COMPLETE APPRAISAL OF
REAL PROPERTY
Sunwood Village Apartments
4020 South Arville
Las Vegas, Nevada
IN A RESTRICTED
APPRAISAL REPORT
As of 4/13/04
Prepared For:
SPECS, Inc.
Suite LH-06
4200 Blue Ridge Boulevard
Kansas City, Missouri 64133
Prepared By:
Cushman & Wakefield of Arizona, Inc.
Valuation Services, Advisory Group
2525 East Camelback Road Suite 1000
Phoenix, AZ 85016
C&W File 10: 04-9060
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 26, 2004
Mr. Jim Hoyt
SPECS, Inc.
1 Main Street
Suite LH-06
4200 Blue Ridge Boulevard
Kansas City, Missouri 64133
Re: Complete Appraisal of Real Property
In a Self-Contained Report
Sunwood Village Apartments 4020 South Arville
Las Vegas, Nevada
C&W File ID: 04-9060
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: This appraisal employs no extraordinary assumptions.
Hypothetical Conditions: This appraisal employs no hypothetical conditions.
This report was prepared for SPECS. Inc., and is intended only for their
specified use. This report was prepared for SPECS, Inc. and is intended only for
their specified use. It may not be distributed to or relied upon by any other
persons or entities without the written permission of Cushman & Wakefield of
Arizona. Inc.
This appraisal report has been prepared in accordance with our interpretation of
your institutions guidelines, Title XI of the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 (FIRREA), and the Uniform Standards of
Professional Appraisal Practice (USPAP). including the Competency Provision.
The property was inspected by and the report was prepared by Robert J. Ryan,
MAI.
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.
Mr. Jim Hoyt
Specs, Inc.
April 26, 2004
Page 2
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 of the referenced property, subject to the
assumptions and limiting conditions, certifications, extraordinary and
hypothetical conditions, if any, and definitions, "as-is" on April 13, 2004 is:
TEN MILLION SEVEN HUNDRED THOUSAND DOLLARS
$10,700,000
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 twelve
months. Furthermore, a marketing period of approximately twelve 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 ARIZONA, INC.
/S/ ROBERT J. RYAN
- ------------------------
Robert J. Ryan, MAI
Director
Nevada Certified General Appraiser
License No. 00789
bob_ryan@cushwake.com
602-229-5904 Office Direct
602-229-5996 Fax
SUMMARY OF SALIENT FACTS
Common Property Name: Sunwood Village Apartments
Location: 4020 South Arville
Las Vegas, Clark County, Nevada
The site is located on the east side of South
Arville Street about 200 feet north of Flamingo
Boulevard.
Property Description: The property consists of a 22-building, two-
story garden apartment community containing
252 units on a 9.8 acre parcel of land.
Assessor's Parcel Number: 162-18-801-003
Appraisal Guidelines: This appraisal has been prepared in conformance
with The Departure Provision of the Appraisal
Institute for a Restricted Report guidelines.
Interest Appraised: Fee Simple Estate
Date of Value: April 13, 2004
Date of Inspection: April 13, 2004
Ownership: Sunwood Village Joint Venture L.P.
Occupancy: Current physical occupancy is 86.51 percent,
with 218 occupied units and 34 vacant units or
units that are being vacated. Tenants are
typically employed by the casino hotels and
are either singles, couples, or two people
sharing an apartment. The subject does
not have many families, but does include some
retired couples.
Current Property Taxes
Total Assessment: $3,556,371
2003/2004 Property Taxes: $108,000 (estimated)
Highest and Best Use
If Vacant: Residential property development to the highest
density possible
As Improved: As it is currently employed
Site & Improvements
Zoning: R-4, Multi-family, 24 units per acre
Land Area: 9.80 gross acres (9.80 net)
426,888 gross square feet (426,888 net)
Number of Units: 252
Number of Stories: two
Number of Buildings: 22
Year Built/Renovated: 1985 (n/a)
Type of Construction: Wood frame and stucco exterior finish with flat
wood deck roof
Net Building Area: 194,975
Parking: 365 spaces (1.45:Unit). Some are covered but
none are assigned.
INDICATED VALUE
STABILIZED
(Year 1, 6/1/04)
Sales Comparison Approach:
Indicated Value: $9,875,000
Per Unit: $39,286
Per Square Foot: $ 50.78
Income Capitalization Approach
Direct Capitalization
Net Operating Income: $858,809
Capitalization Rate: 8.00%
Indicated Value: $10,725,000
Per Unit: $42,560
Per Square Foot: $55.06
Reconciled Income Capitalization
Approach Value: $10,700,000
Per Unit: $42,460
Per Square Foot: $54.88
FINAL VALUE CONCLUSION $10,700,000
Per Unit: $38,889
Per Square Foot: $50.26
Implied Capitalization Rate: 8.00%
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."
This appraisal employs no extraordinary assumptions.
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]
View of subject as it fronts Arville facing south
[GRAPHIC OMITTED]
Entrance to subject from Arville facing east
[GRAPHIC OMITTED]
View of clubhouse and leasing/manager's office
[GRAPHIC OMITTED]
Interior of clubhouse
[GRAPHIC OMITTED]
Second view of clubhouse interior
[GRAPHIC OMITTED]
View of the pool facing south from in front of clubhouse
[GRAPHIC OMITTED]
South Arville facing south
[GRAPHIC OMITTED]
South Arville facing north
[GRAPHIC OMITTED]
Close view of typical building
[GRAPHIC OMITTED]
Another view of typical building and apartment entrances
[GRAPHIC OMITTED]
View of another building with typical balcony and patio
(Note Palms Hotel/Casino in background)
[GRAPHIC OMITTED]
Typical buildings and covered parking
[GRAPHIC OMITTED]
View of typical entrance to an apartment
[GRAPHIC OMITTED]
Typical interior of one of three laundry rooms
[GRAPHIC OMITTED]
Subject's tennis courts
[GRAPHIC OMITTED]
View of typical landscaped courtyard between buildings.
[GRAPHIC OMITTED]
Children's playground area
[GRAPHIC OMITTED]
Typical covered parking
[GRAPHIC OMITTED]
Kitchen in model
[GRAPHIC OMITTED]
Vacant kitchen
[GRAPHIC OMITTED]
Living room in model
[GRAPHIC OMITTED]
Living room in vacant unit
[GRAPHIC OMITTED]
Bedroom in model
[GRAPHIC OMITTED]
Vacant unit bedroom
TABLE OF CONTENTS
INTRODUCTION 1
REGIONAL ANALYSIS 6
LOCAL AREA ANALYSIS 12
APARTMENT MARKET ANALYSIS 14
SITE DESCRIPTION 17
IMPROVEMENTS DESCRIPTION 19
HIGHEST AND BEST USE 22
VALUATION PROCESS 24
SALES COMPARISON APPROACH 26
INCOME CAPITALIZATION APPROACH 32
RECONCILIATION AND FINAL VALUE OPINION 45
ASSUMPTIONS AND LIMITING CONDITIONS 46
CERTIFICATION OF APPRAISAL 49
ADDENDA 50
INTRODUCTION
Identification of Property
Common Property Name: Sunwood Village Apartments
Location: 4020 South Arville
Las Vegas, Clark County, Nevada 89103
The site is located on the east side of
South Arville Street about 200 feet
north of Flamingo Boulevard.
Property Description: The property consists of a 19 year old,
22-building, two-story garden apartment
complex containing 252 units on a 9.8
acre site.
Assessor's Parcel Number: 162-18-801-003
Property Ownership and Recent History
Current Ownership: Sunwood Village Joint Venture L.P.
Sale History: The property has not transferred within
the past three years to the best of our
knowledge. However, we have been
informed by the owners there is an
unsolicited offer of over $12,000,000.
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
evaluating potential financing on a sale transaction. 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 13, 2004. The property was
inspected on April 13, 2004 by Robert J. Ryan, MAI
Property Rights Appraised
Since the subject is leased but with short term lease agreements typical of an
apartment complex, we are estimating an opinion of the market value of the 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 (USPAP) for a Self-Contained 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 sub-market, 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.
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.
Leased Fee Estate
An ownership interest held by a landlord with the rights of use and
occupancy conveyed by lease to others. The rights of the lessor (the leased
fee owner) and the leased fee are specified by contract terms contained
within the lease.
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 Clark County as Parcel Number 162-18-801-003.
REGIONAL ANALYSIS
[GRAPHIC OMITTED]
REGIONAL MAP
Introduction
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 Las Vegas about two miles west of
the Las Vegas strip.
Economic & Demographic Profile
The following profile of the Las Vegas metropolitan area was provided by
Economy.com, a leading provider of economic, financial, and industry
information.
Economy.com's core assets of proprietary editorial and research content as
well as economic and financial databases are a source of information on national
and regional economies, industries, financial markets, and demographics. The
company is staffed with economists, data specialists, programmers, and online
producers who create a proprietary database.
Economy.com's approach to the analysis of the U.S. economy consists of building
a large-scale, simultaneous-equation econometric models, which they simulate and
adjust with local market information, creating a model of the U.S. macro economy
that is both top-down and bottom-up. As a result, those variables that are
national in nature are modeled nationally while those that are regional in
nature are modeled regionally. Thus, interest rates, prices, and business
investment are modeled as national variables; key sectors such as labor markets
(employment, labor force), demographics (population, households, and migration),
and construction activity (housing starts and sales) are modeled regionally and
then aggregated to national totals. This approach allows local information to
influence the macroeconomic outlook. Therefore, changes in fiscal policy at the
national level (changes in tax rates, for example) are translated into their
corresponding effects on state economies. At the same time, the growth patterns
of large states, such as California, New York, and Texas, playa major role in
shaping the national outlook.
In addition on a regional basis, the modeling system is explicitly linked to
other states through migration flows and unemployment rates. Economy.com's model
structure also takes into account migration between states.
Las Vegas
Employment Growth
2002-04
4
2002-07
4
Best= 1
Worst = 325
MSA Life Cycle Phase
Mature
Vitality
Best = 1
Worst = 325
169
Cost of doing business U.S.=100%
98%
Cost of Living U.S.=100%
104%
- ---------------------------------------------------------------
Relative Employment Performance (1991=100)
[GRAPHIC OMITTED-Line graph 1990-2007]
- ---------------------------------------------------------------
1996 1997 1998 1999 2000 2001 2002 Indicators
38.6 40.9 43.3 46.3 49.5 50.9 52.3 Gross
Metro
Product,
C$B
9.7 6.0 5.8 7.1 6.7 3.0 2.7 % Change
592.1 631.4 630.0 713.3 752.2 783.4 787.9 Total
Employment
(000)
8.8 6.6 5.0 7.6 5.4 4.1 0.6 % Change
5.5 4.1 4.2 4.4 4.1 5.4 5.7 Unemployment
Rate
11.0 10.1 11.3 7.6 8.8 5.0 4.2 Personal
Income
Growth
1,262.4 1,346.6 1,426.9 1,503.1 1,582.9 1,653.3 1,722.3 Population,
(000)
20,513 20,555 21,628 21,823 23,169 24,012 24,702 Single-Fam1ily
Permits
11,868 10,321 10,977 6,977 4,993 7,926 7,249 Multifamily,
Permits
118.5 122.9 127.9 130.6 137.3 148.5 160.0 Existing
Home
Price
($Ths)
7,162 7,057 12,580 10,648 9,757 22,129 29,292 Mortgage
Originations
($Mil)
63.2 74.6 69.9 65.9 68.9 57.6 56.4 Net
Migration
(000)
8,192 10,729 12,384 11,322 10,799 14,439 15,882 Personal
Bankruptcies
Indicators 2003 2004 2005 2006 2007
Gross
Metro
Product,
C$B 54.6 57.1 59.2 62.3 65.2
% Change 4.3 4.6 3.7 5.1 4.7
Total
Employment
(000) 806.8 832.7 859.2 896.6 930.9
% Change 2.4 3.2 3.2 4.4 3.8
Unemployment
Rate 5.4 5.3 5.0 5.0 4.9
Personal
Income
Growth 5.7 5.9 6.7 7.6 7.0
Population,
(000) 1,790.9 1,851.0 1,905.1 1,980.1 2,054.6
Single-Fam1ily
Permits 30,472 28,345 26,045 27,285 27,593
Multifamily,
Permits 10,203 6,556 6,315 7,449 8,274
Existing
Home
Price
($Ths) 179.5 186.4 192.1 196.5 201.4
Mortgage
Originations
($Mil) 42,048 23,774 19,340 20,971 22,423
Net
Migration
(000) 56.7 47.8 41.7 62.3 61.5
Personal
Bankruptcies 17,018 15,554 14,194 15,033 16,861
STRENGTHS
- - Nevada has no personal income tax.
- - Robust population growth supports local industries
- - Housing is affordable..
WEAKNESSES
- - Over-reliance on tourism makes employment growth volatile and
endangers fiscal conditions.
- - Low per capita income, and weak income growth.
- - Water scarcity may ultimately contain growth.
- -------------------------------------------------------------
[GRAPHIC OMITTED-Bar graph]
CURRENT EMPLOYMENT TRENDS
November 2003 Employment Growth
% Change Year Ago
Total 4.0
Construction 8.3
Manufacturing 4.6
Trade 4.9
Trans/Utilities 1.8
Information -4.7
Financial Activities 5.3
Prof & Business Svcs 3.6
Edu & Health Svcs 6.3
Leisure & Hospitality 3.1
Other Services 1.4
Government 3.1
- -------------------------------------------------------------
Forecast Risks
Short Term [Up Arrow]
Long Term [ Down Arrow]
Risk-Adjusted Return, '02-07:1.08%
UPSIDE
- - Industrial base diversifies to a greater extent than anticipated.
- - Tourism industry invests more heavily in non-gaming attractions.
- - State government broadens the tax base.
DOWNSIDE
- - Housing market slumps due to unexpectedly slow migration.
- - Sustained strong U.S-dollar cuts into foreign arrivals.
- -------------------------------------------------------------
Recent Performance. The Las Vegas economy is growing at a strong and
accelerating pace, leading the nation's large metro areas in job growth. Visitor
arrivals, gaming revenue, and hotel performance are making sustained,
incremental improvements, and construction activity is heating up. The housing
market is enjoying a robust expansion, with building and prices up strongly over
year-ago levels. Population growth is cooling a bit, but demographic forces
continue to argue for healthy short and long-term economic expansion. Lack of
industrial diversity remains a long term threat to growth, however. The private
and public sectors are disproportionately reliant on the continued expansion of
tourism.
Global recovery. The strength of the global economic recovery is a crucial
factor in determining the near-term outlook for LAS. LAS was the sixth most
popular destination city in the continental U.S. for foreign tourists in 2002,
and foreigners make up a nontrivial portion, around 12%, of LAS's visitor base.
But foreigners' share dropped to 8% last year, even as overall visitation was
basically flat. An upswing in international visitors is essential to the growth
in the tourism industry. Air service to Europe and Asia is increasing, and the
metro area set up a tourism promotion office in Beijing in October, signaling a
clear intention to tap that market. A downside risk lies in an unexpectedly
sharp appreciation of the U.S. dollar which would trim affordability for foreign
visitors.
Conventions. Convention attendance in LAS has been very strong, up 13% year
to date through October. Private convention center additions. such as Mandalay
Bay's expansion to 1.8 million sf of meeting space earlier this year, have
vaulted LAS to the top three convention markets by capacity. However, while its
gargantuan size gives it unique leverage for bigger shows, half of all LAS
convention attendees during the first half of 2003 attended conventions of 500
people or fewer. This puts half of the area's convention business in competition
with a very large number of smaller venues across the country. Only a quarter of
the LAS convention attendees were part of conventions of 15,000 or greater.
Thus, while the mammoth capacity of some LAS venues is a compelling factor in a
small number of cases, in the majority of cases, LAS actually faces a large
number of competitors.
Retail. Retail employment growth is picking up in LAS, and this growth
reflects two things. First, retail demand is recovering as visitor arrivals and
spending rebound; payrolls, wh1ch held flat through 2002, have had to play
catch-up. Second, growth reflects a long-term trend of infusing LAS destinations
with a higher concentration of retail outlets. Expansions already planned for
the Strip will add 1.5 million sf, or about 50% more space, to the existing
retail inventory. Mandalay Place, which opened this fall, brings 40 new stores
and restaurants to the south end of the Strip. The Strip's glitzy Fashion Show
mall will more than double its space to 1.9 million sf next year when its $1
billion expansion wraps up. And Steve Wynn's Revile resort, opening in 2005 will
bring the first auto dealership (Maseratis and Ferraris) to the Strip. Retail
rents and vacancy rates have remained stable amid the building boom, but will
warrant watching.
Las Vegas is posting enviable job growth, and will benefit further from the
national and global recovery in 2004. Long term, poor income trends present a
challenge to the advancement of local industries and make the metro area all the
more reliant on the inflow of tourist dollars. Nevertheless, due to strong
population trends and low business costs, the outlook calls for exceptionally
strong growth. LAS will be one of the top performing metro areas in the U.S.
over the forecast horizon.
David Givens
December 2003
TOP EMPLOYERS
MGM Mirage 39,000
Mandalay Bay Resort & Casino 25,000
Park Place Entertainment Corporation 19,620
Station Casinos 10,000
Hanah's Entertainment, Inc. 9,500
Nellis Air Force Base 7,774
Coast Casinos 7,252
Boyd Gaming Corporation 7,000
Venetian Casino Resorts LLC 4,600
University Medical Center of S. Nevada 3,800
Sunrise Hospital and Medical Center 3,500
Aladdin Resort & Casino 2,800
Imperial Palace Hotel and Casino 2,400
University of Nevada-Las Vegas 2,371
Tropicana Hotel 2,360
Icahn Gaming 2,300
St. Rose Dominican Hospitals 2,100
Community College of Southern Nevada 2,000
Riveria Hotel Casino 2,000
GES Exposition Services, Inc. 500
Sources: Economy.com 2003 & Guide to Military Installations, 2003 & Las Vegas
Business Press, March 2003
Public
Federal 10,501
State 14,029
Local 61,922
2002
- -------------------------------------------------------------
INDUSTRY DIVERSITY
Most Diverse (U.S.)
1.0
0.80
0.60
LAS 0.23
0.40
0.20
0.00
Least Diverse
EMPLOYMENT VOLATILITY
DUE TO U.S. FLUCTUATIONS: 21% Not due to U.S.; 79% Due to U.S.
Relative to U.S.: US- 100; LAS =228
[GRAPHIC OMITTED-Bar graphs]
- -----------------------------------------------------
COMPARATIVE EMPLOYMENT AND INCOME
% of Total Employment Average Annual Earnings
Sector LAS NV US LAS NV US
Construction 9.6% 8.7% 5.2% $47,727 $47,977 $39,845
Manufacturing 3.1% 4.1% 12.0% $39,795 $44,780 $48,756
Durable 65.9% 64.9% 62.0% nd $46,853 $50,404
Nondurable 34.1% 35.1% 38.0% nd $40,557 $45,969
Transport/Utilities 3.8% 3.9% 3.6% $37,405 $38,715 $44,972
Wholesale Trade 2.8% 3.3% 4.4% $48,433 $48,164 $51,842
Retail Trade 11.3% 10.9% 11.7% $25,161 $25,038 $22,635
Information 1.7% 1.6% 2.6% $53,542 $51,359 $69,569
Financial
Activities 5.5% 5.3% 6.0% $26,688 $26,928 $41,740
Prof. and Bus.
Services 11.2% 10.8% 12.4% $39,767 $39,576 $43,053
Educ. and Health
Services 6.8% 6.8% 12.5% $39,549 $39,589 $34,032
Leisure and Hosp.
Services 30.2% 28.3% 9.0% $28,959 $28,196 $19,135
Other Services 2.9% 2.9% 3.9% $20,742 $20,799 $19,842
Government 11.0% 12.4% 16.2% $49,858 $50,829 $42,939
<FN>
Source: Percent of total employment - Economy.com & BLS, 2002; Average annual
earnings - BEA, 2001
</FN>
HOUSE PRICES
[GRAPHIC OMITTED-Line Graph (1987-2003)]
CREDIT QUALITY
Fitch: N/A
Moody's: County: Aa2
LEADING INDUSTRIES
NAICS Industry Employees (000)
7211 Traveler Accommodations 161.5
7221 Full-Service Restaurants 26.7
7222 Limited-Service Eating Places 23.7
2383 Building Finishing Contractors 16.1
2382 Building Equipment Contractors 15.8
2381 Foundation, Struc., & Bldg. Ext. Contractors 14.7
2360 Construction of Buildings 14.0
5617 Services to Buildings and Dwellings 12.7
7139 Other Amusement and Recreation Industries. 10.7
2370 Heavy and Civil Engineering Construction 8.6
4853 Taxi and Limousine Service 7.5
4481 Clothing Stores 7.3
5616 Investigation and Security Services 6.9
5311 Lessors of Real Estate 6.4
2389 Other Specialty Trade Contractors 6.1
High-tech employment 20.7
As % of total employment 2.6
<FN>
Source: BLS, Economy.com, 2002
</FN>
- ---------------------------------------------------------
MIGRATION FLOWS
Into Las Vegas Number of Migrants Median
Income
Los Angeles 9,794 20,514
Riverside 4,813 20,744
San Diego 3,374 25,771
Orange County 3,185 29,256
Chicago 2,828 26,533
Phoenix 2,699 24,335
Oakland 1,970 32,285
Salt Lake City 1,824 25,860
San Jose 1,673 34,438
Honolulu 1,412 19,237
Total Inmigration 94,429 22,939
From Las Vegas
Los Angeles 4,046 17,362
Riverside 3,472 19,688
Phoenix 2,912 24,405
San Diego 1,738 21,214
Orange County 1,305 22,001
Reno 1,004 19,112
Chicago 984 21,174
Salt Lake City 973 22,787
Denver 821 24,370
Seattle 722 20,579
Total Outmigration 60,549 20,976
Net Migration 60,549 20,976
NET MIGRATION, LAS
[GRAPHIC OMITTED-Bar Graph]
Domestic Foreign Total
1998 40,760 20,153 69,913
1999 39,375 26,546 65,921
2000 45,120 23,746 68,866
2001 43,922 13,653 57,575
2002 42,765 13,617 56,382
<FN>
Source: IRS (top), 2002; Census Bureau &
Economy.com, 2002
</FN>
- ------------------------------------------------
PER CAPITA INCOME
[GRAPHIC OMITTED-Bar Graph]
27,916
LAS
30,128
NV
30,413
US
Source: Bureau of Economic Analysis, 2001
- ----------------------------------------------
LAS VEGAS
Construction is Outpacing Demographic Demand
[GRAPHIC OMITTED-Line Graph]
LAS can expect a deceleration in homebuilding over the next one to two
years as the moderation in household formations weighs on the demand for new
units. LAS is not an overbuilt market, but inventories have edged upward over
the last year in the wake of strong building, especially in the single-family
market. In addition, price appreciation in the market has outpaced household
income growth for three years, which cannot be sustained indefinitely. Slowing
price appreciation will weigh on building activity.
Underway but Unfinished
[GRAPHIC OMMITED-Bar Graph]
LAS's tourism recovery is under way, but the industry is still shy of its
pre-recession peak by most measures. Gaming revenue on the Strip showed very
strong growth during the third quarter in part because of easy year-over-year
comparisons, but also because of a genuine, late summer pickup in travel volume.
Hotel performance in LAS is looking better by the week, as room rates and
occupancies beat 2002 levels. Forward-looking room rate surveys show strength
through the New Year. By mid-2004, with a continued macro recovery, tourism
indicators should reach peak levels again.
Markets Over the Horizon
[GRAPHIC OMITTED-Bar Graph]
Far-flung air markets represent growth opportunities for Las Vegas. China's
contribution could help to boost Asian visitation tremendously, once direct air
service to that country is established. Less than 10% of U.S.-bound Western
Europeans come to LAS, although Virgin's service from London has been very well
received, suggesting that there is room for growth. Under 5% of South American
visitors to the U.S. make it to LAS, in part because the East Coast city of
Miami is a hub for much of the U.S.-South American air traffic. With concerted
overseas marketing, LAS could strengthen its international visitation and
diversify its tourism base.
Non-tourism Sectors Grow at Solid Pace
[GRAPHIC OMITTED-Bar Graph]
LAS's non-tourism industries have held their own through the area's
recession and recovery. Growth in total employment, ex leisure and hospitality
services, has topped 3% on a year-ago basis on the strength of construction,
healthcare and local government. Driven by population growth, these industries
were more immune to the recession than were travel-based industries that feed
off a prosperous national economy, and they've added a measure of stability to
the otherwise volatile expansion of the gaming-based tourism sector.
Critical Observations
The following bullet points summarize some of our general observations relating
to the subject's region.
.. Location - The subject is located in an older but central location within
the Las Vegas MSA. It is convenient to employment with the casino hotels
that are located along the famed Las Vegas Boulevard "strip" about two
miles east of the subject.
.. Economy - Las Vegas's economy is expanding. Employment is not well
diversified and is heavily dependent upon tourism and the gaming industry.
However, the subject's proximity to the "strip" and the casino-hotels is a
positive for many of the subject's residents and area resident that are
employed by them. This is not expected to change in the near future.
.. Population - Population growth in the MSA is forecasted to be 3.7 percent
per year.
.. Income - Income levels are projected to increase at an annual rate of about
5.5 percent per year over the next five years. Per capita income is below
statewide levels and below the national average due to a high incidence of
lower wage positions in the service and gaming industry, However it has a
relatively average cost of living.
.. Strengths - Strengths of the region include affordable housing, no personal
income tax and a growing population and market.
.. Weaknesses - Weaknesses within the MSA include an over-reliance on tourism,
low educational levels of much of the work force and low per capital
income. A long term problem is water scarcity which will worsen if growth
is not either curtailed or better regulated.
Conclusion
In light of the social and economic attributes of the greater Las Vegas area, we
are cautiously optimistic about the short-term outlook. Long-term, the region
should see stability and moderate growth, with increasing real estate values.
LOCAL AREA MAP
[GRAPHIC OMITTED]
LOCAL AREA ANALYSIS
Location
The property is located in a central portion of the City of Las Vegas in Clark
County. Generally, the boundaries of the immediate area are Desert Inn to the
north, Highway 1-15 to the east, Tropicana Boulevard to the south and Jones
Boulevard to the west.
Access
Local area accessibility is generally good, relying on the following
transportation arteries:
Local: Most of the Las Vegas area is designed
in a grid pattern with major arterials
at one mile intervals. The local area is
an example. Major east-west
thoroughfares include Tropicana and
Flamingo Boulevards to the south and
Spring Mountain Road, Desert Inn Road
and Sahara Avenue to the north. North-
South routes include Valley View
Boulevard to the east and Decatur and
Jones boulevards to the west.
Regional: Interstate 15 provides regional access
and egress with the nearest access point
being about 1.5 miles east of the
subject at Flamingo Boulevard. 11
interchanges with highway 95 about seven
miles north of Flamingo.
There is some public transportation along major arterials like Flamingo. Given
the level of build-out, there is little likelihood the current road system will
experience any change.
Nearby and Adjacent Uses
The subject's local area is predominantly composed of apartment complexes with
most of the subject's competition located within one to two blocks. Major
thoroughfares, such as those mentioned above are commercial in character which
is typical of the city in general.
Local Area Characteristics
The subject's local area developed in the late 1970's through the early to mid
1980's. At that point it was nearly 100 percent developed. The newest addition
is the Palm Casino Hotel located about one block to the south on the south side
of Flamingo Road. It required the acquisition and demolition of some small and
older one story commercial uses.
Major arterials like Flamingo Road are commercial. Within one block of the
subject, on the southeast corner of Arville and Flamingo is the Palm Hotel and
its parking garage. The southwest corner is improved with a mid sized strip
center with local retailers and businesses. The northwest corner is improved
with a Chevron Station, a "Terrible's" car wash and a bank branch (all are
behind the subject). Also within one to three blocks is the Gold Coast Casino
and Hotel and the much larger Rio Casino Hotel; both east of the subject and
Arville Road. The northwest corner is a walled area separating Flamingo Road
from a residential area comprised of one family homes.
The interior streets are dominated by two story apartment complexes similar in
age to the subject, but with some variation in observable condition and quality.
The area also includes two condominium projects and a mobile home park about one
half mile northwest of the subject.
Improvements in closest proximity to the subject are the following:
North: Grandview apartments, one of the subject's competitors
East: Wynn Drive and Gold Coast Casino Hotel
South: Three story office building, a bank branch, Sonic Restaurant that is
under construction (all along the north side of Flamingo and south side of
subject site)
West: Opposite side of Arville - one family homes
Special Hazards or Adverse Influences
There are no detrimental influences such as land fill, flood zones, or uses that
would result in air and/or noise pollution in the vicinity of the subject.
Land Use Changes
The pattern of land described above is not likely to change without the
acquisition of older buildings and their subsequent demolition. An example is
the Palm Hotel and Casino. However, the interior streets have been and will
remain residential with little if any change.
Conclusion
The are can best be described as stable. It is not likely, due to its built-out
nature, population or households will increase in the local area. It experiences
steady and sometimes heavy traffic patterns because of Flamingo Road being a
major arterial and due to the presence of the Palm, Gold Coast and Rio hotel and
resorts all within three blocks of the subject. The positive relating to their
proximity is the employment they offer and in fact provide to area residents.
APARTMENT MARKET ANALYSIS
Las Vegas Multifamily Market Overview
In order to better analyze the financial feasibility and marketability of
residential uses within the subject development, a detailed discussion and
analysis of the residential market conditions for metropolitan Las Vegas and the
subject's market area are provided.
Permit Activity/Demand
Historically, metropolitan Las Vegas multifamily residential building activity
can be best characterized as a series of cycles. Peaks in new permits occurred
in 1988/1989 (13,341 to 18,583) arid 1996/1998 (11,287 to 10,076). This was
followed by gradual declines in new construction as demand caught up with the
supply. Since 2000, multifamily permits gradually increased through 2002, then
declined in 2003. Depending on the source, new units are forecast in 2004 to
range from 3,000 to 5,000.
MULTI-FAMILY SUMMARY
YEAR Units Units Absorbed Vacancy
Permitted completed
1999 5,400 7,800 6,400 4,6%
2000 5,100 5,000 3,700 4,8%
2001 7,900 5,300 1,200 6.1%
2002 7,300 4,700 4,000 8.4%
2003 4,500 4,800 7,150 7.9%
2004 est 5,000 5,000 6,000 6.8%
Source: CBRE
The 10-year average for new construction in Las Vegas has been 5,860. Average
absorption for the past 10 years is 4,990. In 2004, it is expected that
vacancies should decline as absorption exceeds new supply.
Vacancy
Several different sources track vacancy in Las Vegas, each having slightly
different figures. Historical vacancies in Las Vegas are summarized as follows.
HISTORICAL AVERAGE VACANCY - LAS VEGAS
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
3.7% 2.9% 3.2% 5.2% 7.8% 6.7% 4.6% 4.8% 6.1% 8.4% 6.3%
Source: Hendricks & Partners
The detailed monthly 2003 vacancy per CBRE is summarized as follows.
Overall
Year Month (all classes)
2003 January 9.22%
February 8.78
March 8.04
April 8.46
May 8.25
June 8.51
July 7.85
August 6.98
September 6.51
October 6.82
November 7.64
December 7.59
AVG 7.89
Source: CBRE
Due to the decreased travel post 9/11/01, which reduced hotel and casino
traffic, apartment occupancies suffered in 2002 due to staff reduction at hotels
and casinos and continued new supply. However in 2003, as the national economy
recovered, normalized travel resumed, and new home prices continued to increase,
apartment demand increased, allowing vacancy levels to decrease.
Rent Levels
The following table summarizes a 12-month comparison of vacancy and rents for
the Las Vegas apartment sub-markets compiled by Hendricks & Partners.
FOURTH QUARTER 2002/2003 LAS VEGAS APARTMENT
MARKET RECAP
Vacancy Average Rents
4th Qtr. 4th Qtr. 4th Qtr. 4th Qtr. Annual
Market Area 2003 2002 2003 2002 Increase
Lone Mountain/
NW Las Vegas 5.8% 7.0% $763 $741 2.9%
North Las Vegas 5.8% 7.1% $719 $748 -3.9%
Downtown 6.2% 6.0% $576 $579 -0.6%
Sunrise Manor/East LV 5.0% 8.8% $661 $658 0.4%
Spring Valley/Enterprise 4.1% 7.1% $754 $751 0.4%
The Strip 4.6% 8.1% $738 $712 3.6%
Paradise 4.6% 6.6% $732 $723 1.2%
Green Valley/Henderson 4.7% 7.1% $835 $818 2.1%
Totals 4.8% 7.4% 746 $734 1.6%
Source: Hendricks & Partners Apartment Update
Las Vegas apartment rental rates continue to grow but at a much slower rate,
approximately 1.5 percent through 2003 versus 0.9 percent in 2002. The current
rent rate per the Marcus & Millichap averages $746 per month. Due to the
significant amount of recent supply additions, it appears that rental
concessions, primarily in the form of free rent, mitigated a large portion of
the rental rate growth, which was as high as 3.7 percent in 1996.
CBRE reports increasing rents over the past year, currently averaging $768 per
month, or $0.81 per square foot, compared with $755, or $0.82 per square foot in
2002, an increase of 1.7 percent.
Overall, it appears that rents increased slightly in 2003, although concessions
are widespread. However, all sources expect rent to rebound in 2004, with 2 to 3
percent rent growth.
Concluding Citywide Remarks
The current market conditions are best summarized as follows:
. Unemployment rates, which had increased after 9/11, have again
decreased, and employment growth has recently been increasing, and is
expected by most economists to have modest growth in 2004.
. As new residents move to Clark County, demand for housing stays
strong. Mortgage interest rates are still very low relative to the 80s
and 90s, and growth in personal income has outpaced job growth,
leading to a steady increase in demand for housing in the county. Home
prices continued to rise, and the median price of a new single-family
home rose to almost $200,000, up 9.3 percent from a year ago.
. The gaming industry continues to advance despite volatility within the
local and national economy.
In general, it appears the Las Vegas' apartment market remains relatively
strong, despite the substantial building and increased vacancies that have
occurred during the past several years.
SITE DESCRIPTION
Location: 4020 South Arville
Las Vegas, Clark County, Nevada 89103
The site is located on the east side of
South Arville Street about 200 feet
north of Flamingo Boulevard.
Shape: Rectangular
Topography: Level at street grade
Land Area: 9.80 gross acres (9.80 net acres)
426,888 gross square feet (426,888 net
square feet)
Frontage, Access, Visibility: The site has average visibility and
access from both the east side of South
Arville and the west side of South Wynn
Drive. The site is long and narrow with
an atypical 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
structures. We did not observe any
evidence to the contrary during our
physical inspection of the property.
Drainage appears to be adequate.
Utilities
Water: City of Las Vegas
Sewer: City of Las Vegas
Electricity: Nevada Power
Gas: S outhwest Gas
Telephone/Cable: Numerous/Cox Communications
Site Improvements: The site improvements include concrete
paved parking areas, curbing, sign age,
landscaping, yard lighting 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 Map: National Flood Insurance Rate Map
Community Panel Number x dated September
27, 2002.
Flood Zone: FEMA Zone X: Areas determined to be
outside the 500 year flood plain.
Wetlands: We were not given a Wetlands survey.
If subsequent engineering data reveal
the presence of regulated wetlands,
it could materially affect property
value. We recommend a wetlands survey
by a competent engineering firm.
Seismic Hazard: According to a 1996 International
Conference of Building Officials' map
of the United States, the subject is not
believed to be in a special seismic
hazard zone.
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 has a loner and more
narrow that is typical, but it is
functional for the current use.
Real Estate Taxes The subject's most current assessed
value is $3,556,371 resulting in taxes
of $27,131 or $107.66 per unit
Zoning: The subject site is zoning for multi-
family residential use. Although we did
not conduct
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.
IMPROVEMENTS DESCRIPTION
The following description of improvements is based upon our physical inspection
of the improvements along with our discussions with the building manager. The
unit mix is as follows.
UNIT MIX
No. Unit NRA Units Actual
No. Plan BR BA Features Units (SF) (SF) Leased Occupancy
1 one bedroom 1 1 CF. BALC/PATIO 107 625 66.875 94 87.9%
2 small 2 bdrm. 2 1 CF. BALC/PATIO 40 840 33.600 35 87.5%
3 large 2 bdrm. 2 2 CF. BALC/PATIO 105 900 94.500 89 84.8%
TOTAL AVERAGE 252 774 194.975 218 86.5%
<FN>
KEY TO FEATURES
FP - FIREPLACE WDC - W/D CONNECTION
TH - TOWNHOUSE/STUDIO WD - WASHER/DRYER
CFM - CEILING FAN MASTER GT - GARDEN TUB
CFl - CEILING FAN LIVING M - MICROWAVE
</FN>
General Description
Number of Units: 252
Year Built: 1985
Number of Buildings: 22
Number of Stories: two
Net Rentable Area: 194.975 square feet
Design and Functionality: The subject consists of a garden apartment
property of wood frame and stucco exterior
finish with flat wood deck roof and flat roof
with built-up materials. The subject has
Average overall appeal to prospective
apartment tenants.
Amenities: One swimming pool. one whirlpool. three laundry
rooms, exercise room, Barbeque grills.
children's playground on-site courtesy patrol
and some covered parking
Construction Detail
Foundation: Poured concrete slab
Framing: Wood frame and stucco exterior finish with flat
wood deck roof
Floors: Upper floors are of wood decking
Exterior Walls: The exterior facade of the building consists of
stucco over wood.
Roof Cover: Flat roofing system consisting of built-up
assemblies with composition shingle cover.
Windows: Units have thermal windows in aluminum frames.
The windows are single paned with screens.
Mechanical Detail
Heating: Heat to the subject is supplied either by ground
mounted or roof mounted, electric single unit
forced air heaters. Heating is supplied via
baseboard converters with local zone temperature
control.
Cooling: The subject is cooled by either ground mounted
or roof-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: Electricity for the subject is obtained through
low voltage power lines. The building features
low voltage power with 480-volt electric
service.
Elevator Service: The subject does not contain elevators.
Fire Protection: The building is not fully sprinklered.
Security: A tenant, who is a member of the city police
force patrols the grounds and is provided a
discounted monthly rent.
Interior Detail
Layout: The subject property is a 22-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 shower/tub with wall
mounted showerhead, toilet and sink and sheet
vinyl floor covering, and a combination wall
papered gypsum board walls.
Site Improvements
Parking: 365 spaces (1.45:Unit). Some are covered but
none are assigned.
Onsite Landscaping: A variety of trees, shrubbery and grass.
Other: Concrete curbs and walkways.
Summary
Condition: The subject improvements are in average
condition given its competitive position.
There are currently no "downed" or unleasable
units. In fact, the current deferred maintenance
(areas that need paint and upgrade) is
estimated herein to be $45,000.
The property is being maintained and provides an
average appearance relative to competing
properties within its sub-market.
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 good and is consistent
with the comparables in the micro-market.
Layout & Functional Plan: Average
Year Built: 1985
Effective Age: 19 years
Expected Economic Life: 45 years Remaining Economic Life: 26 years
Americans With Disabilities Act
The Americans With Disabilities Act (ADA) became effective January 26, 1992. We
have not made, nor are we qualified by training to make, a specific compliance
survey and analysis of this property to determine whether or not it is in
conformity with the various detailed requirements of the ADA. It is possible
that a compliance survey and a detailed analysis of the requirements of the ADA
could reveal that the property is not in compliance with one or more of the
requirements of the Act. If so, this fact could have a negative effect upon the
value of the property. Since we have not been provided with the results of a
survey, we did not analyze the results of possible non-compliance.
Hazardous Substances
We are not aware of any potentially hazardous materials (such as formaldehyde
foam insulation, asbestos insulation, radon gas emitting materials, or other
potentially hazardous materials), which may have been used in the construction
of the improvements. However, we are not qualified to detect such materials and
urge the client to employ an expert in the field to determine if such hazardous
materials are thought to 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. In both cases, the property's highest and best use must meet four
criteria described above.
Legally Permissible
The first test concerns permitted uses. According to our understanding of the
zoning ordinance, noted earlier in this report, the site may legally be improved
with structures that accommodate residential uses. Aside from the site's zoning
and regulations, we are not aware of any legal restrictions that limit the
potential uses of the subject.
Physically Possible
The second test is what is physically possible. As discussed in the "Property
Description," the site's size, soil, topography, etc. do not physically limit
its use. The subject site is of adequate shape and size to accommodate almost
all urban and suburban/urban uses.
Financial Feasibility and Maximal Productivity
The third and fourth tests are, respectively, what is feasible and what will
produce the highest net return. After analyzing the physically possible and
legally permissible uses of the property, the highest and best use must be
considered in light of financial feasibility and maximum productivity. For a
potential use to be seriously considered, it must have the potential to provide
a sufficient return to attract investment capital over alternative forms of
investment. A positive net income or acceptable rate of return would indicate
that a use is financially feasible.
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 residential 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
support 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. 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 particularity 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 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.
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.
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.
[GRAPHIC OMITTED]
COMPARABLE APARTMENT PROPERTY SALES MAP
APARTMENT SALES
Name Grantor Sale Price Average % Occ. Quality SP/SF
------- ------- ----------- -------- -------- ------- -------
No. Address Grantee Date Bldg SqFt # Units Year SP/Unit
Built
1. Cypress EQR-Cypress
Point Point Vistas $13,850,000 898 92.0% average $72.73
5275 W.
Tropicana 15th &
Sanchez
Partners 12/03 190,440 212 units 1989 $65,330
2. The Ritz The Ritz
Apartments,
LLC $12,700,000 1,038 98.0% average $62.44
4250 S.
Jones Blvd. 4250 S. 5/03 203,408 196 units 1990 $64,796
Jones LLC
3. Sandpebble Legacy $10,880,000 739 91.0% average $52.58
Village Sandpebble
4480 Sirious Sandpebble 4/03 206,920 280 units 1980 $38,857
Avenue Village Apt.
Homes (LLC)
4. Woodcreek Royal
Palms
Apartments $10,600,000 962 85.0% average $47.48
4485 Pennwood
Pennwood Partners
Avenue (LLC) 12/02 223,240 232 units 1978 $45,690
5. Emerald Emerald
Park Parkm
Apartments Associates $11,500,000 650 8600.0% average $58.96
4545 DOIT Park
Pennwood Associates
Avenue (LLC) 11/02 195,040 300 units 1978 $38,333
Expense
Name Grantor Ratio NOI/Unit
------- ------- -------- --------
No. Address Grantee EGIM OAR Comments
1. Cypress EQR-Cypress 45% $4,789 Unit mix is one bed-
Point Point Vistas room of 720 square feet,
and both small 2 bedroom
5275 W. 15th & (970 sf) and large 2
Tropicana Sanchez bedroom of 1,100 square
Partners feet. Two to three
story, superior
amenities and appeal.
2. The Ritz The Ritz
Apartments,
LLC 34% $5,443 The complex consists of
44 1 bedroom (788 sf),
4250 S. 32 small 2 bedroom
Jones Blvd. 4250 S. 7.86 8.40% (1,073 s.f.) and 122
Jones LLC large 2 bedroom of
1,120 sq. ft. it is a
Class B project with 2
pools, rec room and some
fireplaces in units.
3. Sandpebble Legacy 44% $3,497 It is a two story wood
Village Sandpebble frame with studios and 3
bedroom units. The 72
4480 Sirious Sandpebble 6.28 9.0% 1 bedroom units are 600
Avenue Village Apt. square feet and the 2
Homes (LLC) lines of two bedroom
units are 800 and 850
square feet. It has one
pool and laundry rooms.
4. Woodcreek Royal
Palms
Apartments 47% $3,413 This is an older complex
of wood frame and wood
4485 Pennwood construction. The one
Pennwood Partners bedroom units are 674 sf
Avenue (LLC) 7.14 7.47% and the 2 two bedroom
lines are 807 and 1,080
square feet. it also
includes some 3 and 4
bedroom units. it has 2
pools, and washer/dryer
hook-ups.
5. Emerald Emerald
Park Parkm
Apartments Associates N.A. $3,324 This is an older complex
of wood frame
4545 DOIT Park construction. The one
Pennwood Associates bedroom units are 600
Avenue (LLC) N.A. 8.67% square feet, and there
are small and large 2
units of 800 and 850
square feet respectively
it has one pool, a
tennis court and
laundry.
Sale Price Average % Occ. Quality SP/SF Ratio NOI/Unit
------- -------- ------- ------- ----- ------ --------
Date Bldg # Units Year SP/ EGIM OAR
SqFt Unit
Survey Minimum $10,600,000 650 SF 85.0% N/A $47.48 34% $3,324
Survey Maximum $13,850,000 1,038 SF 8600.0% N/A $72.73 47% $5,443
Survey Average $11,906,000 857 SF 1793.2% N/A $58.84 42% $4,093
Survey Minimum 11/02 190,440 SF 196 units 1978 $38,333 6.28 73.33%
Survey Maximum 12/03 223,240 SF 300 units 1990 $65,330 7.50 9.00%
Survey Average 4/03 203,810 SF 244 units 1983 $50,601 6.97 8.17%
Subject Property N/A 774 SF 86.5% average N/A 54% $3,227
N/A 194,975 SF 252 1985 N/A N/A N/A
- --------------------------------------------------------------------------------
IMPROVED COMPRABLE SALE ADJUSTMENT GRID
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ECONOMIC ADJUSTMENTS
(CUMULATIVE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No. $/Unit Date Property Financing & Exp. After Market* Subtotal
Rights Conditions of Purchase Conditions
Conveyed Sale
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1 $65,330 Fee Simple/Mkt. Arms-Length None Similar $65,330
12/03 0.0% 0.0% 0.0% 0.0% 0.0%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2 $64,796 Fee Simple/Mkt. Arms-Length None Similar $38,857
5/03 0.0% 0.0% 0.0% 0.0% 0.0%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3 $38,857 Fee Simple/Mkt. Arms-Length None Similar $38,857
4/03 0.0% 0.0% 0.0% 0.0% 0.0%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4 $45,690 Fee Simple/Mkt. Arms-Length None Similar $45,690
7/03 0.0% 0.0% 0.0% 0.0% 0.0%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5 $38,333 Fee Simple/Mkt. Arms-Length None Similar $13,914
11/02 0.0% 0.0% 0.0% 0.0% 0.0%
- --------------------------------------------------------------------------------
PROPERTY CHARACTERISTIC ADJUSTMENTS (ADDITIVE)
No. Location Size Ave, Amenities Unit Utility Economics
Quality Size
Conditions
1 Superior Smaller Superior Superior Similar Similar Similar
-15.0% -10.0% -10.0% -5.0% 10.0% 0.0% 0.0%
2 Superior Smaller Superior Superior Similar Similar Similar
-5.0% -10.0% -5.0% -5.0% 0.0% 0.0% 0.0%
3 Similar Similar Similar Similar Similar Similar Similar
0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
4 Similar Smaller Superior Superior Similar Similar Similar
0.0% -5.0% -5.0% -5.0% 0.0% 0.0% 0.0%
5 Similar Similar Inferior Similar Similar Similar Similar
0.0% 0.0% 5.0% 0.0% 0.0% 0.0% 0.0%
No. Other Adj. Overall
$/Unit
1 Similar $39,198 Superior
0.0% -40.0%
2 Similar $48,597 Superior
0.0% -25.0%
3 Similar $38,857 Similar
0.0% 0.0%
4 Similar $38,836 Superior
0.0% -15.0%
5 Similar $40,250 Inferior
0.0% 5.0%
SUMMARY
Price Range Unadj. Adj. *Market Conditions Adjustment
$/Unit $/Unit
Low $38,333 $38,836 Compound annual change in market
conditions: 2.00%
High $65,330 $48,597 Date of Value (for adjustment
calculations): Apr-04
Average $50,601 $41,148
Net Adjustment
Low -40.0%
High 5.0%
Average -15.0%
Percentage Adjustment Method
Adjustment 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.
Property Rights Conveyed
All of the sales utilized in this analysis involved the transfer of the Fee
Simple interest. Since we are appraising the Fee Simple interest of the subject
property, no adjustments were required.
Financial Terms
To the best of our knowledge, all of the sales utilized in this analysis were
accomplished with cash and/or cash and market-oriented financing. Therefore, no
adjustment for financial terms is required for the com parables.
Conditions of Sale
Adjustments for conditions of sale usually reflect the motivations of the buyer
and the seller. In many situations the conditions of sale may significantly
affect transaction prices. However, all sales used in this analysis are
considered to be "arms-length" market transactions between both knowledgeable
buyers and sellers on the open market. Therefore, no adjustments for conditions
of sale are required for the comparables.
Market Conditions
The market has generally not measurably improved since the comparables sold. We
have not applied an adjustment.
Location
An adjustment for location is required when the locational characteristics of a
comparable property are different from those of the subject property. The
subject property is considered an average location, and it has average access
and visibility. We have made a negative adjustment to those comparables
considered superior in location versus the subject due to the nature of the
surrounding area and proximity to more shopping. However, a positive adjustment
was not made since none of the comparables were considered inferior.
Physical Traits
Various physical factors were analyzed including size, age, condition, quality,
amenities, unit mix, utility, etc. The adjustment grid separates several of
these items in order to better illustrate the nature of adjustment for each
category. When an item was determined to be inferior to the subject, a positive
adjustment was applied. When an item was determined to be superior to the
subject, a negative adjustment was applied. The areas of adjustment pertained to
age and observable condition and appeal. Where a size adjustment was made, it
addressed the average size of the units, or the larger sizes for the one and two
bedroom units as compared to the subject's units.
Economic Characteristics/Other
This adjustment is used to reflect differences in rent levels, operating expense
ratios, occupancy' levels, and other items that would have an economic impact on
the transaction. Since the adjustments made should impact some of these
considerations another adjustment may seem redundant. No adjustments were
applied.
Discussion of Comparable Sales
In our analysis of the market for comparable apartment properties, we have
compared the subject property to apartment properties in the subject's market
area. These are discussed below.
Comparable Sale No.1
Comparable 1 was superior to the subject property overall. Property rights
conveyed, financing and conditions of sale and expenses after purchase required
no adjustment. Adjustments were significant for this sale in areas of location,
unit size, condition and amenities, all deemed superior. The adjusted unit sale
price was $39,198.
Comparable Sale NO.2
At the time of sale, the second comparable was generally superior to the
subject. No adjustments for property rights conveyed, financing and conditions
of sale and expenses after purchase were necessary. Adjustments were again
significant for this sale in areas of location, unit size, condition and
amenities, all deemed superior. The adjusted unit sale price was $48,597.
Comparable Sale NO.3
Comp 3 was similar overall to the subject property. It was not necessary to
adjust property rights conveyed, financing and conditions of sale and expenses
after purchase. Adjustments were not made since it appeared similar in age,
quality, observable condition, sizes for one and two bedroom units and
amenities. The adjusted unit sale price remained unchanged at 8,857.
Comparable Sale NO.4
The fourth sale was superior to the subject. Property rights conveyed, financing
and conditions of sale and expenses after purchase required no adjustment.
Adjustments were applied to this sale in areas of unit size, condition and
amenities, all deemed superior. The adjusted unit sale price was $38,836.
Comparable Sale NO.5
Comp 5 compared to the subject property was inferior. No adjustments for
property rights conveyed, financing and conditions of sale and expenses after
purchase were necessary. The only adjustment pertained to inferior observable
condition and appeal. The adjusted unit sale price was $40,250.
Summary of Percentage Adjustment Method
After adjusting each comparable sale for differences with the subject property,
the adjusted sale price range is $38,836 to $48,597 per unit. However if we
exclude the high the four remaining sale, which required less adjustment, fall
within a more narrow range of $38,836 per unit to $40,250 per unit and average
$39,285 per unit. Sale Three did not require adjustments and sold for $38,857
per unit. This sale and the four in the lower range of adjusted sale are the
better guides to an estimated unit value for the subject. Therefore, we conclude
that the indicated value by the Sales Comparison Approach is:
ADJUSTMENT METHOD CONCLUSION
Rounded to
Nearest Per Per
$25 000 Unit SqFt
Indicated Stabilized Value per Unit $39,500
Number of Units x 252
Indicated Stabilized Value $9,954,000 $9,950,000 $39,484 $51.03
Less: Rent Loss 0
Less: Deferred Maintenance 80,000
Value Prior to Stabilization: $9 874,000 $9 875 000 $39 187 $50.65
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
$9,875,000 $ 50.78 $39.286
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, the direct capitalization analysis method is most appropriate to
value the subject property. Investors are looking at actual income and
performance and are generally using a discounted cash flow for short-term
apartment leased properties.
Historical Performance of the Subject Property
The following is a summary of historical revenue and expenses as well as our
forecast for the subject property.
REVENUE AND EXPENSE ANALYSIS
- --------------------------------------------------------------------------------
2001 2002
Total $/Unit $/SF Total $/Unit $/SF
Average Physical Occupancy (%) 11% 11%
Economic Occupancy (%) 94% 90%
POTENTIAL GROSS INCOME
Gross Potential
Rental Income $2,185,629 $8,673 $11.21 $2,184,544 $8,669 $11.20
Loss/Gain to Lease 0 N/A N/A 0 N/A N/A
Adjusted Rental $2,185,629 N/A N/A $2,184,544 N/A N/A
Less: Employee
Unit Discounts (20,817) (83) (0.11) (13,675) (54) (0.07)
Less: Model Units (16,860) (67) (0.09) (16,860) (67) (0.09)
Total Potential
Gross Revenue $2,147,952 $8,524 $11.02 $2,154,009 $8,548 $11.05
Vacancy & Credit Loss
Vacancy ($248,691) ($987) ($1.28) ($193,892) ($769) ($0.99)
Credits Loss (12,029) (48) (0.06) (30,979) (123) (0.16)
Rent Concessions (153,484) (609) (0.79) (209,423) (831) (1.07)
Other Adjustments (29,075) (115) (0.15) (1,685) (7) (0.01)
Total Vacancy & Credit ($443,279) (1,759) ($2.27) (435,979) (1,730) ($2.24)
Other Income
Other Income $43,338 $172 $0.22 $55,542 $220 $0.28
Vending $13,795 55 0.07 8,507 34 0.04
Total Other Income $57,133 $227 $0.29 $64,049 $254 $0.33
EFFECTIVE GROSS INCOME $1,761,806 $6,991 $9.04 $1,782,079 $7,072 $9.14
OPERATING EXPENSES
Management Fee $86,205 $342 $0.44 $86,123 $342 $0.44
Total Payroll &
Burden 212,618 844 1.09 238,216 945 1.22
General &
Administrative 37,015 147 0.19 36,555 145 0.19
Marketing &
Promotion 47,904 190 0.25 71,397 283 0.37
Maint. & Repairs &
Contract Svc. 141,622 562 0.73 108,236 430 0.56
Total Utilities 209,595 832 1.07 186,037 738 0.95
Services 69,057 274 0.35 56,291 223 0.29
Insurance 52,230 207 0.27 72,908 289 0.37
Real Estate Taxes 94,283 374 0.48 98,687 392 0.51
Replacement Reserves 0 0 0.00 0 0 0.00
Total Operating Expense $950,429 $3,772 $4.87 $954,450 $3,788 $4.90
NET OPERATING INCOME $811,377 $3,220 $4.16 $827,629 $3,284 $4.2
OTHER CAPITAL $0 $0 $0.00 $0 $0 $0.00
Expense Ratio 53.95% 53.56%
Management Fee % of EGI 4.89% 4.83%
EGI
YTD 2003 Annualized
Current Total $/Unit $/SF
Average Physical
Occupancy (%) 11%
Economic Occupancy (%) 72%
POTENTIAL GROSS INCOME
Gross Potential
Rental Income $2,196,420 $2,196,420 $8,716 $11.27
Loss/Gain to Lease 0 N/A N/A 0
Adjusted Rental $2,196,420 $2,196,420 N/A N/A
Less: Employee
Unit Discounts (37,620) (37,620) (149) (0.19)
Less: Model Units (16,860) (16,860) (67) (0.09)
Total Potential
Gross Revenue $2,141,940 $2,141,940 $8,500 $10.99
Vacancy & Credit Loss
Vacancy ($253,151) ($253,151) ($1,005) ($1.30)
Credits Loss (63,394) (63,394) (252) (0.33)
Rent Concessions (309,474) (309,474) (1,228) (1.59)
Other Adjustments 0 0 0 0.00
Total Vacancy & Credit ($626,019) (626,019) ($2,484) (3.21)
Other Income
Other Income $46,251 $46,251 $184 $0.24
Vending 11,090 $11,090 44 0.06
Total Other Income $57,341 $57,341
EFFECTIVE GROSS INCOME $1,573,262 $1,573,262 $6,243 $8.07
OPERATING EXPENSES
Management Fee $78,184 $78,184 $310 $0.40
Total Payroll &
Burden 216,972 216,972 861 1.11
General &
Administrative 81,181 81,181 322 0.42
Marketing &
Promotion 58,890 58,890 234 0.30
Maint. & Repairs &
Contract Svc. 79,258 79,258 315 0.41
Total Utilities 192,961 192,961 766 0.99
Services 60,533 60,533 240 0.31
Insurance 53,164 53,164 211 0.27
Real Estate Taxes 94,932 94,932 377 0.491
Replacement Reserves 0 0 0.00 0
Total Operating Expense $916,075 $916,075 $3,635 $4.70
NET OPERATING INCOME $657,187 $657,187 $2,608 $3.37
OTHER CAPITAL $0 $0 $0.00 $0
Expense Ratio 58.23%
Management Fee % of EGI 4.97%
EGI
2004 budget
Total $/Unit $/SF
Average Physical 11%
Occupancy (%)
Economic Occupancy (%) 78%
POTENTIAL GROSS INCOME
Gross Potential
Rental Income $2,196,420 $8,716 $11.27
Loss/Gain to Lease 0 0 0.00
Adjusted Rental $2,196,420 N/A N/A
Less: Employee
Unit Discounts (22,090) (88) (0.11)
Less: Model Units (16,860) (67) (0.09)
Total Potential
Gross Revenue $2,157,470 $8,561 $11.07
Vacancy & Credit Loss
Vacancy ($215,747) ($856) (1.11)
Credits Loss (64,724) (257) (0.33)
Rent Concessions (164,460) (653) (0.84)
Other Adjustments 0 0 0.00
Total Vacancy & Credit ($444,931) ($1,766) ($2.28)
Other Income
Other Income 78,000 $310 $0.40
Vending 11,400 45 0.06
Total Other Income $89,400 $355 $0.46
EFFECTIVE GROSS INCOME 1,801,939 $7,151 $9.24
OPERATING EXPENSES
Management Fee 96,556 $383 $0.50
Total Payroll &
Burden 206,954 821 1.06
General &
Administrative 32,319 128 0.17
Marketing &
Promotion 64,875 257 0.33
Maint. & Repairs &
Contract Svc. 68,975 274 0.35
Total Utilities 200,844 797 1.03
Services 76,621 304 0.39
Insurance 72,912 289 0.37
Real Estate Taxes 99,396 394 0.51
Replacement Reserves 0 0 0.00
Total Operating Expense $919,452 $3,649 $4.72
NET OPERATING INCOME $882,487 $3,502 $4.53
OTHER CAPITAL $1 $0 $0.00
Expense Ratio 51.03%
Management Fee % of EGI 5.36%
EGI
Year 1 C&W Forecast
Adj Total $/Unit $/SF
Average Physical 90%
Occupancy (%)
Economic Occupancy (%) 90%
POTENTIAL GROSS INCOME
Gross Potential
Rental Income $2,196,420 $8,716 $11.27
Loss/Gain to Lease 0.00% 0 0 0.00
Adjusted Rental $2,196,420 $8,716 $11.27
Less: Employee
Unit Discounts (16,860) (67) (0.09)
Less: Model Units (16,860) (67) (0.09)
Total Rental Revenue $2,162,700 $8,582 $11.09
Vacancy & Credit Loss
Vacancy 8.00% ($173,016) ($687) ($0.89)
Credits Loss 3.00% (64,881) (257) (0.33)
Rent Concessions (200,000) (794) (1.03)
Other Adjustments 0 0 0.00
Total Vacancy & Credit ($437,897) ($1,738) ($2.25)
Other Income
Other Income $89,000 $0 $0.46
Vending 10,500 42 0.05
Total Other Income $99,500 $395 $0.51
EFFECTIVE GROSS INCOME 1,824,303 $7,239 $9.36
OPERATING EXPENSES
Management Fee 4.50% $82,094 $326 $0.42
Total Payroll &
Burden 210,000 $833 1.086
General &
Administrative 40,000 $159 0.21
Marketing &
Promotion 60,000 $238 0.31
Maint. & Repairs &
Contract Svc. 75,000 $298 0.38
Total Utilities 200,000 $794 1.03
Services 70,000 $278 0.36
Insurance 70,000 $278 0.36
Real Estate Taxes 108,000 $429 0.55
Replacement Reserves 50,400 $200 0.26
Total Operating Expense $965,494 $3,831 $4.95
NET OPERATING INCOME $858,809 $3,408 $4.40
OTHER CAPITAL $44,000 $175 $0.23
Expense Ratio 52.92%
Management Fee % of EGI 4.50%
EGI
<FN>
- --------------------------------------------------------
*Rents may be adjusted for lagging market conditions.
- --------------------------------------------------------
</FN>
Rental Comps
One Bedroom, one Bath 655 (CF, Balc/patio) Square Fee
Comp.
No Year BR/ Quoted Rent Concessions Effective Rent
Built BA SQ /Unit PSF Description % /Unit PSF /Unit PSF
1 1985 1-1 700 $610 $0.871 one mo. free 7.7% $47 $0.067 $563 $0.804
2 1990 1-1 750 $570 $0.760 one free mo. 7.7% $44 $0.058 $526 $0.702
3 1992 1-1 726 $600 $0.826 one free mo. 7.7% $46 $0.064 $554 $0.763
4 1992 1-1 672 $615 $0.916 $599 move in 7.7% $47 $0.070 $568 $0.845
5 1986 1- 625 $575 $0.920 none 0.0% $0 $0.000 $575 $0.920
6 1983 1-1 610 $561 $0.920 $99 move in 7.4% $42 $0.068 $519 $0.852
range Low 610 $561 $0.760 $0 $0.000 $519 $0.702
High 750 $615 $0.920 $47 $0.070 $575 $0.920
Average 681 $589 $0.869 $38 $0.055 $551 $0.814
SUBJECT
QUOTED 625 $655 $1.048 one mo. free 7.7% $50 $0.080 $605 $0.968
SUBJECT
CONCLUDED 625 $655 $1.048 one mo. free 7.7% $50 $0.080 $605 $0.968
Two Bedroom, One Bath 840 (CF, Balc/patio) Square Fee
Comp.
No Year BR/ Quoted Rent Concessions Effective Rent
Built BA SQ /Unit PSF Description % /Unit PSF /Unit PSF
1 1985 2-1 816 $675 $0.827 one mo. free 7.7% $52 $0.064 $623 $0.764
2 1990 2-1 890 $635 $0.713 one free mo. 7.7% $49 $0.055 $586 $0.659
5 1986 2-1 765 $620 $0.810 none 0.0% $ 0 $0.000 $620 $0.810
6 1983 2-1 810 $691 $0.853 $99 move in 7.4% $51 $0.063 $640 $0.790
range Low 765 $620 $0.713 $0 $0.000 $586 $0.659
High 890 $691 $0.853 $52 $0.064 $640 $0.810
Average 820 $655 $0.801 $38 $0.045 $617 $0.756
SUBJECT
QUOTED 840 $750 $0.893 1 mo. free 7.7% $58 $0.069 $692 $0.824
on 13 mo lse
SUBJECT
CONCLUDED 840 $750 $0.893 1 mo. free 7.7% $58 $0.069 $692 $0.824
on 13 mo lse
Two Bedroom, Two Bath, 900 (CF, Balc/patio)Square Feet
Comp.
No Year BR/ Quoted Rent Concessions Effective Rent
Built BA SQ /Unit PSF Description % /Unit PSF /Unit PSF
1 1985 2-1 978 $720 $0.736 one mo. free 7.7% $55 $0.057 $665 $0.680
2 1990 2-1 900 $680 $0.756 one mo. free 7.7% $52 $0.058 $628 $0.697
3 1992 2-1 957 $730 $0.763 one mo. free 7.7% $56 $0.059 $674 $0.704
4 1992 2-1 923 $735 $0.796 move in spec N.A. N.A. N.A. N.A. N.A.
5 1986 2-1 900 $675 $0.750 none 0.0% $0 $0.000 $675 $0.750
6 1983 2-1 850 $713 $0.839 one mo. free 7.7% $55 $0.065 $658 $0.774
range Low 850 $675 $0.736 $0 $0.000 $628 $0.680
High 978 $735 $0.836 $56 $0.065 $675 $0.774
Average 918 $706 $0.773 $44 $0.048 $660 $0.721
SUBJECT
QUOTED 900 $755 $0.839 1 mo. free 7.7% $58 $0.065 $697 $0.774
on 13 mo lse
SUBJECT
CONCLUDED 900 $755 $0.839 one mo. free 7.7% $58 $0.064 $697 $0.774
Occupancy levels among the comparables vary from 86.00 percent to 92 percent.
with an average of about 91 percent. The preceding table illustrates a
comparison of the current quoted rents for each type of subject unit relative to
similar quoted rents for comparable apartment units contained within the
competing complexes surveyed. All of the comparables are leased on a plus
electric and water basis, wherein the tenants are responsible for their own
consumption of electricity and water. The subject is also individually metered
and tenants pay their own electricity and water. This is typical in the market.
Of the rental comparables chosen, all are one- and two-bedroom units. The
majority are one bedroom followed by two bedroom and two bath. Overall there are
2055 units accounted for, including the subject. The average price per month for
one bedroom units is $589 per unit, or $0.87 per square foot, while the
subject's rate is $655 per month and $1.05 per square foot. At $1.05 per square
foot per month, the average quoted rental rate for the subject is higher than
indicated by the comparables. This is expected given the smaller size of the
subject's unit. The subject's two bedroom units are also higher than the
comparable rents. However, after concessions, the effective rents are closer to
the competitive set.
Four of the six comparables currently offer some a rental concession of one free
month's rent. Terra Cota is offering a move-in special of a lower rent and no
application fee. Vista de Valle is not offering a concession, currently, but has
in the past. It too was one free month based on a 13 month lease. Evidence for
the market has shown concessions are not on the decline. Based on our
conversations with leasing agents, most property management companies are
planning on using concessions for at least the next several months and through
at least the summer. Market wide long-term concessions are not forecasted
because they tend to occur on a cyclical basis during times of increased
vacancy. The subject is currently offering TWO free months for a 13 month lease,
free for the first month and a 13 month free IF the tenant remains current and
pays rent on time EVERY month. Otherwise the second free month is not offered.
Since the subject appears to have a collection problem, it is unlikely the
second free month will be realized by many of the tenants.
Analysis of the comparably sized individual units on a per-square-foot basis
indicates that the subject's quoted rates are slightly towards the upper-end of
the market standards. This is largely due to the relative age of the subject and
the smaller than average size of the subject's units. The subject's quoted rates
are well supported by not only the market quoted levels, but also by the current
in place contract rents.
Overall, based on a unit by unit comparison of the comparables to the subject,
it appears that the subject's quoted rents are in line with today's market rent
levels.
[GRAPHIC OMITTED]
RENT COMPARABLE MAP
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 MIX
No. Unit NRA Units Actual
No. Plan BR BA Features Units (SF) (SF) Leased Occupancy
1 one bedroom 1 1 CF, BALC/PATIO 107 625 66,875 94 87.9%
2 small 2 bdrm. 2 1 CF, BALC/PATIO 40 840 33,600 35 87.5%
3 large 2 bdrm. 2 2 CF, BALC/PATIO 105 900 94,500 89 84.8%
TOTAL AVERAGE 252 774 194,975 218 86.5%
POTENTIAL RENTAL RATES
Potential Potential
Average Quoted C&W YR 1. Monthly Annual
Contract $/SqFt $/Month $/SqFt Forecast $/SqFt Rent Rent
$650 $1.04 $655 $1.05 $655 $1.05 $70,085 $841,020
735 0.88 750 0.89 750 0.89 30,000 360,000
785 0.87 790 0.88 790 0.88 82,950 995,400
<FN>
KEY TO FEATURES
FP- FIREPLACE WDC-W/D CONNECTION
TH-TOWNHOUSE/STUDIO WD-WASHER/DRYER
CFM-CEILING FAN MASTER GT-GARDEN TUB
CFL-CEILING FAN LIVING M-MICROWAVE
</FN>
At $ 726 per unit per month, the quoted average rental rate for the subject
falls slightly above comparable property averages. Naturally, comparable
statistics are skewed one way or another by the unit mix. Developments with
larger units tend to rent at a lower average rate per square foot, while
developments with a majority of smaller units tend to rent at a higher average
rate per square foot. However, in the foregoing paragraphs we have analyzed the
comparables and compared them to the subject by unit type.
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. These rates are reflected in the previous table as "market' rates.
Estimate of Potential Unit Rental Income
The potential rental income for the subject property at our projected market
rent for all unit types is $2,196,420 on an annualized basis. These figures
reflect the subject as if fully occupied and collecting market rent for every
unit. Further, the current in place contract rent for the subject is $ .93 per
square foot, or $2,176,500 (as applied to all units, not just the occupied
units). Given that our estimate is for the upcoming 12 months, this adds
moderate support to our potential rental income forecast based upon our estimate
of market rent. We expect the market to further recover at inflationary levels.
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 two units for the manager, and lead maintenance engineer. The combined
monthly rent abatement for 1 one bedroom and one 2 bedroom unit totals $16,860,
which we have deducted from base rental revenue.
Model Units
Competitive developments in the area typically maintain model units. The
development presently retains two apartment units as model, a one bedroom and a
small two bedroom. To be consistent with the market, we have deducted $16,860
annual revenue from base rental revenue.
Vacancy and Collection Loss
Both the investor and the appraiser are primarily interested in the annual
revenue an income property is likely to produce over a specified period of time.
rather than the income it could produce if it were always 100 percent occupied
and all tenants were paying their rent in full and on time. A normally prudent
practice is to expect some income loss as tenants vacate. fail to pay rent, or
pay their rent late. Model and employee units or other rent loss is addressed
separately.
The subject. as of the most current rent roll provided, was 86.51 percent leased
and occupied. This is lower than current average occupancy levels for the market
area overall but similar to several of the competitive properties we surveyed.
Rent comparable occupancies range from 86.00 percent to 94 percent. In terms of
the subject we note that total vacancy and collection loss during 2001 was 11.9
percent. In 2002 it was 21.36 percent and during 2001 it increased to 14.4
percent. The owner has budgeted rent loss due to vacancy and credit loss of 9.5
percent for 2004. less than actual through three months.
In consideration of the above, we have forecasted a stabilized vacancy loss of
8.00 percent and a collection loss of 3.00 percent (11.00 percent total vacancy
and collection loss). These conclusions are reasonable based on our review of
the available budgetary data from similar quality complexes in the local area,
long-term average occupancy levels among the comparables, and the indications
derived from buyers in the market.
Rent Concessions
Rental incentives. usually in the form of free rent up front or prorated over
the lease term, are common in some sub-markets, particularly those with
significant new construction activity. Due to the transient nature of the market
and the construction activity levels drawing some tenants to newer projects,
concessions in the subject's sub-market are common under current market
conditions. The property manager reported that concessions are offered and now
consist of one free month on a 13 month lease with the added bonus of the last
month free is rent is paid on time for the preceding 11 months. Given the
apparent level of delinquencies, we do not feel many will earn the bonus month.
However, we have deducted the equivalent of one free month for a 13 month lease
which is 7.7 percent from apartment rental revenue on occupied units plus
potential vacant unit income to reflect market leasing parameters.
Other Income
In addition to rental income, we have combined several miscellaneous sources of
income into a category called Other Income. This is a non-rental income
category, which typically includes security deposit forfeitures. termination
fees, miscellaneous and vending machine revenue, bad check charges, and late
charges. Other income was reported at 55,542 in 2001$64,049 in 2002, $57,341 in
2003 and budgeted for $89.400 for 2004. The latter seems high but now includes a
non-refundable cleaning fee of $150 per rental. We relied on the actual income
for the prior three years but added the new charge being initiated and have
estimated $89,000.
Effective Gross Income
Considering all of the foregoing income and vacancy items, we have estimated an
effective gross income of $1,824,303, which is within one percent of 2001,
almost identical to 2002, higher than 2003 and within1.1 percent of that set
forth in the owners 2004 budget. This adds credibility and support to our
independent forecasts.
Opinion of Expenses
We have developed an opinion of the property's annual operating expenses after
reviewing its historical performance and reviewing the operating statements of
similar buildings. We analyzed each item of expense and developed an opinion as
to what a typical informed investor would consider normal.
Expense Conclusion
We analyzed each expense item and developed an opinion of a level of expense we
believe a typical investor in a property like this would consider reasonable. We
made our projections on an annual basis with Year 1 beginning May 1,2004.
Our estimate of total expenses including capital reserves for the subject
property total $965,494 or $3,831 per unit, or $4.95 per square foot of rentable
area. These rates equate to an operating expense ratio of 52.92 percent.
The subject's actual expenses in 2001 and 2002 were $4.87 and $4.90 per square
foot or $3,772 and $3,788 per unit, respectively. In addition, the 2003 expenses
are $4.70 per square foot or $3,635 per unit.
Given the data suggested by the historical performance, our knowledge of
operating data of similar class apartment communities, as well as current trends
in the property tax expense area, our expense projections are reasonable.
All of the comparable sales included unit replacements as a part of the annual
operating and fixed expenses. As is the case with these sales, more and more
investors include total interior and exterior replacements in their estimate of
net operating income, which results in a capitalization rate that is a truer
rate of return. Additional variations in capitalization rates are a function of
property specifics, including variances in the age, condition, and quality of
each comparable.
OPERATING EXPENSE CONCLUSION
C&W Per Per
Expense Forecast Unit SqFt Analysis
Management Fee $80,226 $318 $0.41 Management fees for the
subject ranged from 4.83
percent in 2002 to 4.97
percent in 2003 and are
budgeted for 2004 at 53.36
percent of effective gross
income. The market is 4.0
to 5.0 percent. We
estimated 4.5 percent
Total Payroll Burden $210,000 $833 $1.08 The C&W Forecast is
$210,000. It covers
maintenance and office
personnel, but not the
apartments discussed
previously. Historically
the cost has been between
$21,618 in 2001 and
$238,216 in 2002. The 2004
budget calls for $206,954.
General Administration $40,000 $159 $0.21 This cost can vary. In
2002 it was $36,565, but in
2003 it was $81,181. The
2004 budget is $32,319.
We have projected $40,000.
Marketing & Promotion $60,000 $238 $0.31 This expense has also
varied from a low of
$47,904 in 2001 to a high
of $71,397 in 2002. The
2004 budget calls for
$64,875. We feel the
market is competitive and
the cost should reflect a
number close to budget.
We estimated $60,000.
Maint. & Repairs
Contract Svc. $75,000 $298 $0.38 Historically the cost was
from a low of $79,258 in
2003 to a high of $141,622
in 2001. We have estimated
a cost of $75,000.
Total Utilities $200,000 $794 $1.03 Our estimate is based on
the historical costs which
ranged from a low of
$186,037 in 2002 to a high
of $209,595 in 2001. The
budget is $200,844 and we
estimated $200,000.
Services $70,000 $278 $0.36 The C&W Forecast is based
on various service
contracts to outside firms.
The historical trend was
downward between 2001 and
2003 but the budget
increases the total. We
looked to the historical
trend and estimated
$70,000.
Insurance $70,000 $278 $0.36 Insurance costs showed a
significant increase after
9/11 and a jump is
reflected in the subject's
historical statements. We
based our estimated on the
budget at $70,000.
Real Estate Taxes $108,000 $429 $0.55 A full description was
included in a preceding
section of the report. The
projected cost is rounded
to $108,000.
Replacement Reserves $50,400 $200 $0.26 We have selected a reserve
of $200 per unit based on
reserves at other complexes
and market averages.
<Page>
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.
STABILIZED YEAR 1 PRO FORMA
POTENTIAL GROSS INCOME $/Year $/Unit $/SF
Gross Potential Rental Income $2,196,420 $8,716 $11.27
Loss/Gain to Lease 0 0 0.00
Adjusted Rental Income $2.196,420 $8,716 $11.27
Less: Employee Unit Discounts -$1,405/Mo. (16,860) (67) (0.09)
Less: Model Units -$1,405/Mo. (16,860) (67) (0.09)
Total Rental Revenue $2,162,700 $8,582 $11.09
Vacancy & Credit Loss
Vacancy 5.00% ($173,016) ($687) ($0.89)
Credit Loss 2.00% (64,881) (257) (0.33)
Rent Concessions (200,000) (794) (1.03)
Other Adjustments 0 0 0.00
Total Vacancy & Credit ($431,897) ($1,738) ($2.25)
Other Income
Other Income $89,000 $353 $0.46
Vending 10,500 42 0.05
Total Other Income $99,500 $395 $0.51
EFFECTIVE GROSS INCOME $1,824,303 $7,239 $9.36
OPERATING EXPENSES
Management Fee 4.50% $82,094 $326 $0,42
Total Payroll & Burden 210,000 833 1.08
General & Administrative 40,000 159 0.21
Marketing & Promotion 60,000 238 0.31
Maint. & Repairs & Contract Svc. 75,000 298 0.38
Total Utilities 200,000 794 1.03
Services 10,000 218 0.36
Insurance 70,000 278 0.36
Real Estate Taxes 108,000 429 0.55
Replacement Reserves 50,400 200 0.26
Total Operating Expenses $965,494 $3,831 $4.95
NET OPERATING INCOME $858,809 $3,408 $4.40
Investor Surveys
Prior to discussing the capitalization of income into value, we have summarized
the most currently available investor survey results as follows:
GARDEN STYLE APARTMENTS
INVESTOR CRITERIA
C&W C&W
Korpacz Class A Class B
National Leased (1) Leased (1)
2004Q1(Vol 16 No2) Spring 2003 Spring 2003
------------------- ------------ -------------
Range Average Range Average Range Average
Projected Holding Low 5 7 5 8.2 4 8.17
Period (Years) High 10 9 11 8.2 10 8.17
Rent Growth Low -2.0% 1.5% 1.5% 2.4% 1.5% 2.5%
High 4.0% 2.8% 3.0% 2.4% 30% 2.5%
Expense Growth Low 2.0% 2.8% 2.5% 2.9% 2.5% 2.9%
High 3.5% 3.1% 3.0% 2.9% 3.0% 2.9%
Total Reserves low
(Per Unit) Low $150
High $400
Sale Costs Low 1.0% 1.8%
High 3.0% 2.3%
Going-In
Capitalization Rate Low 5.5 7.4% 7.0% 7.9% 8.0% 8.7%
High 9.3% 8.4% 9.0% 7.9% 9.3% 8.7%
Terminal
Capitalization Rate Low 6.0% 7.5% 7.5% 8.5% 8.0% 9.2%
High 9.5% 8.4% 9.3% 8.5% 10.0% 9.2%
Internal Rate
of Return Low 8.O% 9.0% 9.0% 10.7% 10.0% 11.8%
High 12.5% 10.8% 14.0% 10.7% 17.0% 11.8%
Marketing Time
(Months) Low 2 5
High 9 6
<FN>
Sources:
(1) Cushman & Wakefield, Valuation Advisory Services, National Investor Survey
Spring 2003
Note:
(1) The averages indicated reflect the average low and high investor response.
</FN>
This will be referenced in the balance of the Income Capitalization Approach in
this report as it represents a portrayal of current investor requirements.
Going-In Capitalization Rate
The overall capitalization rates derived from the improved property sales are as
follows.
CAPITALIZATION RATE SUMMARY
Date Year Capitalization
No. Property Name of Sale Built Occupancy Rate
1 Cypress Point Dec-03 1989 92.00% 7.33%
2 The Ritz May-03 1990 98.00% 8.40%
3 Sandpebble Village Apr-03 1980 91.00% 9.00%
4 Woodcreek Dec-02 1978 85.00% 7.47%
5 Emerald Park Apartments Nov-o2 1978 8600.00% 8.67%
Low 7.33%
High 9.00%
Average 8.17%
Sale Three required no adjustment in the preceding Sales Comparison Approach,
which lead one to conclude its overall rate is the most appropriate. However,
trends in overall rate shave been on a decline and we cannot apply an overall
rate to the subject based on one of the five sales. The rest actually fall in a
lower range of 7.33 percent to 8.67 percent with an average of 7.97 percent.
In addition, we have considered the foregoing Investor Surveys published by
Korpacz and Cushman & Wakefield, Inc. for competitive apartment properties. Our
observations and analysis suggest that a going-in capitalization rate of 8.00
percent represents reasonable investor criteria under current market conditions.
Extraordinary Capital Costs
While at the subject we observed some of the exterior walls, which are stucco
over wood, and some balcony and patio walls were in need of paint. We were also
told the roof on several buildings are leaking and there is ceiling damage to
some of the units. In our opinion these are areas that will be noted by an
investor and should be addressed. We were not provided with estimates for the
work needed to correct these items. Therefore, we have estimated a cost of
$2,000 per roof and $1,500 per building for painting. The total per building is
$3,500 or $77,000 for the complex. However, we were told by the owner some of
the roof repairs have been completed. This can reduce the amount necessary for
capital expenses. By the owners estimate the cost would be about $44,000 for the
items noted. It is rounded to $45,000.
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 8.00 percent overall capitalization
rate. Our conclusion via the Direct Capitalization Method is as follows:
DIRECT CAPITALIZATION METHOD
Net Operating Income $858,809
Rounded to
Sensitivity Analysis Nearest
(0.25'10 OAR Spread) Value $25.000 $/Unit $/SqFt
Based on Low-Range of 7.75% $11,081,406 $11,075,000 $43,974 $56.84
Based on Most Probable Range of 8.00% $10,735,113 $10,725,000 $42,600 $55.06
Based on High-Range of 8.25% $10,409,806 $10,400,000 $41,309 $53.39
Reconciled Stabilized Value $10,735,113 $10,725,000 $42,600 $55.06
Less: Rent Loss $0 $0 $0.00
Less: Deferred Maintenance 44,0OO $175 $0.23
Indicated As Is Value $10,691,113 $10,700,000 $42,425 $54.83
RECONCILIATION AND FINAL VALUE OPINION
Valuation Methodology Review and Reconciliation
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.
The approaches indicated the following:
Cost Approach: Not included
Sales Comparison Approach: $9,875,000
Income Capitalization Approach: $10,700,000
We have given most weight to the Income Capitalization Approach because this
mirrors the methodology used by purchasers of this property type. However, we
feel an investor will also investigate other market transactions. As a result we
feel the Sales Comparison Approach lends good support to the conclusion in the
Income Approach.
Based on our Complete Appraisal as defined by the Uniform Standards of
Professional Appraisal Practice, we have developed an opinion that the "as-is"
market value of the Fee Simple estate of the referenced property, subject to the
assumptions, limiting conditions, certifications, and definitions, on April 13,
2004 was:
TEN MILLION SEVEN HUNDRED THOUSAND DOLLARS
$10,700,000
The implied "going in" capitalization rate is 8.00 percent, the overall
capitalization rates derived from the improved property sales are between 7.33
percent and 9.00 percent, averaging 8.17 percent. The implied going-in
capitalization rate is in line with going-in capitalization rates indicated by
the sales and the most recent Investor Surveys.
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&W's prior written consent. Reference to the Appraisal Institute
or to the MAI 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 Appraisers
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 of Arizona 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.
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." (USPAP 2001
Edition, ASS of The Appraisal Foundation, 1/1/2001. page 2).
This appraisal employs no extraordinary assumptions.
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 of The 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 Standards of Professional
Appraisal Practice of the Appraisal Foundation and the Code of Professional
Ethics and the Standards of Professional Appraisal Practice of the
Appraisal Institute.
8. Robert J. Ryan, MAI made a personal inspection of the property that is the
subject of this report.
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
Robert J. Ryan, MAI is current.
/S/ ROBERT J. RYAN
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Robert J. Ryan, MAI
Director
Nevada Certified General Appraiser
License No. 00789
bob_ryan@cushwake.com
602-229-5904 Office Direct
602-229-5996 Fax