusted normal unit of comparison. Lastly, adjustments for location, the
physical traits and the economic characteristics of the market data are made in
order to generate the final adjusted unit rate, which is appropriate for the
subject property.
Summary of PercentaGe Adiustment Method After adjusting each comparable sale for
differences with the subject property, the adjusted sale price range is $29,219
to $34,358 per unit. Therefore, we conclude that the indicated value by the
Sales Comparison Approach is:
ADJUSTMENT METHOD CONCLUSION
Rounded to Per Per
Nearest Unit SqFt
$100,000
Indicated Stabilized Value per $31,700
Unit
Number of Units x 86
------------
Indicated Stabilized Value $2, 726,200 $2,700,000 $31,395 $24.75
Less: Rent Loss 0
Less: Capital Improvements 66,250
------------
Value Prior to Stabilization: $2,659,950 $2,700,000 $31,395 $24.75
Effective Gross Income Multiplier Analysis
The effective gross income multiplier (EGIM) is calculated in the sales
transactions by dividing the sales price by the effective gross income at time
of sale. The EGIM expresses the relationship between a sales price and the
property's effective gross income. All other things being equal, the lower the
income, the lower the sales price. However, there are other variables that
affect the income/price relationship such as the condition of the property, the
vacancy at time of sale, the stability of the income stream and the likelihood
of near term change (up or down). and the ratio of operating expenses to
effective gross income.
As all of these sales are very similar to the property appraised in terms of
physical condition, access and visibility and the prospect for continuation of
the income stream at or near current levels, the expense ratio is the most
significant variable of difference. The expense ratio affects net operating
income and, by implication, the overall capitalization rate. As the EGIM is a
function of the overall capitalization rate and the ratio of net operating
income to effective gross income, it is important to examine this relationship.
Summary of the EGIM Analvsis
All of the sales had achieved a stabilized occupancy level in Year 1 of the
buyer's projections. The expense ratios of the com parables fall within a range
of 37.60 percent to 66.90 percent, with the EGIM range from of 3.69x to 7.43x.
Based on our projected effective rental rates for the subject, the projected
stabilized expense ratio equates to 52.20 percent of the effective gross income,
falling within the upper half of the range indicated by comparable sales.
An inverse relationship generally exists between the expense ratio and the EGIM,
i.e., the higher the expense ratio, the lower the EGIM. Conversely, the lower
the expense ratio, the higher the EGIM. As evidenced by the chart, the sales
included generally follow this trend.
As stated, the comparable sales indicate an EGIM range of 3.69x to 7.43x.
Applying this range to the Year 1 effective gross income of $598,097 ($10,941
per unit) produces a probable value range of $25,635 to $51,682 per unit.
The subject's pro forma occupancy is similar to the com parables with the
expense ratio in the middle to upper portion of the range. As a result, an EGIM
towards 4.75x is expected. This multiplier is applied to the stabilized
effective gross income estimated for the subject of $598,097 (see Income
Capitalization Approach section of this report) resulting in a value conclusion
as follows:
- -------------------------------------------------------------------------
EGIM SUMMARY
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
No. Property Name Effective Sale Gross Price EGIM
Income
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
1 Mt. Vernon Apartments $2,575,000 / N/A = N/A
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
2 Brookfield Village $7,250,000 / $1,053,806 = 6.88
Apartments
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
3 Sunrise Place Apartments $2,300,000 / $309,501 = 7.43
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
4 Quail Creek Apartments $4,700,000 / $754,223.00 = 6.23
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
5 Capital Square Apartments $660,000 / $179,057 = 3.69
- -------------------------------------------------------------------------
- ----------------------------------------------------------------
Subject Indicated
- ----------------------------------------------------------------
Range EGIM EGI Value $/Unit
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Low 3.69 $598,097 $2,204,567 $25,635
- ----------------------------------------------------------------
- ----------------------------------------------------------------
High 7.43 $598,097 $4,444,650 $51,682
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Average 6.06 $598,097 $3,622,777 $42,125
- ----------------------------------------------------------------
CONCLUSIONS
Indicated EGIM 4.75
Effective Gross Income x $598,097
--------------------
Indicated Stabilized Value $2,840,961
Rounded to nearest $25,000 $2,850,000
Per Unit $33,140
Per Square Foot $26.13
Value Prior to Stabilization
Indicated Stabilized Value $2,850,000
Less: Rent Loss 0
Less: Capital Improvements (66,250)
--------------------
Value Prior 10 Stabilization $2,783,750
Rounded to nearest $25,000 $2,800,000
Per Unit $32,558
Per Square Foot $25.67
Sales Comparison Approach
Sales Comparison Approach Conclusion
The following is a summary of our concluded values within the Sales Comparison
Approach:
Method Conclusion
Value indicated on basis of percentage adjustments $2,800,000
Value indicated by EGIM comparison $2,800,000
Based on our analysis of competitive transactions, we conclude that the
indicated value by the Sales Comparison Approach is as follows:
Indicated Value $/SqFt $/Unit
$2,800,000 $25.67 $32,558
INCOME CAPITALIZATION APPROACH
Methodology
The Income Capitalization Approach is a method of converting the anticipated
economic benefits of owning property into a value through the capitalization
process. The principle of "anticipation" underlies this approach in that
investors recognize the relationship between an asset's income and its value. In
order to value the anticipated economic benefits of a particular property,
potential income and expenses must be projected. and the most appropriate
capitalization method must be selected.
The two most common methods of converting net income into value are Direct
Capitalization and Discounted Cash Flow. In direct capitalization, net operating
income is divided by an overall capitalization rate to indicate an opinion of
market value. In the discounted cash flow method, anticipated future cash flows
and a reversionary value are discounted to an opinion of net present value at a
chosen yield rate (internal rate of return).
In our opinion, both the discounted cash flow and direct cap methods are
appropriate to value the subject property.
Historical Performance of the Subject Property
The following is a summary of historical revenue and expenses as well as our
Year 1 forecast for the subject property.
INCOME CAPITALIZATION APPROACH
- ------------------------------------------------------------------------------
REVENUE AND EXPENSE ANALYSIS
- ------------------------------------------------------------------------------
2001 2002
Total $/Unit $/SF Total $/Unit $/SF
------------------------ -------------------------
Average Physical Occupancy (%) -94% -92%
Economic Occupancy (%) 94% 90%
POTENTIAL GROSS INCOME
Gross Potential $633.98 $7,372 $5.81 $644,244 $7,491 $5.91
Rental Income
loss/Gain to Lease (1,600) N/A N/A (1.206) N/A N/A
------------------------ -------------------------
Adjusted Rental $632,376 $7,353 $5.80 $643,038 $7,477 $5.89
Revenue
------------------------ -------------------------
Other Income $19,352 $225 $0.18 $25,089 $292 $0.23
------------------------ -------------------------
Total Other Income $19,352 $225 $0.18 $25,089 $292 $0.23
Less: Employee (10,884) (127) (0.10) (9,664) (112) (0.09)
Unit Discounts
Rent Concessions (1,773) (21) (0.02) (3,753) (44) (0.03)
------------------------ -------------------------
($12,657) ($147) ($0.12) ($13,427) ($156) ($0.12)
------------------------ -------------------------
Total Potential Gross $639,079 $7,431 $5.88 $654,700 $7,613 $6.00
Revenue
Vacancy & Credit Loss
Vacancy ($37,759) ($439) ($0.35)($51,426) ($598) ($0.47)
Credits Loss 17,050 198 0.16 (909) (11) (0.01)
------------------------ -------------------------
(20,709) ($241)($0.19) (52,335) ($609) ($0.48)
------------------------ -------------------------
EFFECTIVE GROSS INCOME $618,362 $7,190 $5.67 $602,365 $7,004 $5.52
OPERATING EXPENSES
Management Fee $30,367 $353 $0.28 $30,192 $351 $0.28
Total Payroll & Burden 105,563 1,227 0.97 100,351 1,167 0.92
General & Administrative 10,727 125 0.10 11,966 139 0.11
Marketing & Promotion 4,532 53 0.04 4,598 53 0.04
Maint. & Repairs 35,884 417 0.33 49,234 572 0.45
& Contract Svc.
Total Utilities 44,015 512 0.40 44,347 516 0.41
Insurance 12,695 148 0.12 25,812 300 0.24
Real Estate Taxes 50,097 583 0.46 49,997 581 0.46
------------------------ -------------------------
Total Operating Expense $293,880 $3,417 $2.69 $316,497 $3,680 $2.90
------------------------ -------------------------
NET OPERATING INCOME $324,482 $3,773 $2.97 $285,868 $3,324 $2.62
------------------------ -------------------------
OTHER CAPITAL $0 $0 $0.00 $0 $0 $0.00
Replacement Reserves 0 0 0.00 0 0 0
Expense Ratio 47.53% 52.54%
Management Fee % of EGI 4.91% 5.01%
2003 2004 Budget
Total $/Unit $/SF Total $/Unit $/SF
------------------------ -------------------------
Average Physical Economic Occupancy (%)-89% -95%
84% 91%
POTENTIAL GROSS INCOME
Gross Potential $646,044 $7.512 $5.92 $656.181 $7.630 $6.02
Rental Income
loss/Gain to Lease 2,318 N/A N/A (6.018) (70) (0.06)
------------------------ -------------------------
Adjusted Rental $648,362 $7,539 $5.94 $650,163 $7,560 $5.96
Revenue
------------------------ -------------------------
Other Income $20,106 $234 $0.18 $23.930 $278 $0.22
------------------------ -------------------------
Total Other Income $20,106 $234 $0.18 $23,930 $278 $0.22
Less: Employee (9,855) (115) (0.09) (9,900) (115) (0.09)
Unit Discounts
Rent Concessions (17,642) (205) (0.16) (7,250) (84) (0.07)
------------------------ -------------------------
($27,497) ($320)($0.25) ($17,150) ($199) ($0.16)
------------------------ -------------------------
Total Potential Gross $640,971 $7,453 $5.88 $656,943 $7,639 $6.02
Revenue
Vacancy & Credit Loss
Vacancy ($71,034) ($826)($0.65) ($32,809) ($382) ($0.30)
Credits Loss (4,171) (49) (0.04) (1,200) (14) (0.01)
------------------------ -------------------------
(75,205) ($874)($0.69) (34,009) ($395) ($0.31)
------------------------ -------------------------
EFFECTIVE GROSS INCOME $565,766 $6,579 $5.19 $622,934 $7,243 $5.71
OPERATING EXPENSES
Management Fee $29,142 $339 $0.27 $31,672 $368 $0.29
Total Payroll & Burden 108,143 1,257 0.99 111,012 1,291 1.02
General & Administrative 24,555 287 0.23 9,982 116 0.09
Marketing & Promotion 656 8 0.01 3,460 40 0.03
Maint. & Repairs 33,871 394 0.31 41,198 479 0.38
& Contract Svc.
Total Utilities 43,405 505 0.40 44,148 513 0.40
Insurance 23,915 278 0.22 25,584 297 0.23
Real Estate Taxe s 41,460 482 0.38 50,010 582 0.46
------------------------ -------------------------
Total Operating Expense $305,257 $3,550 $2.80 $317,066 $3,687 $2.91
------------------------ -------------------------
NET OPERATING INCOME $260,509 $3,029 $2.39 $305,868 $3,557 $2.80
------------------------ -------------------------
OTHER CAPITAL $0 $0 $0.00 $86,250 $1,003 $0.79
Replacement Reserves 0 0 0.00 0 0 0.00
Expense Ratio 53.95% 50.90%
Management Fee % of EGI 5.15% 5.08%
Budget Year 1 C&W
Comparison Forecast
Total $/Unit $/SF Adj.* Total $/Unit $/SF
------------------------ ----------------------------
Average Physical 93%
Occupancy (%)
Economic Occupancy (%) 89%
POTENTIAL GROSS INCOME
Gross Potential Rental ($10,137) ($118) ($0.09) $646,404 $7,516 $5.93
Income
loss/Gain to Lease N/A N/A N/A (7,267) (85) (0.07)
------------------------ ----------------------------
Adjusted Rental ($1,801) ($21) ($0.02) $639,137 $7,432 $5.86
Revenue
Other Income (3,824) (44) (0.04) $23,650 $275 $0.22
------------------------ ----------------------------
Total Other Income ($3,824) ($44) ($0.04) $23,650 $275 $0.22
Less: Employee
Unit Discounts 45 1 0 (9,720) (113) (0.09)
Rent Concessions (10,392) (121) (0.10) (7,000) (81) (0.06)
------------------------ ----------------------------
($10,347) ($120) ($0.09) ($16,720) ($194) ($0.15)
Total Potential Gross ($15,972) ($186) ($0.15) $646,067 $7,512 $5.92
Revenue
Vacancy & Credit Loss
Vacancy ($38,225) ($444) ($0.35) 7.00% ($44,740) ($520) ($0.41)
Credits Loss (2,971) (35) (0.03) 0.50% (3,230) (38) (0.03)
(41,196) ($479) ($0.38) (47,970) ($558) ($0.44)
EFFECTIVE GROSS INCOME ($57,168) ($665) ($0.52) $598,097 $6,955 $5.48
OPERATING EXPENSES
Management Fee ($2,530) ($29) ($0.02) 5.00% $29,905 $348 $0.27
Total Payroll & (2,869) (33) (0.03) 111,800 1,300 1.02
Burden
General & 14,683 171 0.13 10,750 125 0.10
Administrative
Marketing & (2,804) (33) (0.03) 3,440 40 0.03
Promotion
Maint. & Repairs (7,327) (85) (0.07) 34,400 400 0.32
& Contract Svc.
Total Utilities (743) (9) (0.01) 44,033 512 0.40
Insurance (1,669) (19) (0.02) 25,800 300 0.24
Real Estate Taxes (8,550) (99) (0.08) 52,060 605 0.48
Total Operating Expense ($11,809) ($137) ($0.11) $312,188 $3,630 $2.86
NET OPERATING INCOME ($45,359) ($527) ($0.42) $285,909 $3,325 $2.62
OTHER CAPITAL ($86,250) ($1,003) ($0.79) $66,250 $770 $0.61
Replacement 0 0 0.00 21,500 250 0.20
Reserves
Expense Ratio 52.20%
Management Fee
% of EGI 5.00%
<FN>
*Rents may be adjusted for lagging market conditions.
</FN>
Market Rental Rates.
In an effort to estimate the current market rent achievable for the subject's
unit mix, we surveyed several competitive apartment complexes summarized as
follows:
COMPETITIVE APARTEMENT COMPLEXES
Cascade Apartments
Rent Rent
Item Year Blt Bed/ Unit Per Per
No. Name & Location No. Units Bath Size Month Sq.Ft.
1 La Casa Grande 1969 (0/1) 45O - 450 $434-$434 $0.96 - $0.96
2908 SW 31st Ct 191 (1/1) 716 - 792 $485-$505 $O.68 - $0.64
Topeka, KS (2/1.5) 946 - 946 $560-$560 $0.59 - $0.59
785-272-7900 (3/2) 1,488-1,488 $760-$760 $O.51 - $0.51
2 Misty Glen 1969 (1/1) 135 - 735 $435-$445 $O.59 - $O.61
3201 SW Randolph 216 (2/2) 935 - 935 $5OO-$510 $O.53 - $O.55
Topeka.KS (2/2TH) 1,600-1,800 $655-$715 $O.41 - $0.40
785-266-8010 (3/2TH) 2,200-2,200 $755-$770 $O.34 - $0.35
3 Whitehall 1979 (1/1) 730 - $750 $435-$455 $O.60 - $0.61
3930 SW Twilight Dr 74 (2/2) 1,111-1,111 $575-$595 $0.52 - $O.54
Topeka. KS (3/2) 1,250-1,265 $625-$650 $O.5O - $O.51
785-273-0932
4 Park South 1970's (1/1) 575 - 750 $420-$475 $O.73 - $O.63
3711 SW Park 234 (2/1) 75O - 950 $475-$550 $O.63 - $0-58
South Ct (2/1.5) 95O - 950 $545-$555 $0.57 - $O-58
Topeka, KS
785-266-8957
5 Carriage House 1968 (1/1) 686 - 686 $380-$415 $O.55 - $0.60
1601 SW 37th 282 (2/1) 869 - 860 $410-$445 $0.47 - $0.51
Terrace (2/1.5) 875 - 875 $430-$465 $0.49 - $0.53
Topeka, KS (2/1) 941 - 941 $480-$480 $0.51 - $0.51
785-266-8761
6 White Lakes Plaza 1970's (1/1) 75O - 75O $470-$485 $0.63 - $O.65
3733 SW Plaza Dr 144 (2/2) 950 - 950 $550-$575 $0.58 - $0.61
Topeka, KS
785-267-2060
Project
Item Unit &
No. Name & Location Occ Amenities Premiums Concessions
1 La Casa Grande 91% Laundry room, Fireplace $15 1st and last
2908 SW 31st Ct W/D hookups Security month free on
Topeka, KS in some units, Deposit $200 14 month
785-272-7900 firplace, Pet Deposit $200, $10/mo lease
patio/balcony, Garage $45
ceiling fan, All utililies
storage, paid for
clubhouse, studio Tenant
pool pays elec
in 1&2BR Tenant
pays all
utils in 3BR
2 Misty Glen 89% Storage, All utilities One month free
3201 SW Randolph W/D hookups, paid Deposit on a 6-12
Topeka.KS patio/ balcony, $150 on apts month lease
785-266-8010 fireplace, Deposit $250 on TH
clubhouse,
pool
3 Whitehall 86% Ceiling fan, Fireplace $30 One monlh free
3930 SW Twilight Dr W/D hookups, Carpool $15 on a 12 month
Topeka. KS fireplace lease
785-273-0932 in townhouses,
patio/balcony, pool
4 Park South 87% Laundry rooms, Application fee One month free
3711 SW Park pool, hot tub, $35 Deposit $150 on a 12 month
South Ct clubhouse, Pet Deposit $150 lease 1.5
Topeka, KS All utilities paid months free on
785-266-8957 18 month lease
5 Carriage House 8O% Laundry room, Balcony $35 Two monlhs
1601 SW 37th balcony, pool Security Deposit free on a 13
Terrace $150 Application month lease
Topeka, KS Fee $20 Pet
785-266-8761 Deposit $100,$15/mo
All utilities paid
6 White Lakes Plaza 95% Laundry room, Fireplace $15 None
3733 SW Plaza Dr patio/balcony, Carpoo1
Topeka, KS clubhouse, pool
785-267-2060
Rental Rate Conclusion for the Subject Property
The previous chart shows the range of rental rates indicated by rent comparables
for each unit type. In consideration of this information as well as the
subject's performance as summarized below, our opinion of market rent and total
potential apartment rental income assuming full occupancy is set forth as
follows.
- -------------------------------------------------------------------------------
UNIT MlX
- -------------------------------------------------------------------------------
No. Unit NRA Units Actual
No. Plan BR BA Units (SF) (SF) Leased Occupancy
- -------------------------------------------------------------------------------
1 1BR1BA 1 1 23 727 16,721 18 78.3%
2 2BR2BA 2 2 13 1,092 14,196 11 84.6%
3 2BR2BALoft 2 2 9 1,280 11,520 7 77.8%
4 2BR2BA 2 2 19 1,119 21,261 19 100.0%
5 2BR1.5BA TH 2 1 1/2 10 1,845 18,450 8 8O.O%
6 38R2BA. TH 3 2 12 2,245 26,940 12 100.0%
- -------------------------------------------------------------------------------
TOTAL/AVERAGE 86 1,268 109,088 75 87.2%
- -------------------------------------------------------------------------------
POTENTIAL RENTAL RATES
- -------------------------------------------------------------------------------
Potential Potential
Average Quoted C&W YR1 Monthly Annual
Contract $/SqFt Month $/SqFt Forecast $/SqFt Rent Rent
$494 $O.68 $499 $0.69 $499 $O.69 $11,477 $137,724
597 0.55 610 0.56 610 0.56 7,930 95,160
650 0.51 650 0.51 650 0.51 5,850 70,200
609 0.54 610 0.55 610 0.55 11,590 139,080
734 0.40 730 0.40 730 0.40 7,300 87,600
826 0.37 810 0.36 810 0.36 9,720 116,640
- -------------------------------------------------------------------------------
$626 $0.49 $626 $0.49 $626 $O.49 $53,867 $646,404
- -------------------------------------------------------------------------------
Based on the amenities of the subject, its location and condition relative to
the rent comparables, it is our opinion that the current quoted rental rates (as
provided by the property manager) are within the quoted market rates for the
comparables.
Estimate of Potential Unit Rental Income
The potential rental income for the subject property at our projected market
rent for all unit types is $646,404 on an annualized basis. These figures
reflect the subject as if fully occupied and collecting market rent for every
unit. For comparison purposes, the current quoted rental income is $ .49 per
square foot, or approximately $646,404 in total on an annualized basis.
Employee Units
The practice of non-revenue units or reduced rental rates for employees is
common within the market area. The subject development provides full abatement
on one unit for the manager. The combined monthly rent abatement totals $9,720,
which we have deducted from base rental revenue.
Vacancy and Collection Loss
We have forecasted a vacancy loss of 7.00 percent and a collection loss of 0.05
percent for the first two years of the analysis. We have decreased the vacancy
loss to 7.00 percent on the third year and stabilized it at 6.00 percent.
Rent Concessions
We have deducted $7,000 as rent concessions for the first two years of the
analysis stabilized the rent concession deductions in year 3 at $2,000.
Other Income
Our estimate is $23,650 or $ 275 per unit in Year 1.
Effective Gross Income
Considering all of the foregoing income and vacancy items, we have estimated a
Year 1 effective gross income of $598,097, which is within -3.99 percent of that
set forth in the owners 2004 budget. This adds credibility and support to our
independent forecasts.
Income and Expense Summary
We have discussed our projections of income and expenses for the subject
property. On the following chart we present our opinion of income and expenses
for year 1.
YEAR 1 PRO FORMA
- -------------------------------------------------------------------------------
POTENTIAL GROSS INCOME $/Year $/Unit $/SF
-----------------------------------------
Gross Potential Rental Income $646,404 $7,516 $5.93
Loss/Gain to Lease (7,267) (65) (0.07)
Less: Employee Unit Discounts -.810/Mo. (9,720) (113) (0.09)
-----------------------------------
Adjusted Renlal Revenue $629,417 $7,319 $5.77
Vacancy & Credit Loss
Vacancy 7.00% ($44,740) ($520) ($0.41)
Credit loss 0.50% (3,230) (38) (0.03)
Rent Concessions (7.000) (81) (0.06)
-----------------------------------
Total Potential Gross Revenue ($16,720) ($194) ($O.15)
Other Income $23,650 $275 $0.22
-----------------------------------
Total Other Income $23,650 $275 $0.22
-----------------------------------
EFFECTIVE GROSS INCOME $598,097 $6,955 $5.48
OPERATING EXPENSES
Management Fee 5.00% $29,905 $348 $0.27
Total Payroll & Burden 111,800 1,300 1.02
General & Administrative 10,750 125 0.10
Marketing & Promotion 3,440 40 0.03
Maint. & Repairs & Contract Svc. 34,400 400 0.32
Total Utilities 44,033 512 0.40
Insurance 25,800 300 0.24
Real Estate Taxes 52,060 605 0.48
Replacement Reserves 21,500 250 0.20
-----------------------------------
Total Operating Expenses $312,188 $3,630 $2.86
-----------------------------------
NET OPERATING INCOME $285,909 $3,325 $2.62
Direct Capitalization Method Conclusion
In the Direct Capitalization Method. we developed an opinion of market value by
dividing year 1 net operating income by a 10.00 percent overall capitalization
rate. Our conclusion via the Direct Capitalization Method is as follows:
DIRECT CAPITAUZATION METHOD
Net Operating Income $285,909
- -------------------------------------------------------------------------------
Rounded to
Sensitivity Analysis Nearest
(0.25% OAR Spread) Value $25,000 $/Unit $/SqFt
- -------------------------------------------------------------------------------
Based on Low-Range of 9.75% $2,932,400 $2,925,000 $34,098 $26.66
Based on Most Probable
Range of 10.00% $2,859,090 $2,850,000 $33,245 $26.21
Based on High-Range of 10.25% $2,789,356 $2,800,000 $32,434 $25.57
Reconciled Stabilized Value $2,859,090 $2,850,000 $33,245 $26.21
Less: Rent Loss $0 $0 $0.00
Less: Capital Improvements 66,250 $770 $0.61
----------------------------------------------
Indicated A5 Is Value $2,792,840 $2,800,000 $32,475 $25.60
Discounted Cash Flow Method
In the Discounted Cash Flow Method, we employed the ARGUS software to model the
income characteristics of the property and to make a variety of cash flow
assumptions. We attempted to reflect the most likely investment assumptions of
typical buyers and sellers in this particular market segment.
Summary of Discounted Cash Flow Assumptions
The following table illustrates the assumptions used in the discounted cash flow
analysis.
DCF Analysis Assumptions
Holding Period 10 Years
Start Date: April 16, 2004
Vacancy Rate 7.00%
Collection Loss Rate 0.50%
Management Fee Rate 5.00%
Replacement Reserves $250/unit
Growth Rates
Revenue 0.00%, 2.00%
thereafter
Expenses 3.00%
Property Taxes 3.00%
Rates of Return
Internal Rate of Return 11.00%
Terminal Cap Rate 10.25%
Reversionary Sales Costs 2.00%
Discounted Cash Flow Method Conclusion
Based on the discount rate selected above, market value would be $2,700,000,
rounded. Our cash flow projection is presented at the end of this section.
Reconciliation Within Income Capitalization Approach Since the subject is a
typical apartment property with normal tenant characteristics, we have placed
reliance on the Direct Capitalization method. Therefore, our opinion of market
value via the Income Capitalization Approach is as follows.
Value Indicated by the Discounted Cash Flow Method: $2,700,000
Value Indicated by the Direct Capitalization Method: $2,800,000
Income Capitalization Approach Reconciliation: $2,800,000
Software : ARGUS Ver. 11.0.04
File : Cascade 2004 ARGUS File Revised
Property Type: Apartment
Portfolio
Cascade Apartments
SCHEDULE OF PROSPECTIVE CASH FLOW
In Inflated Dollars for the Fiscal
Year Beginning 5/1/2004
Year 1 Year 2 Year 3 Year 4
For the Years Ending Apr-2005 Apr-2006 Apr-2007 Apr-2008
----------- ---------- ---------- ----------
OPERATING RATIOS
Total Number of Units 86 86 86 86
Average Occupancy 98.84% 100.00% 100.00% 100.00%
Avg Monthly Rent per Occ Area 0.49 0.49 0.50 0.51
Avg Monthly Rent per Occ Unit 626.60 626.36 638.75 651.52
Expense Ratio to Operating Inc 52.20% 53.10% 52.66% 53.12%
Expenses per Unit Area 2.86 2.95 3.04 3.12
Expenses per Unit 3,630.09 3,735.67 3,851.08 3,963.03
POTENTIAL GROSS REVENUE
Potential Market Rent $646,404 $646,404 $659,328 $672,516
Loss to Lease (7,267) (152) (159)
----------- ---------- ---------- ----------
Potential Rental Revenue 639,137 646,404 659,188 672,369
----------- ---------- ---------- ----------
Scheduled Base Rental Revenue 639,137 646,404 659,188 672,369
Other Income 23,650 24,359 25,090 25,843
Employee Unit Discounts (9,720) (10,012) (10,312) (10,621)
Rent Concessions (7,000) (7,210) (2,122) (2,185)
----------- ---------- ---------- ----------
TOTAL POTENTIAL 646,067 653,541 671,844 685,406
GROSS REVENUE
General Vacancy (44,740) (45,248) (39,551) (40,342)
Collection Loss (3,230) (3,268) (3,359) (3,427)
----------- ---------- ---------- ----------
EFFECTIVE GROSS REVENUE 598,097 605,025 628,934 641,637
----------- ---------- ---------- ----------
OPERATING EXPENSES
Management Fee 29,905 30,251 31,447 32,082
Total Payroll and Burden 111,800 115,154 118,609 122,167
General and Administrative 10,750 11,073 11,405 11,747
Marketing and Promotion 3,440 3,543 3,649 3,759
Maint & Repair & Contract Serv 34,400 35,432 36,495 37,590
Utilities 44,033 45,619 46,987 48,397
Insurance 25,800 26,574 27,371 28,192
Real Estate Taxes 52,060 53,622 55,230 56,887
----------- ---------- ---------- ----------
TOTAL OPERATING EXPENSES 312,188 321,268 331,193 340,821
----------- ---------- ---------- ----------
NET OPERATING INCOME 285,909 283,757 297,741 300,816
----------- ---------- ---------- ----------
LEASING & CAPITAL COSTS
Replacement Reserves 21,500 22,145 22,809 23,494
Capital Improvements 66,250
----------- ---------- ---------- ----------
TOTAL LEASING & CAPITAL COSTS 87,750 22,145 22,809 23,494
----------- ---------- ---------- ----------
CASH FLOW BEFORE DEBT SERVICE $198,159 $261,612 $274,932 $277,322
& TAXES
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Year 5 Year 6 Year 7 Year 8
For the Years Ending Apr-09 Apr-2010 Apr-11 Apr-12
---------- ----------- ----------- ---------
OPERATING RATIOS
Total Number of Units 86 86 86 86
Average Occupancy 100.00% 100.00% 100.00% 100.00%
Avg Monthly Rent per Occ Area 0.52 0.53 0.55 0.56
Avg Monthly Rent per Occ Unit 664.55 677.84 691.40 705.23
Expense Ratio to Operating Inc 53.58% 54.05% 54.52% 54.99%
Expenses per Unit Area 3.22 3.31 3.40 3.50
Expenses per Unit 4,078.28 4,196.88 4,319,00 4,444.69
POTENTIAL GROSS REVENUE
Potential Market Rent $685,968 $699,684 $713,676 $727,944
Loss to Lease (164) (161) (162) (161)
----------- ---------- ----------- --------
Potential Rental Revenue 685,816 699,535 713,526 727,795
------------ ---------- ---------- ----------
Scheduled Base Rental Revenue 685,816 699,535 713,526 727,795
Other Income 26,618 27,417 28,239 29,087
Employee Unit Discounts (10,940) (11,268) (11,606) (11,954)
Rent Concessions (2,251) (2,319) (2,388) (2,460)
----------- ---------- ---------- ----------
TOTAL POTENTIAL 699,243 713,365 727,771 742,468
GROSS REVENUE
General Vacancy (41,149) (41,972) (42,812) (43,668)
Collection Loss (3,496) (3,567) (3,639) (3,712)
----------- ---------- ---------- ---------
EFFECTIVE GROSS REVENUE 654,598 667,826 681,320 695,088
----------- ---------- ----------- ---------
OPERATING EXPENSES
Management Fee 32,730 33,391 34,066 34,754
Total Payroll and Burden 125,832 129,607 133,495 137,500
General and Administrative 12,099 12,462 12,836 13,221
Marketing and Promotion 3,872 3,988 4,108 4,231
Maint & Repair & Contract Serv 38,718 39,879 41,075 42,308
Utilities 49,849 51,344 52,885 54,471
Insurance 29,038 29,909 30,807 31,731
Real Estate Taxes 58,594 60,352 62,162 64,027
----------- ---------- ---------- ---------
TOTAL OPERATING EXPENSES 350,732 360,932 371,434 382,243
----------- ---------- ---------- ---------
NET OPERATING INCOME 303,866 306,894 309,886 312,845
----------- ---------- ---------- ---------
LEASING & CAPITAL COSTS
Replacement Reserves 24,198 24,924 25,672 26,442
Capital Improvements
----------- ---------- ---------- ---------
TOTAL LEASING & CAPITAL COSTS 24,198 24,924 25,672 26,442
----------- ---------- ---------- ---------
CASH FLOW BEFORE DEBT SERVICE $279,668 $281,970 $284,214 $286,403
& TAXES
----------- ---------- ---------- ---------
----------- ---------- ---------- ----------
Year 9 Year 10 Year 11
For the Years Ending Apr-13 Apr-14 Apr-15
----------- ---------- ----------
OPERATING RATIOS
Total Number of Units 86 86 86
Average Occupancy 100.00% 100.00% 100.00%
Avg Monthly Rent per Occ Area 0.57 0.58 0.59
Avg Monthly Rent per Occ Unit 719.33 733.72 748.39
Expense Ratio to Operating Inc 55.47% 55.96% 56.44%
Expenses per Unit Area 3.61 3.71 3.82
Expenses per Unit 4,574.08 4,707.23 4,844.36
POTENTIAL GROSS REVENUE
Potential Market Rent $742,512 $757,356 $772,512
Loss to Lease (173) (169) (182)
----------- ---------- ----------
Potential Rental Revenue 742,351 757,199 772,342
----------- ---------- ----------
Scheduled Base Rental Revenue 742,351 757,199 772,342
Other Income 29,959 30,858 31,784
Employee Unit Discounts (12,313) (12,682) (13,063)
Rent Concessions (2,534) (2,610) (2,688)
----------- ---------- ----------
TOTAL POTENTIAL
GROSS REVENUE 757,463 772,765 788,375
General Vacancy (44,541) (45,432) (46,341)
Collection Loss (3,787) (3,864) (3,942)
----------- ---------- ---------
EFFECTIVE GROSS REVENUE 709,135 723,469 738,092
----------- ---------- ----------
OPERATING EXPENSES
Management Fee 35,457 36,173 36,905
Total Payroll and Burden 141,625 145,874 150,250
General and Administrative 13,618 14,026 14,447
Marketing and Promotion 4,358 4,488 4,623
Maint & Repair & Contract Serv 43,577 44,884 46,231
Utilities 56,105 57,788 59,522
Insurance 32,683 33,663 34,673
Real Estate Taxes 65,948 67,926 69,964
----------- ---------- ----------
TOTAL OPERATING EXPENSES 393,371 404,822 416,615
----------- ---------- ----------
NET OPERATING INCOME 315,764 318,647 321,477
----------- ---------- ----------
LEASING & CAPITAL COSTS
Replacement Reserves 27,236 28,053 28,894
Capital Improvements
----------- ---------- ----------
TOTAL LEASING & CAPITAL COSTS 27,236 28,053 28,894
----------- ---------- ----------
CASH FLOW BEFORE DEBT SERVICE $288,528 $290,594 $292,583
& TAXES
----------- ---------- ----------
----------- ---------- ----------
Software : ARGUS Ver. 11.0.04
File : Cascade 2004 ARGUS File Revised
Property Type: Apartment
Portfolio
Cascade Apartments
PROSPECTIVE PRESENT VALUE
Cash Flow Before Debt Service plus Property Resale
Discounted Annually (Endpoint on Cash Flow & Resale) over a 10-Year Period
For the P.V. of P.V. of
Analysis Year Annual Cash Flow Cash Flow
Period Ending Cash Flow @) 10.50% @) 10.75%
- -------- --------- ----------- --------- -----------
Year 1 Apr-2005 $198,159 $179,329 $178,925
Year 2 Apr-2006 261,612 214.256 213,289
Year 3 Apr-2007 274,932 203,770 202,393
Year 4 Apr-2008 277,322 186,009 184,335
Year 5 Apr-2009 279,668 169,759 167,852
Year 6 Apr-2010 281,970 154,892 152,806
Year 7 Apr-2011 284,214 141,289 139,071
Year 8 Apr-2012 286,403 128,849 126,540
Year 9 Apr-2013 288,528 117,470 115,105
Year 10 Apr-2014 290,594 107 ,069 104,677
--------- ----------- ---------- -----------
Total Cash Flow 2,723,402 1,602,692 1,584,993
Property Resale @ 10.25% Cap 3,073,634 1,132,477 1,107,171
----------- ---------- -----------
Total Property Present Value $2,735,169 $2,692,164
----------- ---------- -----------
Rounded 10 Thousands $2,735,000 $2,692,000
----------- ---------- -----------
Per Unit 31,804 31,304
PERCENTAGE VALUE
DISTRIBUTION
Prospective Income 58.60% 58.87%
Prospective Property Resale 41.40% 41.13%
----------- ---------- -----------
100.00% 100.00%
For the P.V. of P.V. of P.V. of
Analysis Year Cash Flow Cash Flow Cash Flow
Period Ending @) 11.00% @) 11.25% @) 11.50%
- -------- --------- ----------- ---------- -----------
Year 1 Apr-2005 $178,522 $178,120 $177,721
Year 2 Apr-2006 212,330 211,377 210,430
Year 3 Apr-2007 201,028 199,676 198,336
Year 4 Apr-2008 182,680 181,044 179,426
Year 5 Apr-2009 165,970 164,113 162,281
Year 6 Apr-2010 150,752 148,731 146,742
Year 7 Apr-2011 136,894 134,756 132,654
Year 8 Apr-2012 124,278 122,061 119,889
Year 9 Apr-2013 112,793 110,532 108,321
Year 10 Apr-2014 102,343 100,066 97,845
----------- ----------- -----------
Total Cash Flow 1,567,590 1,550,476 1,533,645
Property Resale @ 10.25% Cap 1,082,486 1,082,486 1,058,405
----------- ----------- -----------
Total Property Present Value $2,650,076 $2,608,881 $2,568,557
----------- ----------- -----------
Rounded 10 Thousands $2,650,000 $2,609,000 $2,569,000
----------- ----------- -----------
Per Unit 30,815 30,336 29,867
PERCENTAGE VALUE DISTRIBUTION
Prospective Income 59.15% 59.43% 59.71%
Prospective Property Resale 40.85% 40.57% 40.29%
---------- ---------- -----------
100.00% 100.00% 100.00%
ASSUMPTIONS AND LIMITING CONDITIONS
"Appraisal" means the appraisal report and opinion of value stated therein, to
which these Assumptions and Limiting Conditions are annexed.
"Property" means the subject of the Appraisal.
"C&W" means Cushman & Wakefield, Inc. or its subsidiary which issued the
Appraisal.
"Appraiser" or "Appraisers. means the employee(s) of C&W who prepared and signed
the Appraisal.
General Assumptions
This appraisal is made subject to the following assumptions and limiting
conditions:
1. No opinion is intended to be expressed and no responsibility is assumed for
the legal description or for any matters, which are legal in nature or require
legal expertise or specialized knowledge beyond that of a real estate appraiser.
Title to the Property is assumed to be good and marketable and the Property is
assumed to be free and clear of all liens unless otherwise stated. No survey of
the Property was undertaken.
2. The information contained in the Appraisal or upon which the Appraisal is
based has been gathered from sources the Appraiser assumes to be reliable and
accurate. Some of such information may have been provided by the owner of the
Property. Neither the Appraiser nor C&W shall be responsible for the accuracy
or. completeness of such information, including the correctness of opinions,
dimensions, sketches, exhibits and factual matters.
3. The opinion of value is only as of the date stated in the Appraisal. Changes
since that date in external and market factors or in the Property itself can
significantly affect property value.
4. The Appraisal is to be used in whole and not in part. No part of the
Appraisal shall be used in conjunction with any other appraisal. Publication of
the Appraisal or any portion thereof without the prior written consent of C&W is
prohibited. Except as may be otherwise stated in the letter of engagement, the
Appraisal may not be used by any person other than the party to whom it is
addressed or for purposes other than that for which it was prepared. No part of
the Appraisal shall be conveyed to the public through advertising, or used in
any sales or promotional material without C&Ws prior written consent. Reference
to the Appraisal Institute or to the MAl designation is prohibited, except as it
relates to the collaboration between C&W and the Appraisal Institute relative to
the Real Estate Outlook publication.
5. Except as may be otherwise stated in the letter of engagement, the Appraiser
shall not be required to give testimony in any court or administrative
proceeding relating to the Property or the Appraisal.
6. The Appraisal assumes (a) responsible ownership and competent management of
the Property; (b) there are no hidden or unapparent conditions of the Property.
subsoil or structures that render the Property more or less valuable (no
responsibility is assumed for such conditions or for arranging for engineering
studies that may be required to discover them); (c) full compliance with all
applicable federal, state and local zoning and environmental regulations and
laws, unless noncompliance is stated, defined and analyzed in the Appraisal; and
(d) all required licenses, certificates of occupancy and other governmental
consents have been or can be obtained and renewed for any use on which the value
opinion contained in the Appraisal is based.
7. The physical condition of the improvements analyzed within the Appraisal is
based on visual inspection by the Appraiser or other person identified in the
Appraisal. C&W assumes no responsibility for the soundness of structural members
nor for the condition of mechanical equipment, plumbing or electrical
components.
8. The projected potential gross income referred to in the Appraisal may be
based on lease summaries provided by the owner or third parties. The Appraiser
has not reviewed lease documents and assumes no responsibility for the
authenticity or completeness of lease information provided by others. C&W
recommends that legal advice be obtained regarding the interpretation of lease
provisions and the contractual rights of parties.
9. The projections of income and expenses are not predictions of the future.
Rather, they are the Appraiser's opinion of current market thinking on future
income and expenses. The Appraiser and C&W make no warranty or representation
that these projections will materialize. The real estate market is constantly
fluctuating and changing. It is not the Appraise~s task to predict or in any way
warrant the conditions of a future real estate market; the Appraiser can only
reflect what the investment community, as of the date of the Appraisal,
envisages for the future in terms of rental rates, expenses, supply and demand.
10. Unless otherwise stated in the Appraisal, the existence of potentially
hazardous or toxic materials, which may have been used in the construction or
maintenance of the improvements or may be located at or about the Property, was
not analyzed in arriving at the opinion of value. These materials (such as
formaldehyde foam insulation, asbestos insulation and other potentially
hazardous materials) may adversely affect the value of the Property. The
Appraisers are. not qualified to detect such substances. C&W recommends that an
environmental expert be employed to determine the impact of these matters on the
opinion of value.
11. Unless otherwise stated in the Appraisal, compliance with the requirements
of the Americans With Disabilities Act of 1990 (ADA) has not been analyzed in
arriving at the opinion of value. Failure to comply with the requirements of the
ADA may adversely affect the value of the property. C&W recommends that an
expert in this field be employed.
12. Additional work requested by the client beyond the scope of this assignment
will be billed at our prevailing hourly rate. Preparation for court testimony,
update valuations. additional research, depositions, travel or other proceedings
will be billed at our prevailing hourly rate, plus reimbursement of expenses.
13. The reader acknowledges that Cushman & Wakefield Denver has been retained
hereunder as an independent contractor to perform the services described herein
and nothing in this agreement shall be deemed to create any other relationship
between us. This assignment shall be deemed concluded and the services hereunder
completed upon delivery to you of the appraisal report discussed herein.
14. This study has not been prepared for use in connection with litigation and
this document is not suitable for use in a litigation action. Accordingly, no
rights to expert testimony, pretrial or other conferences, deposition, or
related services are included with this appraisal. If, as a result of this
undertaking, C&W or any of its principals, its appraisers or consultants are
requested or required to provide any litigation services, such shall be subject
to the provisions of the C&W engagement letter or, if not specified therein,
subject to the reasonable availability of C&W and/or said principals or
appraisers at the time and shall further be subject to the party or parties
requesting or requiring such services paying the then-applicable professional
fees and expenses of C&W either in accordance with the provisions of the
engagement letter or arrangements at the time, as the case may be.
ASSUMPTIONS AND LIMITING CONDITIONS
Extraordinary Assumptions
An extraordinary assumption is defined as "an assumption, directly related to a
specific assignment, which, if found to be false, could alter the appraiser's
opinions or conclusions. Extraordinary assumptions presume as fact otherwise
uncertain information about physical, legal or economic characteristics of the
subject property or about conditions external to the property, such as market
conditions or trends, or the integrity of data used in an analysis: (USPAP2001
Edition, ASS oIThe Appraisal Foundation, 1/1/2001, page 2).
Our conversations with the maintenance supervisor indicated that the subject
property experienced soil settlement in some of the concrete stairs and
carports. We did not receive a copy of structural tests and we assume throughout
this analysis that there are no hidden or unapparent conditions of the Property,
subsoil or structures that render the Property more or less valuable (no
responsibility is assumed for such conditions or for arranging for engineering
studies that may be required to discover them).
Hypothetical Conditions
A hypothetical condition is defined as "that which is contrary to what exists,
but is supposed for the purpose of analysis. Hypothetical conditions assume
conditions contrary to known facts about physical, legal, or economic
characteristics of the subject property or about conditions external to the
property, such as market conditions or trends, or the integrity of data used in
an analysis: (USPAP 2001 Edition, ASS oIThe Appraisal Foundation, 1/1/2001, page
3).
This appraisal employs no hypothetical conditions.
CERTIFICATION OF APPRAISAL
We certify that, to the best of our 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 our personal, impartial,
and unbiased professional analyses, opinions, and conclusions.
3. We 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. We have no bias with respect to the property that is the subject of this
report or to the parties involved with this assignment.
5. Our engagement in this assignment was not contingent upon developing or
reporting predetermined results.
6. Our 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. Our analyses, opinions, and conclusions were developed, and this report has
been prepared, in conformity with the Uniform Siandards of Professional
Appraisal Praclice of the Appraisal Foundation and the Code of Professional
Ethics and the Standards of Professional Appraisal Practice of the Appraisal
Institute.
8. Arod B. Javier made a personal inspection of the property that is the subject
of this report. Guy DiRienzo, MAl, Managing Director, Valuation Advisory
Services, reviewed and approved the report but did not inspect the property.
9. No one provided significant real property appraisal assistance to the persons
signing this report.
10. The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
11. As of the date of this report, Appraisal Institute continuing education for
Arod B. Javier and Guy DiRienzo, MAl is current.
Arod B. Javier
Associate Appraiser
Colorado Certified General Appraiser
License No. EMPTY
arodjavier@cushwake.com
303-813-6493 Office Direct
303-813-6499 Fax
Guy DiRienzo, MAl
Managing Director
Kansas Certified General Appraiser
License No. G-1420
guy-dirienzo@cushwake.com
303-813-6443
303-813-6499
Addenda Contents
ADDENDUM A: Qualifications of the Appraisers